-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, SQw6TiScGNgvS/lkUe+GkahxXLdCacWzQ3UAnx+uGuC7fRcHXS848MTfDBK58xM6 IKx0gUWEldNj/j15MM5gmg== 0000849869-03-000026.txt : 20030814 0000849869-03-000026.hdr.sgml : 20030814 20030814121705 ACCESSION NUMBER: 0000849869-03-000026 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030630 FILED AS OF DATE: 20030814 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SILGAN HOLDINGS INC CENTRAL INDEX KEY: 0000849869 STANDARD INDUSTRIAL CLASSIFICATION: METAL CANS [3411] IRS NUMBER: 061269834 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22117 FILM NUMBER: 03844865 BUSINESS ADDRESS: STREET 1: 4 LANDMARK SQ CITY: STAMFORD STATE: CT ZIP: 06901 BUSINESS PHONE: 2039757110 10-Q 1 august8.txt FOR THE QUARTERLY PERIOD ENDED 6/30/03 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the quarterly period ended June 30, 2003 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. For the transition period from ________________ to ________________ Commission file number 000-22117 SILGAN HOLDINGS INC. (Exact Name of Registrant as Specified in Its Charter) Delaware 06-1269834 (State or Other Jurisdiction (I.R.S. Employer of Incorporation or Organization) Identification No.) 4 Landmark Square Stamford, Connecticut 06901 (Address of Principal Executive Offices) (Zip Code) (203)975-7110 Registrant's Telephone Number, Including Area Code N/A (Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report) Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X ] No [ ] Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes [ X ] No [ ] As of August 1, 2003, the number of shares outstanding of the Registrant's common stock, $0.01 par value, was 18,241,262. SILGAN HOLDINGS INC. TABLE OF CONTENTS Page No. -------- Part I. Financial Information 3 Item 1. Financial Statements 3 Condensed Consolidated Balance Sheets at 3 June 30, 2003 and 2002 and December 31, 2002 Condensed Consolidated Statements of Income for 4 the three months ended June 30, 2003 and 2002 Condensed Consolidated Statements of Income for the 5 six months ended June 30, 2003 and 2002 Condensed Consolidated Statements of Cash Flows for 6 the six months ended June 30, 2003 and 2002 Condensed Consolidated Statements of Stockholders' 7 Equity for the six months ended June 30, 2002 and 2003 Notes to Condensed Consolidated Financial Statements 8 Item 2. Management's Discussion and Analysis of Financial 18 Condition and Results of Operations Item 3. Quantitative and Qualitative Disclosures About Market 25 Risk Item 4. Controls and Procedures 25 Part II. Other Information 26 Item 4. Submission of Matters to a Vote of Security Holders 26 Item 6. Exhibits and Reports on Form 8-K 27 Signatures 28 Exhibit Index 29 -2- Part I. Financial Information Item 1. Financial Statements SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited, see Note 1)
June 30, June 30, Dec. 31, 2003 2002 2002 ---- ---- ---- Assets Current assets Cash and cash equivalents ........................ $ 10,167 $ 13,277 $ 58,318 Trade accounts receivable, net ................... 232,256 191,403 124,657 Inventories ...................................... 439,819 385,004 272,836 Prepaid expenses and other current assets ........ 14,082 12,699 13,988 ---------- ---------- ---------- Total current assets ......................... 696,324 602,383 469,799 Property, plant and equipment, net .................... 818,264 683,496 705,746 Goodwill, net ......................................... 218,221 141,589 141,481 Other assets .......................................... 57,182 68,624 57,399 ---------- ---------- ---------- $1,789,991 $1,496,092 $1,374,425 ========== ========== ========== Liabilities and Stockholders' Equity Current liabilities Bank revolving loans ............................. $ 170,900 $ 157,700 $ -- Current portion of long-term debt ................ 46,926 1,765 20,170 Trade accounts payable ........................... 152,082 146,011 172,703 Accrued payroll and related costs ................ 68,003 58,418 56,238 Accrued liabilities .............................. 39,457 36,245 15,825 ---------- ---------- ---------- Total current liabilities .................... 477,368 400,139 264,936 Long-term debt ........................................ 1,059,564 958,333 936,655 Other liabilities ..................................... 165,594 92,294 109,742 Stockholders' equity Common stock ..................................... 209 209 209 Paid-in capital .................................. 125,009 124,174 124,872 Retained earnings (accumulated deficit) .......... 36,575 (13,519) 18,871 Accumulated other comprehensive loss ............. (13,935) (5,145) (20,467) Treasury stock ................................... (60,393) (60,393) (60,393) ---------- ---------- ---------- Total stockholders' equity ................... 87,465 45,326 63,092 ---------- ---------- ---------- $1,789,991 $1,496,092 $1,374,425 ========== ========== ==========
See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three months ended June 30, 2003 and 2002 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2003 2002 ---- ---- Net sales .............................................. $545,240 $456,249 Cost of goods sold ..................................... 475,045 398,822 -------- -------- Gross profit ...................................... 70,195 57,427 Selling, general and administrative expenses ........... 28,144 19,534 -------- -------- Income from operations ............................ 42,051 37,893 Interest and other debt expense ........................ 20,038 19,372 -------- -------- Income before income taxes and equity in losses of affiliate ............................. 22,013 18,521 Provision for income taxes ............................. 8,475 7,227 -------- -------- Income before equity in losses of affiliate ....... 13,538 11,294 Equity in losses of affiliate, net of income taxes ..... -- 1,219 -------- -------- Net income ........................................ $ 13,538 $ 10,075 ======== ======== Earnings per share: Basic net income per share ........................ $0.74 $0.56 ===== ===== Diluted net income per share ...................... $0.74 $0.55 ===== ===== Weighted average number of shares: Basic ............................................ 18,239 18,144 Assumed exercise of employee stock options ....... 156 311 ------ ------ Diluted .......................................... 18,395 18,455 ====== ======
See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the six months ended June 30, 2003 and 2002 (Dollars and shares in thousands, except per share amounts) (Unaudited)
2003 2002 ---- ---- Net sales .............................................. $999,617 $880,505 Cost of goods sold ..................................... 879,825 770,591 -------- -------- Gross profit ...................................... 119,792 109,914 Selling, general and administrative expenses ........... 51,720 38,276 Rationalization credit ................................. -- (2,259) -------- -------- Income from operations ............................ 68,072 73,897 Interest and other debt expense ........................ 38,827 35,868 -------- -------- Income before income taxes and equity in losses of affiliate ............................. 29,245 38,029 Provision for income taxes ............................. 11,260 14,835 -------- -------- Income before equity in losses of affiliate ....... 17,985 23,194 Equity in losses of affiliate, net of income taxes ..... 281 1,776 -------- -------- Net income ........................................ $ 17,704 $ 21,418 ======== ======== Earnings per share: Basic net income per share ........................ $0.97 $1.19 ===== ===== Diluted net income per share ...................... $0.96 $1.17 ===== ===== Weighted average number of shares: Basic ............................................. 18,237 18,041 Assumed exercise of employee stock options ........ 132 324 ------ ------ Diluted ........................................... 18,369 18,365 ====== ======
