FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2004
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________________ to ________________
Commission file number 000-22117
Delaware 06-1269834
--------------------------------- -------------------
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
4 Landmark Square
Stamford, Connecticut 06901
---------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
|
Securities registered pursuant to Section 12(g) of the Act:
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes [ X ] No [ ]
The aggregate market value of the Registrant's Common Stock held by non-affiliates, computed by reference to the price at which the Registrant's Common Stock was last sold as of June 30, 2004, the last business day of the Registrant's most recently completed second fiscal quarter, was approximately $449.4 million. Common Stock of the Registrant held by executive officers and directors of the Registrant has been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.
As of March 1, 2005, the number of shares outstanding of the Registrant's Common Stock, par value $0.01 per share, was 18,495,141.
Documents Incorporated by Reference:
Portions of the Registrant's Proxy Statement for its Annual Meeting of Stockholders to be held on May 23, 2005 are incorporated by reference in Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
Page
----
PART I............................................................................................1
Item 1. Business............................................................................1
Item 2. Properties.........................................................................14
Item 3. Legal Proceedings..................................................................15
Item 4. Submission of Matters to a Vote of Security Holders................................15
PART II..........................................................................................16
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities.....................................................16
Item 6. Selected Financial Data............................................................16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operations.........................................................................19
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........................34
Item 8. Financial Statements and Supplementary Data........................................35
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.........................................................................35
Item 9A. Controls and Procedures............................................................35
Item 9B. Other Information..................................................................36
PART III.........................................................................................37
Item 10. Directors and Executive Officers of the Registrant.................................37
Item 11. Executive Compensation.............................................................37
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters................................................................37
Item 13. Certain Relationships and Related Transactions.....................................37
Item 14. Principal Accountant Fees and Services.............................................37
PART IV..........................................................................................38
Item 15. Exhibits and Financial Statement Schedules.........................................38
|
PART I
Item 1. Business.
General
We are a leading North American manufacturer of metal and plastic consumer goods packaging products. We had consolidated net sales of $2.421 billion in 2004. Our products are used for a wide variety of end markets and we operate 61 manufacturing plants throughout the United States and Canada. Our products include:
o steel and aluminum containers for human and pet food and metal, composite and plastic vacuum closures for food and beverage products; and
o 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, with a unit volume market share in the United States in 2004 of approximately half of the market. Our leadership in this market is driven by our high levels of quality, service and technological support, low cost producer position, strong long-term customer relationships and our proximity to customers through our widespread geographic presence. We believe that we have the most comprehensive equipment capabilities in the industry throughout North America. Additionally, through our Silgan Closures business that we have integrated with our metal food container business, we are a leading manufacturer of metal, composite and plastic vacuum closures in North America for food and beverage products. For 2004, our metal food container business had net sales of $1.842 billion (approximately 76 percent of our consolidated net sales) and income from operations of $154.7 million (approximately 75 percent of our consolidated income from operations excluding corporate expense).
We are also 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 pet care markets. Our success in the plastic packaging market is largely due to our demonstrated ability to provide our customers with high levels of quality, service and technological support, along with our value-added design-focused products and our extensive geographic presence. We produce plastic containers from a full range of resin materials and offer a comprehensive array of molding and decorating capabilities. For 2004, our plastic container business had net sales of $578.4 million (approximately 24 percent of our consolidated net sales) and income from operations of $52.1 million (approximately 25 percent of our consolidated income from operations excluding corporate expense).
Our customer base includes some of the world's best-known branded consumer products companies. Our philosophy has been to develop long-term customer relationships by acting in partnership with our customers by providing reliable quality, service and technological support and utilizing our low cost producer position. The strength of our customer relationships is evidenced by our large number of multi-year supply arrangements, our high retention of customers' business and our continued recognition from customers, as demonstrated by the many quality and service awards we have received. We estimate that in 2005 approximately 90 percent of our projected metal food container sales and a majority of our projected plastic container sales will be under multi-year customer supply arrangements.
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 believe that we will
accomplish this goal because of our leading market positions and management expertise in acquiring, financing, integrating and efficiently operating consumer goods packaging businesses.
Our History
We were founded in 1987 by our Co-Chief Executive Officers, R. Philip Silver and D. Greg Horrigan. Since our inception, we have acquired and integrated twenty businesses. As a result of the benefits of acquisitions and organic growth, we have increased our overall share of the U.S. metal food container market from approximately 10 percent in 1987 to approximately half of the market in 2004. Our plastic container business has also improved its market position since 1987, with net sales increasing more than sixfold to $578.4 million in 2004. The following chart shows our acquisitions since our inception:
Acquired Business Year Products
----------------- ---- --------
Nestle Food Company's metal container 1987 Metal food containers
manufacturing division
Monsanto Company's plastic container business 1987 Plastic containers
Fort Madison Can Company of The Dial 1988 Metal food containers
Corporation
Seaboard Carton Division of Nestle Food Company 1988 Paperboard containers
Aim Packaging, Inc. 1989 Plastic containers
Fortune Plastics Inc. 1989 Plastic containers
Express Plastic Containers Limited 1989 Plastic containers
Amoco Container Company 1989 Plastic containers
Del Monte Corporation's U.S. can manufacturing 1993 Metal food containers
operations
Food Metal and Specialty business of American 1995 Metal food containers,
National Can Company steel closures and Omni
plastic containers
Finger Lakes Packaging Company, Inc., a 1996 Metal food containers
subsidiary of Birds Eye Foods, Inc.
Alcoa Inc.'s North American aluminum roll-on 1997 Aluminum roll-on
closure business closures
Rexam plc's North American plastic container 1997 Plastic containers and
business closures
Winn Packaging Co. 1998 Plastic containers
Campbell Soup Company's steel container 1998 Metal food containers
manufacturing business
Clearplass Containers, Inc. 1998 Plastic containers
RXI Holdings, Inc. 2000 Plastic containers and
plastic closures, caps,
sifters and fitments
Thatcher Tubes LLC 2003 Plastic tubes
Amcor White Cap, LLC (Silgan Closures LLC) 2003 Metal, composite and
plastic vacuum closures
Pacific Coast Producers' can manufacturing 2003 Metal food containers
operations
|
Our Strategy
We intend to enhance our position as a leading supplier of consumer goods packaging products by continuing to aggressively pursue a strategy designed to achieve future growth and increase shareholder value by focusing on the following key elements:
Supply "Best Value" Packaging Products With High Levels of Quality, Service and Technological Support
Since our inception, we have been, and intend to continue to be, devoted to consistently supplying our products with the combination of quality, price and service that our customers consider to be "best value." In our metal food container business, we focus on providing high quality and high levels of service and utilizing our low cost producer position. We have made significant capital investments to offer our customers value-added features such as our family of Quick Top(TM) easy-open ends for our metal food containers. In our plastic container business, we provide high levels of quality and service and focus on value-added, custom designed plastic containers to meet changing product and packaging
demands of our customers. We believe that we are one of the few plastic packaging businesses that can custom design and manufacture both plastic containers and plastic tubes, providing the customer with the ability to satisfy more of its plastic packaging needs through one supplier. We will continue to supply customized products that can be delivered quickly to our customers with superior levels of design, development and technology support.
Maintain Low Cost Producer Position
We will continue pursuing opportunities to strengthen our low cost position in our business by:
o maintaining a flat, efficient organizational structure, resulting in low selling, general and administrative expenses as a percentage of consolidated net sales;
o achieving and maintaining economies of scale;
o prudently investing in new technologies to increase manufacturing and production efficiency;
o rationalizing our existing plant structure; and
o serving our customers from our strategically located plants.
Through our facilities dedicated to our metal food container products, we believe that we provide the most comprehensive equipment capabilities in the industry throughout North America. Through our facilities dedicated to our plastic container products, we have the capacity to manufacture customized products across the entire spectrum of resin materials, decorating techniques and molding processes required by our customers. We also have the ability to provide our customers with both plastic containers and plastic tubes that are custom designed as well as plastic closures. We intend to leverage our manufacturing, design and engineering capabilities to continue to create cost-effective manufacturing systems that will drive our improvements in product quality, operating efficiency and customer support.
Maintain an Optimal Capital Structure to Support Growth and Increase Shareholder Value
Our financial strategy is to use leverage to support our growth and increase shareholder returns. Our stable and predictable cash flow, generated largely as a result of our long-term customer relationships and generally recession resistant business, supports our financial strategy. We intend to continue using reasonable leverage, supported by our stable cash flows, to make value enhancing acquisitions. In determining reasonable leverage, we evaluate our cost of capital and manage our level of debt to maintain an optimal cost of capital based on current market conditions. In the absence of such acquisition opportunities, we intend to use our cash flow to repay debt or for other permitted purposes. In 2003, we established a target to reduce our debt by $200-$300 million over the period from 2004 through 2006 in the absence of compelling acquisitions. In 2004, we paid down $160.9 million of debt, making significant progress toward this debt reduction goal. As a result, we believe that over the next two years we can meet our debt reduction goal and still complete some complementary acquisitions should they become available. Although no assurances can be given, we expect to pay down approximately $100 million of debt during 2005 in the absence of acquisitions.
Expand Through Acquisitions and Internal Growth
We intend to continue to increase our market share in our current business lines through acquisitions and internal growth. We use a disciplined approach to make acquisitions that generate attractive cash returns. As a result, we expect to continue to expand and diversify our customer base, geographic presence and product lines. This strategy has enabled us to rapidly increase our net sales and income from operations, which have grown at compounded annual growth rates of 14.1 percent and 16.9 percent, respectively, over the last ten years.
During the past seventeen years, the metal food container market has experienced significant consolidation primarily due to the desire by food processors to reduce costs and focus resources on their core operations rather than self-manufacture their metal food containers. Our acquisitions of the metal food container manufacturing operations of Nestle Food Company, or Nestle, The Dial Corporation, or Dial, Del Monte Corporation, or Del Monte, Birds Eye Foods, Inc., or Birds Eye, Campbell Soup Company, or Campbell, and most recently Pacific Coast Producers, or Pacific Coast, reflect this trend. We estimate that approximately 8 percent of the market for metal food containers is still served by self-manufacturers.
While we have increased our market share of metal food containers in the United States primarily through acquisitions, we have also made significant capital investment over the last few years in our metal food container business to enhance our business and offer our customers value-added features, such as our family of Quick Top(TM) easy-open ends. In 2004, 54 percent of our metal food containers sold had a Quick Top(TM) easy-open end, representing an increase in unit sales of this value-added feature of 33 percent since 2002.
We have improved our market position for our plastic container business since 1987, with net sales increasing more than sixfold to $578.4 million in 2004. We achieved this improvement primarily through strategic acquisitions as well as through internal growth. The plastic container business of the consumer goods packaging industry is highly fragmented, and we intend to pursue further consolidation opportunities in this market. We also believe that we can successfully apply our acquisition and operating expertise to new markets of the consumer goods packaging industry. With our acquisition of Thatcher Tubes LLC, or Thatcher Tubes, we extended our business into decorated plastic tubes primarily for personal care products to complement our existing plastic container business. Over the long term, we also expect to continue to generate internal growth in our plastic container business. As with acquisitions, we used a disciplined approach to pursue internal growth in order to generate attractive cash returns. Through a combination of these efforts, we intend to continue to expand our customer base in the markets that we serve, such as the personal care, health care, pharmaceutical, household and industrial chemical, food, pet care, agricultural chemical, automotive and marine chemical markets.
Enhance Profitability Through Productivity Improvements and Cost Reductions
We intend to continue to enhance profitability through productivity and cost reduction opportunities. The additional sales and production capacity provided through acquisitions have enabled us to rationalize plant operations and decrease overhead costs through plant closings and downsizings. For example, following our acquisition in March 2003 of the remaining 65 percent equity interest that we did not own in Amcor White Cap, LLC, our former vacuum closures joint venture which we renamed Silgan Closures LLC, or Silgan Closures, we implemented rationalization and integration plans to consolidate certain administrative functions of this business with our metal food container business and to close a higher cost manufacturing facility. We substantially completed these plans in 2004 and significantly improved the profitability of this business. Additionally, with our acquisition in April 2003 of the can manufacturing business of Pacific Coast, we were able to successfully rationalize and consolidate this business into our existing metal food container facilities and realize cost reductions and manufacturing efficiencies as a result.
We expect that our acquisitions will continue to enable us to realize manufacturing efficiencies as a result of optimizing production scheduling. We also expect to continue to benefit from economies of scale and from the elimination of redundant selling and administrative functions. In addition to the benefits realized through the integration of acquired businesses, we have improved and expect to continue to improve the operating performance of our plant facilities by investing capital for productivity improvements and manufacturing cost reductions. For example, we intend to make certain capital expenditures on equipment to automate activities currently performed manually. While we have made some of these investments in certain of our plants, more opportunities still exist throughout our system. We will continue to use a disciplined approach to identify these opportunities to generate attractive cash returns.
Business Segments
We are a holding company that conducts our business through two wholly owned operating subsidiaries, Silgan Containers Corporation, or Silgan Containers, and Silgan Plastics Corporation, or Silgan Plastics. Silgan Containers includes our metal food container operations and our metal, composite and plastic vacuum closure operations, and Silgan Plastics includes our plastic container, tube and closure operations.
Metal Food Containers--76 percent of our consolidated net sales in 2004
We are the largest manufacturer of metal food containers in North America, with a unit volume market share in the United States in 2004 of approximately half of the market, and one of the largest manufacturers of metal, composite and plastic vacuum closures in North America for food and beverage products. Our metal food container business is engaged in the manufacture and sale of steel and aluminum containers that are used primarily by processors and packagers for food products, such as soup, vegetables, fruit, meat, tomato based products, coffee, seafood, adult nutritional drinks, pet food and other miscellaneous food products. For 2004, our metal food container business had net sales of $1.842 billion (approximately 76 percent of our consolidated net sales) and income from operations of $154.7 million (approximately 75 percent of our consolidated income from operations excluding corporate expense). We estimate that approximately 90 percent of our projected metal food container sales in 2005 will be pursuant to multi-year customer supply arrangements.
Although metal containers face competition from plastic, paper, glass and composite containers, we believe metal containers are superior to plastic, paper and composite containers in applications where the contents are processed at high temperatures, or packaged in larger consumer or institutional quantities, or where the long-term storage of the product is desirable while maintaining the product's quality. We also believe that metal containers are generally more desirable than glass containers because metal containers are more durable and less costly to transport. Additionally, while the market for metal food containers in the United States has experienced little or no growth over the last ten years, we have increased our market share of metal food containers in the United States primarily through acquisitions, and have enhanced our business by focusing on providing customers with high quality and high levels of service and value-added features such as our family of Quick Top(TM) easy-open ends.
Through Silgan Closures, we also manufacture metal, composite and plastic vacuum closures for food and beverage products, such as juices and juice drinks, ready-to-drink tea, sports drinks, ketchup, salsa, pickles, tomato sauce, soup, cooking sauces, gravies, beer and liquor, fruit, vegetables, preserves, baby food, baby juice, infant formula and dairy products. We also provide customers with sealing/capping equipment to complement our closure product offering for food and beverage products. As a result of our extensive range of metal, composite and plastic vacuum closures and our geographic presence, we believe that we are uniquely positioned to serve food and beverage product companies for their closure needs.
Plastic Containers--24 percent of our consolidated net sales in 2004
We are one of the leading manufacturers of custom designed high density polyethylene, or HDPE, and polyethylene terephthalate, or PET, containers for the personal care market in North America. We produce plastic containers from a full range of resin materials and offer a comprehensive array of molding and decorating capabilities. For 2004, Silgan Plastics had net sales of $578.4 million (approximately 24 percent of our consolidated net sales) and income from operations of $52.1 million (approximately 25 percent of our consolidated income from operations excluding corporate expense). Since 1987, we have improved our market position for our plastic container business, with net sales increasing more than sixfold.
We manufacture custom designed and stock HDPE containers for personal care and health care products, including containers for shampoos, conditioners, hand creams, lotions, cosmetics and toiletries; household and industrial chemical products, including containers for scouring cleaners, cleaning agents and lawn and garden chemicals; and pharmaceutical products, including containers for tablets, antacids and eye cleaning solutions. We manufacture custom designed and stock PET containers for mouthwash, shampoos, conditioners, respiratory and gastrointestinal products, liquid soap, skin care lotions, peanut butter, salad dressings, condiments and liquor. Additionally, we manufacture plastic tubes primarily for personal care products such as skin lotions and hair treatment products. We also manufacture plastic containers, closures, caps, sifters and fitments for food, household and pet care products, including salad dressings, peanut butter, spices, liquid margarine, powdered drink mixes, arts and crafts supplies and kitty litter, as well as thermoformed plastic tubs for personal care and household products, including soft fabric wipes, and our innovative Omni plastic container (a multi-layer microwaveable and retortable plastic bowl) for food products.
Our leading position in the plastic container market is largely driven by our rapid response to our customers' design, development and technology support needs and our value-added, diverse product line. This product line is the result of our ability to produce plastic containers from a full range of resin materials using a broad array of manufacturing, molding and decorating capabilities. We also have the ability to manufacture decorated plastic tubes for our customers, providing our customers with the ability to satisfy more of their plastic packaging needs through one supplier. We benefit from our large scale and nationwide presence, as significant consolidation is occurring in many of our customers' markets. Through these capabilities, we are well-positioned to serve our customers, who demand customized solutions as they continue to seek innovative means to differentiate their products in the marketplace using packaging.
Manufacturing and Production
As is the practice in the industry, most of our customers provide us with quarterly or annual estimates of products and quantities pursuant to which periodic commitments are given. These estimates enable us to effectively manage production and control working capital requirements. We schedule our production to meet customers' requirements. Because the production time for our products is short, the backlog of customer orders in relation to our sales is not material.
As of March 1, 2005, we operated 61 manufacturing facilities, geographically dispersed throughout the United States and Canada, that serve the distribution needs of our customers.
Metal Food Container Business
The manufacturing operations of our metal food container business include cutting, coating, lithographing, fabricating, assembling and packaging finished cans. We use three basic processes to produce cans. The traditional three-piece method requires three pieces of flat metal to form a cylindrical body with a welded side seam, a bottom and a top. High integrity of the side seam is assured by the use of sophisticated electronic weld monitors and organic coatings that are thermally cured by induction and convection processes. The other two methods of producing cans start by forming a shallow cup that is then formed into the desired height using either the draw and iron process or the draw and redraw process. Using the draw and redraw process, we manufacture steel and aluminum two-piece cans, the height of which generally does not exceed the diameter. For cans the height of which is greater than the diameter, we manufacture steel two-piece cans by using a drawing and ironing process. Quality and stackability of these cans are comparable to that of the shallow two-piece cans described above. We manufacture can bodies and ends from thin, high-strength aluminum alloys and steels by utilizing proprietary tool and die designs and selected can making equipment. We also manufacture our Quick Top(TM) easy-open ends from both steel and aluminum alloys in a sophisticated precision progressive die process. We regularly review our Quick Top(TM) easy-open end designs for improvements for optimum consumer preference.
The manufacturing operations for metal closures include cutting, coating, lithographing, fabricating and lining closures. We manufacture lug style steel closures and aluminum roll-on closures for glass and plastic containers, ranging in size from 18 to 110 millimeters in diameter. We employ state-of-the-art multi-die presses to manufacture metal closures, offering a low-cost, high quality means of production. Plastic closures are manufactured using both injection and compression molded processes. In the injection molded process, pellets of plastic resin are heated and injected into a mold, forming a plastic closure shell. In the compression molded process, pellets of plastic resin are heated and extruded, and then compressed to form a plastic closure shell. In both processes, the shell is then lined, slit and printed depending on its end use. For composite closures, a metal panel is manufactured using the same manufacturing process for metal closures, and then it is inserted into a plastic closure shell and then lined.
Plastic Container Business
We utilize two basic processes to produce plastic containers. In the extrusion blowmolding process, pellets of plastic resin are heated and extruded into a tube of plastic. A two-piece metal mold is then closed around the plastic tube and high pressure air is blown into it causing a bottle to form in the mold's shape. In the injection and injection stretch blowmolding processes, pellets of plastic resin are heated and injected into a mold, forming a plastic preform. The plastic preform is then blown into a bottle-shaped metal mold, creating a plastic bottle.
In our proprietary plastic tube manufacturing process, we continually extrude a plastic tube in various diameters from pellets of plastic resin. A neck finish is then compression molded onto the plastic tube. The plastic tube is then decorated, and a cap or closure is put on the decorated plastic tube before it is shipped to the customer.
We also manufacture plastic closures, caps, sifters and fitments using runnerless injection molding technology. In this process, pellets of plastic resin are melted and forced under pressure into a mold, where they take the mold's shape. Our thermoformed plastic tubs are manufactured by melting pellets of plastic resin into a plastic sheet. The plastic sheets are then stamped by hot molds to form plastic tubs. Our Omni plastic containers are manufactured using a plastic injection blowmolding process where dissimilar pellets of plastic are heated and co-injected in a proprietary process to form a five-layer preform, which is immediately transferred to a blowmold for final shaping. We designed the equipment for this manufacturing process, and the equipment utilizes a variety of proprietary processes to make rigid plastic containers capable of holding processed foods for extended shelf lives in aesthetically pleasing contoured designs, such as for Campbell's Soup at Hand(TM) product.
We have state-of-the-art decorating equipment, including several of the largest sophisticated decorating facilities in the country. Our decorating methods for plastic containers are in-mold labeling, which applies a plastic film label to the bottle during the blowing process, and post-mold decoration. For plastic tubes, we offer all commercially available post-mold decoration technologies. Post-mold decoration includes:
o silk screen decoration which enables the applications of images in multiple colors to the bottle;
o pressure sensitive decoration which uses a plastic film or paper label with an adhesive;
o heat transfer decoration which uses a plastic coated label applied by heat; and
o hot stamping decoration which transfers images from a die using metallic foils.
Raw Materials
Based upon our existing arrangements with suppliers and our current and anticipated requirements, we believe that we have made adequate provisions for acquiring our raw materials. As a result of significant consolidation of suppliers, we are, however, dependent upon a limited number of suppliers for our steel, aluminum, coatings and compound raw materials. Increases in the prices of raw materials have generally been passed along to our customers in accordance with our multi-year customer supply arrangements and through general price increases.
Metal Food Container Business
We use tin plated and chromium plated steel, aluminum, copper wire, organic coatings, lining compound and inks in the manufacture and decoration of our metal food container products. We use tin plated and chromium plated steel, aluminum, organic coatings, low-metallic inks and pulpboard, plastic and organic lining materials in the manufacture of metal closures. We use resins in pellet form, such as homopolymer, polypropylene, copolymer polypropylene and HDPE, thermoplastic elastomer lining materials, processing additives and colorants in the manufacture of plastic closures. Although there has been significant consolidation of suppliers, we believe that we have made adequate provision to purchase sufficient quantities of these raw materials for the foreseeable future.
Over the last few years, there has been significant consolidation of suppliers of steel. Additionally, tariffs and court cases in the United States have negatively impacted the ability of certain foreign steel suppliers to competitively supply steel in the United States. In 2004, the steel industry claimed to have raw material supply difficulties and increased worldwide demand which resulted in a tighter than normal supply situation and adversely affected their ability to timely deliver steel. In response, the steel industry announced significant price increases for steel during 2004. Nevertheless, as a result of our contracts and other arrangements with steel suppliers, we were able to obtain sufficient quantities of steel in 2004 to timely meet all of our customers' requirements. Although no assurances can be given, we expect to be able to purchase sufficient quantities of steel to timely meet all of our customers' requirements in 2005 as well. Our metal food container supply arrangements with our customers provide for the pass through of changes in our metal costs. For non-contract customers, subject to market conditions, we also increase their metal food container prices to pass through increases in our metal costs.
Our material requirements are supplied through agreements and purchase orders with suppliers with whom we have long-term relationships. If our suppliers fail to deliver under their arrangements, we would be forced to purchase raw materials on the open market, and no assurances can be given that we would be able to purchase such raw materials at comparable prices or terms.
Plastic Container Business
The raw materials we use in our plastic container business are primarily resins in pellet form such as virgin HDPE, virgin PET, recycled HDPE, recycled PET, polypropylene and, to a lesser extent, polystyrene, low density polyethylene, polyethylene terephthalate glycol, polyvinyl chloride and medium density polyethylene. Our resin requirements are acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The price that we pay for resin raw materials is not fixed and is subject to market pricing, which has increased significantly in the past few years. Our plastic container business has generally passed along to our customers changes in the prices of our resin raw materials in accordance with customer supply arrangements. We believe that we have made adequate provision to purchase sufficient quantities of resins for the foreseeable future.
Sales and Marketing
Our philosophy has been to develop long-term customer relationships by acting in partnership with our customers, providing reliable quality and service. We market our products in most areas of
North America primarily by a direct sales force and for our plastic container business, in part, through a network of distributors. Because of the high cost of transporting empty containers, our metal food business generally sells to customers within a 300 mile radius of its manufacturing plants.
In 2004, 2003, and 2002, approximately 11 percent, 11 percent, and 13 percent, respectively, of our net sales were to Nestle; approximately 11 percent, 11 percent, and 10 percent, respectively, of our net sales were to Del Monte; and approximately 13 percent, 12 percent, and 12 percent, respectively, of our net sales were to Campbell. No other customer accounted for more than 10 percent of our total net sales during those years.
Metal Food Container Business
We are the largest manufacturer of metal food containers in North America, with a unit volume market share in the United States in 2004 of approximately half of the market. Our largest customers for these products include Campbell, ConAgra Foods Inc., Del Monte, Dial, General Mills, Inc., Hormel Foods Corp., or Hormel, Nestle, Pacific Coast, Seneca Foods L.L.C., and Signature Fruit Company.
We have entered into multi-year supply arrangements with many of our customers, including Nestle, Del Monte, Campbell and other food producers. We estimate that approximately 90 percent of our projected metal food container sales in 2005 will be pursuant to multi-year customer supply arrangements. Historically, we have been successful in continuing these multi-year customer supply arrangements.
Since our inception in 1987, we have supplied Nestle with substantially all of its U.S. metal container requirements purchased from third party manufacturers. In 2004, our total net sales of metal containers to Nestle were $230.2 million.
We currently have supply agreements with Nestle under which we supply Nestle with a large majority of its U.S. metal container requirements. With respect to approximately half of the metal containers supplied to Nestle under these agreements, we recently extended the terms of such supply agreements to the end of 2009. These agreements automatically renew for successive 3 year periods unless either party elects not to renew them. The terms of the Nestle supply agreements for the remaining metal containers supplied to Nestle pursuant to these agreements continue through 2008. Net sales to Nestle of metal containers in 2004 under all supply agreements represented approximately 7 percent of our consolidated net sales.
The Nestle supply agreements provide for certain prices and specify that those prices will be increased or decreased based upon cost change formulas. These agreements contain provisions that require us to maintain levels of product quality, service and delivery in order to retain the business. In the event we breach any one of the agreements, Nestle may terminate that agreement.
In connection with our acquisition of Del Monte's U.S. metal food container manufacturing operations in December 1993, we entered into a long-term supply agreement with Del Monte. We recently extended the term of this supply agreement to the end of 2011. Additionally, we have a supply agreement with DLM Foods Inc., a subsidiary of Del Monte, that continues through 2011 for metal containers for food products acquired by DLM Foods Inc. from H. J. Heinz Company, or Heinz, in 2002. Under these supply agreements, we supply Del Monte and its subsidiary with a large majority of their U.S. metal container requirements for food and beverage products. These supply agreements provide for certain prices for our metal containers and specify that those prices will be increased or decreased based upon specified cost change formulas. In 2004, our net sales of metal containers to Del Monte and its subsidiary amounted to $252.1 million.
In connection with our June 1998 acquisition of the steel container manufacturing business of Campbell, or CS Can, we entered into a ten-year supply agreement with Campbell for the purchase of substantially all of Campbell's steel container requirements to be used for the packaging of foods and
beverages in the United States. In 2004, we extended the term of this supply agreement to the end of 2013. In 2004, our net sales of metal containers to Campbell were $296.0 million.
The Campbell agreement provides certain prices for containers supplied by us to Campbell and specifies that those prices will be increased or decreased based upon specified cost change formulas. The Campbell agreement permits Campbell to receive proposals from independent commercial can manufacturers for the supply of containers of a type and quality similar to the metal containers that we supply to Campbell. The proposals must be for the remainder of the term of the Campbell agreement and for 100 percent of the annual volume of containers at one or more of Campbell's food processing plants. We have the right to retain the business subject to the terms and conditions of the competitive proposal. Upon any material breach by us, Campbell has the right to terminate this agreement. In addition, Campbell has the right, at the end of the term of the Campbell agreement or upon the occurrence of specified material defaults under other agreements with Campbell, to purchase from us the assets used to manufacture containers for Campbell. These assets are located at the facilities we lease from Campbell. The purchase price for the assets would be determined at the time of purchase in accordance with an agreed upon formula that is related to the net book value of the assets.
Our metal food container business' sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in those 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.
We are also a leading manufacturer of metal, composite and plastic vacuum closures in North America for food and beverage products. The largest customers for these products include Anheuser- Busch Companies Inc., Campbell, Cadbury Schweppes plc, Cliffstar Corporation, The Coca-Cola Company, Dean Foods Company, Heinz, Pepsico Inc., Unilever, N.V., and Welch's Foods Inc. We have multi-year supply arrangements with many customers for these products.
Plastic Container Business
We are one of the leading manufacturers of custom designed and stock HDPE and PET containers sold in North America. We market our plastic containers, tubes and closures in most areas of North America through a direct sales force, through a large network of distributors and, more recently, through e-commerce.
We are a leading manufacturer of plastic containers in North America for personal care products. Our largest customers for these products include Alberto Culver USA, Inc., Avon Products Inc., Dial, Johnson & Johnson, L'Oreal, Pfizer Inc., The Procter & Gamble Company, and Unilever Home and Personal Care North America (a unit of Unilever, N.V.). We also manufacture decorated plastic tubes, primarily for personal care products. Customers for these products include Alticor Inc., Avon Products Inc., Bristol-Myers Squibb Company, Johnson & Johnson and L'Oreal.
We manufacture plastic containers for food and beverage, pet care and household and industrial chemical products. Customers for these product lines include The Clorox Company, Kraft Foods Inc., Nestle's Purina Pet Care, The Procter & Gamble Company, and S.C. Johnson & Sons, Inc. In addition, we manufacture plastic closures, caps, sifters and fitments for food, household and pet care products, as well as thermoformed plastic tubs for personal care and household products and Omni plastic bowls for microwaveable prepared foods. Customers for these product lines include Campbell, Hormel, The Kroger Company, McCormick & Company, Incorporated, Nestle's Nesquik, Nice-Pak Products, Inc., and Unilever Best Foods (a unit of Unilever, N.V.).
We have arrangements to sell some of our plastic containers and closures to distributors, who in turn resell those products primarily to regional customers. Plastic containers sold to distributors are
manufactured by using generic and custom molds with decoration added to meet the end users' requirements. The distributors' warehouses and their sales personnel enable us to market and inventory a wide range of such products to a variety of customers.
We have written purchase orders or contracts for the supply of containers with the majority of our customers. In general, these purchase orders and contracts are for containers made from proprietary molds and are for a duration of one to seven years.
Competition
The packaging industry is highly competitive. We compete in this industry with manufacturers of similar and other types of packaging, as well as fillers, food processors and packers who manufacture containers for their own use and for sale to others. We attempt to compete effectively through the quality of our products, competitive pricing and our ability to meet customer requirements for delivery, performance and technical assistance.
Because of the high cost of transporting empty containers, our metal food container business generally sells to customers within a 300 mile radius of its manufacturing plants. Strategically located existing plants give us an advantage over competitors from other areas, but we could be potentially disadvantaged by the relocation of a major customer.
Metal Food Container Business
Of the commercial metal food container manufacturers, Ball Corporation and Crown Holdings, Inc. are our most significant national competitors. As an alternative to purchasing containers from commercial can manufacturers, customers have the ability to invest in equipment to self-manufacture their containers.
Although metal containers face competition from plastic, paper, glass and composite containers, we believe that metal containers are superior to plastic, composite and paper containers in applications, where the contents are processed at high temperatures or packaged in larger consumer or institutional quantities or where long-term storage of the product is desirable while maintaining the product's quality. We also believe that metal containers are more desirable generally than glass containers because metal containers are more durable and less costly to transport.
Our metal, composite and plastic vacuum closure business competes primarily with Crown Holdings, Inc., Alcoa Closure Systems International, Inc., Owens-Illinois, Inc. and Kerr Group, Inc.
Plastic Container Business
Our plastic container business competes with a number of large national producers of 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. These competitors include Graham Packaging Company L.P., Alpla-Werke Alwin Lehner GmbH & Co., Plastipak Packaging Inc., Consolidated Container Company LLC, Constar International, Inc., Amcor PET Packaging, Rexam plc, CCL Industries Inc., Kerr Group, Inc. and Cebal Americas. To compete effectively in the constantly changing market for plastic containers, tubes and closures, we must remain current with, and to some extent anticipate, innovations in resin composition and applications and changes in the technology for the manufacturing of plastic containers, tubes and closures.
Employees
As of December 31, 2004, we employed approximately 1,700 salaried and 6,200 hourly employees on a full-time basis. Approximately 52 percent of our hourly plant employees as of that date were represented by a variety of unions. In addition, as of December 31, 2004, in connection with our
acquisition of Campbell's steel container manufacturing business, Campbell provided us with approximately 160 hourly employees on a full-time basis at one of the facilities that we lease from Campbell.
Our labor contracts expire at various times between 2005 and 2012. As of December 31, 2004, contracts covering approximately 9 percent of our hourly employees will expire during 2005. We expect no significant changes in our relations with these unions.
Regulation
We are subject to federal, state and local environmental laws and regulations. In general, these laws and regulations limit the discharge of pollutants into the environment and establish standards for the treatment, storage, and disposal of solid and hazardous waste. We believe that all of our facilities are either in compliance in all material respects with all presently applicable environmental laws and regulations or are operating in accordance with appropriate variances, delayed compliance orders or similar arrangements.
In addition to costs associated with regulatory compliance, we may be held liable for alleged environmental damage associated with the past disposal of hazardous substances. Those that generate hazardous substances that are disposed of at sites at which environmental problems are alleged to exist, as well as the owners of those sites and other classes of persons, are subject to claims under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, regardless of fault or the legality of the original disposal. CERCLA and many similar state statutes may hold a responsible party liable for the entire cleanup cost at a particular site even though that party may not have caused the entire problem. Other state statutes may impose proportionate rather than joint and several liability. The federal Environmental Protection Agency or a state agency may also issue orders requiring responsible parties to undertake removal or remedial actions at sites.
We are also subject to the Occupational Safety and Health Act and other laws regulating noise exposure levels and other safety and health concerns in the production areas of our plants.
Our management does not believe that any of the regulatory matters described above, individually or in the aggregate, will have a material effect on our capital expenditures, earnings, financial position or competitive position.
Research and Product Development
Our research, product development and product engineering efforts relating to our metal food container business are conducted at our research facility in Oconomowoc, Wisconsin, and our research, product development and product engineering efforts relating to our metal, composite and plastic vacuum closures business for food and beverage products are conducted at our research facility in Downers Grove, Illinois. Our research, product development and product engineering efforts with respect to our plastic container business are performed by our manufacturing and engineering personnel located at our Norcross, Georgia facility. In addition to research, product development and product engineering, these sites also provide technical support to our customers. The amounts we have spent on research and development during the last three fiscal years are not material.
Available Information
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 450 Fifth Street, Washington, D.C. 20549. You may obtain information on the operation of the SEC's Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers
(including the Company) file electronically with the SEC. The internet address of the SEC's website is http://www.sec.gov.
We maintain a website, the internet address of which is www.silgan.com. Information contained on our website is not part of this Annual Report. We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (or any amendments to those reports) and Forms 3, 4 and 5 filed on behalf of our directors and executive officers as soon as reasonably practicable after such documents are electronically filed or furnished to the SEC.
Item 2. Properties.
Our principal executive offices are located at 4 Landmark Square, Suite 400, Stamford, Connecticut 06901. The administrative headquarters and principal places of business for our metal food container and plastic container businesses are located at 21800 Oxnard Street, Woodland Hills, California 91367 and 14515 N. Outer Forty, Chesterfield, Missouri 63017, respectively. We lease all of these offices.
We own and lease properties for use in the ordinary course of business. The properties consist primarily of 37 operating facilities for the metal food container business and 24 operating facilities for the plastic container business. We own 27 of these facilities and lease 34. The leases expire at various times through 2020. Some of these leases provide renewal options as well as various purchase options.
Below is a list of our operating facilities, including attached warehouses, as of March 1, 2005 for our metal food container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Tarrant, AL ................................ 89,100
Antioch, CA ................................ 144,500 (leased)
Kingsburg, CA .............................. 35,600 (leased)
Modesto, CA ................................ 37,800 (leased)
Modesto, CA ................................ 128,000 (leased)
Modesto, CA ................................ 150,000 (leased)
Riverbank, CA .............................. 167,000
Sacramento, CA ............................. 284,900 (leased)
Stockton, CA ............................... 243,500
Athens, GA ................................. 113,000 (leased)
Champaign, IL .............................. 119,000 (leased)
Hoopeston, IL .............................. 323,000
Rochelle, IL ............................... 175,000
Waukegan, IL ............................... 40,000 (leased)
Evansville, IN ............................. 186,000
Hammond, IN ................................ 158,000 (leased)
Laporte, IN ................................ 144,000 (leased)
Richmond, IN ............................... 462,700
Ft. Dodge, IA .............................. 155,200 (leased)
Fort Madison, IA ........................... 121,000 (56,000 leased)
Savage, MN ................................. 160,000
St. Paul, MN ............................... 470,000
Mt. Vernon, MO ............................. 100,000
St. Joseph, MO ............................. 173,700
Maxton, NC ................................. 231,800 (leased)
Edison, NJ ................................. 265,500
Lyons, NY .................................. 149,700
Napoleon, OH ............................... 339,600 (leased)
West Hazleton, PA .......................... 151,500 (leased)
Crystal City, TX ........................... 26,000 (leased)
Paris, TX .................................. 266,300 (leased)
Toppenish, WA .............................. 105,000
Menomonee Falls, WI ........................ 116,000
Menomonie, WI .............................. 129,400 (leased)
Oconomowoc, WI ............................. 105,200
Plover, WI ................................. 91,400 (leased)
Waupun, WI ................................. 212,000
|
Below is a list of our operating facilities, including attached warehouses, as of March 1, 2005 for our plastic container business:
Approximate Building Area
Location (square feet)
-------- -------------------------
Valencia, CA................................ 122,500 (leased)
Deep River, CT.............................. 140,000
Monroe, GA.................................. 139,600
Flora, IL................................... 56,400
Woodstock, IL............................... 186,700 (leased)
Woodstock, IL............................... 129,800 (leased)
Ligonier, IN................................ 469,000 (276,000 leased)
Plainfield, IN.............................. 105,700 (leased)
Seymour, IN................................. 400,600
Franklin, KY................................ 122,000 (leased)
Cape Girardeau, MO.......................... 71,700 (leased)
Penn Yan, NY................................ 100,000
Ottawa, OH.................................. 267,000
Port Clinton, OH............................ 401,400 (leased)
Breinigsville, PA........................... 70,000 (leased)
Langhorne, PA............................... 172,600 (leased)
Houston, TX................................. 335,200
Richmond, VA................................ 70,000 (leased)
Triadelphia, WV............................. 168,400
Mississauga, Ontario........................ 75,000 (leased)
Mississauga, Ontario........................ 62,600 (leased)
Scarborough, Ontario........................ 117,000
Lachine, Quebec............................. 113,300 (leased)
Lachine, Quebec............................. 77,800 (leased)
|
We lease our research facilities in Oconomowoc, Wisconsin, Downers Grove, Illinois and Norcross, Georgia. We also own and lease other warehouse facilities that are detached from our manufacturing facilities. Additionally, we sublease or plan to sell other facilities that we previously operated.
We believe that our plants, warehouses and other facilities are in good operating condition, adequately maintained, and suitable to meet our present needs and future plans. We believe that we have sufficient capacity to satisfy the demand for our products in the foreseeable future. To the extent that we need additional capacity, we believe that we can convert certain facilities to continuous operation or make the appropriate capital expenditures to increase capacity.
Substantially all of our facilities are subject to liens in favor of the lenders under our senior secured credit facility, or the Credit Agreement, to which we and our subsidiaries are parties.
Item 3. Legal Proceedings.
We are a party to routine legal proceedings arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our common stock is quoted on the Nasdaq National Market System under the symbol SLGN. As of February 28, 2005, we had approximately 58 holders of record of our common stock.
We began paying quarterly cash dividends on our common stock in the second quarter of 2004. In each of the second, third and fourth quarters of 2004, our Board of Directors declared a cash dividend on our common stock of $0.15 per share. In February 2005, our Board of Directors increased the amount of our quarterly cash dividend payable on our common stock to $0.20 per share and declared a cash dividend on our common stock of $0.20 per share payable during the first quarter of 2005. The payment of future dividends is at the discretion of our Board of Directors and will be dependent upon our consolidated results of operations and financial condition, applicable contractual restrictions and other factors deemed relevant by our Board of Directors. We are allowed to pay cash dividends on our common stock up to specified limits under the Credit Agreement and our indenture for our 6 3/4% Senior Subordinated Notes due 2013, or the 6 3/4% Notes.
The table below sets forth the high and low closing sales prices of our common stock as reported by the Nasdaq National Market System for the periods indicated below and the cash dividends paid per share of our common stock in the periods indicated below.
Closing Sales Prices
-------------------- Cash Dividends
High Low Per Share
---- --- ---------
2004
----
First Quarter................. $47.46 $39.92 --
Second Quarter................ 47.60 39.50 $0.15
Third Quarter................. 49.31 39.50 $0.15
Fourth Quarter................ 61.35 45.67 $0.15
Closing Sales Prices
-------------------- Cash Dividends
High Low Per Share
---- --- ---------
2003
----
First Quarter................. $25.95 $19.50 --
Second Quarter................ 31.56 22.43 --
Third Quarter................. 33.91 27.60 --
Fourth Quarter................ 43.79 31.00 --
|
Item 6. Selected Financial Data.
In the table that follows, we provide you with selected financial data of Silgan Holdings Inc. We have derived this data from our consolidated financial statements for the five years ended December 31, 2004. Our consolidated financial statements for the five years ended December 31, 2004 have been audited by Ernst & Young LLP, our independent registered public accounting firm.
You should read this selected financial data along with the consolidated financial statements and accompanying notes included elsewhere in this Annual Report, as well as the section of this Annual Report titled "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Selected Financial Data
Year Ended December 31,
-------------------------------------------------------------
2004 2003(a) 2002 2001 2000(b)
---- ------- ---- ---- -------
(Dollars in millions, except per share data)
Operating Data:
Net sales .......................................... $2,420.5 $2,312.2 $1,988.3 $1,941.0 $1,877.5
Cost of goods sold ................................. 2,110.1 2,026.7 1,749.7 1,700.7 1,648.3
-------- -------- -------- -------- --------
Gross profit ....................................... 310.4 285.5 238.6 240.3 229.2
Selling, general and administrative expenses ....... 108.7 108.4 76.2 78.6 72.1
Rationalization charges (credits) .................. 2.1 9.0 (5.6) 9.3 --
-------- -------- -------- -------- --------
Income from operations ............................. 199.6 168.1 168.0 152.4 157.1
Interest and other debt expense before loss
on early extinguishment of debt ................. 55.6 78.8 73.8 81.2 91.2
Loss on early extinguishment of debt ............... 1.6 19.2 1.0 -- 6.9
-------- -------- -------- -------- --------
Interest and other debt expense .................... 57.2 98.0 74.8 81.2 98.1
-------- -------- -------- -------- --------
Gain on assets contributed to affiliate ............ -- -- -- 4.9 --
Income before income taxes and equity in
losses of affiliates ............................ 142.4 70.1 93.2 76.1 59.0
Provision for income taxes ......................... 58.2 27.8 36.8 30.2 23.1
-------- -------- -------- -------- --------
Income before equity in losses of affiliates ....... 84.2 42.3 56.4 45.9 35.9
Equity in losses of affiliates ..................... -- (0.3) (2.6) (4.1) (4.6)
-------- -------- -------- -------- --------
Net income ......................................... $ 84.2 $ 42.0 $ 53.8 $ 41.8 $ 31.3
======== ======== ======== ======== ========
Per Share Data:
Basic net income per share.......................... $4.58 $2.30 $2.97 $2.35 $1.77
===== ===== ===== ===== =====
Diluted net income per share........................ $4.52 $2.28 $2.93 $2.31 $1.74
===== ===== ===== ===== =====
Dividends per share................................. $0.45 $ -- $ -- $ -- $ --
===== ===== ===== ===== =====
Selected Segment Data: (c)
Net sales:
Metal food containers............................ $1,842.1 $1,750.5 $1,487.0 $1,447.4 $1,478.5
Plastic containers............................... 578.4 561.7 501.3 493.6 399.0
Income from operations:
Metal food containers (d)........................ 154.7 126.0 120.6 111.6 123.9
Plastic containers (e)........................... 52.1 48.0 52.9 46.0 36.9
(continued)
|
Selected Financial Data
Year Ended December 31,
-------------------------------------------------------------
2004 2003(a) 2002 2001 2000(b)
---- ------- ---- ---- -------
(Dollars in millions, except per share data)
Other Data:
Capital expenditures................................ $ 102.9 $ 105.9 $ 119.2 $ 93.0 $ 89.2
Depreciation and amortization (f)................... 118.5 111.3 95.7 95.5 89.0
Net cash provided by operating activities (g)....... 277.7 223.8 149.7 175.0 80.8
Net cash used in investing activities............... (92.9) (310.0) (117.2) (59.8) (218.5)
Net cash (used in) provided by financing
activities (g)................................... (161.5) 39.9 7.8 (117.3) 155.3
Balance Sheet Data (at end of period):
Goodwill, net....................................... $ 198.3 $ 202.4 $ 141.5 $ 141.5 $ 153.0
Total assets........................................ 1,597.2 1,621.1 1,404.0 1,311.8 1,383.8
Total debt.......................................... 841.7 1,002.6 956.8 944.8 1,031.5
Stockholders' equity (deficiency)................... 207.4 120.8 63.1 15.1 (20.4)
|
Notes to Selected Financial Data
(a) In January 2003, we acquired Thatcher Tubes. In March 2003, we acquired the
remaining 65 percent equity interest in Silgan Closures that we did not
already own. In April 2003, we acquired Pacific Coast's can manufacturing
business.
(b) In October 2000, we acquired RXI Holdings, Inc.
(c) In 2001, we contributed our metal closure business to Amcor White Cap, LLC,
a joint venture of which we owned 35 percent. Prior to this, we reported
the results of our metal closure business separately. In March 2003, we
acquired this joint venture and renamed it Silgan Closures LLC. We report
the results of Silgan Closures as part of our metal food container
business. As a result, for 2001 and 2000 we have included the results of
the metal closures business with our metal food container business. The
metal closures business had net sales of $46.3 million and $90.8 million
and income from operations of $3.3 million and $3.7 million in 2001 and
2000, respectively.
(d) Income from operations of the metal food container business includes
rationalization charges of $1.8 million and $1.2 million in 2004 and 2003,
respectively, rationalization credits of $5.4 million in 2002, and net
rationalization charges of $5.8 million in 2001.
(e) Income from operations of the plastic container business includes
rationalization charges of $0.3 million and $7.8 million in 2004 and 2003,
respectively, a rationalization credit of $0.2 million in 2002 and a
rationalization charge of $3.5 million in 2001.
(f) Depreciation and amortization excludes amortization of debt issuance costs.
Depreciation and amortization includes goodwill amortization of $5.0
million and $4.2 million in 2001 and 2000, respectively.
(g) Changes in outstanding checks were reclassified from operating activities
to financing activities to treat them as, in substance, cash advances.
Amounts reclassified were $11.1 million, $13.6 million, ($32.0) million and
$14.3 million, respectively, in each of 2003, 2002, 2001 and 2000.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis is intended to assist you in understanding our consolidated financial condition and results of operations for the three-year period ended December 31, 2004. Our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report contain detailed information that you should refer to in conjunction with the following discussion and analysis.
General
We are a leading North American manufacturer of metal and plastic consumer goods packaging products. We currently 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, with a unit volume market share for the year ended December 31, 2004 of approximately half of the market in the United States, 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 pet care markets, and a leading manufacturer of metal, composite and plastic vacuum closures in North America for food and beverage products.
Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs, 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 at compounded annual rates of 14.1 percent and 16.9 percent, respectively, over the past ten years, largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market. However, in the absence of such acquisition opportunities, we expect to use our cash flow to repay debt or for other permitted purposes.
Sales Growth
We have increased net sales and market share in our metal food container and plastic container businesses through both acquisitions and internal growth. As a result, we have expanded and diversified our customer base, geographic presence and product lines.
During the past seventeen years, the metal food container market has experienced significant consolidation primarily due to the desire by food processors to reduce costs and focus resources on their core operations rather than self-manufacture their metal food containers. Our acquisitions of the metal food container manufacturing operations of Nestle, Dial, Del Monte, Birds Eye, Campbell and most recently Pacific Coast reflect this trend. We estimate that approximately 8 percent of the market for metal food containers is still served by self-manufacturers.
The metal food container market in North America was relatively flat during this period, despite losing market share as a result of more dining out, fresh produce and competing materials. However, we increased our share of the market for metal food containers in the United States primarily through acquisitions, and we have enhanced our business by focusing on providing customers with high levels of quality and service and value-added features such as our Quick Top(TM) easy-open ends. We anticipate that the market will decline slightly in the future, but will continue to increase in areas of consumer convenience products such as single-serve sizes and easy-open ends. In 2004, 54 percent of our metal food containers sold had a Quick Top(TM) easy-open end, representing an increase in unit sales of this value-added feature of 33 percent since 2002.
We have improved the market position of our plastic container business since 1987, with net sales increasing more than sixfold to $578.4 million in 2004. We achieved this improved market position primarily through strategic acquisitions as well as through internal growth. The plastic container business of the consumer goods packaging industry is a highly fragmented business with growth rates in excess of population expansion due to substitution of plastic for other materials. We have focused on the part of this market where custom design and decoration allows customers to differentiate their products such as in personal care. We intend to pursue further acquisition opportunities in markets where we believe that we can successfully apply our acquisition and value-added operating expertise and strategy. We extended our business into decorated plastic tubes primarily for personal care products to complement our plastic container business.
Operating Performance
We operate in a competitive industry where it is necessary to realize cost reduction opportunities to offset continued competitive pricing pressure. We have improved the operating performance of our plant facilities through the investment of capital for productivity improvements and manufacturing cost reductions. Our acquisitions have enabled us to rationalize plant operations and decrease overhead costs through plant closings and downsizings and to realize manufacturing efficiencies as a result of optimizing production scheduling. For example, following our acquisition in March 2003 of Silgan Closures, we implemented rationalization and integration plans to consolidate certain administrative functions of this business with our metal food container business and to close a higher cost manufacturing facility. We substantially completed these plans in 2004 and significantly improved the profitability of this business. Additionally, with our acquisition in April 2003 of the can manufacturing business of Pacific Coast, we were able to successfully rationalize and consolidate this business into our existing metal food container facilities and realize cost reductions and manufacturing efficiencies as a result.
We have also invested substantial capital in the past few years for new market opportunities and value-added products such as new Quick Top(TM) easy-open ends for metal food containers. Over the past five years, we have invested $510.2 million in capital to maintain our market position, improve our productivity, reduce our manufacturing costs and invest in new market opportunities.
We estimate that approximately 90 percent of our projected metal food container sales in 2005 and a majority of our projected plastic container sales in 2005 will be under multi-year arrangements. Many of these multi-year supply arrangements generally provide for the pass through of changes in raw material, labor and other manufacturing costs, thereby significantly reducing the exposure of our results of operations to the volatility of these costs.
Historically, we have been successful in renewing our multi-year supply arrangements with our customers. For example, our metal food container business recently extended its supply agreements with our three largest customers, Nestle (through 2009 for approximately half of our sales under these agreements), Del Monte (through 2011) and Campbell (through 2013). In the fourth quarter of 2004, our metal food container business did not retain low margin business upon a contract renewal with a customer. This loss of low margin business is not expected to have a material effect on our results of operations in 2005.
Over the last couple of years, our plastic container business began to experience increased competitive pressures from new market entrants focused on larger customers in value-added markets. As a result, our plastic container business extended the term of several major supply agreements with various customers, but at lower prices, and elected not to meet competitive bids for some products.
Our metal food container business' sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in those 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.
Use of Capital
Historically, we have used leverage to support our growth and increase shareholder returns. Our stable and predictable cash flow, generated largely as a result of our long-term customer relationships and generally recession resistant business, supports our financial strategy. We intend to continue using reasonable leverage, supported by our stable cash flows, to make value enhancing acquisitions. In determining reasonable leverage, we evaluate our cost of capital and manage our level of debt to maintain an optimal cost of capital based on current market conditions. In the absence of such acquisition opportunities, we intend to use our cash flow to repay debt or for other permitted purposes.
In 2003, we announced that in the absence of compelling acquisitions we intended to focus on reducing our debt and expected to repay $200-$300 million of debt over the period from 2004 through 2006. In 2004, we paid down $160.9 million of debt, making significant progress toward this debt reduction goal. As a result, we believe that over the next two years we can meet our debt reduction goal and still complete some complementary acquisitions should they become available. Although no assurances can be given, we expect to pay down approximately $100 million of debt during 2005 in the absence of acquisitions. As a result of the debt reduction in the fourth quarter of 2004, we recorded a loss on early extinguishment of debt of $1.6 million to write-off a portion of unamortized debt issuance costs.
To the extent we utilize debt for acquisitions or other permitted purposes in future periods, our interest expense may increase. Further, since the revolving loan and term loan borrowings under the Credit Agreement bear interest at floating rates, our interest expense is sensitive to changes in prevailing rates of interest and, accordingly, our interest expense may vary from period to period. After taking into account interest rate swap agreements that we entered into to mitigate the effect of interest rate fluctuations, at December 31, 2004 we had $188.7 million of indebtedness which bore interest at floating rates.
In light of our strategy to use leverage to support our growth and optimize shareholder returns, we have incurred and will continue to incur significant interest expense. For 2004, our aggregate interest and other debt expense was 28.7 percent of our income from operations, significantly lower than historic levels, primarily as a result of lower average borrowings due to our debt reduction program and a lower average cost of borrowings. Our aggregate interest and other debt expense was 58.3 percent and 44.5 percent of our income from operations for 2003 and 2002, respectively.
In 2003, we took advantage of favorable debt markets and refinanced all $500 million principal amount of our outstanding 9% Senior Subordinated Debentures due 2009, or the 9% Debentures, with lower cost 6 3/4% Notes, incremental term loans and revolving loans under the Credit Agreement and funds from operations. Due to this refinancing, in 2003 we recorded a loss on early extinguishment of debt of $19.2 million for the premium paid in connection with the redemption of the 9% Debentures and for the write-off of unamortized debt issuance costs and unamortized premium related to the 9% Debentures.
Acquisitions
In January 2003, we acquired substantially all of the assets of Thatcher Tubes, a privately held manufacturer and marketer of decorated plastic tubes serving primarily the personal care industry. Including additional production capacity installed shortly before the acquisition, the purchase price for the assets was approximately $32 million in cash. Thatcher Tubes operates as part of our plastic container business and extends our personal care business into decorated plastic tubes.
In March 2003, we acquired the remaining 65 percent equity interest in Silgan Closures that we did not already own for approximately $37 million in cash. Additionally, we refinanced debt of Silgan Closures in the amount of approximately $88 million and purchased equipment subject to a third party lease for approximately $5 million. The business is a leading manufacturer of metal, composite and plastic vacuum closures in North America for food and beverage products. The business operates as part of our metal food container business.
In April 2003, we acquired PCP Can Manufacturing, Inc., or Pacific Coast Can, a subsidiary of Pacific Coast, which self-manufactured a majority of its metal food container requirements. This acquisition continued the trend of food processors selling their metal food container manufacturing businesses. The purchase price was approximately $44 million in cash, including approximately $29 million for inventory. As part of the transaction, we entered into a ten-year supply agreement with Pacific Coast under which Pacific Coast has agreed to purchase from us substantially all of its metal food container requirements.
Results of Operations
The following table sets forth certain income statement data expressed as a percentage of net sales for each of the periods presented. You should read this table in conjunction with our Consolidated Financial Statements for the year ended December 31, 2004 and the accompanying notes included elsewhere in this Annual Report.
Year Ended December 31,
----------------------------
2004 2003 2002
---- ---- ----
Operating Data:
Net sales:
Metal food containers.......................... 76.1% 75.7% 74.8%
Plastic containers............................. 23.9 24.3 25.2
----- ----- -----
Consolidated................................ 100.0 100.0 100.0
Cost of goods sold............................... 87.2 87.6 88.0
----- ----- -----
Gross profit..................................... 12.8 12.4 12.0
Selling, general and administrative expenses..... 4.5 4.7 3.8
Rationalization charges (credits)................ 0.1 0.4 (0.2)
----- ----- -----
Income from operations........................... 8.2 7.3 8.4
Interest and other debt expense.................. 2.3 4.3 3.8
----- ----- -----
Income before income taxes and equity in
losses of affiliate ........................... 5.9 3.0 4.6
Provision for income taxes....................... 2.4 1.2 1.8
----- ----- -----
Income before equity in losses of affiliate...... 3.5 1.8 2.8
Equity in losses of affiliate, net of
income taxes................................... -- -- (0.1)
----- ----- -----
Net income....................................... 3.5% 1.8% 2.7%
===== ===== =====
|
Summary results for our business segments for the years ended December 31, 2004, 2003 and 2002 are provided below.
Year Ended December 31,
----------------------------------
2004 2003 2002
---- ---- ----
(Dollars in millions)
Net sales:
Metal food containers.............. $1,842.1 $1,750.5 $1,487.0
Plastic containers................. 578.4 561.7 501.3
-------- -------- --------
Consolidated.................... $2,420.5 $2,312.2 $1,988.3
======== ======== ========
Income from operations:
Metal food containers(1)........... $ 154.7 $ 126.0 $ 120.6
Plastic containers(2).............. 52.1 48.0 52.9
Corporate.......................... (7.2) (5.9) (5.6)
-------- -------- --------
Consolidated.................... $ 199.6 $ 168.1 $ 167.9
======== ======== ========
------------
|
(1) Includes rationalization charges of $1.8 million and $1.2 million in 2004 and 2003, respectively, and rationalization credits of $5.4 million in 2002. You should also read Note 3 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report.
(2) Includes rationalization charges of $0.3 million and $7.8 million in 2004 and 2003, respectively, and a rationalization credit of $0.2 million in 2002. You should also read Note 3 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report.
Year Ended December 31, 2004 Compared with Year Ended December 31, 2003
Overview. Consolidated net sales were $2.421 billion in 2004, representing a 4.7 percent increase as compared to 2003 primarily as a result of the full year inclusion of Silgan Closures which was acquired in March 2003 and the effect of higher average selling prices resulting from the pass through of higher raw material costs. Income from operations in 2004 increased by $31.5 million as compared to 2003 and operating margin in 2004 increased by 0.9 percentage points as compared to 2003. These increases resulted primarily from the post-rationalization performance of Silgan Closures, the continued conversion to Quick Top(TM) easy-open ends and the incurrence of rationalization charges of $9.0 million in 2003. Net income in 2004 of $84.2 million increased by $42.2 million as compared to 2003 primarily as a result of the above referenced improvements in income from operations, significantly reduced interest expense attributable to the debt refinancing in late 2003 and a lower average cost of borrowings, and a pre-tax loss on early extinguishment of debt of $19.2 million in 2003. We used strong cash flows from operations in 2004 to pay down $160.9 million of debt during the year, making significant progress toward our debt reduction goal of $200 to $300 million for the years 2004 through 2006.
Net Sales. The $108.3 million increase in consolidated net sales in 2004 as compared to 2003 was largely the result of higher net sales of the metal food container business due to the acquisition of Silgan Closures in March 2003 and the effect of higher average selling prices resulting from the pass through of higher raw material costs in both the metal food container and plastic container businesses.
Net sales for the metal food container business increased $91.6 million, or 5.2 percent, in 2004 as compared to 2003. This increase was primarily attributable to the performance and full year inclusion of the Silgan Closures business, as well as higher average selling prices due to the pass through of increased metal costs and continued customer conversion to higher value-added products.
Net sales for the plastic container business in 2004 increased $16.7 million, or 3.0 percent, as compared to 2003. This increase was primarily a result of higher average selling prices due to the pass through of increased resin costs, partially offset by the effect of prior year price concessions and a less favorable mix of products sold due primarily to weak demand from certain customers in the personal care market.
Gross Profit. The increase in gross profit margin for 2004 as compared to 2003 was principally due to the strong post-rationalization performance of the Silgan Closures business and increased sales of Quick Top(TM) easy-open ends, partially offset by the impact of prior year price concessions in the plastic container business and higher depreciation and manufacturing expense.
Selling, General and Administrative Expenses. Selling, general and administrative expenses increased slightly as compared to 2003. As a percentage of consolidated net sales, selling, general and administrative expenses were 0.2 percent lower as compared to 2003, primarily as a result of a benefit of $3.0 million from a litigation settlement reached with an equipment supplier and the benefits of integrating the administrative functions of the Silgan Closures operations into our metal food container business.
Income from Operations. Income from operations for 2004 increased by $31.5 million as compared to 2003 and operating margin increased to 8.2 percent from 7.3 percent over the same periods. We recorded rationalization charges totaling $2.1 million in 2004 and $9.0 million in 2003.
Income from operations of the metal food container business for 2004 increased $28.7 million, or 22.8 percent, as compared to 2003, while operating margin increased to 8.4 percent from 7.2 percent. The increases in income from operations and operating margin were principally due to the strong post-rationalization performance and full year inclusion of the results of the Silgan Closures business and increased sales of Quick Top(TM) easy-open ends for which we had made significant capital investment over the past several years. These positive factors were partially offset by higher depreciation expense and increases in other manufacturing costs.
Income from operations of the plastic container business for 2004 increased $4.1 million, or 8.5 percent, as compared to 2003, and operating margin increased to 9.0 percent from 8.5 percent. The increases in income from operations and operating margin were primarily a result of the rationalization charge of $7.8 million incurred in 2003 and the 2004 benefit of $3.0 million from a litigation settlement. These benefits were partially offset by higher manufacturing costs, the effect of prior year price concessions and a less favorable mix of products sold.
Interest and Other Debt Expense. Interest and other debt expense in 2004 decreased $40.8 million to $57.2 million as compared to 2003. This decrease resulted primarily from lower average borrowings resulting from debt reduction, a lower average cost of borrowings and the inclusion in 2003 of a $19.2 million loss on early extinguishment of debt as a result of a late-year refinancing. These favorable comparisons were partially offset by a $1.6 million charge in the fourth quarter of 2004 to write-off a portion of unamortized debt issuance costs as a result of our debt reduction program.
Income Taxes. Our effective tax rate for 2004 was 40.9 percent as compared to 39.6 percent in 2003. The increase in the effective tax rate was principally due to valuation allowances established for certain state net operating loss carryovers and credits.
Year Ended December 31, 2003 Compared with Year Ended December 31, 2002
Overview. Consolidated net sales were $2.312 billion in 2003, representing a 16.3 percent increase as compared to 2002 primarily as a result of the inclusion of three businesses acquired during early 2003. These acquisitions represent a continued strengthening of our franchise market positions,
bringing our unit volume market share in the United States metal food can market to approximately half of the market, putting us in a leadership position in the metal, composite and plastic vacuum closure market for food and beverage products and further extending our product line to plastic tubes for the personal care market. Income from operations in 2003 also increased as compared to 2002, despite the inclusion of $9.0 million of rationalization charges in 2003 and $5.6 million of rationalization credits in 2002. Operating margin in 2003 declined by 1.1 percentage points as compared to 2002 as a result of rationalization charges in 2003 as compared to rationalization credits in 2002 and the inclusion of the acquired Silgan Closures business. In 2003, Silgan Closures had lower operating margins than the rest of the metal food container business as it continued to execute a major restructuring program initiated prior to our acquisition of the business. Net income in 2003 of $42.0 million declined by $11.8 million as compared to 2002 as a result of pre-tax rationalization charges of $9.0 million and a pre-tax loss on early extinguishment of debt of $19.2 million.
Net Sales. The $323.9 million increase in consolidated net sales in 2003 as compared to 2002 was largely the result of higher net sales of the metal food container business due to businesses acquired in 2003.
Net sales for the metal food container business increased $263.5 million, or 17.7 percent, in 2003 as compared to 2002. This increase was primarily attributable to the inclusion of net sales of the Silgan Closures and Pacific Coast Can businesses.
Net sales for the plastic container business in 2003 increased $60.4 million, or 12.0 percent, as compared to 2002. This increase was primarily a result of higher unit volume due largely to the acquisition of Thatcher Tubes and higher average selling prices due to the pass through of increased resin costs.
Gross Profit. The increase in gross profit margin for 2003 as compared to 2002 was principally due to increased sales of value-added products, largely offset by heightened competitive activities in the plastic container business, inflation in employee benefit costs and higher depreciation expense.
Selling, General and Administrative Expenses. The increase in selling, general and administrative expenses as a percentage of consolidated net sales for 2003 as compared to 2002 was largely due to higher levels of such expenses in the Silgan Closures and Thatcher Tubes businesses, inflation in employee benefits costs and the favorable impact in 2002 of net payments of $2.8 million received in settlement for certain litigation.
Income from Operations. Income from operations for 2003 increased by $0.2 million as compared to 2002 while operating margin decreased to 7.3 percent from 8.4 percent. The increase in income from operations would have been $14.6 million higher were it not for rationalization charges in 2003 as compared to rationalization credits in 2002. During 2003, we recorded rationalization charges totaling $9.0 million (including the non-cash write-down in carrying value of assets of approximately $5.3 million) related to closing two plastic container manufacturing facilities and one metal closure manufacturing facility. We recorded rationalization credits in 2002 totaling $5.6 million.
Income from operations of the metal food container business for 2003 increased $5.4 million, or 4.5 percent, as compared to 2002, while operating margin decreased to 7.2 percent from 8.1 percent. The increase in income from operations was principally due to the inclusion of the results of the recently acquired businesses, increased sales of Quick Top(TM) easy-open ends and improved operating efficiencies, partially offset by rationalization charges in 2003 as compared to rationalization credits in 2002, higher depreciation expense and inflation in employee benefit costs. The decrease in operating margin was due primarily to rationalization charges in 2003 as compared to rationalization credits in 2002 and the inclusion of the results of Silgan Closures.
Income from operations of the plastic container business for 2003 decreased $4.9 million, or 9.3 percent, as compared to 2002, and operating margin decreased to 8.5 percent from 10.6 percent. The decreases in income from operations and operating margin were primarily a result of rationalization charges in 2003 as compared to a rationalization credit in 2002, increased pricing pressures due to heightened competitive activities, higher depreciation expense and inflation in employee benefits costs, partially offset by higher unit volume and improved productivity. Operating margin was negatively impacted as higher sales associated with higher resin costs did not result in a corresponding increase in income from operations.
Interest and Other Debt Expense. Interest and other debt expense in 2003 increased $23.2 million to $98.0 million as compared to 2002. This increase resulted primarily from a $19.2 million loss on early extinguishment of debt as a result of refinancing all $500 million of the 9% Debentures and higher average borrowings during the year due to three acquisitions completed in early 2003, partially offset by a lower average interest rate in 2003. Interest and other debt expense for 2002 included a $1.0 million loss on early extinguishment of debt related to refinancing of our previous senior secured credit facility.
Capital Resources and Liquidity
Our principal sources of liquidity have been net cash from operating activities and borrowings under the Credit Agreement. Our liquidity requirements arise primarily from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment and the funding of our seasonal working capital needs.
In the fourth quarter of 2004, we utilized cash flow from operations to pay scheduled installments of $23.7 million and voluntarily prepay an additional $112.2 million of term loans under the Credit Agreement. Additionally, at December 31, 2004, there were no revolving loans outstanding under the Credit Agreement, as compared to $25.0 million outstanding at December 31, 2003. The prepayment of our term loans generated a loss on early extinguishment of debt of $1.6 million for the write-off of a portion of our unamortized debt issuance costs.
In March 2003, we completed a $150 million incremental term loan borrowing under the Credit Agreement and used the proceeds largely to finance the acquisitions of Silgan Closures and Thatcher Tubes. Later in 2003, we amended the Credit Agreement to increase the uncommitted incremental term loan facility under the Credit Agreement by $200 million, and then we completed an additional $200 million incremental term loan borrowing under the Credit Agreement and used the proceeds and other funds to redeem outstanding 9% Debentures.
In November 2003, we issued $200 million aggregate principal amount of 6 3/4% Notes. The issue price for the 6 3/4% Notes was 100% of their principal amount. The 6 3/4% Notes are general unsecured obligations of the Company, subordinate in right of payment to obligations under the Credit Agreement and effectively subordinate to all obligations of the subsidiaries of the Company. Interest on the 6 3/4% Notes is payable semi-annually in cash on the 15th day of each May and November. The net cash proceeds from this issuance and other funds were used to redeem our 9% Debentures.
During 2003, we redeemed all $500 million of our outstanding 9% Debentures. The redemption price was 103.375% of the principal amount, or $516.9 million, plus accrued and unpaid interest to the redemption date. We funded this redemption with the proceeds from the issuance of the 6 3/4% Notes, incremental term loans and revolving loans under the Credit Agreement and funds from operations. We recorded a loss on early extinguishment of debt of $19.2 million in 2003 for the premium paid in connection with this redemption and for the write-off of unamortized debt issuance costs and unamortized premium related to the redeemed 9% Debentures.
In 2004, we used cash from operations of $277.7 million, proceeds from asset sales of $10.0 million, proceeds from stock option exercises of $2.3 million and increases in outstanding checks of $6.1 million to fund capital expenditures of $102.9 million, net repayments of long-term debt and revolving loans of $160.9 million, dividends paid on common stock of $8.3 million and debt issuance costs of $0.7 million and to increase cash balances by $23.3 million.
In 2004, trade accounts receivable, net decreased $11.2 million due to the timing of cash collections from our customers. Trade accounts payable increased $32.5 million due to the timing of payments and price increases of raw material purchases.
In 2003, we used cash from incremental term loan borrowings of $350 million, cash from operations of $223.8 million, proceeds from the issuance of the 6 3/4% Notes of $200 million, cash balances of $46.2 million, net borrowings of revolving loans of $25.0 million, increases in outstanding checks of $11.1 million, proceeds from asset sales of $3.7 million and proceeds from stock option exercises of $0.6 million to redeem the 9% Debentures for $516.9 million, purchase businesses for $207.8 million, fund capital expenditures of $105.9 million, repay term loans under the Credit Agreement of $23.6 million and pay debt issuance costs of $6.2 million.
In 2003, trade accounts receivable, net, inventories and trade accounts payable increased primarily due to acquisitions completed in 2003. The increase in inventories was partially offset by a successful finished goods inventory reduction program in our metal food container business.
In 2002, we used proceeds of $206.0 million from an add-on issuance of 9% Debentures, cash generated from operations of $149.7 million, increases in outstanding checks of $13.6 million, proceeds from stock option exercises of $4.3 million and proceeds from asset sales of $1.9 million to fund capital expenditures of $119.2 million, net repayments of revolving loans and long-term debt of $193.6 million and debt issuance costs of $22.4 million and to increase cash balances by $40.3 million.
In 2004, our Board of Directors initiated a quarterly dividend on our common stock and in April, July and November of 2004 approved a $0.15 per share quarterly cash dividend. The cash payments for dividends in 2004 totaled $8.3 million.
In February 2005, our Board of Directors declared a quarterly cash dividend on our common stock of $0.20 per share, payable on March 15, 2005 to the holders of record of our common stock on March 1, 2005. The cash payment for this dividend is expected to approximate $3.7 million.
As of December 31, 2004, there were no revolving loans outstanding under the Credit Agreement, and, after taking into account outstanding letters of credit, the available portion of the revolving loan facility under the Credit Agreement was $368.6 million. Revolving loans under the Credit Agreement may be borrowed, repaid and reborrowed until their final maturity on June 28, 2008.
The Credit Agreement also provided us with A term loans ($63.7 million outstanding at December 31, 2004) and B term loans ($575.0 million outstanding at December 31, 2004), which are required to be repaid in annual installments through June 28, 2008 and November 30, 2008, respectively. At December 31, 2004, the uncommitted incremental term loan facility was $125.0 million. You should also read Note 8 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report.
Under the Credit Agreement, the interest rate for all loans will be either the Eurodollar rate plus a margin or the prime lending rate of Deutsche Bank Trust Company Americas plus a margin. The margins are subject to adjustment quarterly based upon financial ratios set forth in the Credit Agreement. During 2004, we completed an amendment to the Credit Agreement that lowered the margin on our B term loans by twenty-five basis points, resulting in an interest rate on our B term loans of LIBOR plus 1.75 percent.
Because we sell metal containers used in the fruit and vegetable packing process, 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, we incur short-term indebtedness to finance our working capital requirements.
For 2005, we estimate that we will utilize approximately $250-300 million of revolving loans under our Credit Agreement for our peak seasonal working capital requirements. We may use the available portion of our revolving loan facilities, after taking into account our seasonal needs and outstanding letters of credit, for acquisitions and other permitted purposes.
In addition to our operating cash needs, we believe our cash requirements over the next few years will consist primarily of:
o annual capital expenditures of $90 to $110 million;
o annual principal amortization payments of bank term loans under the Credit Agreement of $21.8 million;
o quarterly common stock dividend payments of approximately $3.7 million (assuming our Board of Directors continues to approve dividends at the same level);
o our interest requirements, including interest on revolving loans (the principal amount of which will vary depending upon seasonal requirements) and bank term loans under the Credit Agreement, which bear fluctuating rates of interest, and the 6 3/4% Notes; and
o payments of approximately $30 to $40 million for federal, state and foreign tax liabilities in 2005, which represents a significant increase from prior years as we fully utilize certain alternative minimum tax and other credit carryforwards and which may increase annually thereafter. These amounts do not reflect the impact of any potential repatriation of earnings under the American Jobs Creation Act of 2004, or the AJCA, which we are still evaluating or the impact of the resolution of issues arising from tax audits with various tax authorities.
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 and common stock dividends for the foreseeable future. We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.
The Credit Agreement and the indenture with respect to the 6 3/4% Notes contain restrictive covenants that, among other things, limit our ability to incur debt, sell assets, pay dividends and engage in certain transactions. We do not expect these limitations to have a material effect on our business or our results of operations. We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2005 with all of these covenants.
Contractual Obligations
Our contractual cash obligations at December 31, 2004 are provided below:
Payment due by period
-----------------------------------------------------
Less than 1-3 3-5 More than
Total 1 year years years 5 years
----- --------- ----- ----- ---------
(Dollars in millions)
Long-term debt obligations (1) ........ $ 841.7 $ 21.8 $ 43.6 $576.3 $200.0
Interest on fixed rate debt (2) ....... 121.5 14.0 28.0 27.2 52.3
Interest on variable rate debt (3) .... 105.0 28.1 56.4 20.5 --
Operating lease obligations ........... 114.2 23.5 38.1 20.4 32.2
Purchase obligations (4) .............. 11.7 11.7 -- -- --
Other postretirement benefit
obligations (5) .................... 57.4 4.8 10.8 11.6 30.2
-------- ------ ------ ------ ------
Total (6) ............................. $1,251.5 $103.9 $176.9 $656.0 $314.7
======== ====== ====== ====== ======
|
(1) These amounts represent expected cash payments of our long-term debt.
(2) These amounts represent expected cash payments of our interest on fixed
rate long-term debt.
(3) These amounts represent expected cash payments of our interest on variable
rate long-term debt, after taking into consideration our interest rate swap
agreements, at prevailing interest rates at December 31, 2004.
(4) Purchase obligations consist of commitments for capital expenditures.
Obligations that are cancelable without penalty are excluded.
(5) Other postretirement benefit obligations have been actuarially determined
through the year 2014.
(6) Based on current tax law, there are no minimum required contributions to
our pension plans in 2005. However, this is subject to change based on
current tax proposals before Congress, as well as asset performance
significantly above or below the assumed long-term rate of return on plan
assets. During 2004, we made pension contributions of approximately $36.8
million, of which approximately $2.4 million represented minimum funding
requirements.
At December 31, 2004, we also had outstanding letters of credit of $31.4 million that were issued under the Credit Agreement.
You should also read Notes 9 and 11 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
Effect of Inflation and Interest Rate Fluctuations
Historically, inflation has not had a material effect on us, other than to increase our cost of borrowing. In general, we have been able to increase the sales prices of our products to reflect any increases in the prices of raw materials and to significantly reduce the exposure of our results of operations to increases in other costs, such as labor and other manufacturing costs.
Because we have indebtedness which bears interest at floating rates, our financial results will be sensitive to changes in prevailing market rates of interest. As of December 31, 2004, we had $841.7 million of indebtedness outstanding, of which $188.7 million bore interest at floating rates, after taking into account interest rate swap agreements that we entered into to mitigate the effect of interest rate fluctuations. Under these agreements, floating rate interest based on the three month LIBOR rate was exchanged for fixed rates of interest ranging from 1.3 percent to 3.3 percent. At December 31, 2004, the
aggregate notional principal amounts of these agreements was $450 million, with $100 million aggregate notional principal amount maturing in 2005, $150 million aggregate notional principal amount maturing in 2006 and $100 million aggregate notional principal amount maturing in each of 2007 and 2008. Depending upon market conditions, we may enter into additional interest rate swap or hedge agreements (with counterparties that, in our judgment, have sufficient creditworthiness) to hedge our exposure against interest rate volatility.
Rationalization Charges (Credits) and Acquisition Reserves
During 2004, we approved and announced to employees a plan to exit our Benton Harbor, Michigan metal food container manufacturing facility and another operation. This decision resulted in a charge to earnings during 2004 of $0.7 million, of which $0.2 million was for the non-cash write-down in carrying value of assets. Through December 31, 2004, we made cash payments totaling $0.5 million related to these plans. All actions under these plans have been completed.
During 2003, we established acquisition reserves in connection with our purchases of Thatcher Tubes, Silgan Closures and Pacific Coast Can aggregating approximately $6.0 million, recorded pursuant to plans that we began to assess and formulate at the date of the acquisitions. During 2004, we finalized these plans and reduced the related acquisition reserves by approximately $0.5 million. These plans included exiting the Lodi, California metal food container manufacturing facility, the Chicago, Illinois and Queretaro, Mexico metal closures manufacturing facilities and the Culiacan, Mexico plastic container manufacturing facility, as well as the consolidation of certain administrative functions of the acquired businesses. All of these facilities have ceased manufacturing operations. Through December 31, 2004, we made cash payments totaling $5.3 million related to these plans. At December 31, 2004, these reserves had an aggregate balance of $0.2 million. Cash payments related to these plans are expected to continue through the second quarter of 2005.
