Silgan Holdings - 10-Q quarterly report FY2011 Q2

UNITED STATES

Washington, D.C.  20549

(Mark One)

For the quarterly period ended June 30, 2011

OR

For the transition period from ________________ to ________________

Commission file number  000-22117

(Exact name of Registrant as specified in its charter)

 (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).

Yes [ X ]   No [   ]

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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 29, 2011, the number of shares outstanding of the Registrant’s common stock, $0.01 par value, was 70,138,336.

 

 

 

 

See accompanying notes.

 

 

SILGAN HOLDINGS INC.

For the three months ended June 30, 2011 and 2010

(Dollars and shares in thousands, except per share amounts)

 

See accompanying notes.

SILGAN HOLDINGS INC.

For the six months ended June 30, 2011 and 2010

(Dollars and shares in thousands, except per share amounts)

 

See accompanying notes.

SILGAN HOLDINGS INC.

For the six months ended June 30, 2011 and 2010

(Dollars in thousands)

(Unaudited)

See accompanying notes.

STOCKHOLDERS' EQUITY

For the six months ended June 30, 2011 and 2010

(Dollars and shares in thousands)

(Unaudited)

 

See accompanying notes.

SILGAN HOLDINGS INC.

(Information at June 30, 2011 and 2010 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 Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, 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 GAAP 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, 2010 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2010.

Recently Issued Accounting Pronouncement. In June 2011, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, which amends the guidance for presenting comprehensive income.  This amendment will require us to present the components of net income and other comprehensive income either as one continuous statement or as two consecutive statements.  This amendment is effective for us on January 1, 2012 with retrospective application required.  We are currently evaluating the presentation implications of this amendment, however the adoption of it will not have an effect on our financial position, results of operations or cash flows.

Note 2.    Acquisitions

In June 2011, Graham Packaging Company Inc., or Graham Packaging, terminated our definitive merger agreement and paid us a termination fee of $39.5 million in accordance with the terms of such merger agreement.  The proceeds from the termination fee and costs associated with corporate development activities have been recorded in selling, general and administrative expenses in the Condensed Consolidated Statement of Income for the three and six months ended June 30, 2011.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

On March 1, 2011, we acquired the metal container operations of Vogel & Noot Holding AG, or VN, which is headquartered in Vienna, Austria.  VN manufactures metal food and general line containers, currently operates 12 metal container manufacturing facilities throughout Central and Eastern Europe and is scheduled to open several new facilities in other developing Eastern countries in the near term.  We acquired these operations for a total purchase price of €212.4 million ($292.7 million translated at the U.S. dollar exchange rate at the date of acquisition), net of cash acquired.  A portion of the purchase price, with an acquisition date fair value of €35.6 million ($49.0 million translated at the U.S. dollar exchange rate at the date of acquisition), is payable in March 2012.  We funded the purchase price for this acquisition from Euro denominated revolving loan borrowings under our previous senior secured credit facility.

The VN acquisition represents a strategically important acquisition for us as it provides an opportunity to expand our metal container franchise as we partner with our global customers to support their growth in the Central and developing Eastern European markets.  VN, which employs approximately 1,600 employees, had annual net sales of approximately $310 million for the year ended December 31, 2010.  The acquired VN operations have been combined with our pre-existing U.S. metal food container operations to form our metal containers business segment (see Note 13).

The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches.  The purchase price allocation is preliminary and subject to change pending a final determination of the purchase price and a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets, and the related tax impact of any adjustments to such valuations.  Based on revised estimates of fair value of certain assets and liabilities from our preliminary purchase price allocation presented in our Quarterly Report on Form 10-Q for the period ended March 31, 2011, we increased goodwill by $3.3 million.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Vogel & Noot (continued)

The allocated fair value of assets acquired and liabilities assumed are summarized as follows (in thousands):

Goodwill of $54.9 million consists largely of our increased capacity to serve our global customers and achieve operational synergies and has been assigned to our metal containers segment.  None of the goodwill is expected to be deductible for tax purposes.  Other intangible assets consist of customer relationships of $19.3 million with an estimated remaining life of 20 years, and a trade name of $3.4 million with an estimated remaining life of 10 years.  Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives up to 35 years.

