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| SLGN > SEC Filings for SLGN > Form 10-Q on 10-Aug-2009 | All Recent SEC Filings |
10-Aug-2009
Quarterly Report
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, 2008 and our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
General
We are a leading manufacturer of metal and plastic consumer goods packaging products. We produce steel and aluminum containers for human and pet food; metal, composite and plastic vacuum closures for food and beverage products; 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 the largest manufacturer of metal food containers in North America, 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.
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,
2009 2008 2009 2008
---- ---- ---- ----
Net sales
Metal food containers 58.8% 51.3% 57.8% 51.5%
Closures 22.4 26.0 22.1 24.5
Plastic containers 18.8 22.7 20.1 24.0
----- ----- ----- -----
Consolidated 100.0 100.0 100.0 100.0
Cost of goods sold 84.8 85.3 85.0 86.0
----- ----- ----- -----
Gross profit 15.2 14.7 15.0 14.0
Selling, general and administrative expenses 5.8 5.5 6.1 5.4
Rationalization charges -- 0.4 0.1 0.5
----- ----- ----- -----
Income from operations 9.4 8.8 8.8 8.1
Interest and other debt expense 1.8 2.0 1.7 2.2
----- ----- ----- -----
Income before income taxes 7.6 6.8 7.1 5.9
Provision for income taxes 2.7 2.3 2.5 2.1
----- ----- ----- -----
Net income 4.9% 4.5% 4.6% 3.8%
===== ===== ===== =====
Summary unaudited results of operations for the three and six months ended June
30, 2009 and 2008 are provided below.
Three Months Ended Six Months Ended
------------------ ----------------
June 30, June 30, June 30, June 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers $405.3 $377.5 $ 777.0 $ 728.7
Closures 154.6 190.9 296.9 347.4
Plastic containers 129.6 166.9 271.0 339.0
------ ------ -------- --------
Consolidated $689.5 $735.3 $1,344.9 $1,415.1
====== ====== ======== ========
Income from operations
Metal food containers (1) $ 41.8 $ 33.1 $ 68.4 $ 58.2
Closures (2) 22.2 21.8 36.5 36.3
Plastic containers (3) 4.3 13.6 20.4 26.2
Corporate (3.3) (3.6) (6.7) (5.9)
------ ------ -------- --------
Consolidated $ 65.0 $ 64.9 $ 118.6 $ 114.8
====== ====== ======== ========
-------------
(1) Includes rationalization charges of $2.0 million and $3.3 million for the
three and six months ended June 30, 2008, respectively.
(2) Includes a rationalization credit of $0.1 million and rationalization
charges of $0.6 million for the three months ended June 30, 2009 and 2008,
respectively, and rationalization charges of $1.3 million and $3.3 million
for the six months ended June 30, 2009 and 2008, respectively.
(3) Includes rationalization charges of $0.1 million for the three months ended
June 30, 2008 and $0.1 million and $0.8 million for the six months ended
June 30, 2009 and 2008, respectively.
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Three Months Ended June 30, 2009 Compared with Three Months Ended June 30, 2008
Overview. Consolidated net sales were $689.5 million in the second quarter of 2009, representing a 6.2 percent decrease as compared to the second quarter of 2008 primarily as a result of lower average selling prices in the plastic container business largely attributable to the pass through of resin price declines, the impact of unfavorable foreign currency translation and lower volumes in the plastic container and closures businesses, partially offset by higher average selling prices in the metal food container business due to the pass through of higher raw material and other manufacturing costs. Income from operations for the second quarter of 2009 of $65.0 million increased by $0.1 million, or 0.2 percent, as compared to the same period in 2008 due to effective cost control and manufacturing efficiencies and lower rationalization charges, principally offset by the impact from lower unit volumes in the plastic container and closures businesses, increased pension expense and higher depreciation expense. Results for 2009 included a loss on early extinguishment of debt of $0.7 million. Results for 2008 included rationalization charges of $2.7 million. Net income for the second quarter of 2009 was $33.7 million, or $0.88 per diluted share, as compared to $33.3 million, or $0.87 per diluted share, for the same period in 2008.
Net Sales. The $45.8 million decrease in consolidated net sales in the second quarter of 2009 as compared to the second quarter of 2008 was the result of lower net sales in the plastic container and closures businesses, partially offset by higher net sales in the metal food container business.
Net sales for the metal food container business increased $27.8 million, or 7.4 percent, in the second quarter of 2009 as compared to the same period in 2008. This increase was primarily attributable to higher average selling prices as a result of the pass through of higher net raw material and other manufacturing costs.
Net sales for the closures business decreased $36.3 million, or 19.0 percent, in the second quarter of 2009 as compared to the same period in 2008. This decrease was primarily the result of unfavorable foreign currency translation of approximately $10.5 million and moderately lower unit volumes largely attributable to softer demand in the single-serve beverage markets as a result of the current economic environment.
Net sales for the plastic container business in the second quarter of 2009 decreased $37.3 million, or 22.3 percent, as compared to the same period in 2008. This decrease was principally due to the impact of lower average selling prices as a result of the lagged pass through of lower raw material costs, a decline in unit volumes attributable to the ongoing weakness in demand which was partly impacted by some consumers trading down to products with less value added packaging and the impact of unfavorable foreign currency translation of approximately $4.1 million.
Gross Profit. Gross profit margin increased 0.5 percentage points to 15.2 percent in the second quarter of 2009 as compared to the same period in 2008 for the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and administrative expenses decreased $0.3 million to $40.1 million for the second quarter of 2009 as compared to $40.4 million for the same period in 2008. Selling, general and administrative expenses as a percentage of consolidated net sales increased 0.3 percentage points to 5.8 percent for the second quarter of 2009 as compared to 5.5 percent for the same period in 2008 due primarily to the decrease in consolidated net sales.
Income from Operations. Income from operations for the second quarter of 2009 increased by $0.1 million as compared to the second quarter of 2008, and operating margin increased to 9.4 percent from 8.8 percent over the same periods.
Income from operations of the metal food container business for the second quarter of 2009 increased $8.7 million, or 26.3 percent, as compared to the same period in 2008, and operating margin increased to 10.3 percent from 8.8 percent over the same periods. These increases were primarily the result of ongoing cost controls, improved manufacturing efficiencies including benefits from rebuilding inventory which was reduced late in the fourth quarter of 2008 and lower rationalization charges, partially offset by higher pension expense and depreciation expense. The second quarter of 2008 included rationalization charges of $2.0 million primarily related to ongoing costs to exit the St. Paul, Minnesota manufacturing facility as well as costs incurred for the shutdown of the Tarrant, Alabama manufacturing facility.
Income from operations of the closures business for the second quarter of 2009 increased $0.4 million, or 1.8 percent, as compared to the same period in 2008, and operating margin increased to 14.4 percent from 11.4 percent over the same periods. These increases were primarily attributable to the benefits of ongoing cost reduction initiatives, improved manufacturing efficiencies and lower rationalization charges, principally offset by moderately lower unit volumes. The second quarter of 2008 included rationalization charges of $0.6 million related to the streamlining of certain operations and consolidation of various administrative positions in Europe.
Income from operations of the plastic container business for the second quarter of 2009 decreased $9.3 million, or 68.4 percent, as compared to the same period in 2008, and operating margin decreased to 3.3 percent from 8.1 percent over the same periods. These decreases were primarily attributable to modestly lower unit volumes, a less favorable mix of products sold, the negative cost impact attributable to a reduction in inventory, the unfavorable effect from the lagged pass through of recent resin price increases and higher pension expense, partially offset by improved manufacturing efficiencies and ongoing cost controls. The second quarter of 2008 included rationalization charges of $0.1 million related to the shutdown of the Richmond, Virginia manufacturing facility.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the second quarter of 2009 decreased $2.6 million to $12.2 million as compared to the same period in 2008. This decrease was primarily due to lower average debt balances outstanding in the second quarter of 2009 as compared to the same period in 2008, partially offset by slightly higher interest rates largely as a result of the issuance of the 7 1/4% Notes in May 2009. The net proceeds from this issuance were utilized to prepay all of the 2009 term loan installment payments and substantially all of the 2010 term loan installment payments due under the Credit Agreement. As a result of these prepayments, we incurred a loss on early extinguishment of debt for the write off of debt issuance costs of $0.7 million.
Provision for Income Taxes. The effective tax rate for the second quarter of 2009 was 35.4 percent as compared to 33.6 percent in the same period of 2008. The effective tax rate for the second quarter of 2008 benefited from a $1.7 million tax credit related to certain non-recurring state tax incentives associated with capital investments.
Six Months Ended June 30, 2009 Compared with Six Months Ended June 30, 2008
Overview. Consolidated net sales were $1.34 billion in the first six months of 2009, representing a 5.0 percent decrease as compared to the first six months of 2008 primarily due to lower unit volumes across all businesses, lower average selling prices in the plastic container business largely attributable to the pass through of resin prices declines and unfavorable foreign currency translation, partially offset by higher average selling prices in the metal food container business due to the pass through of higher raw material and other manufacturing costs. Income from operations for the first six months of 2009 increased by $3.8 million, or 3.3 percent, as compared to the same period in 2008 as a result of lower rationalization charges incurred in 2009, improved manufacturing efficiencies and ongoing cost controls across all businesses. These increases were partially offset by lower unit volumes across all businesses, higher pension and depreciation expense and inflation in manufacturing and other costs as well as the impact of management fee income of $2.2 million recognized in the first quarter of 2008 from the pre-acquisition management of the Brazilian White Cap closures operations. The results for the first six months of 2009 and 2008 included rationalization charges of $1.4 million and $7.4 million, respectively. Net income for the first six months of 2009 was $61.4 million, or $1.60 per diluted share, as compared to $54.5 million, or $1.42 per diluted share, for the same period in 2008.
Net Sales. The $70.2 million decrease in consolidated net sales in the first six months of 2009 as compared to the first six months of 2008 was due to lower net sales in the plastic container and closures businesses, partially offset by higher net sales in the metal food container business.
Net sales for the metal food container business increased $48.3 million, or 6.6 percent, in the first six months of 2009 as compared to the same period in 2008. This increase was primarily attributable to higher average selling prices due to the pass through of inflation in raw material and other manufacturing costs, partially offset by slightly lower unit volumes principally due to the customer buy ahead in the fourth quarter of 2008.
Net sales for the closures business in the first six months of 2009 decreased $50.5 million, or 14.5 percent, as compared to the same period in 2008. This decrease was primarily the result of unfavorable foreign currency translation of approximately $19.5 million and a moderate decrease in unit volumes largely attributable to softer demand in the single-serve beverage markets as a result of the current economic environment and the customer buy ahead of metal closures in the fourth quarter of 2008.
Net sales for the plastic container business in the first six months of 2009 decreased $68.0 million, or 20.1 percent, as compared to the same period in 2008. This decrease was primarily the result of lower average selling prices as a result of the lagged pass through of lower raw material costs, a modest decline in unit volumes attributable to the ongoing weakness in demand and the impact of unfavorable foreign currency translation of approximately $11.0 million.
Gross Profit. Gross Profit margin increased 1.0 percentage point to 15.0 percent for the first six months of 2009 as compared to the same period in 2008 for the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $5.4 million to $81.3 million for the six months ended June 30, 2009 as compared to $75.9 million for the same period in 2008. Selling, general and administrative expenses as a percentage of consolidated net sales increased to 6.1 percent for the first six months of 2009 as compared to 5.4 percent for the same period in 2008. These increases were primarily due to the recognition in the first quarter of 2008 of management fee income of $2.2 million from the management of the White Cap Brazil closures operations until it was acquired from Amcor Limited in April 2008 and higher pension expense in 2009.
Income from Operations. Income from operations for the first six months of 2009 increased by $3.8 million, or 3.3 percent, as compared to the first six months of 2008, and operating margin increased to 8.8 percent from 8.1 percent over the same periods.
Income from operations of the metal food container business for the first six months of 2009 increased $10.2 million, or 17.5 percent, as compared to the same period in 2008, and operating margin increased to 8.8 percent from 8.0 percent over the same periods. These increases were primarily the result of ongoing cost controls, improved manufacturing efficiencies including benefits from rebuilding inventory which was reduced late in the fourth quarter of 2008 and lower rationalization charges. These increases were partially offset by the impact of slightly lower unit volumes, higher pension expense and increased depreciation expense. The first six months of 2008 included total rationalization charges of $3.3 million related to ongoing costs to exit the St. Paul, Minnesota manufacturing facility as well as costs incurred for the shutdown of the Tarrant, Alabama manufacturing facility.
Income from operations of the closures business for the first six months of 2009 increased $0.2 million, or 0.6 percent, as compared to the same period in 2008, and operating margin increased to 12.3 percent from 10.4 percent over the same periods. These increases were primarily attributable to the benefits of ongoing cost reduction initiatives, improved manufacturing efficiencies and lower rationalization charges, principally offset by moderately lower unit volumes and the year-over-year impact of the management fee income from the Brazilian White Cap closures operation of $2.2 million recognized in the first quarter of 2008. Rationalization charges of $1.3 million were recognized in the first six months of 2009 for a reduction in workforce at the operating facility in Germany. The first six months of 2008 included rationalization charges of $3.3 million related to the streamlining of certain operations and consolidation of various administrative positions in Europe.
Income from operations of the plastic container business for the first six months of 2009 decreased $5.8 million, or 22.1 percent, as compared to the same period in 2008, and operating margin decreased to 7.5 percent from 7.7 percent over the same periods. These decreases were primarily attributable to modestly lower unit volumes, a less favorable mix of products sold, the negative cost impact attributable to a reduction in inventory and higher pension expense, partially offset by the net positive effect in 2009 from the lagged pass through of resin price decreases in the first quarter of 2009 in excess of the lagged pass through of resin price increases in the second quarter of 2009, ongoing focus on cost reductions, improved manufacturing efficiencies and lower rationalization charges. The first quarter of 2008 included rationalization charges of $0.8 million related to the shutdown of the Richmond, Virginia manufacturing facility.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first six months of 2009 decreased $8.5 million to $22.7 million as compared to the same period in 2008. This decrease resulted primarily from lower outstanding debt balances and higher interest income attributable to the cash on hand during 2009, partially offset by the impact of slightly higher interest rates largely due to the issuance of the 7 1/4% Notes in May 2009. The net proceeds from this issuance were utilized to prepay all of the 2009 term loan installment payments and substantially all of the 2010 term loan installment payments due under the Credit Agreement. As a result of these prepayments, we incurred a loss on early extinguishment of debt for the write off of debt issuance costs of $0.7 million.
Provision for Income Taxes. The effective tax rate for the first six months of 2009 was 35.6 percent as compared to 34.9 percent in the same period of 2008. The effective tax rate for the first six months of 2008 benefited from a $1.7 million tax credit related to certain non-recurring state tax incentives associated with capital investments.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our Credit Agreement. Our liquidity requirements arise primarily from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment and the funding of our seasonal working capital needs.
On May 12, 2009, we issued $250 million aggregate principal amount of the 7 1/4% Notes. The issue price for the 7 1/4% Notes was 97.28 percent of their principal amount. Interest on the 7 1/4% Notes is payable semi-annually in cash on August 15 and February 15 of each year and the 7 1/4% Notes mature on August 15, 2016. Net proceeds from the issuance of the 7 1/4% Notes of $237.9 million were used to prepay all of the 2009 term loan installment payments and substantially all of the 2010 term loan installment payments due under the Credit Agreement. As a result of these term loan prepayments, we incurred a $0.7 million loss on early extinguishment of debt for the write off of debt issuance costs.
As of June 30, 2009, our contractual obligations as they relate to long-term
debt obligations, interest on fixed rate debt and interest on variable rate debt
are as follows:
Payment for the years ending
----------------------------------------------------
2010 2012 2014
through through and
Total 2009 2011 2013 thereafter
----- ---- ---- ---- ----------
(Dollars in millions)
Long-term debt obligations (1) $863.4 $ -- $227.7 $385.7 $250.0
Interest on fixed rate debt (2) 197.4 18.2 63.3 61.6 54.3
Interest on variable rate debt(3) 60.0 19.2 26.2 14.6 --
(1) These amounts represent expected cash payments of our long-term debt and
exclude current debt of $99.0 million of bank revolving loans related
primarily to seasonal working capital needs and $28.9 million of foreign
bank revolving and term loans.
(2) These amounts represent cash payments of interest on our fixed rate
long-term debt on an actual basis for the first six months of 2009 and
thereafter on an expected basis.
(3) These amounts represent cash payments of interest on our variable rate
long-term debt, excluding bank revolving loans and foreign bank revolving
and term loans, after taking into consideration our interest rate swap
agreements, on an actual basis for the first six months of 2009 and
thereafter on an expected basis at prevailing interest rates at June 30,
2009.
You should also read Note 5 to our Condensed Consolidated Financial Statements
for the three and six months ended June 30, 2009 included elsewhere in this
Quarterly Report.
For the six months ended June 30, 2009, we used net borrowings of revolving
loans of $97.5 million, cash and cash equivalents of $83.4 million, proceeds
from the issuance of the 7 1/4% Notes of $243.2 million and net proceeds from
stock-based compensation issuances of $1.6 million to fund the repayment of term
loans of $237.9 million, cash used in operations of $71.6 million primarily for
our seasonal working capital needs, net capital expenditures of $46.3 million,
decreases in outstanding checks of $50.0 million, debt issuance costs of $5.3
million and dividends paid on our common stock of $14.6 million.
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For the six months ended June 30, 2008, we used net borrowings of revolving loans of $196.3 million, cash and cash equivalents of $9.9 million, other debt borrowings of $8.0 million and net proceeds from stock-based compensation issuances of $2.9 million to fund cash used in operations of $44.0 million . . .
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