See accompanying notes. -5-
SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2003 and 2002 (Dollars in thousands) (Unaudited) 2003 2002 ---- ---- Cash flows provided by (used in) operating activities Net income .............................................. $ 17,704 $ 21,418 Adjustments to reconcile net income to net cash used in operating activities: Depreciation and amortization ....................... 56,143 48,574 Rationalization credit .............................. -- (2,259) Equity in losses of affiliate ....................... 457 2,911 Other changes that provided (used) cash: Trade accounts receivable, net ................. (85,898) (46,500) Inventories .................................... (88,377) (122,377) Trade accounts payable ......................... (35,309) (27,840) Accrued liabilities ............................ 16,423 9,221 Other, net ..................................... 13,311 4,691 --------- --------- Net cash used in operating activities ............... (105,546) (112,161) --------- --------- Cash flows provided by (used in) investing activities Purchases of businesses, net of cash acquired ........... (206,868) -- Capital expenditures .................................... (55,073) (49,437) Proceeds from asset sales ............................... 325 699 --------- --------- Net cash used in investing activities ............... (261,616) (48,738) --------- --------- Cash flows provided by (used in) financing activities Borrowings under revolving loans ........................ 383,050 577,130 Repayments under revolving loans ........................ (212,150) (752,455) Proceeds from stock option exercises .................... 118 4,131 Proceeds from issuance of long-term debt ................ 150,000 656,000 Repayments of long-term debt ............................ -- (307,549) Debt issuance costs ..................................... (2,007) (21,090) --------- --------- Net cash provided by financing activities ........... 319,011 156,167 --------- --------- Cash and cash equivalents Net decrease ............................................ (48,151) (4,732) Balance at beginning of year ............................ 58,318 18,009 --------- --------- Balance at end of period ................................ $ 10,167 $ 13,277 ========= ========= Interest paid ................................................ $ 32,715 $ 34,977 Income taxes paid, net of refunds ............................ (69) 3,146
See accompanying notes. -6-
SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY For the six months ended June 30, 2002 and 2003 (Dollars and shares in thousands) (Unaudited) Common Stock Retained Accumulated ------------ Paid- earnings other Total Par in (accumulated comprehensive Treasury stockholders' Shares value capital deficit) income (loss) stock equity ------ ----- --------- ------------ ------------- -------- ------------- Balance at December 31, 2001 ............. 17,854 $205 $118,319 $(34,937) $ (8,046) $(60,393) $15,148 Comprehensive income: Net income ............................ -- -- -- 21,418 -- -- 21,418 Minimum pension liability, net of tax benefit of $74 .................. -- -- -- -- (115) -- (115) Change in fair value of derivatives, net of tax provision of $1,249 ...... -- -- -- -- 1,855 -- 1,855 Foreign currency translation .......... -- -- -- -- 1,161 -- 1,161 ------- Comprehensive income ..................... 24,319 Stock option exercises, including tax benefit of $1,728 .................. 367 4 5,855 -- -- -- 5,859 ------ ---- -------- -------- -------- -------- ------- Balance at June 30, 2002 ................. 18,221 $209 $124,174 $(13,519) $(5,145) $(60,393) $45,326 ====== ==== ======== ======== ======== ======== ======= Balance at December 31, 2002 ............. 18,231 $209 $124,872 $18,871 $(20,467) $(60,393) $63,092 Comprehensive income: Net income ............................ -- -- -- 17,704 -- -- 17,704 Change in fair value of derivatives, net of tax provision of $688 ......... -- -- -- -- 978 -- 978 Foreign currency translation .......... -- -- -- -- 5,554 -- 5,554 ------- Comprehensive income ..................... 24,236 Stock option exercises, including tax benefit of $19 ..................... 8 -- 137 -- -- -- 137 ------ ---- -------- -------- -------- -------- ------- Balance at June 30, 2003 ................. 18,239 $209 $125,009 $ 36,575 $(13,935) $(60,393) $87,465 ====== ==== ======== ======== ======== ======== ======= See accompanying notes.
-7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 1. Significant Accounting Policies Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Holdings, have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year. The condensed consolidated balance sheet at December 31, 2002 has been derived from our audited financial statements at that date, but does not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. You should read the accompanying financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2002. Certain prior year amounts have been reclassified to conform with the current year's presentation. Stock-Based Compensation. We have two stock-based compensation plans. We apply the recognition and measurement principles of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for these plans. Accordingly, no compensation expense for employee stock options is recognized, as all options granted under these plans had an exercise price that was equal to or greater than the market value of the underlying stock on the date of the grant. -8- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 1. Significant Accounting Policies (continued) Stock-Based Compensation (continued). If we had applied the fair value recognition provisions of Statement of Financial Accounting Standards, or SFAS, No. 123, "Accounting for Stock-Based Compensation," for the three and six months ended June 30, net income and basic and diluted earnings per share would have been as follows:
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Dollars in thousands, except per share data) Net income, as reported ........................... $13,538 $10,075 $17,704 $21,418 Deduct: Total stock-based employee compensation expense determined under fair value method for all stock option awards, net of income taxes ................... 377 397 701 713 ------- ------- ------- ------- Pro forma net income .............................. $13,161 $ 9,678 $17,003 $20,705 ======= ======= ======= ======= Earnings per share: Basic net income per share - as reported ...... $0.74 $0.56 $0.97 $1.19 ===== ===== ===== ===== Basic net income per share - pro forma ........ 0.72 0.53 0.93 1.15 ===== ===== ===== ===== Diluted net income per share - as reported .... $0.74 $0.55 $0.96 $1.17 ===== ===== ===== ===== Diluted net income per share - pro forma ...... 0.72 0.53 0.93 1.13 ===== ===== ===== =====
Recently Issued Accounting Pronouncements. Effective January 1, 2003, we adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," such that certain gains or losses from the extinguishment of debt will no longer be classified as extraordinary items. Upon adoption in 2003, the extraordinary item for loss on early extinguishment of debt of $1.0 million before income taxes that was recorded in the second quarter of 2002 as a result of the refinancing of our previous senior secured credit facility with our new senior secured credit facility, or the Credit Agreement, was reclassified to interest and other debt expense. -9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 1. Significant Accounting Policies (continued) Recently Issued Accounting Pronouncements (continued). Effective January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is applicable to exit and disposal activities that are initiated after December 31, 2002. SFAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force, or EITF, Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date an entity committed to an exit plan. In January 2003, the Financial Accounting Standards Board, or the FASB, issued Interpretation, or FIN, No. 46, "Consolidation of Variable Interest Entities," which expands upon existing accounting guidance on consolidation. A variable interest entity either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns. The provisions of FIN No. 46 are effective for us on July 1, 2003. We do not anticipate that the adoption of FIN No. 46 will have a material effect on our financial position or results of operations. Note 2. Acquisitions In January 2003, we acquired substantially all of the assets of Thatcher Tubes LLC and its affiliates, or Thatcher Tubes, a privately held manufacturer and marketer of decorated plastic tubes serving primarily the personal care industry. Including recently installed additional production capacity, the purchase price for the assets was approximately $32 million in cash. Thatcher Tubes had annual net sales of approximately $29 million in 2002. Thatcher Tubes operates as part of our plastic container business. In March 2003, we acquired the remaining 65 percent equity interest in the Amcor White Cap LLC, or White Cap, joint venture that we did not already own from Amcor White Cap Inc. for approximately $37 million in cash and repaid debt and purchased equipment subject to a third party lease for approximately $93 million. White Cap had annual net sales of approximately $250 million in 2002. The business operates as part of our metal food container business. In April 2003, we acquired PCP Can Manufacturing, Inc., or Pacific Coast Can, a subsidiary of Pacific Coast Producers, or Pacific Coast, through which Pacific Coast self-manufactured a majority of its metal food containers. The purchase price was approximately $44 million in cash, including approximately $29 million for inventory. As part of the transaction, we entered into a ten-year supply agreement with Pacific Coast under which Pacific Coast has agreed to purchase from us substantially all of its metal food container requirements. Annual sales to Pacific Coast under the supply agreement are expected to be approximately $55 million. -10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 2. Acquisitions (continued) We financed these acquisitions through a $150 million incremental term loan borrowing and revolving loan borrowings under the Credit Agreement. These acquisitions were accounted for using the purchase method of accounting. Accordingly, the purchase price has been allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition, and the businesses' results of operations have been included in our consolidated operating results from the date of acquisition. The allocation of purchase price is based on preliminary estimates and assumptions and is subject to revision when valuations and integration plans have been finalized. Accordingly, revisions to the allocation of purchase price, which may be significant, will be reported in a future period as increases or decreases to amounts previously reported. Note 3. Rationalization (Credits) Charges and Acquisition Reserves As part of our plans to integrate the operations of our various acquired businesses, including the Food Metal and Specialty business of American National Can Company, or AN Can, and to rationalize certain facilities, we have established reserves for employee severance and benefits and plant exit costs. Activity in our rationalization and acquisition reserves since December 31, 2002 is summarized as follows:
Employee Plant Severance Exit and Benefits Costs Total ------------ ----- ----- (Dollars in thousands) Balance at December 31, 2002 - ---------------------------- AN Can Acquisition ................................ $ 747 $1,119 $ 1,866 Fairfield Plant Rationalization ................... -- 1,594 1,594 ------ ------ ------- Balance at December 31, 2002 ...................... 747 2,713 3,460 Activity for the Six Months Ended June 30, 2003 - ----------------------------------------------- AN Can Acquisition ................................ (435) (622) (1,057) Fairfield Plant Rationalization ................... -- (137) (137) 2003 Acquisition Reserves Established ............. 4,554 400 4,954 2003 Acquisition Reserves Utilized ................ (153) -- (153) ------ ------ ------- Total Activity .................................... 3,966 (359) 3,607 Balance at June 30, 2003 - ------------------------ AN Can Acquisition ................................ 312 497 809 Fairfield Plant Rationalization ................... -- 1,457 1,457 2003 Acquisitions ................................. 4,401 400 4,801 ------ ------ ------- Balance at June 30, 2003 .......................... $4,713 $2,354 $ 7,067 ====== ====== =======
-11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 3. Rationalization (Credits) Charges and Acquisition Reserves (continued) During the second quarter of 2003, we established acquisition reserves in connection with our purchases of Thatcher Tubes, White Cap and Pacific Coast Can aggregating approximately $5.0 million, recorded pursuant to plans that we began to assess and formulate at the date of the acquisitions and which will be finalized within one year. As we continue to assess, formulate and finalize our integration plans, there may be revisions to these acquisition reserves. These reserves consisted of employee severance and benefits costs of $4.6 million and plant exit costs of $0.4 million related to the planned closing and downsizing of certain acquired facilities. Through June 30, 2003, a total of $0.2 million has been expended for employee severance and benefits related to these plans. At June 30, 2003, this reserve had a balance of $4.8 million. Cash payments related to these acquisition reserves are expected through 2004. During the first quarter of 2002, we placed certain assets of our metal food container business with carrying values that were previously written down back in service. As a result, we recorded a $2.3 million rationalization credit and recorded those assets in our Condensed Consolidated Balance Sheets at their depreciated cost, which approximated fair value. Rationalization and acquisition reserves are included in the Condensed Consolidated Balance Sheets as follows: June 30, June 30, Dec. 31, 2003 2002 2002 ---- ---- ---- (Dollars in thousands) Accrued liabilities ........ $5,235 $6,204 $1,813 Other liabilities .......... 1,832 2,009 1,647 ------ ------ ------ $7,067 $8,213 $3,460 ====== ====== ====== In August 2003, we approved and announced to employees our plan to exit one manufacturing facility of our plastic container business. The plan includes the termination of approximately 30 plant employees and other related exit costs. This decision will result in a charge to earnings of approximately $6.7 million in the third quarter of 2003. This charge will consist of approximately $5.2 million for the non-cash write-down in carrying value of assets, approximately $0.9 million for employee severance and benefits and approximately $0.6 million for plant exit costs. -12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 4. Accumulated Other Comprehensive Loss Accumulated other comprehensive loss is reported in the Condensed Consolidated Statements of Stockholders' Equity. Amounts included in accumulated other comprehensive loss consisted of the following: June 30, June 30, Dec. 31, 2003 2002 2002 ----- ---- ---- (Dollars in thousands) Foreign currency translation ............... $ 3,556 $ (755) $ (1,998) Change in fair value of derivatives ........ (1,836) (1,412) (2,814) Minimum pension liability .................. (15,655) (2,978) (15,655) -------- ------- -------- Accumulated other comprehensive loss .... $(13,935) $(5,145) $(20,467) ======== ======= ======== Note 5. Inventories Inventories consisted of the following: June 30, June 30, Dec. 31, 2003 2002 2002 ----- ---- ---- (Dollars in thousands) Raw materials ............................ $ 35,382 $ 36,022 $ 31,925 Work-in-process .......................... 64,827 54,475 50,941 Finished goods ........................... 317,243 275,380 171,341 Spare parts and other .................... 20,548 11,863 13,944 -------- -------- -------- 438,000 377,740 268,151 Adjustment to value inventory at cost on the LIFO method ............. 1,819 7,264 4,685 -------- -------- -------- $439,819 $385,004 $272,836 ======== ======== ======== Note 6. Investment in Affiliate Effective July 1, 2001, we formed a joint venture company with Schmalbach-Lubeca AG that is a leading supplier of an extensive range of metal and plastic closures to consumer goods packaging companies in the food and beverage industries in North America. The venture operated under the name Amcor White Cap LLC. We contributed certain metal closure assets and liabilities, including our manufacturing facilities in Evansville and Richmond, Indiana, in return for a 35 percent interest in and $32.4 million of cash proceeds from the joint venture. Schmalbach-Lubeca AG contributed the remaining metal and plastic closure operations to the joint venture. In July 2002, Amcor Ltd. purchased Schmalbach-Lubeca AG's interest in the joint venture. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 6. Investment in Affiliate (continued) As discussed in Note 2, in March 2003, we acquired the remaining 65 percent interest in the White Cap joint venture that we did not already own. The business now operates under the name Silgan Closures LLC, or Silgan Closures. Prior to our acquisition of White Cap, we accounted for our investment in the White Cap joint venture using the equity method. For the first two months of 2003, we recorded equity in losses of White Cap of $0.3 million, net of income taxes. The results of Silgan Closures since March 2003 have been included with the results of our metal food container business. For the second quarter and first six months of 2002, we recorded equity in losses of White Cap of $1.2 million, net of income taxes, and $1.8 million, net of income taxes, respectively. Note 7. Long-Term Debt Long-term debt consisted of the following:
June 30, June 30, Dec. 31, 2003 2002 2002 ---- ---- ---- (Dollars in thousands) Bank debt Bank revolving loans ..................... $ 170,900 $ 157,700 $ -- Bank A term loans ........................ 100,000 100,000 100,000 Bank B term loans ........................ 498,250 350,000 348,250 Canadian Bank Facility ................... -- 1,187 -- ---------- ---------- -------- Total bank debt ....................... 769,150 608,887 448,250 Subordinated debt 9% Senior Subordinated Debentures ........ 505,240 505,896 505,575 Other .................................... 3,000 3,015 3,000 ---------- ---------- -------- Total subordinated debt ............... 508,240 508,911 508,575 Total debt .................................... 1,277,390 1,117,798 956,825 Less current portion ..................... 217,826 159,465 20,170 ---------- ---------- -------- $1,059,564 $ 958,333 $936,655 ========== ========== ========
-14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 7. Long-Term Debt (continued) On July 30, 2003, we gave irrevocable notice of a partial redemption of $25 million principal amount of our 9% Senior Subordinated Debentures due 2009, or the 9% Debentures. The redemption price will be 103.375% of the principal amount of the 9% Debentures being redeemed, or approximately $25.8 million, plus accrued and unpaid interest to the redemption date, August 29, 2003. As permitted under the Credit Agreement, we will fund this redemption with lower cost revolving loans under the Credit Agreement. As a result of this redemption, we expect to record a loss on early extinguishment of debt of approximately $1.0 million in the third quarter of 2003 for the premium paid in connection with this redemption and for the write-off of unamortized debt issuance costs and unamortized premium related to the redeemed 9% Debentures. This loss on early extinguishment of debt will be recorded as interest and other debt expense in the Condensed Consolidated Statements of Income. This redemption will reduce the principal amount of 9% Debentures outstanding to $475 million. In June 2003, we entered into an interest rate swap agreement for an aggregate notional principal amount of $100 million. Under this agreement, we will pay a fixed rate of interest of 1.3 percent and receive a floating rate of interest based on three month LIBOR. This agreement matures in June 2005 and is accounted for as a cash flow hedge. On March 3, 2003, we completed a $150 million incremental term loan borrowing under the Credit Agreement. The proceeds were used largely to finance the acquisitions of White Cap and Thatcher Tubes. The terms of the incremental term loan borrowing are the same as those for B term loan borrowings under the Credit Agreement. This borrowing reduced our uncommitted incremental term loan facility under the Credit Agreement to $125 million. At June 30, 2003, amounts expected to be repaid within one year consisted of $170.9 million of bank revolving loans related primarily to seasonal working capital needs, $21.7 million of bank term loans and $25.2 million (including unamortized premium) of 9% Debentures. -15- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 8. Business Segment Information Reportable business segment information for our business segments is as follows:
Metal Food Plastic Containers(1) Containers Corporate Total ---------- ---------- --------- ----- (Dollars in thousands) Three Months Ended June 30, 2003 - -------------------------------- Net sales .................................... $397,941 $147,299 $ -- $545,240 Depreciation and amortization(2) ............. 18,580 9,929 11 28,520 Segment income from operations ............... 26,089 17,331 (1,369) 42,051 Three Months Ended June 30, 2002 - -------------------------------- Net sales .................................... $327,600 $128,649 $ -- $456,249 Depreciation and amortization(2) ............. 14,983 9,210 18 24,211 Segment income from operations ............... 22,485 16,815 (1,407) 37,893 Six Months Ended June 30, 2003 - ------------------------------ Net sales .................................... $713,370 $286,247 $ -- $999,617 Depreciation and amortization(2) ............. 34,221 19,990 22 54,233 Segment income from operations ............... 37,878 32,805 (2,611) 68,072 Six Months Ended June 30, 2002 - ------------------------------ Net sales .................................... $626,958 $253,547 $ -- $880,505 Depreciation and amortization(2) ............. 28,758 17,975 33 46,766 Segment income from operations ............... 44,939 31,649 (2,691) 73,897 - ------------- (1) Includes a rationalization credit of $2.3 million for the six months ended June 30, 2002. (2) Depreciation and amortization excludes amortization of debt issuance costs of $1.0 million and $1.4 million for the three months ended June 30, 2003 and 2002, respectively, and $1.9 million and $1.8 million for the six months ended June 30, 2003 and 2002, respectively.
-16- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2003 and 2002 and for the three and six months then ended is unaudited) Note 8. Business Segment Information (continued) Total segment income from operations is reconciled to income before income taxes and equity in losses of affiliate as follows:
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Dollars in thousands) Total segment income from operations ........ $42,051 $37,893 $68,072 $73,897 Interest and other debt expense ............. 20,038 19,372 38,827 35,868 ------- ------- ------- ------- Income before income taxes and equity in losses of affiliate ........ $22,013 $18,521 $29,245 $38,029 ======= ======= ======= =======
Note 9. Related Party Transactions Previously, pursuant to management services agreements, or the Management Agreements, entered into between each of Holdings, Silgan Containers Corporation and Silgan Plastics Corporation and S&H Inc., or S&H, a company wholly owned by R. Philip Silver, the Chairman and Co-Chief Executive Officer of Holdings, and D. Greg Horrigan, the President and Co-Chief Executive Officer of Holdings, S&H provided Holdings and its subsidiaries with general management, supervision and administrative services. The parties to the Management Agreements agreed to terminate the Management Agreements effective January 1, 2003. As a result, Messrs. Silver and Horrigan became employees of Holdings effective January 1, 2003, and neither Holdings nor its subsidiaries will make any payment in 2003 under the Management Agreements. -17- Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements included in "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this Quarterly Report on Form 10-Q which are not historical facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934. Such forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002 and our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements. RESULTS OF OPERATIONS The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented.
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- Net sales Metal food containers........................... 73.0% 71.8% 71.4% 71.2% Plastic containers.............................. 27.0 28.2 28.6 28.8 ----- ----- ----- ----- Consolidated................................. 100.0 100.0 100.0 100.0 Cost of goods sold................................ 87.1 87.4 88.0 87.5 ----- ----- ----- ----- Gross profit...................................... 12.9 12.6 12.0 12.5 Selling, general and administrative expenses...... 5.2 4.3 5.2 4.4 Rationalization credit ........................... -- -- -- (0.3) ----- ----- ----- ----- Income from operations............................ 7.7 8.3 6.8 8.4 Interest and other debt expense................... 3.7 4.2 3.9 4.1 ----- ----- ----- ----- Income before income taxes and equity in losses of affiliate............................. 4.0 4.1 2.9 4.3 Provision for income taxes........................ 1.5 1.6 1.1 1.7 ----- ----- ----- ----- Income before equity in losses of affiliate ...... 2.5 2.5 1.8 2.6 Equity in losses of affiliate, net of income taxes................................... -- 0.3 -- 0.2 ----- ----- ----- ----- Net income........................................ 2.5% 2.2% 1.8% 2.4% ===== ===== ===== =====
-18- Summary unaudited results of operations for the three and six months ended June 30, 2003 and 2002 are provided below. Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Dollars in millions) Net Sales Metal food containers ........ $397.9 $327.6 $713.4 $627.0 Plastic containers ........... 147.3 128.6 286.2 253.5 ------ ------ ------ ------ Consolidated .............. $545.2 $456.2 $999.6 $880.5 ====== ====== ====== ====== Income from operations Metal food containers(1) ..... $ 26.1 $ 22.5 $ 37.9 $ 45.0 Plastic containers ........... 17.3 16.8 32.8 31.6 Corporate .................... (1.3) (1.4) (2.6) (2.7) ------ ------ ------ ------ Consolidated .............. $ 42.1 $ 37.9 $ 68.1 $ 73.9 ====== ====== ====== ====== - ------------- (1) Includes a rationalization credit of $2.3 million for the six months ended June 30, 2002. Three Months Ended June 30, 2003 Compared with Three Months Ended June 30, 2002 Net Sales. Consolidated net sales increased $89.0 million, or 19.5 percent, to $545.2 million for the second quarter of 2003, as compared to net sales of $456.2 million for the second quarter of 2002. This increase was the result of higher net sales in the metal food container business largely due to the acquisition of the White Cap closures business and higher net sales of the plastic container business due to higher average selling prices and the acquisition of Thatcher Tubes. Net sales for the metal food container business were $397.9 million for the second quarter of 2003, an increase of $70.3 million, or 21.5 percent, from net sales of $327.6 million for the second quarter of 2002. This increase was largely attributable to the inclusion of net sales of Silgan Closures in the second quarter of 2003. Excluding net sales of Silgan Closures, net sales of the metal food container business for the second quarter of 2003 increased 1.2 percent as a result of slightly higher average selling prices and increased sales volumes as compared to the second quarter in 2002. Net sales for the plastic container business of $147.3 million for the second quarter of 2003 increased $18.7 million, or 14.5 percent, from net sales of $128.6 million for the second quarter of 2002. This increase was primarily a result of higher unit volume due in part to the acquisition of Thatcher Tubes and higher average selling prices due to the pass through of significantly higher resin costs. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 87.1 percent for the second quarter of 2003, a decrease of 0.3 percentage points as compared to 87.4 percent for the same period in 2002. The increase in gross profit margin was primarily attributable to the inclusion of the recently acquired White Cap closures business and a reduction in costs incurred by the metal food container business to absorb new volume awarded in 2002, partially offset by higher depreciation expense and employee health and welfare costs. -19- Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales increased by 0.9 percentage points to 5.2 percent for the second quarter of 2003, as compared to 4.3 percent for the same period in 2002. This increase was largely the result of the acquisitions of the White Cap and Thatcher Tubes businesses, which have higher selling, general and administrative expense levels, and higher insurance and employee health and welfare costs. Income from Operations. Income from operations for the second quarter of 2003 increased $4.2 million, or 11.1 percent, to $42.1 million, as compared to $37.9 million in the same period in 2002. Operating margin for the second quarter of 2003 decreased 0.6 percentage points to 7.7 percent, as compared to 8.3 percent for the same period in 2002. The increase in income from operations was largely due to the inclusion of the results of the recently acquired White Cap closures business, as well as increases in the remaining metal food container and the plastic container businesses. Income from operations of the metal food container business for the second quarter of 2003 increased $3.6 million, or 16.0 percent, to $26.1 million as compared to $22.5 million for the second quarter of 2002, while operating margin decreased 0.3 percentage points to 6.6 percent as compared to 6.9 percent for the same period in 2002. The increase in income from operations was principally due to higher net sales largely as a result of the acquisition of the White Cap closures business and a reduction in costs incurred to absorb new volume awarded in 2002, partially offset by higher depreciation expense and increased employee health and welfare costs. Income from operations of the plastic container business for the second quarter of 2003 increased $0.5 million, or 3.0 percent, to $17.3 million as compared to $16.8 million for the same period in 2002, while operating margin decreased 1.4 percentage points to 11.7 percent as compared to 13.1 percent for the second quarter of 2002. The increase in income from operations was primarily a result of higher unit volumes and improved productivity, partially offset by the impact of heightened competitive activity, higher depreciation expense and higher employee health and welfare costs. Interest Expense. Interest expense increased $0.6 million to $20.0 million for the second quarter of 2003 as compared to the same period in 2002. This increase resulted primarily from higher average borrowings due to three acquisitions completed in early 2003, largely offset by a lower average interest rate due to lower LIBOR rates. During the quarter, lower LIBOR rates more than offset the impact on our average interest rate of the add-on issuance of $200 million of 9% Debentures at the end of April 2002 and higher interest rate spreads over LIBOR as a result of the refinancing of our previous senior secured credit facility with the Credit Agreement at the end of June 2002. As a result of the refinancing of our previous senior secured credit facility, interest expense for the second quarter of 2002 included $1.0 million for the write-off of unamortized debt issuance costs related to that credit facility. Income Taxes. The provision for income taxes for the second quarter of 2003 and 2002 was recorded at an effective annual income tax rate of 38.5 percent and 39.0 percent, respectively. Net Income and Earnings per Share. Net income for the second quarter of 2003 was $13.5 million, or $0.74 per diluted share, as compared to net income of $10.1 million, or $0.55 per diluted share, for the second quarter of 2002. -20- Six Months Ended June 30, 2003 Compared with Six Months Ended June 30, 2002 Net Sales. Consolidated net sales increased $119.1 million, or 13.5 percent, to $999.6 million for the six months ended June 30, 2003, as compared to net sales of $880.5 million for the same six months in the prior year. This increase was largely the result of higher net sales in the metal food container business due to the acquisition of White Cap in March 2003 and higher volumes in the plastic container business due largely to the acquisition of Thatcher Tubes in January 2003. Net sales for the metal food container business were $713.4 million for the six months ended June 30, 2003, an increase of $86.4 million, or 13.8 percent, from net sales of $627.0 million for the same six months in the prior year. This increase was primarily attributable to the inclusion of net sales of Silgan Closures since March 2003. Excluding net sales of Silgan Closures, net sales of the metal food container business for the six months ended June 30, 2003 were essentially unchanged from the same period last year. Net sales for the plastic container business of $286.2 million for the six months ended June 30, 2003 increased $32.7 million, or 12.9 percent, from net sales of $253.5 million for the same six months in the prior year. This increase was primarily a result of higher unit volume due largely to the acquisition of Thatcher Tubes in January 2003 and higher average selling prices due to the pass through of increased resin costs. Cost of Goods Sold. Cost of goods sold as a percentage of consolidated net sales was 88.0 percent for the six months ended June 30, 2003, an increase of 0.5 percentage points as compared to 87.5 percent for the same period in 2002. The decrease in gross profit margin was primarily attributable to unfavorable absorption of fixed costs in the metal food container business as an inventory reduction program was implemented during the first quarter of 2003, higher depreciation expense and increased employee health and welfare costs, partially offset by the inclusion of Silgan Closures since March 2003. Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales increased by 0.8 percentage points to 5.2 percent for the six months ended June 30, 2003, as compared to 4.4 percent for the same period in 2002. This increase was largely the result of the acquisitions of White Cap and Thatcher Tubes, which have higher selling, general and administrative expense levels, and higher insurance and employee health and welfare costs. Income from Operations. Income from operations for the six months ended June 30, 2003 decreased $5.8 million, or 7.8 percent, to $68.1 million, as compared to $73.9 million in the same period in 2002. Operating margin for the six months ended June 30, 2003 decreased 1.6 percentage points to 6.8 percent, as compared to 8.4 percent for the same period in 2002. These decreases were primarily a result of lower income from operations and operating margin in the metal food container business. Income from operations of the metal food container business for the six months ended June 30, 2003 decreased $7.1 million, or 15.8 percent, to $37.9 million as compared to $45.0 million for the same period in 2002, and operating margin decreased 1.9 percentage points to 5.3 percent as compared to 7.2 percent for the same period in 2002. The decrease in income from operations was principally due to unfavorable absorption of fixed costs as an inventory reduction program was implemented during the first quarter of 2003, a rationalization credit of $2.3 million recorded in the first quarter of 2002 related to placing certain previously written down assets back in service, higher depreciation expense and increased employee health and welfare costs, partially offset by the inclusion of Silgan Closures since March 2003. -21- Income from operations of the plastic container business for the six months ended June 30, 2003 increased $1.2 million, or 3.8 percent, to $32.8 million as compared to $31.6 million for the same period in 2002, while operating margin decreased 1.0 percentage point to 11.5 percent as compared to 12.5 percent for the same period in 2002. The increase in income from operations was primarily a result of higher unit volumes largely due to the acquisition of Thatcher Tubes in January 2003 and improved operating efficiencies, partially offset by the impact of heightened competitive activity, higher depreciation expense and higher employee health and welfare costs. Interest Expense. Interest expense increased $2.9 million to $38.8 million for the six months ended June 30, 2003 as compared to the same period in 2002. This increase resulted primarily from higher average borrowings due to three acquisitions completed in early 2003. The average interest rate was essentially unchanged for the first six months of 2003 as compared to the same period in 2002, as the impact of the add-on issuance of $200 million of 9% Debentures at the end of April 2002 and higher interest rate spreads over LIBOR as a result of the refinancing of our previous senior secured credit facility with the Credit Agreement at the end of June 2002 were offset by the impact of lower LIBOR rates during the six months ended June 30, 2003. As a result of the refinancing of our previous senior secured credit facility, interest expense for the first six months of 2002 included $1.0 million for the write-off of unamortized debt issuance costs related to that credit facility. Income Taxes. The provision for income taxes for the six months ended June 30, 2003 and 2002 was recorded at an effective annual income tax rate of 38.5 percent and 39.0 percent, respectively. Net Income and Earnings per Share. Net income for the six months ended June 30, 2003 was $17.7 million, or $0.96 per diluted share, as compared to net income of $21.4 million, or $1.17 per diluted share, for the same period in 2002. CAPITAL RESOURCES AND LIQUIDITY Our principal sources of liquidity have been net cash from operating activities and borrowings under the Credit Agreement. Our liquidity requirements arise primarily from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment and the funding of our seasonal working capital needs. On March 3, 2003, we completed a $150 million incremental term loan borrowing under the Credit Agreement. The proceeds were used largely to finance the acquisitions of White Cap and Thatcher Tubes. The terms of the incremental term loans are the same as those for B term loans under the Credit Agreement. This borrowing reduced our uncommitted incremental term loan facility under the Credit Agreement to $125 million. For the six months ended June 30, 2003, we used net borrowings of revolving loans of $170.9 million, incremental term loan borrowings of $150.0 million under the Credit Agreement, cash balances of $48.2 million, proceeds from asset sales of $0.3 million and proceeds from stock option exercises of $0.1 million to fund the acquisitions of White Cap, Thatcher Tubes and Pacific Coast Can for $206.9 million, cash used by operations of $105.5 million primarily for our seasonal working capital needs, capital expenditures of $55.1 million and debt issuance costs of $2.0 million. -22- For the six months ended June 30, 2002, we used excess proceeds of $174.7 million from the issuance of the 9% Debentures and the refinancing of our previous senior secured credit facility, cash balances of $4.7 million and proceeds from stock option exercises of $4.1 million to fund cash used in operations of $112.2 million primarily for our seasonal working capital needs, capital expenditures of $48.7 million, debt issuance costs of $21.1 million and other repayments of long-term debt of $1.5 million. Because we sell metal containers used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must access working capital to build inventory and then carry accounts receivable for some customers beyond the end of the summer and fall packing season. Seasonal accounts are generally settled by year end. Due to our seasonal requirements, we incur short-term indebtedness to finance our working capital requirements. For 2003, we estimate that we will utilize approximately $200-$210 million of revolving loans under the Credit Agreement for our peak seasonal working capital requirements, which excludes borrowings to initially fund acquisitions and redeem 9% Debentures. We may use the available portion of our revolving loan facility under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for acquisitions and other permitted purposes. As of June 30, 2003, we had $170.9 million of revolving loans outstanding under the Credit Agreement related primarily to seasonal working capital needs. The unused portion of the revolving loan facility under the Credit Agreement at June 30, 2003, after taking into account outstanding letters of credit, was $207.2 million. On July 30, 2003, we gave irrevocable notice of a partial redemption of $25 million principal amount of our 9% Debentures. The redemption price will be 103.375% of the principal amount of the 9% Debentures being redeemed, or approximately $25.8 million, plus accrued and unpaid interest to the redemption date, August 29, 2003. As permitted under the Credit Agreement, we will fund this redemption with lower cost revolving loans under the Credit Agreement. As a result of this redemption, we expect to record a loss on early extinguishment of debt of approximately $1.0 million in the third quarter of 2003 for the premium paid in connection with this redemption and for the write-off of unamortized debt issuance costs and unamortized premium related to the redeemed 9% Debentures. This loss on early extinguishment of debt will be recorded as interest and other debt expense in the Condensed Consolidated Statements of Income. This redemption will reduce the principal amount of 9% Debentures outstanding to $475 million. Our Board of Directors has authorized the repurchase of up to $70 million of our common stock. As of June 30, 2003, we have repurchased 2,708,975 shares of our common stock for an aggregate cost of approximately $61.0 million. We intend to finance future repurchases, if any, of our common stock with revolving loan borrowings. -23- During the second quarter of 2003, we established acquisition reserves in connection with our purchases of Thatcher Tubes, White Cap and Pacific Coast Can aggregating approximately $5.0 million, recorded pursuant to plans that we began to assess and formulate at the date of the acquisitions and which will be finalized within one year. As we continue to assess, formulate and finalize our integration plans, there may be revisions to these acquisition reserves. These reserves consisted of employee severance and benefits costs of $4.6 million and plant exit costs of $0.4 million related to the planned closing and downsizing of certain acquired facilities. Through June 30, 2003, a total of $0.2 million has been expended for employee severance and benefits related to these plans. At June 30, 2003, this reserve had a balance of $4.8 million. Cash payments related to these acquisition reserves are expected through 2004. You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2003 included elsewhere in this Quarterly Report. In August 2003, we approved and announced to employees our plan to exit one manufacturing facility of our plastic container business. The plan includes the termination of approximately 30 plant employees and other related exit costs. This decision will result in a charge to earnings of approximately $6.7 million in the third quarter of 2003. This charge will consist of approximately $5.2 million for the non-cash write-down in carrying value of assets, approximately $0.9 million for employee severance and benefits and approximately $0.6 million for plant exit costs. During the first quarter of 2002, we placed certain assets of our metal food container business with carrying values that were previously written down back in service. As a result, we recorded a $2.3 million rationalization credit and recorded those assets in our Condensed Consolidated Balance Sheets at their depreciated cost, which approximated fair value. You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2003 included elsewhere in this Quarterly Report. We believe that cash generated from operations and funds from the revolving loans available under the Credit Agreement will be sufficient to meet our expected operating needs, planned capital expenditures, debt service and tax obligations for the foreseeable future. We have historically grown our businesses primarily through acquisitions, and we continue to evaluate acquisition opportunities in the consumer goods packaging market. As a result, we may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition. However, in the absence of strategically compelling and immediately accretive acquisition opportunities, we expect to use our free cash flow to repay indebtedness or for other permitted purposes. We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2003 with all of these covenants. RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS Effective January 1, 2003, we adopted SFAS No. 145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections." Among other provisions, SFAS No. 145 rescinds SFAS No. 4, "Reporting Gains and Losses from Extinguishment of Debt," and SFAS No. 64, "Extinguishment of Debt Made to Satisfy Sinking-Fund Requirements," such that certain gains or losses from the extinguishment of debt will no longer be classified as extraordinary items. Upon adoption in 2003, the extraordinary item for loss on early extinguishment of debt of $1.0 million before income taxes that was recorded in the second quarter of 2002 as a result of the refinancing of our previous senior secured credit facility with the Credit Agreement was reclassified to interest and other debt expense. -24- Effective January 1, 2003, we adopted SFAS No. 146, "Accounting for Costs Associated with Exit or Disposal Activities," which is applicable to exit and disposal activities that are initiated after December 31, 2002. SFAS No. 146 addresses accounting and reporting for costs associated with exit or disposal activities and nullifies EITF Issue No. 94-3, "Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires the recognition of a liability for a cost associated with an exit or disposal activity when the liability is incurred. Under EITF Issue No. 94-3, a liability for an exit cost was recognized at the date an entity committed to an exit plan. In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest Entities," which expands upon existing accounting guidance on consolidation. A variable interest entity either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46 requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns. The provisions of FIN No. 46 are effective for us on July 1, 2003. We do not anticipate that the adoption of FIN No. 46 will have a material effect on our financial position or results of operations. Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ---------------------------------------------------------- Market risks relating to our operations result primarily from changes in interest rates. In the normal course of business, we also have limited foreign currency risk associated with our operations in Canada and Mexico and risk related to commodity price changes for items such as natural gas. We employ established policies and procedures to manage our exposure to these risks. Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes. Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2002. Since such filing, there has not been a material change to our interest rate risk, foreign currency rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks. You should also read Note 7 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2003 included elsewhere in this Quarterly Report. Item 4. CONTROLS AND PROCEDURES ----------------------- We carried out an evaluation, under the supervision and with the participation of management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934). Based upon that evaluation, as of the end of the period covered by this Quarterly Report our Co-Chief Executive Officers and Chief Financial Officer concluded that the disclosure controls and procedures are effective in ensuring that all material information required to be disclosed in this Quarterly Report has been made known to them in a timely fashion. There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls. -25- Part II. Other Information Item 4. Submission of Matters to a Vote of Security Holders Our annual meeting of stockholders, or the Annual Meeting, for which proxies were solicited pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended, was held on June 5, 2003 for the purposes of (1) electing two directors to serve for a three year term until our annual meeting of stockholders in 2006 and until their successors are duly elected and qualified; (2) approving the adoption of the Silgan Holdings Inc. Senior Executive Performance Plan; and (3) ratifying the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2003. The nominees for director listed in our proxy statement, each of whom was elected at the Annual Meeting, are named below, and each received the number of votes for election as indicated below (with each share of our common stock being entitled to one vote): Number of Shares Number of Shares Voted For Withheld --------- -------- Jeffrey C. Crowe 13,636,310 3,738,801 Edward A. Lapekas 16,813,189 561,922 Our directors whose term of office continued after the Annual Meeting are R. Philip Silver and William C. Jennings (who replaced Leigh J. Abramson on July 30, 2003), each of whose term of office as a director continues until our annual meeting of stockholders in 2004, and D. Greg Horrigan and John W. Alden, each of whose term of office as a director continues until our annual meeting of stockholders in 2005. The adoption of the Silgan Holdings Inc. Senior Executive Performance Plan was approved at the Annual Meeting. There were 16,989,176 votes cast approving such adoption, 369,550 votes cast against such adoption and 16,385 votes abstaining. The ratification of the appointment of Ernst & Young LLP as our independent auditors for the fiscal year ending December 31, 2003 was approved at the Annual Meeting. There were 17,147,174 votes cast ratifying such appointment, 225,437 votes cast against ratification of such appointment and 2,500 votes abstaining. -26- Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description - -------------- ----------- 12 Ratio of Earnings to Fixed Charges for the three and six months ended June 30, 2003 and 2002. 31.1 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.3 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 32.2 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 32.3 Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. (b) Reports on Form 8-K 1. On April 23, 2003, we filed a Current Report on Form 8-K related to our announcement regarding our results of operations for the quarterly period ended March 31, 2003. -27- SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized. SILGAN HOLDINGS INC. Dated: August 14, 2003 /s/Anthony J. Allott - ----------------------- ----------------------------- Anthony J. Allott Executive Vice President and Chief Financial Officer (Principal Financial Officer) Dated: August 14, 2003 /s/Nancy Merola - ----------------------- ----------------------------- Nancy Merola Vice President and Controller (Chief Accounting Officer) -28- EXHIBIT INDEX EXHIBIT NO. EXHIBIT ----------- ------- 12 Ratio of Earnings to Fixed Charges for the three and six months ended June 30, 2003 and 2002. 31.1 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.2 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 31.3 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act. 32.1 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 32.2 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act. 32.3 Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act. -29- EX-12 4 secondq03ex12.txt 2Q10Q03 Exhibit 12 SILGAN HOLDINGS INC. COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (Unaudited) The following table sets forth Silgan Holdings Inc.'s computation of its ratio of earnings to fixed charges for the periods presented.
Three Months Ended Six Months Ended ------------------ ---------------- June 30, June 30, June 30, June 30, 2003 2002 2003 2002 ---- ---- ---- ---- (Dollars in thousands) Earnings before fixed charges: Income before income taxes and equity in losses of affiliate ....... $22,013 $18,521 $29,245 $38,029 Interest and other debt expense ........ 20,038 19,372 38,827 35,868 Interest portion of rental expense ..... 191 135 385 274 ------- ------- ------- ------- Earnings before fixed charges .......... $42,242 $38,028 $68,457 $74,171 ======= ======= ======= ======= Fixed charges: Interest and other debt expense ........ $20,038 $19,372 $38,827 $35,868 Interest portion of rental expense ..... 191 135 385 274 Capitalized interest ................... 211 280 786 492 ------- ------- ------- ------- Total fixed charges .................... $20,440 $19,787 $39,998 $36,634 ======= ======= ======= ======= Ratio of earnings to fixed charges ......... 2.07 1.92 1.71 2.02
EX-31.1 5 cert31rps.txt SECTION 302 CERTIFICATION - CO-CEO Exhibit 31.1 CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, R. Philip Silver, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2003 of Silgan Holdings Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ R. Philip Silver -------------------------- Chairman of the Board and Co-Chief Executive Officer EX-31.2 6 cert31dgh.txt SECTION 302 CERTIFICATION - CO-CEO Exhibit 31.2 CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, D. Greg Horrigan, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2003 of Silgan Holdings Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ D. Greg Horrigan -------------------------- President and Co-Chief Executive Officer EX-31.3 7 cert31aja.txt SECTION 302 CERTIFICATION -CFO Exhibit 31.3 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT I, Anthony J. Allott, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2003 of Silgan Holdings Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: August 14, 2003 /s/ Anthony J. Allott ---------------------------- Executive Vice President and Chief Financial Officer EX-32.1 8 cert32rps.txt SECTION 906 CERTIFICATION - CO-CEO Exhibit 32.1 CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Quarterly Report of Silgan Holdings Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), I, R. Philip Silver, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ R. Philip Silver - -------------------- R. Philip Silver Chairman of the Board and Co-Chief Executive Officer August 14, 2003 A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.2 9 cert32dgh.txt SECTION 906 CERTIFICATION - CO-CEO Exhibit 32.2 CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Quarterly Report of Silgan Holdings Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), I, D. Greg Horrigan, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ D. Greg Horrigan - -------------------- D. Greg Horrigan President and Co-Chief Executive Officer August 14, 2003 A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request. EX-32.3 10 cert32aja.txt SECTION 906 CERTIFICATION - CFO Exhibit 32.3 CERTIFICATION BY THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT In connection with the Quarterly Report of Silgan Holdings Inc. (the "Company") on Form 10-Q for the period ended June 30, 2003 as filed with the Securities and Exchange Commission on the date hereof (the "Quarterly Report"), I, Anthony J. Allott, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge: (1) The Quarterly Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Quarterly Report fairly presents, in all material respects, the financial condition and results of operations of the Company. /s/ Anthony J. Allott - --------------------- Anthony J. Allott Executive Vice President and Chief Financial Officer August 14, 2003 A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request. -----END PRIVACY-ENHANCED MESSAGE-----