The consolidated results of operations for the six months ended June 30, 2011 included the results for VN since the acquisition date.  Net sales from the VN operations of $75.4 million and $100.4 million were included in our Condensed Consolidated Statement of Income for the three and six months ended June 30, 2011, respectively.  VN’s results of operations since the acquisition date, which were not significant, included the pre-tax negative impact of $5.5 million from the inventory write-up for VN as a result of purchase accounting in connection with the acquisition.

Pro Forma Information

The following unaudited pro forma financial information includes our historical results of operations for the three and six months ended June 30, 2011 and 2010 and gives pro forma effect to the VN acquisition as if it had been completed as of January 1, 2010.  The pro forma results of operations include interest expense related to incremental borrowings used to finance the VN acquisition and adjustments to depreciation and amortization expense for the valuation of property, plant and equipment and intangible assets.  In addition, net income for the six months ended June 30, 2010 includes the impact of the initial inventory write-up and acquisition costs.  The pro forma results of operations do not give effect to potential synergies or additional costs resulting from the integration of VN with our existing operations.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Vogel & Noot (continued)

The unaudited pro forma financial information is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the VN acquisition been completed as of the beginning of the periods presented, nor should it be taken as indicative of our future consolidated results of operations or financial condition.

Unaudited pro forma financial information:

On March 1, 2011, we acquired the twist-off metal closure business of DGS S.A. in Poland, or DGS.  The purchase price of $20.7 million, net of cash acquired, was primarily funded with foreign bank revolving loan borrowings.  We applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date.  We recognized goodwill of $8.1 million and a customer relationship intangible asset of $2.9 million.  DGS’s results of operations were included in our closures business since the acquisition date and were not significant since such date.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 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, 2010 is summarized as follows:

Rationalization reserves are included in the Condensed Consolidated Balance Sheets as follows:

 

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

 

Note 4.    Accumulated Other Comprehensive (Loss) Income

Accumulated other comprehensive (loss) income is reported in the Condensed Consolidated Statements of Stockholders’ Equity.  Amounts included in accumulated other comprehensive (loss) income, net of tax, consisted of the following:

 

Inventories consisted of the following:

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Note 6.    Long-Term Debt

Long-term debt consisted of the following:

On July 28, 2011, we completed the refinancing of our previous senior secured credit facility by entering into a new $1.9 billion senior secured credit facility, or the Credit Agreement.  Our Credit Agreement provides us with term loans and revolving loans.  The term loans, or the Term Loans, provided under the Credit Agreement refinanced the term loans under our previous senior secured credit facility and certain Euro revolving loan borrowings used to finance the Vogel & Noot acquisition in March 2011 and certain U.S. dollar revolving loan borrowings under our previous senior secured credit facility.  The Term Loans consist of $520 million of U.S. term loans, €335 million of Euro term loans and Cdn $81 million of Canadian term loans.  The revolving loans, or the Revolving Loans, consist of a $790 million multicurrency revolving loan facility and a Cdn $10 million Canadian revolving loan facility.  Our Credit Agreement also provides us with an uncommitted multicurrency incremental loan facility for up to an additional U.S. $750 million, which may be used to finance acquisitions and for other permitted purposes.

 

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Bank Credit Agreement (continued)

We may use Revolving Loans under the Credit Agreement for working capital and other general corporate purposes, including acquisitions, dividends, stock repurchases and refinancing of other debt.  Revolving Loans may be borrowed, repaid and reborrowed until their final maturity on July 28, 2016.  The Term Loans mature on July 28, 2017 and are payable in installments as follows (amounts in thousands):

The final maturity date for the Revolving Loans and Term Loans will be July 7, 2016 if our 7¼% Senior Notes have not been refinanced in full on or before July 7, 2016.

The Credit Agreement requires us to prepay the Term Loans with proceeds received from certain assets sales and, under certain circumstances, with 50 percent of our excess cash flow.  The mandatory repayment provisions are no more restrictive in the aggregate than under our previous senior secured credit facility.   Generally, mandatory repayments of Term Loans are allocated pro rata to each of the Term Loans and applied first to the scheduled amortization payments in the year of such prepayments and, to the extent in excess thereof, pro rata to the remaining installments of the Term Loans.  Voluntary prepayments of Term Loans may be applied to any tranche of Term Loans at our discretion and are applied first to the scheduled amortization payments in the year of such prepayment and, to the extent in excess thereof, pro rata to the remaining installments.  Amounts repaid under the Term Loans may not be reborrowed.

The uncommitted multicurrency incremental loan facility provides, among other things, that any incremental term loan borrowing shall be denominated in a single currency, either U.S. dollars or certain foreign currencies; have a maturity date no earlier than the maturity date for the Term Loans; and be used for working capital and general corporate purposes, including to finance acquisitions, to refinance any indebtedness assumed as part of such acquisitions, to pay dividends, to repurchase common stock, to refinance or repurchase debt as permitted and to repay outstanding Revolving Loans.

Under the Credit Agreement, the interest rate for U.S. term loans will be either LIBOR or the base rate under the Credit Agreement plus a margin, the interest rate for Euro term loans will be the Euribor rate under the Credit Agreement plus a margin and the interest rate for Canadian term loans will be either the Bankers’ Acceptance discount rate or the Canadian prime rate under the Credit Agreement plus a margin.  Initially, for Term Loans and Revolving Loans maintained as LIBOR, Euribor or Bankers’ Acceptance loans the margin will be 1.75 percent, and for Term Loans and Revolving Loans maintained as base rate or Canadian prime rate loans the margin will be 0.75 percent.  The Credit Agreement provides for the payment of a commitment fee ranging from 0.25 percent to 0.375 percent per annum on the daily average unused portion of commitments available under the Revolving Loans.  Initially, the commitment fee will be 0.375 percent per annum. The margins for Term Loans and Revolving Loans and the commitment fee are subject to adjustment quarterly based upon our Total Leverage Ratio as provided in the Credit Agreement.

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Bank Credit Agreement (continued)

We may utilize up to a maximum of $200 million of our multicurrency revolving loan facility under the Credit Agreement for letters of credit as long as the aggregate amount of borrowings of Revolving Loans and letters of credit under such multicurrency revolving loan facility do not exceed the amount of the commitment under such multicurrency revolving loan facility.  The Credit Agreement provides for payment to the applicable lenders of a letter of credit fee equal to the applicable margin in effect for Revolving Loans and to the issuers of the letters of credit of a facing fee of the greater of (x) $500 per annum and (y) 0.25 percent per annum, calculated on the aggregate stated amount of all letters of credit for their stated duration.

The indebtedness under the Credit Agreement is guaranteed by Silgan and certain of its U.S. and Canadian subsidiaries. The stock of certain of our subsidiaries has also been pledged as security to the lenders under the Credit Agreement.  The Credit Agreement contains certain financial and operating covenants which limit, subject to certain exceptions, among other things, our ability to incur additional indebtedness; create liens; consolidate, merge or sell assets; make certain advances, investments or loans; enter into certain transactions with affiliates; engage in any business other than the packaging business; pay dividends; and repurchase stock.  In addition, we are required to meet specified financial covenants including Interest Coverage and Total Leverage Ratios, each as defined in the Credit Agreement.  We are currently in compliance with all covenants under the Credit Agreement.

All amounts owing under our previous senior secured credit facility were repaid on July 28, 2011 with proceeds from the Credit Agreement.  As a result of this refinancing, we expect to record a pre-tax charge of approximately $1.0 million for the loss on early extinguishment of debt during the quarter ending September 30, 2011.

Amounts outstanding as of June 30, 2011 classified as current debt included $40.7 million of bank revolving loans and $105.9 million of foreign bank revolving loans and term loans. Bank revolving loans of $422.1 million, consisting of $120.0 million of U.S. dollar denominated revolving loans and €210.0 million ($302.1 million translated at the U.S. dollar exchange rate at the balance sheet date) of Euro denominated revolving loans, are classified as long-term in the Condensed Consolidated Balance Sheet at June 30, 2011 because we refinanced such revolving loans with term loans having maturities of greater than one year under the Credit Agreement.

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Note 7.    Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements.  Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values.  The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at June 30, 2011:

Financial Instruments Measured at Fair Value

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price).  GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels.  Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities.  Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability.  Level 3 inputs represent unobservable inputs for the asset or liability.  Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

The financial assets and liabilities that are measured on a recurring basis at June 30, 2011 consist of our cash and cash equivalents, interest rate swap agreements and natural gas swap agreements.  We measured the fair value of cash and cash equivalents using Level 1 inputs.  We measured the fair value of the swap agreements using the income approach.  The fair value of these agreements reflects the estimated amounts that we would pay based on the present value of the expected cash flows derived from market interest rates and prices.  As such, these derivative instruments are classified within Level 2.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Financial Instruments Not Measured at Fair Value

Our bank debt and 7¼% Senior Notes are recorded at historical amounts in our Condensed Consolidated Balance Sheets as we have not elected to record them at fair value.  The carrying amounts of our variable rate bank debt approximate their fair values.  Fair values of our 7¼% Senior Notes are estimated based on quoted market prices.

Our derivative financial instruments are recorded in the Condensed Consolidated Balance Sheets at their fair values.  Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures.  We limit our use of derivative financial instruments to interest rate and natural gas swap agreements.  We do not engage in trading or other speculative uses of these financial instruments.  For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge.  Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

We utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk.  Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive (loss) income.  We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk.

Our interest rate and natural gas swap agreements are accounted for as cash flow hedges.  During the first six months of 2011, our hedges were fully effective. The fair value of our outstanding swap agreements in effect at June 30, 2011 was recorded in our Condensed Consolidated Balance Sheet as a liability of $9.2 million, of which $3.8 million was included in accrued liabilities and $5.4 million was included in other liabilities.

The amount reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive (loss) income for the six months ended June 30, 2011 was a loss of $1.6 million, net of income taxes.  We estimate that we will reclassify losses of $2.0 million, net of income taxes, from the change in fair value of derivatives component of accumulated other comprehensive (loss) income to earnings during the next twelve months.  The actual amount that will be reclassified to earnings will vary from this amount as a result of changes in market conditions.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

We have entered into Euro interest rate swap agreements to manage a portion of our exposure to interest rate fluctuations.  At June 30, 2011, the aggregate notional principal amount of our outstanding interest rate swap agreements was €125.0 million.  The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income.  For the six months ended June 30, 2011, net payments under our interest rate swap agreements were $2.6 million.  These agreements are with a financial institution which is expected to fully perform under the terms thereof.

We have entered into natural gas swap agreements with a major financial institution to manage a portion of our exposure to fluctuations in natural gas prices.  At June 30, 2011, the aggregate notional principal amount of our natural gas swap agreements was 479,000 MMBtu of natural gas with fixed prices ranging from $4.198 to $4.985 per MMBtu, which hedges approximately 15 percent of our estimated twelve month exposure to fluctuations in natural gas prices.  The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income.  For the six months ended June 30, 2011, net payments under our natural gas swap agreements were $0.2 million.   These agreements are with a financial institution which is expected to fully perform under the terms thereof.

In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with term and revolving loans denominated in Euros and Canadian dollars.  In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations.  We have designated Euro denominated borrowings totaling €320.0 million as net investment hedges.  Foreign currency losses related to our net investment hedges included in accumulated other comprehensive (loss) income for the six months ended June 30, 2011 were $30.6 million, net of a deferred tax benefit of $12.8 million.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Note 8.    Retirement Benefits

The components of the net periodic pension benefit costs are as follows:

The components of the net periodic other postretirement benefits costs are as follows:

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, 2010, there are no significant minimum required contributions to our pension plans in 2011.

 

Note 9.    Income Taxes

Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions.  The Internal Revenue Service, or IRS, has commenced an examination of Silgan’s income tax return for the periods ended December 31, 2004 through December 31, 2007.  It is reasonably possible that this IRS audit and IRS audits for prior periods will be concluded within the next twelve months, and that the conclusion of these audits may result in a significant change to our reported unrecognized tax benefits.  Due to the ongoing nature of these audits, we are unable to estimate the amount of this potential impact.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Note 10.   Dividends

In each of March and June 2011, we paid a quarterly cash dividend on our common stock of $0.11 per share, as approved by our Board of Directors.  The aggregate cash payments related to these dividends totaled $15.6 million.

