Silgan Holdings - 10-Q quarterly report FY

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.  20549

FORM 10-Q

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.

Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2).

As of April 30, 2003, the number of shares outstanding of the Registrant’s common stock, $0.01 par value, was 18,239,242.

Table of Contents

SILGAN HOLDINGS INC.

TABLE OF CONTENTS

-2-

Table of Contents

Part I. Financial Information
Item 1. Financial Statements

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
(Unaudited, see Note 1)

See accompanying notes.

-3-

Table of Contents

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2003 and 2002
(Dollars and shares in thousands, except per share amounts)
(Unaudited)

See accompanying notes.

-4-

Table of Contents

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2003 and 2002
(Dollars in thousands)
(Unaudited)

See accompanying notes.

-5-

Table of Contents

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS’ EQUITY
For the three months ended March 31, 2002 and 2003
(Dollars and shares in thousands)
(Unaudited)

See accompanying notes.

-6-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three months then ended is unaudited)

Note 1.          Significant Accounting Policies

Basis of Presentation.  The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc. 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. 

-7-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three 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 months ended March 31, net income and basic and diluted earnings per share would have been as follows:

Recently Adopted 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 most gains or losses from the extinguishment of debt will no longer be classified as extraordinary items.  Upon adoption in 2003, we reclassified previously reported extraordinary items from loss on early extinguishment of debt to interest and other debt expense.  The adoption of SFAS No. 145 did not impact our results of operations for the three months ended March 31, 2003 or 2002.

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.

-8-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three months then ended is unaudited)

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.  The purchase price, including recently installed additional production capacity, was approximately $32 million in cash.  Thatcher Tubes had annual net sales of approximately $29 million in 2002.  Thatcher Tubes will operate 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 refinanced debt and settled certain third party lease obligations of the business for approximately $94 million.  White Cap had annual net sales of approximately $250 million in 2002.  The business will operate as part of our metal food container business.

We financed these acquisitions primarily through a $150 million incremental term loan borrowing under our senior secured credit facility, or 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.

In April 2003, we acquired PCP Can Manufacturing, Inc., or PCP Can, a subsidiary of Pacific Coast Producers, or PCP, through which PCP self-manufactured a majority of its metal food containers. The purchase price was approximately $45 million in cash, including approximately $30 million for inventory.  As part of the transaction, we entered into a ten-year supply agreement with PCP under which PCP has agreed to purchase from us substantially all of its metal food container requirements.  Annual sales to PCP under the supply agreement are expected to be approximately $55 million.

-9-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three months then ended is unaudited)

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, plant exit costs and acquisition liabilities.  Activity in our rationalization and acquisition reserves since December 31, 2002 is summarized as follows:

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:

-10-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three 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:

Note 5.          Inventories

Inventories consisted of the following:

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.

-11-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three 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.  During the first quarter of 2002, we recorded equity in losses of White Cap of $0.6 million, net of income taxes.  The results of Silgan Closures for the month of March 2003 were included with the results of our metal food container business.

Note 7.          Long-Term Debt

Long-term debt consisted of the following:

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.

-12-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three months then ended is unaudited)

Note 7.          Long-Term Debt  (continued)

At March 31, 2003, amounts expected to be repaid within one year consisted of $78.5 million of bank revolving loans related primarily to seasonal working capital needs and $21.7 million of bank term loans. 

Note 8.          Business Segment Information 

Reportable business segment information for our business segments is as follows:

-13-

Table of Contents

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2003 and 2002 and for the
three 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 for the three months ended March 31 as follows:

-14-

Table of Contents

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.

-15-

Table of Contents

Summary unaudited results of operations for the three months ended March 31, 2003 and 2002 are provided below: