Add
SLGN to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| SLGN > SEC Filings for SLGN > Form 10-Q on 9-Nov-2009 | All Recent SEC Filings |
9-Nov-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 Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
Net sales
Metal food containers 70.5% 64.0% 63.2% 56.6%
Closures 16.4 19.1 19.7 22.3
Plastic containers 13.1 16.9 17.1 21.1
----- ----- ----- -----
Consolidated 100.0 100.0 100.0 100.0
Cost of goods sold 83.6 85.3 84.4 85.7
----- ----- ----- -----
Gross profit 16.4 14.7 15.6 14.3
Selling, general and administrative expenses 3.8 4.1 5.1 4.9
Rationalization charges -- 0.3 0.1 0.4
----- ----- ----- -----
Income from operations 12.6 10.3 10.4 9.0
Interest and other debt expense 1.4 1.5 1.5 1.9
----- ----- ----- -----
Income before income taxes 11.2 8.8 8.9 7.1
Provision for income taxes 4.0 3.3 3.2 2.6
----- ----- ----- -----
Net income 7.2% 5.5% 5.7% 4.5%
===== ===== ===== =====
Summary unaudited results of operations for the three and nine months ended
September 30, 2009 and 2008 are provided below.
Three Months Ended Nine Months Ended
------------------ -----------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2009 2008 2009 2008
---- ---- ---- ----
(Dollars in millions)
Net sales
Metal food containers $ 716.5 $617.4 $1,493.5 $1,346.1
Closures 166.3 184.3 463.3 531.7
Plastic containers 133.7 162.6 404.7 501.6
-------- ------ ------- --------
Consolidated $1,016.5 $964.3 $2,361.5 $2,379.4
======== ====== ======== ========
Income from operations
Metal food containers (1) $ 104.2 $ 76.6 $ 172.6 $ 134.8
Closures (2) 24.3 17.1 60.8 53.4
Plastic containers (3) 2.6 9.1 23.0 35.2
Corporate (3.2) (3.2) (9.9) (9.0)
-------- ------ -------- --------
Consolidated $ 127.9 $ 99.6 $ 246.5 $ 214.4
======== ====== ======== ========
-------------
(1) Includes a rationalization credit of $0.5 million and rationalization
charges of $2.8 million for the three and nine months ended September
30, 2008, respectively.
(2) Includes rationalization charges of $2.8 million for the three months
ended September 30, 2008 and rationalization charges of $1.3 million
and $6.1 million for the nine months ended September 30, 2009 and
2008, respectively.
(3) Includes rationalization charges of $0.1 million for each of the three
months ended September 30, 2009 and 2008 and $0.2 million and $0.9
million for the nine months ended September 30, 2009 and 2008,
respectively.
|
Three Months Ended September 30, 2009 Compared with Three Months Ended September 30, 2008
Overview. Consolidated net sales were $1,016.5 million in the third quarter of 2009, representing a 5.4 percent increase as compared to the third quarter of 2008 primarily as a result of higher average selling prices in the metal food container business due to the pass through of higher raw material and other manufacturing costs and higher unit volumes in the metal food container business, partially offset by lower average selling prices in the plastic container business largely attributable to the pass through of lower resin prices, lower volumes in the plastic container and closures businesses and the impact of unfavorable foreign currency translation. Income from operations for the third quarter of 2009 of $127.9 million increased by $28.3 million, or 28.4 percent, as compared to the same period in 2008 due to higher unit volumes in the metal food container business, effective cost control and manufacturing efficiencies and lower year-over-year rationalization charges, partially offset by the impact from lower unit volumes in the plastic container and closures businesses, increased pension expense and the unfavorable effect from the lagged pass through of recent resin price increases. Results for 2008 included rationalization charges of $2.4 million. Net income for the third quarter of 2009 was $73.5 million, or $1.91 per diluted share, as compared to $52.8 million, or $1.38 per diluted share, for the same period in 2008.
Net Sales. The $52.2 million increase in consolidated net sales in the third quarter of 2009 as compared to the third quarter of 2008 was the result of higher net sales in the metal food container business, partially offset by lower net sales in the plastic container and closures businesses.
Net sales for the metal food container business increased $99.1 million, or 16.1 percent, in the third 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 raw material and other manufacturing costs and higher unit volumes principally due to the favorable size and timing of the seasonal fruit and vegetable pack.
Net sales for the closures business decreased $18.0 million, or 9.8 percent, in the third quarter of 2009 as compared to the same period in 2008. This decrease was primarily the result of lower unit volumes largely attributable to continued soft demand in the single-serve beverage markets and unfavorable foreign currency translation of approximately $4.5 million.
Net sales for the plastic container business in the third quarter of 2009 decreased $28.9 million, or 17.8 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 pass through of lower raw material costs, a decline in unit volumes as demand for certain products showed some sign of recovery but overall volumes continued to lag prior year levels and the impact of unfavorable foreign currency translation of approximately $1.3 million.
Gross Profit. Gross profit margin increased 1.7 percentage points to 16.4 percent in the third 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 $0.7 million to $38.6 million for the third quarter of 2009 as compared to $39.3 million for the same period in 2008. Selling, general and administrative expenses as a percentage of consolidated net sales decreased 0.3 percentage points to 3.8 percent for the third quarter of 2009 as compared to 4.1 percent for the same period in 2008.
Income from Operations. Income from operations for the third quarter of 2009 increased by $28.3 million as compared to the third quarter of 2008, and operating margin increased to 12.6 percent from 10.3 percent over the same periods.
Income from operations of the metal food container business for the third quarter of 2009 increased $27.6 million, or 36.0 percent, as compared to the same period in 2008, and operating margin increased to 14.5 percent from 12.4 percent over the same periods. These increases were primarily the result of higher unit volumes, better manufacturing efficiencies and ongoing improvements in cost controls, partially offset by higher pension expense.
Income from operations of the closures business for the third quarter of 2009 increased $7.2 million, or 42.1 percent, as compared to the same period in 2008, and operating margin increased to 14.6 percent from 9.3 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, partially offset by lower unit volumes. The third quarter of 2008 included rationalization charges of $2.8 million principally related to the shut down of the Turkey manufacturing facility.
Income from operations of the plastic container business for the third quarter of 2009 decreased $6.5 million, or 71.4 percent, as compared to the same period in 2008, and operating margin decreased to 1.9 percent from 5.6 percent over the same periods. These decreases were primarily attributable to lower unit volumes, the unfavorable effect from the lagged pass through of recent resin price increases, manufacturing inefficiencies created by shorter production runs and challenges in meeting certain increased demand with reduced plant personnel and higher pension expense, partially offset by ongoing cost reductions.
Interest and Other Debt Expense. Interest and other debt expense for the third quarter of 2009 decreased $1.4 million to $13.7 million as compared to the same period in 2008. This decrease was primarily due to lower average debt balances outstanding in the third 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.
Provision for Income Taxes. The effective tax rate for the third quarter of 2009 was 35.6 percent as compared to 37.5 percent in the same period of 2008. The effective tax rate for the third quarter of 2008 was negatively impacted by a $1.2 million valuation allowance against tax positions in Turkey related to our decision to close the operating facility.
Nine Months Ended September 30, 2009 Compared with Nine Months Ended September 30, 2008
Overview. Consolidated net sales were $2.36 billion in the first nine months of 2009, representing a 0.8 percent decrease as compared to the first nine months of 2008 primarily due to lower unit volumes in the plastic container and closures businesses, lower average selling prices in the plastic container business largely attributable to the pass through of lower resin prices 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 and higher unit volumes in the metal food container business. Income from operations for the first nine months of 2009 increased by $32.1 million, or 15.0 percent, as compared to the same period in 2008 as a result of higher unit volumes in the metal food container business, improved manufacturing efficiencies and ongoing cost controls across all businesses and lower rationalization charges. This increase was partially offset by lower unit volumes in the plastic container and closures businesses, higher pension expense and the impact of management fee income of approximately $2.0 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 nine months of 2009 and 2008 included rationalization charges of $1.5 million and $9.8 million, respectively. Net income for the first nine months of 2009 was $134.9 million, or $3.51 per diluted share, as compared to $107.3 million, or $2.80 per diluted share, for the same period in 2008.
Net Sales. The $17.9 million decrease in consolidated net sales in the first nine months of 2009 as compared to the first nine 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 $147.4 million, or 11.0 percent, in the first nine 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 and higher unit volumes.
Net sales for the closures business in the first nine months of 2009 decreased $68.4 million, or 12.9 percent, as compared to the same period in 2008. This decrease was primarily the result of a 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 and unfavorable foreign currency translation of approximately $24.0 million.
Net sales for the plastic container business in the first nine months of 2009 decreased $96.9 million, or 19.3 percent, as compared to the same period in 2008. This decrease was primarily due to lower average selling prices as a result of the pass through of lower resin prices, a decline in unit volumes attributable to the ongoing weakness in demand and the impact of unfavorable foreign currency translation of approximately $12.3 million.
Gross Profit. Gross Profit margin increased 1.3 percentage points to 15.6 percent for the first nine 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 $4.7 million to $119.9 million for the nine months ended September 30, 2009 as compared to $115.2 million for the same period in 2008. Selling, general and administrative expenses as a percentage of consolidated net sales increased to 5.1 percent for the first nine months of 2009 as compared to 4.9 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 approximately $2.0 million from the management of the Brazilian White Cap 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 nine months of 2009 increased by $32.1 million, or 15.0 percent, as compared to the first nine months of 2008, and operating margin increased to 10.4 percent from 9.0 percent over the same periods.
Income from operations of the metal food container business for the first nine months of 2009 increased $37.8 million, or 28.0 percent, as compared to the same period in 2008, and operating margin increased to 11.6 percent from 10.0 percent over the same periods. These increases were primarily the result of improved manufacturing efficiencies and ongoing cost controls, higher unit volumes and lower rationalization charges. These increases were partially offset by the impact of higher pension expense and increased depreciation expense. The first nine months of 2008 included total rationalization charges of $2.8 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 nine months of 2009 increased $7.4 million, or 13.9 percent, as compared to the same period in 2008, and operating margin increased to 13.1 percent from 10.0 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, partially offset by lower unit volumes and the year-over-year impact of the management fee income from the Brazilian White Cap closures operation of approximately $2.0 million recognized in the first quarter of 2008. Rationalization charges of $1.3 million were recognized in the first nine months of 2009 for a reduction in workforce at the operating facility in Germany. The first nine months of 2008 included rationalization charges of $6.1 million principally related to the shut down of the Turkey manufacturing facility and the consolidation of various administrative positions in Europe.
Income from operations of the plastic container business for the first nine months of 2009 decreased $12.2 million, or 34.7 percent, as compared to the same period in 2008, and operating margin decreased to 5.7 percent from 7.0 percent over the same periods. These decreases were primarily attributable to lower unit volumes, a less favorable mix of products sold 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 and third quarters of 2009, ongoing focus on cost reductions and lower rationalization charges. The first nine months of 2008 included rationalization charges of $0.9 million related to the shutdown of the Richmond, Virginia manufacturing facility.
Interest and Other Debt Expense. Interest and other debt expense for the first nine months of 2009 decreased $9.1 million to $37.1 million as compared to the same period in 2008. This decrease resulted primarily from lower outstanding debt balances, 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 nine months of 2009 was 35.6 percent as compared to 36.2 percent in the same period of 2008. The decrease in the effective tax rate was primarily a result of lower average statutory rates in 2009.
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.
For the nine months ended September 30, 2009, we used cash on hand of $96.3 million, cash from operations of $18.7 million, net borrowings of revolving loans of $25.1 million, proceeds from the issuance of the 7 1/4% Notes of $243.2 million and net proceeds from stock-based compensation issuances of $2.9 million to fund the repayment of term loans of $237.9 million, net capital expenditures of $69.2 million, decreases in outstanding checks of $51.8 million, debt issuance costs of $5.3 million and dividends paid on our common stock of $22.0 million.
For the nine months ended September 30, 2008, we used cash from operations of $78.0 million, net borrowings of revolving loans of $319.4 million, other debt borrowings of $8.0 million and net proceeds from stock-based compensation issuances of $4.2 million to fund net capital expenditures of $86.6 million, our acquisitions of the metal vacuum closures operations of Grup Vemsa 1857, S.L. and the White Cap Brazil operations for $14.5 million, net of cash acquired, decreases in outstanding checks of $91.6 million, the repayment of debt of $3.0 million and dividends paid on our common stock of $19.5 million and to increase cash and cash equivalents by $194.4 million. Our cash and cash equivalents balance at September 30, 2008 of $290.4 million reflected our decision to borrow an additional $200.0 million of revolving loans under our Credit Agreement to ensure access to liquidity during a period of uncertainty in the credit markets.
Because we sell metal containers used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements. In recent years, our incremental peak seasonal working capital requirements were approximately $300 million, which were funded through a combination of revolving loans under our Credit Agreement and cash on hand.
At September 30, 2009, we had $27.0 million of revolving loans outstanding under the Credit Agreement. After taking into account outstanding letters of credit, the available portion of our revolving loan facility under the Credit Agreement at September 30, 2009 was $395.7 million. We may use the available portion of our revolving loan facility, after taking into account our seasonal needs and outstanding letters of credit, for acquisitions or other permitted purposes.
We believe that cash generated from operations and funds from borrowings available under the Credit Agreement will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases required under our 2004 Stock Incentive Plan and common stock dividends for the foreseeable future. With cash and cash equivalents on hand and cash generated from operations, we believe that we will be able to repay all outstanding term loans under the Credit Agreement as they become due and payable. However, there can be no assurance that we will be able to generate enough cash from operations to repay all such outstanding term loans, in which case we will need to refinance any remaining outstanding term loans. Additionally, we also believe that we will be able to replace our revolving loan facilities under the Credit Agreement before they expire with other loan facilities for our seasonal working capital needs.
There can be no assurance that we will be able to effect any such refinancing, and, if we are able to, we may not be able to do so on the same terms (including interest rates) as under the Credit Agreement. Our ability to effect any such transactions and the terms thereof (including interest rates) will depend on a variety of factors, including the condition of the credit markets, which have . . .
|
|