On August 5, 2011, our Board of Directors declared a quarterly cash dividend on our common stock of $0.11 per share, payable on September 15, 2011 to holders of record of our common stock on September 1, 2011.  The cash payment related to this dividend is expected to be $7.8 million.

 

Note 11.   Treasury Stock

During the first six months of 2011, we issued 349,071 treasury shares which had an average cost of $6.63 per share for restricted stock units that vested during the period.  In accordance with the Silgan Holdings Inc. 2004 Stock Incentive Plan, we repurchased 132,310 shares of our common stock at an average cost of $36.42 to satisfy minimum 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, 2011, 17,209,721 shares were held in treasury.

 

Note 12.   Stock-Based Compensation

We currently have one stock-based compensation plan in effect, under which we have issued options and restricted stock units to our officers, other key employees and outside directors.  During the first six months of 2011, 18,900 restricted stock units were granted to certain of our officers and key employees.  The fair value of these restricted stock units at the grant date was $0.7 million, which is being amortized ratably over the five-year vesting period from the grant date.  In addition, in the first quarter of 2011, a performance award for 120,000 restricted stock units was granted to one of our officers, which award is subject to forfeiture unless certain performance criteria for the year ended December 31, 2011 is achieved.  These restricted stock units vest at the conclusion of the three-year period from the grant date.  The fair value of these restricted stock units at the grant date was $4.4 million, which is being amortized ratably over the three-year vesting period from the grant date.

In June 2011, we granted 6,738 restricted stock units to non-employee members of our Board of Directors, which vest in full one year from the date of grant.  The fair value of these restricted stock units at the date of grant was $0.3 million.

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

 

Note 13.   Business Segment Information

Reportable business segment information for the three and six months ended June 30 is as follows:

 

 

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2011 and 2010 and for the

three and six months then ended is unaudited)

Total segment income from operations is reconciled to income before income taxes as follows:

Sales and income from operations of our metal container business are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States and, to a lesser degree, various geographies in Central and Eastern Europe.  Our closures business is also dependent, in part, upon vegetable and fruit harvests.  The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions.  Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual income from operations during that quarter.

 

Note 14.   Subsequent Event

On July 28, 2011, we completed the refinancing of our previous senior secured credit facility with the Credit Agreement.  See Note 6 for further information.

 

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

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, 2010 and in 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 supplier of rigid packaging for consumer goods products.  We currently produce steel and aluminum containers for human and pet food and general line products; metal, composite and plastic vacuum closures for food and beverage products and plastic closures for the dairy and juice markets; and custom designed plastic containers, tubes and closures for personal care, health care, pharmaceutical, household and industrial chemical, food, pet care, agricultural chemical, automotive and marine chemical products.  We are a leading manufacturer of metal containers in North America and Europe, a leading worldwide manufacturer of metal, composite and plastic vacuum closures for food and beverage products and 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 food markets.

Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns.  We have grown our net sales and income from operations over the years, largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market.  If acquisition opportunities are not identified over a longer period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes.

On March 1, 2011, we acquired the metal container operations of Vogel & Noot which is headquartered in Vienna, Austria.  VN manufactures metal food and general line containers, currently operates 12 metal container manufacturing facilities throughout Central and Eastern Europe and is scheduled to open several new facilities in other developing Eastern countries in the near term.  We acquired these operations for a total purchase price of €212.4 million ($292.7 million translated at the U.S. dollar exchange rate at the date of acquisition), net of cash acquired.

In June 2011, Graham Packaging terminated our definitive merger agreement and paid us a termination fee of $39.5 million in accordance with the terms of such merger agreement.  The proceeds from the termination fee and costs associated with corporate development activities have been recorded in selling, general and administrative expenses in the Condensed Consolidated Statement of Income for the three and six months ended June 30, 2011.

 

 

RESULTS OF OPERATIONS

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented: