UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934.
For the quarterly period ended June 30, 2007
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, or a non-acelerated filer. See definition of "acclereated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one):
Large Accelerated filer[X] Accelerated filer[ ] Non-accelerated filer[ ]
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 July 31, 2007, the number of shares outstanding of the Registrant's
common stock, $0.01 par value, was 37,672,997.
SILGAN HOLDINGS INC.
TABLE OF CONTENTS
Page No.
--------
Part I. Financial Information 3
Item 1. Financial Statements 3
Condensed Consolidated Balance Sheets 3
at June 30, 2007 and 2006 and December 31, 2006
Condensed Consolidated Statements of Income 4
for the three months ended June 30, 2007 and 2006
Condensed Consolidated Statements of Income 5
for the six months ended June 30, 2007 and 2006
Condensed Consolidated Statements of Cash Flows 6
for the six months ended June 30, 2007 and 2006
Condensed Consolidated Statements of Stockholders' 7
Equity for the six months ended June 30, 2007 and 2006
Notes to Condensed Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of Financial 19
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 26
Market Risk
Item 4. Controls and Procedures 26
Part II. Other Information 26
Item 4. Submission of Matters to a Vote of Security Holders 26
Item 6. Exhibits 27
Signatures 28
Exhibit Index 29
-2-
Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
June 30, June 30, Dec. 31,
2007 2006 2006
---- ---- ----
(unaudited) (unaudited)
Assets
Current assets
Cash and cash equivalents $ 25,272 $ 23,900 $ 16,737
Trade accounts receivable, net 320,341 301,718 232,429
Inventories 548,289 494,799 426,591
Prepaid expenses and other current assets 32,827 28,705 41,995
---------- ---------- ----------
Total current assets 926,729 849,122 717,752
Property, plant and equipment, net 913,271 865,641 894,647
Goodwill 298,486 236,660 304,393
Other intangible assets, net 63,011 98,398 47,833
Other assets, net 57,519 41,000 43,754
---------- ---------- ----------
$2,259,016 $2,090,821 $2,008,379
========== ========== ==========
Liabilities and Stockholders' Equity
Current liabilities
Revolving loans and current
portion of long-term debt $ 261,688 $ 217,169 $ 26,417
Trade accounts payable 208,219 219,448 299,938
Accrued payroll and related costs 70,349 67,434 72,205
Accrued liabilities 62,536 39,204 34,404
---------- ---------- ----------
Total current liabilities 602,792 543,255 432,964
Long-term debt 942,605 953,692 929,221
Other liabilities 290,024 294,634 279,654
Stockholders' equity
Common stock 430 427 429
Paid-in capital 149,586 141,245 146,332
Retained earnings 336,733 234,009 295,433
Accumulated other comprehensive loss (3,109) (16,306) (15,564)
Treasury stock (60,045) (60,135) (60,090)
---------- ---------- ----------
Total stockholders' equity 423,595 299,240 366,540
---------- ---------- ----------
$2,259,016 $2,090,821 $2,008,379
========== ========== ==========
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended June 30, 2007 and 2006
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2007 2006
---- ----
Net sales $683,526 $597,212
Cost of goods sold 584,282 521,914
-------- --------
Gross profit 99,244 75,298
Selling, general and administrative expenses 38,475 29,230
Rationalization charges 2,305 6,197
-------- --------
Income from operations 58,464 39,871
Interest and other debt expense 16,909 14,199
-------- --------
Income before income taxes 41,555 25,672
Provision for income taxes 14,810 9,305
-------- --------
Net income $ 26,745 $ 16,367
======== ========
Earnings per share:
Basic net income per share $0.71 $0.44
===== =====
Diluted net income per share $0.70 $0.43
===== =====
Dividends per share: $0.16 $0.12
===== =====
Weighted average number of shares:
Basic 37,654 37,354
Effect of dilutive securities 508 524
------ ------
Diluted 38,162 37,878
====== ======
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the six months ended June 30, 2007 and 2006
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
2007 2006
---- ----
Net sales $1,334,351 $1,167,063
Cost of goods sold 1,135,040 1,020,567
---------- ----------
Gross profit 199,311 146,496
Selling, general and administrative expenses 75,375 58,679
Rationalization charges 3,377 8,350
---------- ----------
Income from operations 120,559 79,467
Interest and other debt expense 33,008 25,449
---------- ----------
Income before income taxes 87,551 54,018
Provision for income taxes 32,298 20,473
---------- ----------
Net income $ 55,253 $ 33,545
========== ==========
Earnings per share:
Basic net income per share $1.47 $0.90
===== =====
Diluted net income per share $1.45 $0.89
===== =====
Dividends per share: $0.32 $0.24
===== =====
Weighted average number of shares:
Basic 37,634 37,313
Effect of dilutive securities 500 540
------ ------
Diluted 38,134 37,853
====== ======
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30, 2007 and 2006
(Dollars in thousands)
(Unaudited)
2007 2006
---- ----
Cash flows provided by (used in) operating activities
Net income $ 55,253 $ 33,545
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation and amortization 66,783 62,087
Rationalization charges 3,377 8,350
Other changes that provided (used) cash, net
of effects from acquisitions:
Trade accounts receivable, net (82,569) (99,262)
Inventories (117,290) (116,860)
Trade accounts payable 872 43,465
Accrued liabilities 19,522 23,083
Other, net 15,883 (2,897)
--------- ---------
Net cash used in operating activities (38,169) (48,489)
--------- ---------
Cash flows provided by (used in) investing activities
Purchases of businesses, net of cash acquired (7,846) (257,845)
Capital expenditures (75,420) (58,728)
Proceeds from asset sales 2,546 389
--------- ---------
Net cash used in investing activities (80,720) (316,184)
--------- ---------
Cash flows provided by (used in) financing activities
Borrowings under revolving loans 500,623 569,773
Repayments under revolving loans (266,632) (353,450)
Proceeds from stock option exercises 789 1,533
Changes in outstanding checks - principally vendors (96,078) (96,989)
Proceeds from issuance of long-term debt -- 257,600
Dividends paid on common stock (12,138) (8,995)
Excess tax benefit from stock-based compensation 860 918
Debt issuance costs -- (2,278)
--------- ---------
Net cash provided by financing activities 127,424 368,112
--------- ---------
Cash and cash equivalents
Net increase 8,535 3,439
Balance at beginning of year 16,737 20,461
--------- ---------
Balance at end of period $ 25,272 $ 23,900
========= =========
Interest paid, net $ 26,953 $ 24,945
Income taxes paid, net 12,757 4,110
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the six months ended June 30, 2007 and 2006
(Dollars and shares in thousands)
(Unaudited)
Common Stock Accumulated
------------ Paid- Other Unamortized Total
Shares Par in Retained Comprehensive Stock Treasury Stockholders'
Outstanding Value Capital Earnings (Loss)Income Compensation Stock Equity
----------- ----- ------- -------- ------------- ------------ --------- ------------
Balance at December 31, 2005 37,266 $426 $139,475 $209,459 $(13,888) $(1,893) $(60,229) $273,350
Comprehensive income:
Net income -- -- -- 33,545 -- -- -- 33,545
Change in fair value of derivatives,
net of tax benefit of $595 -- -- -- -- (833) -- -- (833)
Foreign currency translation, net
of tax provision of $1,850 -- -- -- -- (1,585) -- -- (1,585)
--------
Comprehensive income 31,127
--------
Dividends declared on common stock -- -- -- (8,995) -- -- -- (8,995)
Reversal of unamortized stock
compensation -- -- (1,893) -- -- 1,893 -- --
Stock compensation expense -- -- 952 -- -- -- -- 952
Stock option exercises, including
tax benefit of $1,281 124 1 2,813 -- -- -- -- 2,814
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $35 9 -- (102) -- -- -- 94 (8)
------ ---- -------- -------- -------- ------- -------- --------
Balance at June 30, 2006 37,399 $427 $141,245 $234,009 $(16,306) $ -- $(60,135) $299,240
====== ==== ======== ======== ======== ======= ======== ========
Balance at December 31, 2006 37,588 $429 $146,332 $295,433 $(15,564) $ -- $(60,090) $366,540
Comprehensive income:
Net income -- -- -- 55,253 -- -- -- 55,253
Amortization of prior service
cost and actuarial losses, net
of tax provision of $373 -- -- -- -- 609 -- -- 609
Change in fair value of derivatives,
net of tax provision of $2,956 -- -- -- -- 4,920 -- -- 4,920
Foreign currency translation, net of
tax benefit of $2,569 -- -- -- -- 6,926 -- -- 6,926
--------
Comprehensive income 67,708
--------
Adjustment to initially apply
FIN 48 -- -- -- (1,815) -- -- -- (1,815)
Dividends declared on common stock -- -- -- (12,138) -- -- -- (12,138)
Stock compensation expense -- -- 1,618 -- -- -- -- 1,618
Stock option exercises, including
tax benefit of $1,033 64 1 1,821 -- -- -- -- 1,822
Net issuance of treasury stock for
vested restricted stock units,
including tax benefit of $104 17 -- (185) -- -- -- 45 (140)
------ ---- -------- -------- -------- ------- -------- --------
Balance at June 30, 2007 37,669 $430 $149,586 $336,733 $ (3,109) $ -- $(60,045) $423,595
====== ==== ======== ======== ======== ======= ======== ========
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated
financial statements of Silgan Holdings Inc., or Holdings, have been prepared in
accordance with 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, 2006 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, 2006.
Recently Adopted Accounting Pronouncement. In June 2006, the Financial
Accounting Standards Board, or FASB, issued FASB Interpretation No., or FIN, 48,
"Accounting for Uncertainty in Income Taxes - an interpretation of FASB
Statement No. 109." FIN 48 clarifies the accounting for uncertainty in income
taxes by prescribing a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. The interpretation also provides guidance
on derecognition, classification, interest and penalties, accounting in interim
periods and disclosure. We adopted FIN 48 on January 1, 2007. As a result, we
recognized a reduction to opening retained earnings at January 1, 2007 of $1.8
million to recognize additional long-term tax liabilities. See Note 8 for
further information.
Recent Accounting Pronouncement. In September 2006, the 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. SFAS No. 157 is effective for us on January 1,
2008. We are currently evaluating the impact SFAS No. 157 will have on our
consolidated financial statements.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 2. Acquisitions
White Cap
---------
During 2006, we acquired the White Cap closures operations in Europe, Turkey,
China and the Philippines from Amcor Limited, or Amcor. The majority of this
acquisition was completed in June 2006. In January 2007, we acquired the
majority share of the White Cap closures operations in Venezuela from Amcor. The
acquisition of the remaining White Cap closures operations in Brazil is subject
to the satisfaction of specified conditions as provided in the purchase
agreement with Amcor. White Cap is a leading supplier of an extensive range of
vacuum closures to consumer goods packaging companies in the food and beverage
industries in the markets it serves. White Cap has been recombined with our
previously acquired White Cap closures operations in the United States to create
a global leader in vacuum closures for hot filled and retortable food and
beverage products.
The White Cap acquisition was accounted for using the purchase method of
accounting. Accordingly, the purchase price has been allocated to the assets
acquired and liabilities assumed based on their estimated fair values at the
respective dates of acquisition, and the results of operations have been
included in our consolidated financial statements as of the respective dates of
acquisition. We have completed the valuation of certain assets and liabilities
including property, plant and equipment, intangible assets and pension
obligations. The valuation of certain other assets and liabilities is still in
process, and therefore the actual fair value may vary from these preliminary
estimates. Adjustments to the acquired net assets resulting from final
valuations are not expected to be significant.
Cousins-Currie Limited
----------------------
In December 2006, we acquired substantially all of the assets of Cousins-Currie
Limited, or Cousins-Currie, a leading manufacturer in Canada of larger-size
custom designed plastic containers.
The acquisition of Cousins-Currie was accounted for using the purchase method of
accounting. Accordingly, the purchase price has been preliminarily allocated to
the assets acquired and liabilities assumed based on their estimated fair value
at the acquisition date. In the second quarter of 2007, we completed the
valuation of intangible assets and as a result reallocated Cdn $17.7 million
($16.5 million translated into U.S. dollars at the exchange rate in effect at
June 30, 2007) from goodwill to other intangible assets, which assets were
primarily customer relationships with an estimated useful life of 19 years. The
valuation of certain assets and liabilities is still in process, and therefore
the actual fair values may vary from preliminary estimates. Adjustments to the
acquired net assets resulting from final valuations are not expected to be
significant.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
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, 2006 is summarized as follows:
Employee Plant Non-Cash
Severance Exit Asset
and Benefits Costs Write-Down Total
------------ ----- ---------- -----
(Dollars in thousands)
Balance at December 31, 2006
----------------------------
2001 Rationalization Plan $ -- $232 $ -- $ 232
2006 Rationalization Plans 4,676 -- -- 4,676
------- ---- ----- -------
Balance at December 31, 2006 4,676 232 -- 4,908
Activity for the Six Months Ended June 30, 2007
-----------------------------------------------
2001 Rationalization Plan Reserve Adjustment -- 218 -- 218
2001 Rationalization Plan Reserve Utilized -- (101) -- (101)
2006 Rationalization Plan Reserves Established 2,183 11 965 3,159
2006 Rationalization Plan Reserves Utilized (1,751) (11) (965) (2,727)
------- ---- ----- -------
Total Activity 432 117 -- 549
Balance at June 30, 2007
------------------------
2001 Rationalization Plan -- 349 -- 349
2006 Rationalization Plans 5,108 -- -- 5,108
------- ---- ----- -------
Balance at June 30, 2007 $ 5,108 $349 $ -- $ 5,457
======= ==== ===== =======
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six 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. We expect to cease operations at this facility in the
fourth quarter of 2007. 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
$13.9 million. These costs include $5.7 million of non-cash pension and
postretirement curtailment expense, $2.6 million of employee severance and
special termination benefits, $2.6 million for plant exit costs, $2.6 million
for the acceleration of depreciation to write-down the building for sale and
equipment for abandonment upon the exit of the facility and $0.4 million for the
non-cash write-down in carrying value of assets. As of December 31, 2006, total
charges recognized to date included $4.6 million of non-cash pension and
postretirement curtailment expense, $1.9 million of employee severance and
special termination benefits and $2.1 million for the non-cash write-down and
accelerated depreciation of the building and equipment. Rationalization charges
recognized during 2007 were $1.6 million for employee severance and benefits and
$0.7 million for the non-cash write-down and accelerated depreciation of the
building and equipment. Additional charges of $3.0 million are expected through
2008. Cash expenditures of $4.4 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. We have ceased
operations at this facility. The plan includes the termination or relocation of
approximately 110 employees and other related plant exit costs. We estimate that
the total costs for the rationalization of the facility will be $5.4 million.
These costs include $4.0 million for employee severance and benefits, $1.0
million for plant exit costs and $0.4 million for the non-cash write-down in
carrying value of assets. As of December 31, 2006, we recognized $3.4 million
for employee severance and benefits and $0.1 million for the non-cash write down
in carrying value of assets. Rationalization charges recognized during 2007 were
$0.6 million for employee severance and benefits and $0.3 million for the
non-cash write-down in carrying value of assets. Additional charges of $1.0
million are expected through 2007. Cash expenditures of $4.6 million are
expected through 2008, primarily for plant exit costs. In addition, we expect to
sell the Stockton building in 2008 for estimated proceeds in excess of the net
book value of the facility.
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 3. Rationalization Charges (continued)
2001 Rationalization Plan
-------------------------
In 2007, the rationalization reserve for the plan to exit our Fairfield, Ohio
plastic container manufacturing facility was adjusted to recognize additional
charges for the change in expected sublease income. The lease expires in 2009.
Rationalization reserves are included in the Condensed Consolidated Balance
Sheets as follows:
June 30, June 30, Dec. 31,
2007 2006 2006
---- ---- ----
(Dollars in thousands)
Accrued liabilities $1,797 $319 $1,537
Other liabilities 3,660 240 3,371
------ ---- ------
$5,457 $559 $4,908
====== ==== ======
Note 4. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is reported in the Condensed Consolidated
Statements of Stockholders' Equity. Amounts included in accumulated other
comprehensive loss consisted of the following:
June 30, June 30, Dec. 31,
2007 2006 2006
---- ---- ----
(Dollars in thousands)
Foreign currency translation $ 19,834 $ 9,974 $ 12,908
Change in fair value of derivatives 6,416 3,280 1,496
Unrecognized net periodic pension and
other postretirement benefit costs:
Net service credit 4,700 -- 4,532
Net actuarial loss (34,059) -- (34,500)
Minimum pension liability -- (29,560) --
-------- -------- --------
Accumulated other comprehensive loss $ (3,109) $(16,306) $(15,564)
======== ======== ========
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 5. Inventories
Inventories consisted of the following:
June 30, June 30, Dec. 31,
2007 2006 2006
---- ---- ----
(Dollars in thousands)
Raw materials $ 79,969 $ 82,148 $ 90,969
Work-in-process 80,085 71,831 68,249
Finished goods 399,116 354,080 276,870
Spare parts and other 27,703 16,572 26,711
-------- -------- --------
586,873 524,631 462,799
Adjustment to value domestic
inventory at cost on the LIFO method (38,584) (29,832) (36,208)
-------- -------- --------
$548,289 $494,799 $426,591
======== ======== ========
Note 6. Long-Term Debt
Long-term debt consisted of the following:
June 30, June 30, Dec. 31,
2007 2006 2006
---- ---- ----
(Dollars in thousands)
Bank debt
Bank revolving loans $ 240,800 $ 216,323 $ --
Bank A term loans 345,000 375,000 345,000
Bank B term loans 41,904 83,750 41,904
Canadian term loans 84,069 40,068 77,445
Euro term loans 269,060 252,720 262,300
Other foreign bank revolving loans 20,460 -- 25,989
---------- ---------- --------
Total bank debt 1,001,293 967,861 752,638
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 1,204,293 1,170,861 955,638
Less current portion 261,688 217,169 26,417
---------- ---------- --------
$ 942,605 $ 953,692 $929,221
========== ========== ========
-13-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 6. Long-Term Debt (continued)
At June 30, 2007, amounts expected to be repaid within one year consisted of
$240.8 million of bank revolving loans related primarily to seasonal working
capital needs and $0.4 million of bank term loans under our senior secured
credit facility, or the Credit Agreement, and $20.5 million of foreign bank
revolving loans.
In March 2007, we entered into two interest rate swap agreements for notional
principal amounts of $25 million and Cdn $25 million, respectively, to fix
interest on variable rate debt at 4.90 percent and 4.20 percent, respectively.
These interest rate swaps mature in March 2010, are accounted for as cash flow
hedges and are with a financial institution which is expected to fully perform
under the terms thereof.
At June 30, 2007, the aggregate notional principal amount of outstanding
interest rate swap agreements was $491 million, of which $127 million matures in
2007 (non-U.S. dollar agreements have been translated into U.S. dollars at
exchange rates in effect at June 30, 2007).
Note 7. Retirement Benefits
The components of the net periodic pension benefits costs are as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 3,466 $ 3,339 $ 7,128 $ 6,738
Interest cost 6,089 5,412 12,249 10,868
Expected return on plan assets (7,732) (6,883) (15,410) (13,766)
Amortization of prior service cost 577 784 1,154 1,569
Amortization of actuarial losses 258 750 431 1,546
Curtailment expense 1,158 3,708 1,158 3,708
Termination benefits -- 549 -- 549
------- ------- -------- --------
Net periodic benefit cost $ 3,816 $ 7,659 $ 6,710 $ 11,212
======= ======= ======== ========
The components of the net periodic other postretirement benefits costs are as
follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands)
Service cost $ 225 $ 293 $ 469 $ 610
Interest cost 928 909 1,873 1,812
Amortization of prior service cost (442) (557) (884) (1,113)
Amortization of actuarial losses 141 208 281 419
Curtailment expense -- 1,185 -- 1,185
----- ------ ------ -------
Net periodic benefit cost $ 852 $2,038 $1,739 $ 2,913
===== ====== ====== =======
-14-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 7. Retirement Benefits (continued)
We recognized curtailment expense in 2007 and 2006 for our pension benefits and
in 2006 for our postretirement 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, 2006, based on current tax law, there are no minimum required contributions
to our pension plans in 2007. However, this is subject to change based on a
number of factors, including in the event that asset performance is
significantly below the assumed long-term rate of return on plan assets. During
the first six months of 2007, we made no contributions to fund our pension
plans.
Note 8. Income Taxes
We adopted the provisions of FIN 48 on January 1, 2007. As a result, we
recognized an increase in the liability for unrecognized tax benefits of $1.8
million, which was accounted for as an adjustment to the opening balance of
retained earnings at January 1, 2007. The total amount of unrecognized tax
benefits as of January 1, 2007, including the cumulative effect of the adoption
of FIN 48, was $30.9 million, of which $15.8 million represented liabilities
that if recognized would impact the effective tax rate.
Holdings and its subsidiaries file U.S. Federal income tax returns, as well as
income tax returns in various states and foreign jurisdictions. With limited
exceptions and due to the impact of net operating loss and other credit
carryforwards, we may be effectively subject to U.S. Federal income tax
examinations for periods after 1990. We are subject to examination by state and
local tax authorities generally for the period mandated by statute, with the
exception of states where waivers of the statute of limitations have been
executed. These states and the earliest open period include Wisconsin (1995),
Texas (2001), New York (2001) and Indiana (2002). Our foreign subsidiaries are
generally not subject to examination by tax authorities for periods before 2001,
and we have contractual indemnities with third parties with respect to open
periods that predate our ownership of certain foreign subsidiaries. Subsequent
periods may be examined by the relevant tax authorities. The Internal Revenue
Service, or IRS, commenced an examination in the fourth quarter of 2006 of
Holdings' income tax return for the period ended December 31, 2004 which it
expects to complete in 2008. To date, we do not believe this examination will
have a material impact on our consolidated financial statements.
We recognize accrued interest and penalties related to unrecognized taxes as
additional tax expense. At December 31, 2006, we had $1.1 million accrued for
potential interest and penalties.
-15-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 9. Dividends
On August 7, 2007, our Board of Directors declared a quarterly cash dividend on
our common stock of $0.16 per share, payable on September 14, 2007 to holders of
record of our common stock on August 31, 2007. The cash payment for this
dividend is expected to be approximately $6.1 million.
Note 10. Treasury Stock
During the six months ended June 30, 2007, we issued 21,812 treasury shares at
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 5,057 shares of our common stock at an average
cost of $48.19 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 June 30, 2007,
5,319,311 shares were held in treasury.
Note 11. Stock-Based Compensation
We currently have one stock-based compensation plan in effect, under which we
have issued options and restricted stock units to our officers, other key
employees and outside directors. We apply the recognition and measurement
principles of SFAS No. 123(R), "Share-Based Payment," which requires recognition
of compensation expense in an amount equal to the fair value of the share-based
payment.
During the first six months of 2007, we granted 56,800 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 $2.8 million. In June 2007, we granted 5,142
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 units at
the date of grant was $0.3 million.
-16-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 12. Business Segment Information
Reportable business segment information for the three and six months ended June
30 is as follows:
Metal Food Plastic
Containers(1) Containers(2) Closures Corporate Total
------------- ------------- -------- --------- -----
(Dollars in thousands)
Three Months Ended June 30, 2007
--------------------------------
Net sales $364,972 $157,184 $161,370 $ -- $ 683,526
Depreciation and amortization(3) 15,442 11,201 6,847 421 33,911
Segment income from operations 27,705 12,417 20,781 (2,439) 58,464
Three Months Ended June 30, 2006
--------------------------------
Net sales $349,999 $145,039 $102,174 $ -- $ 597,212
Depreciation and amortization(3) 16,739 11,142 3,769 137 31,787
Segment income from operations 18,892 11,817 10,645 (1,483) 39,871
Six Months Ended June 30, 2007
------------------------------
Net sales $710,600 $319,593 $304,158 $ -- $1,334,351
Depreciation and amortization(3) 30,211 21,509 13,555 842 66,117
Segment income from operations 56,472 32,233 36,604 (4,750) 120,559
Six Months Ended June 30, 2006
------------------------------
Net sales $684,759 $308,217 $174,087 $ -- $1,167,063
Depreciation and amortization(3) 33,402 21,686 6,310 156 61,554
Segment income from operations 37,104 25,596 21,231 (4,464) 79,467
-------------
(1) Segment income from operations includes rationalization charges of
$2.1 million and $3.2 million for the three and six months ended June
30, 2007, respectively, and $5.8 million for the three and six months
ended June 30, 2006.
(2) Segment income from operations includes rationalization charges of
$0.2 million for the three and six months ended June 30, 2007 and $0.4
million and $2.5 million for the three and six months ended June 30,
2006, respectively.
(3) Depreciation and amortization excludes amortization of debt issuance
costs of $0.3 million for each of the three months ended June 30, 2007
and 2006 and $0.7 million and $0.5 million for the six months ended
June 30, 2007 and 2006, respectively.
-17-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at June 30, 2007 and 2006 and for the
three and six months then ended is unaudited)
Note 12. Business Segment Information (continued)
Total segment income from operations is reconciled to income before income taxes
as follows:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in thousands)
Total segment income from operations $58,464 $39,871 $120,559 $79,467
Interest and other debt expense 16,909 14,199 33,008 25,449
------- ------- -------- -------
Income before income taxes $41,555 $25,672 $ 87,551 $54,018
======= ======= ======== =======
-18-
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, 2006 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. However, in the absence of such acquisition
opportunities, we expect to use our cash flow to repay debt. If acquisition
opportunities are not identified over a longer period of time, we would consider
other permitted uses of our cash flow, such as repurchases of shares of our
common stock or increased dividends to our stockholders.
During 2006, we acquired the White Cap closures operations in Europe, Turkey,
China and the Philippines from Amcor. The majority of this acquisition was
completed in June 2006. In January 2007, we acquired the majority share of the
White Cap closures operations in Venezuela from Amcor. The acquisition of the
remaining White Cap closures operations in Brazil is subject to the satisfaction
of specified conditions as provided in the purchase agreement with Amcor. White
Cap is a leading supplier of an extensive range of vacuum closures to consumer
goods packaging companies in the food and beverage industries in the markets it
serves. White Cap has been recombined with our previously acquired White Cap
closures operations in the United States to create a global leader in vacuum
closures for hot filled and retortable food and beverage products.
In December 2006, we acquired substantially all of the assets of Cousins-Currie,
a leading manufacturer in Canada of larger-size custom designed plastic
containers.
-19-
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed
as a percentage of net sales for the periods presented:
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
Net sales
Metal food containers 53.4% 58.6% 53.2% 58.7%
Plastic containers 23.0 24.3 24.0 26.4
Closures 23.6 17.1 22.8 14.9
----- ----- ----- -----
Consolidated 100.0 100.0 100.0 100.0
Cost of goods sold 85.5 87.4 85.1 87.4
----- ----- ----- -----
Gross profit 14.5 12.6 14.9 12.6
Selling, general and administrative expenses 5.6 4.9 5.6 5.1
Rationalization charges 0.3 1.0 0.3 0.7
----- ----- ----- -----
Income from operations 8.6 6.7 9.0 6.8
Interest and other debt expense 2.5 2.4 2.5 2.2
----- ----- ----- -----
Income before income taxes 6.1 4.3 6.5 4.6
Provision for income taxes 2.2 1.6 2.4 1.7
----- ----- ----- -----
Net income 3.9% 2.7% 4.1% 2.9%
===== ===== ===== =====
Summary unaudited results of operations for the three and six months ended June
30, 2007 and 2006 are provided below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2007 2006 2007 2006
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers $365.0 $350.0 $ 710.6 $ 684.8
Plastic containers 157.2 145.0 319.6 308.2
Closures 161.4 102.2 304.2 174.1
------ ------ -------- --------
Consolidated $683.6 $597.2 $1,334.4 $1,167.1
====== ====== ======== ========
Income from operations
Metal food containers (1) $ 27.7 $ 18.9 $ 56.5 $ 37.1
Plastic containers (2) 12.4 11.8 32.2 25.6
Closures 20.8 10.7 36.6 21.3
Corporate (2.4) (1.5) (4.7) (4.5)
------ ------ -------- --------
Consolidated $ 58.5 $ 39.9 $ 120.6 $ 79.5
====== ====== ======== ========
-------------
(1) Includes rationalization charges of $2.1 million and $3.2 million for
the three and six months ended June 30, 2007, respectively, and $5.8
million for the three and six months ended June 30, 2006.
(2) Includes rationalization charges of $0.2 million for the three and six
months ended June 30, 2007 and $0.4 million and $2.5 million for the
three and six months ended June 30, 2006, respectively.
-20-
Three Months Ended June 30, 2007 Compared with Three Months Ended June 30, 2006
Overview. Consolidated net sales were $683.6 million in the second quarter of
2007, representing a 14.5 percent increase as compared to the second quarter of
2006 due primarily to the inclusion of the acquisitions completed in 2006,
higher average selling prices resulting from the pass through of inflation in
raw material and other manufacturing costs and improved volumes across all of
our businesses. Income from operations for the second quarter of 2007 of $58.5
million increased by $18.6 million, or 46.6 percent, as compared to the same
period in 2006 due to higher income from operations in all of our businesses,
largely as a result of the acquisitions completed in 2006, higher
rationalization charges incurred in 2006, improved volumes in each business and
continued benefits from cost reductions, slightly offset by a less favorable mix
of products sold in the plastic container business and the effect from the
initial reduction of the provisional inventory built in prior quarters in the
metal food container business. The results for 2007 included rationalization
charges of $2.3 million. The results for 2006 included rationalization charges
of $6.2 million. Net income for the second quarter of 2007 was $26.8 million, or
$0.70 per diluted share, as compared to $16.4 million, or $0.43 per diluted
share, for the same period in 2006.
Net Sales. The $86.4 million increase in consolidated net sales in the second
quarter of 2007 as compared to the second quarter of 2006 was the result of
higher net sales across all businesses.
Net sales for the metal food container business in the second quarter of 2007
increased $15.0 million, or 4.3 percent, as compared to net sales for the same
period in 2006. This increase was the result of an increase in volumes and
higher average selling prices due to the pass through of inflation in raw
material and other manufacturing costs.
Net sales for the plastic container business in the second quarter of 2007
increased $12.2 million, or 8.4 percent, as compared to the same period in 2006.
This increase was primarily a result of the inclusion of sales from
Cousins-Currie and increased volumes, partially offset by lower demand levels
for the food product line primarily as a result of less customer promotional
activity versus the same period a year ago.
Net sales for the closures business increased $59.2 million, or 57.9 percent, in
the second quarter of 2007 as compared to the same period in 2006. This increase
was primarily a result of the inclusion of the White Cap acquisition for the
entire period.
Gross Profit. Gross profit margin increased 1.9 percentage points to 14.5
percent in the second quarter of 2007 as compared to the same period in 2006 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 increased to
5.6 percent for the second quarter of 2007 as compared to 4.9 percent for the
same period in 2006, due primarily to the inclusion of the international
closures operations which incur such expenses at a higher percentage of its
sales as compared to our other operations.
Income from Operations. Income from operations for the second quarter of 2007
increased by $18.6 million as compared to the second quarter of 2006 as a result
of higher income from operations across all businesses. Operating margin
increased to 8.6 percent from 6.7 percent over the same periods due to increased
margins in our metal food container and closures businesses.
-21-
Income from operations of the metal food container business for the second
quarter of 2007 increased $8.8 million, or 46.6 percent, as compared to the same
period in 2006, and operating margin increased to 7.6 percent from 5.4 percent
over the same periods. These increases were due primarily to higher
rationalization charges incurred in the second quarter of 2006, increased sales
volumes, the lagged contractual pass through implemented during 2006 of
significant inflation in other manufacturing costs and benefits derived from
ongoing cost reduction initiatives. These benefits were slightly offset by the
effects from an earlier than anticipated reduction in the provisional inventory
built during prior quarters as certain union negotiations were successfully
completed during the quarter. We expect to utilize the remaining provisional
inventory in the latter half of 2007. The second quarter of 2007 included
rationalization charges of $2.1 million for the ongoing costs associated with
the plans to close the St. Paul, Minnesota and Stockton, California metal food
container facilities. The second quarter of 2006 included rationalization
charges of $5.8 million for the costs associated with the plans to close the St.
Paul, Minnesota facility.
Income from operations of the plastic container business for the second quarter
of 2007 increased $0.6 million, or 5.1 percent, as compared to the same period
in 2006, and operating margin decreased slightly to 7.9 percent from 8.1 percent
over the same periods. The increase in operating income was primarily as a
result of the impact from the Cousins-Currie acquisition and volume growth,
offset by a less favorable mix of products sold attributable to lower demand
levels for the food product line. The slight decrease in operating margin was
due primarily to the less favorable mix of products sold.
Income from operations of the closures business for the second quarter of 2007
increased $10.1 million, or 94.4 percent, to $20.8 million as compared to $10.7
million in the same quarter a year ago. This increase was due primarily to the
inclusion of the White Cap acquisition for the entire period. Operating margin
for the second quarter of 2007 increased to 12.9 percent from 10.4 percent in
the prior year period due primarily to the unfavorable impact of the inventory
write-up for the international operations in the second quarter of 2006 as a
result of purchase accounting, slightly offset by the incurrence of higher
selling, general and administrative costs in the international operations.
Interest and Other Debt Expense. Interest and other debt expense for the second
quarter of 2007 increased $2.7 million to $16.9 million as compared to the same
period in 2006. This increase resulted primarily from higher average borrowings
as a result of the 2006 acquisitions and higher working capital and the effects
of higher market interest rates.
Six Months Ended June 30, 2007 Compared with Six Months Ended June 30, 2006
Overview. Consolidated net sales were $1.33 billion in the first six months of
2007, representing a 14.3 percent increase as compared to the first six months
of 2006 primarily due to the inclusion of the acquisitions completed in 2006,
higher average selling prices resulting from the pass through of inflation in
raw material and other manufacturing costs in the metal food container and
closures businesses and improved volumes in the metal food and plastic container
businesses. Income from operations for the first six months of 2007 increased by
$41.1 million, or 51.7 percent, as compared to the same period in 2006. The
increase in income from operations was a result of higher income from operations
across all businesses, largely due to the acquisitions completed in 2006, higher
rationalization charges incurred in 2006, continued benefits from cost
reductions and the lagged contractual pass through of inflation in other
manufacturing costs. The results for the first six months of 2007 and 2006
included rationalization charges of $3.4 million and $8.3 million, respectively.
Net income for the first six months of 2007 was $55.3 million, or $1.45 per
diluted share, as compared to $33.5 million, or $0.89 per diluted share, for the
same period in 2006.
-22-
Net Sales. The $167.3 million increase in consolidated net sales in the first
six months of 2007 as compared to the first six months of 2006 was primarily due
to higher net sales across all of our businesses.
Net sales for the metal food container business increased $25.8 million, or 3.8
percent, in the first six months of 2007 as compared to the same period in 2006.
This increase was primarily attributable to higher average selling prices due to
the pass through of inflation in raw material and other manufacturing costs and
an increase in volumes.
Net sales for the plastic container business in the first six months of 2007
increased $11.4 million, or 3.7 percent, as compared to the same period in 2006.
This increase was primarily the result of the inclusion of sales from
Cousins-Currie and improved volumes, partially offset by a less favorable mix of
products sold and the impact from the rationalization of the Valencia,
California manufacturing facility in the second quarter of 2006.
Net sales for the closures business in the first six months of 2007 increased
$130.1 million, or 74.7 percent, as compared to the same period in 2006. This
increase was attributable to the White Cap acquisition and higher average
selling prices resulting from the pass through of inflation in raw material and
other manufacturing costs.
Gross Profit. Gross Profit margin increased 2.3 percentage points to 14.9
percent for the first six months of 2007 as compared to the same period in 2006
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 increased to
5.6 percent for the first six months of 2007 as compared to 5.1 percent for the
same period in 2006, due primarily to the inclusion of the international
closures operations which incur such expenses at a higher percentage of its
sales as compared to our other operations.
Income from Operations. Income from operations for the first six months of 2007
increased by $41.1 million as compared to the first six months of 2006 as a
result of higher income from operations across all businesses. Operating margin
increased to 9.0 percent from 6.8 percent over the same periods as a result of
increased margins in our metal food and plastic container businesses.
Income from operations of the metal food container business for the first six
months of 2007 increased $19.4 million, or 52.3 percent, as compared to the same
period in 2006, and operating margin increased to 8.0 percent from 5.4 percent
over the same periods. These increases were principally due to higher
rationalization charges recorded in the first six months of 2006 for the shut
down of the St. Paul, Minnesota manufacturing facility, the lagged contractual
pass through of inflation in other manufacturing costs, benefits derived from
ongoing cost reduction initiatives and increased sales volumes.
Income from operations of the plastic container business for the first six
months of 2007 increased $6.6 million, or 25.8 percent, as compared to the same
period in 2006, and operating margin increased to 10.1 percent from 8.3 percent
over the same periods. The increases in income from operations and operating
margin were primarily due to the impact from the Cousins-Currie acquisition,
rationalization charges of $2.5 million incurred in 2006 for the shut down of
the Valencia, California manufacturing facility, volume growth and continued
benefits from cost reductions, slightly offset by a less favorable mix of
products sold.
-23-
Income from operations of the closures business for the first six months of 2007
increased $15.3 million, or 71.8 percent, as compared to the same periods in
2006 due primarily to the White Cap acquisition. Operating margin for the first
six months of 2007 decreased slightly to 12.0 percent from 12.2 percent over the
same period primarily as a result of the incurrence of higher selling, general
and administrative costs in the international operations.
Interest and Other Debt Expense. Interest and other debt expense for the first
six months of 2007 increased $7.5 million to $33.0 million as compared to the
same period in 2006. This increase resulted primarily from higher average
borrowings as a result of the 2006 acquisitions and the effects of higher market
interest rates.
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 six months ended June 30, 2007, we used net borrowings of revolving
loans of $234.0 million and proceeds from stock option exercises of $1.6 million
to fund cash used in operations of $38.2 million primarily for our seasonal
working capital needs, net capital expenditures of $72.9 million, our
acquisition of the White Cap operations in Venezuela of $7.8 million, net of
cash acquired, decreases in outstanding checks of $96.1 million and dividends
paid on our common stock of $12.1 million and to increase cash balances by $8.5
million.
For the six months ended June 30, 2006, we used net borrowings of revolving
loans of $216.3 million, borrowings of long-term debt of $257.6 million and
proceeds from stock option exercises of $2.4 million to fund our acquisition of
White Cap for $257.8 million, net of cash acquired, cash used in operations of
$48.5 million primarily for our seasonal working capital needs, net capital
expenditures of $58.3 million, decreases in outstanding checks of $97.0 million,
debt issuance costs of $2.3 million incurred in connection with our amendment to
the Credit Agreement and dividends paid on our common stock of $9.0 million and
to increase cash balances by $3.4 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 June 30, 2007, we had $240.8 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
June 30, 2007 was $167.2 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.
During 2007, we estimate that we will utilize approximately $250 - $300 million
of revolving loans under the Credit Agreement for our peak seasonal working
capital requirements.
During the first six months of 2007, we paid cash dividends on our common stock
totaling $12.1 million. On August 7, 2007, our Board of Directors declared a
quarterly cash dividend on our common stock of $0.16 per share, payable on
September 14, 2007 to holders of record of our common stock on August 31, 2007.
The cash payment for this dividend is expected to be approximately $6.1 million.
-24-
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 (approximately $150 million in
2007 and between $110 million and $140 million annually thereafter), 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 2007 with all of these covenants.
Rationalization Charges
In 2006, we announced our plans to exit our St. Paul, Minnesota and Stockton,
California metal food container manufacturing facilities. We expect to cease
operations at our St. Paul facility in the fourth quarter of 2007. We incurred
charges of $2.3 million during the first six months of 2007 related to this
facility rationalization and expect to incur an additional $3.0 million of
charges primarily related to plant exit costs. We have ceased operations at our
Stockton facility. We incurred charges of $0.9 million in the first six months
of 2007 related to this facility rationalization and expect to incur an
additional $1.0 million of charges primarily related to plant exit costs.
Under our rationalization plans, we made cash payments of $0.7 million and $1.2
million for the six months ended June 30, 2007 and 2006, respectively. Total
future cash spending of $9.3 million is expected for our outstanding
rationalization plans.
You should also read Note 3 to our Condensed Consolidated Financial Statements
for the three and six months ended June 30, 2007 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2006, the FASB issued FIN 48, "Accounting for Uncertainty in Income
Taxes - an interpretation of FASB Statement No. 109." FIN 48 clarifies the
accounting for uncertainty in income taxes by prescribing a recognition
threshold and measurement attribute for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. The
interpretation also provides guidance on derecognition, classification, interest
and penalties, accounting in interim periods and disclosure. We adopted FIN 48
on January 1, 2007. Our adoption of FIN 48 did not have a material impact on our
consolidated financial statements. You should also read Note 8 to our Condensed
Consolidated Financial Statements for the three and six months ended June 30,
2007 included elsewhere in this Quarterly Report.
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. SFAS No. 157 is effective for us on January 1, 2008. We
are currently evaluating the impact SFAS No. 157 will have on our consolidated
financial statements.
-25-
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 limited 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, 2006. Since such filing, other than
as disclosed in Note 6 to our Condensed Consolidated Financial Statements for
the three and six months ended June 30, 2007 included elsewhere in this
Quarterly Report, 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.
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. We are
currently in the process of integrating the internal controls and procedures of
certain White Cap operations and Cousins-Currie into our internal controls over
financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the
applicable rules and regulations of the Securities and Exchange Commission, we
will include the internal controls and procedures of White Cap and
Cousins-Currie in our annual assessment of the effectiveness of our internal
control over financial reporting for our 2007 fiscal year.
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Our annual meeting of stockholders, or the Annual Meeting, for which proxies
were solicited pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, was held on May 31, 2007 for the purposes of (1) electing two
directors to serve for a three year term until our annual meeting of
stockholders in 2010 and until their successors are duly elected and qualified;
and (2) ratifying the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2007.
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The nominees for director listed in our proxy statement, each of whom was
elected at the Annual Meeting, are named below, and each received the number of
votes for election as indicated below (with each share of our common stock being
entitled to one vote):
Number of Shares Number of Shares
Voted For Withheld
--------- --------
R. Philip Silver 25,290,109 10,621,335
William C. Jennings 35,063,742 847,702
Our directors whose term of office continued after the Annual Meeting are D.
Greg Horrigan and John W. Alden, each of whose term of office as a director
continues until our annual meeting of stockholders in 2008, and Anthony J.
Allott, Jeffrey C. Crowe and Edward A. Lapekas, each of whose term of office as
a director continues until our annual meeting of stockholders in 2009.
The ratification of the appointment of Ernst & Young LLP as our independent
registered public accounting firm for the fiscal year ending December 31, 2007
was approved at the Annual Meeting. There were 35,248,487 votes cast ratifying
such appointment, 659,057 votes cast against ratification of such appointment
and 3,900 votes abstaining.
Item 6. Exhibits
Exhibit Number Description
-------------- -----------
12 Ratio of Earnings to Fixed Charges for the three and six
months ended June 30, 2007 and 2006.
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.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report to be signed on its behalf by
the undersigned thereunto duly authorized.
SILGAN HOLDINGS INC.
Dated: August 8, 2007 /s/Robert B. Lewis
------------------------------------
Robert B. Lewis
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
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EXHIBIT INDEX
EXHIBIT NO. EXHIBIT
----------- -------
12 Ratio of Earnings to Fixed Charges for the three and six
months ended June 30, 2007 and 2006.
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.
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