During 2003, we approved and announced to employees plans to exit our Norwalk, Connecticut and Anaheim, California plastic container manufacturing facilities and our Queretaro, Mexico metal closures manufacturing facility, as well as to consolidate certain administrative functions of the Silgan Closures business. These plans included the termination of approximately 120 plant employees and other related exit costs. These decisions resulted in a charge to earnings of $9.0 million ($1.2 million for the metal food container business and $7.8 million for the plastic container business) in 2003, which consisted of $5.3 million for the non-cash write-down in carrying value of assets, $2.1 million for employee severance and benefits costs and $1.6 million for plant exit costs. During 2004, additional rationalization charges of $1.3 million were recorded related to these plans ($1.0 million for the metal food container business and $0.3 million for the plastic container business). Since inception, a total of $2.3 million and $1.3 million has been expended for employee severance and benefits and plant exit costs, respectively, and $6.0 million has been recorded for the non-cash write-down in carrying value of assets. At December 31, 2004, these reserves had an aggregate balance of $0.7 million. The timing of certain cash payments related to these reserves is dependent upon the expiration of a lease obligation. Accordingly, cash payments related to these reserves are expected through 2010.
We recorded rationalization credits in 2002 totaling $5.6 million. These rationalization credits included $2.4 million related primarily to the decision to support new business requirements by continuing to operate our Kingsburg, California metal food container facility that was previously expected to be closed, $3.0 million related primarily to certain previously written down assets of the metal food container business that were placed back in service to meet business requirements and $0.2 million related to certain aspects of a rationalization plan to close a plastic container manufacturing facility that were completed at amounts less than originally estimated.
Under our rationalization and acquisition plans, we made cash payments of $6.0 million, $6.0 million and $5.9 million, respectively, in 2004, 2003 and 2002. Additional cash spending is expected in
2005 under our 2003 acquisition plans, 2003 rationalization plans and a prior rationalization plan.
You should also read Note 3 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report.
Critical Accounting Policies
U.S. generally accepted accounting principles require estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes. Some of these estimates and assumptions require difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. We believe that our accounting policies for deferred income taxes, pension expense and obligations, rationalization charges (credits) and acquisition reserves and testing goodwill for impairment reflect the more significant judgments and estimates in our consolidated financial statements. You should also read our Consolidated Financial Statements for the year ended December 31, 2004 and the accompanying notes included elsewhere in this Annual Report.
At December 31, 2004, CS Can had approximately $11.3 million of deferred tax assets relating to $32.2 million of federal net operating loss carryforwards, or NOLs, that expire between 2020 and 2022, for which no valuation allowance has been established. These NOLs are available to offset future taxable income of CS Can. We believe that it is more likely than not that these NOLs will be available to reduce future income tax liabilities based on estimated future taxable income and the reversal of temporary differences in future periods. Current levels of CS Can pre-tax earnings are sufficient to generate the taxable income required to realize our deferred tax assets. We would reduce our deferred tax assets by a valuation allowance if it became more likely than not that a portion of these NOLs would not be utilized. If a valuation allowance were established, additional expense would be recorded within the provision for income taxes in our Consolidated Statements of Income in the period in which that determination was made. Silgan Equipment Company, or Silgan Equipment, had approximately $6.8 million of deferred tax assets relating to $19.5 million of federal NOLs that expire in 2023, which have been fully reserved for through purchase accounting.
Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension plans. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense. A 25 basis point decrease in the discount rate would increase our pension expense by approximately $1.2 million. For 2005, we reduced our discount rate from 6.25 percent to 6.0 percent to reflect market interest rate conditions. We consider the current and expected asset allocations of our pension plans, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term rate of return on plan assets. A 50 basis point decrease in the expected long-term return on plan assets would increase our pension expense by approximately $1.5 million. For 2004, we assumed that the expected return on our pension plan assets was 9.0 percent.
Historically, we have maintained a strategy of acquiring businesses and enhancing profitability through productivity and cost reduction opportunities. Acquisitions require us to estimate the fair value of the assets acquired and liabilities assumed in the transactions. These estimates of fair value are based on our business plans for the acquired entities, which includes eliminating operating redundancies, facility closings and rationalizations and assumptions as to the ultimate resolution of liabilities assumed. We also continually evaluate the operating performance of our existing facilities and our business requirements and, when deemed appropriate, we exit or rationalize existing operating facilities.
Establishing reserves for acquisition plans and facility rationalizations requires the use of estimates. Although we believe that these estimates accurately reflect the costs of these plans, actual costs incurred may differ from these estimates.
Statement of Financial Accounting Standards, or SFAS, No. 142 requires goodwill and other intangible assets with indefinite lives to be reviewed for impairment each year and more frequently if circumstances indicate a possible impairment. Our tests for impairment require us to make assumptions regarding the expected earnings and cash flows of our reporting units. These assumptions are based on our internal forecasts. Developing these assumptions requires the use of significant judgment and estimates. Actual results may differ from these forecasts. If an impairment were to be identified, it could result in additional expense recorded in our Consolidated Statements of Income.
New Accounting Pronouncements
In November 2004, the Financial Accounting Standards Board, or the FASB, issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges in all circumstances. SFAS No. 151 will be effective for us beginning January 1, 2006. We do not expect the adoption of SFAS No. 151 to have a significant effect on our financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) requires that public companies recognize compensation expense in an amount equal to the fair value of the share-based payment. SFAS No. 123(R) is effective for us beginning with the third quarter of 2005. SFAS No. 123(R) permits companies to adopt its requirements using either the "modified prospective" method or the "modified retrospective" method. We are still assessing which transition method to utilize. As permitted by SFAS No. 123, we currently account for share-based payments to employees using Accounting Principles Board, or APB, Opinion No. 25's intrinsic value method and, as such, recognize no compensation expense for employee stock options. Accordingly, the adoption of SFAS No. 123(R)'s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and diluted net income per share in Note 1 to our Consolidated Financial Statements for the year ended December 31, 2004 included elsewhere in this Annual Report. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow activity, rather than as an operating cash flow activity as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amounts of operating cash flows recognized in prior periods for such excess tax deductions were $1.7 million, $0.2 million and $2.3 million in 2004, 2003 and 2002, respectively.
On October 22, 2004, the AJCA was signed into law. The AJCA includes a deduction of 85 percent on certain foreign earnings that are repatriated during the calendar years of 2004 and 2005. We may elect to apply this provision to qualifying earnings repatriated in 2005. We have started an evaluation of the effects of the repatriation provision; however, we do not expect to be able to complete this evaluation until after Congress or the Treasury Department provides additional clarifying language on key elements of the provision. We expect to complete our evaluation of the repatriation provision within a reasonable period of time following the publication of the additional clarifying language. The range of possible amounts that we are evaluating for repatriation under this provision is between zero and $42.6 million. The related potential range of income tax cannot be evaluated at this time.
Forward-Looking Statements
The statements we have made in "Management's Discussion and Analysis of Results of Operations and Financial Condition" and elsewhere in this Annual Report 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 the Securities Exchange Act of 1934, as amended. These 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. Therefore, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements. Important factors that could cause the actual results of our operations or our financial condition to differ from those expressed or implied in these forward-looking statements include, but are not necessarily limited to:
o our ability to effect cost reduction initiatives and realize benefits from capital investments;
o our ability to locate or acquire suitable acquisition candidates on acceptable terms;
o our ability to integrate the operations of our acquired businesses into our existing operations;
o our ability to generate sufficient cash flow to invest in our business and service our indebtedness;
o limitations and restrictions contained in our instruments and agreements governing our indebtedness;
o our ability to retain sales with our major customers or to satisfy our obligations under our contracts;
o the size and quality of the vegetable and fruit harvests in the midwest and west regions of the United States or our ability to collect our seasonal receivables;
o our ability to obtain sufficient quantities of raw materials or to maintain the ability to pass raw material price increases through to our customers;
o compliance by our suppliers with the terms of our arrangements with them;
o changes in consumer preferences for different packaging products;
o competitive pressures, including new product developments or changes in competitors' pricing for products;
o changes in governmental regulations or enforcement practices;
o changes in general economic conditions, such as fluctuations in interest rates and changes in energy costs (such as natural gas and electricity);
o changes in labor relations and costs;
o the performance of the investments in our pension plans against the level expected;
o changes in our evaluation of goodwill recorded on our consolidated balance sheets;
o our ability to refinance the Credit Agreement prior to its maturity in 2008, which will depend on, among other things, our financial condition at the time, the restrictions in the instruments governing our then outstanding indebtedness and other factors including market conditions; and
o other factors described elsewhere in this Annual Report or in our other filings with the Securities and Exchange Commission.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Market risks relating to our operations result primarily from changes in interest rates. In the normal course of business, we also have limited foreign currency risk associated primarily with our Canadian operations and risk related to commodity price changes for items such as natural gas. We employ established policies and procedures to manage our exposure to these risks. Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes.
Interest Rate Risk
Our interest rate risk management objective is to limit the impact of interest rate changes on our net income and cash flow and to lower our overall borrowing cost. To achieve our objective, we regularly evaluate the amount of our variable rate debt as a percentage of our aggregate debt. During 2004 and 2003, our average outstanding variable rate debt, after taking into account the average outstanding notional amount of our interest rate swap agreements, was 33 percent and 31 percent of our total debt, respectively. We manage a significant portion of our exposure to interest rate fluctuations in our variable rate debt through interest rate swap agreements. These agreements effectively convert interest rate exposure from variable rates to fixed rates of interest. We have entered into these agreements with banks under the Credit Agreement, and our obligations under these agreements are guaranteed and secured on a pari passu basis with our obligations under the Credit Agreement. You should also read Notes 4, 8 and 9 to our Consolidated Financial Statements included elsewhere in this Annual Report which outline the principal and notional amounts, interest rates, fair values and other terms required to evaluate the expected cash flows from these agreements.
Based on the average outstanding amount of our variable rate indebtedness in 2004, a one percentage point change in the interest rates for our variable rate indebtedness would have impacted 2004 interest expense by an aggregate of approximately $3.7 million, after taking into account the average outstanding notional amount of our interest rate swap agreements during 2004.
Foreign Currency Exchange Rate Risk
We do not conduct a significant portion of our manufacturing or sales activity in foreign markets. Presently, our foreign activities are conducted primarily in Canada. Since we do not have significant foreign operations, we do not believe it is necessary to enter into any derivative financial instruments to reduce our exposure to foreign currency exchange rate risk.
Commodity Pricing Risk
We purchase commodities for our products such as metal and resins. These commodities are generally purchased pursuant to contracts or at market prices established with the vendor. In general, we do not engage in hedging activities for these commodities due to our ability to pass on price changes to our customers.
We also purchase other commodities, such as natural gas and electricity, and are subject to risks on the pricing of these commodities. In general, we purchase these commodities pursuant to contracts or at market prices. We manage a portion of our exposure to natural gas price fluctuations through natural gas swap agreements. During 2004 and 2003, we entered into natural gas swap agreements to hedge approximately 25 percent and 40 percent, respectively, of our exposure to fluctuations in natural gas prices. At December 31, 2004, we had entered into natural gas swap agreements to hedge approximately
20 percent of our expected 2005 exposure to fluctuations in natural gas prices. These agreements effectively convert pricing exposure for natural gas from market pricing to a fixed price. You should also read Notes 4 and 9 to our Consolidated Financial Statements included elsewhere in this Annual Report which outlines the terms necessary to evaluate these transactions.
Based on our natural gas usage in 2004, a ten percent change in natural gas costs would have impacted our 2004 cost of goods sold by approximately $1.9 million, after taking into account our natural gas swap agreements.
Item 8. Financial Statements and Supplementary Data.
We refer you to Item 15, "Exhibits and Financial Statement Schedules," below for a listing of financial statements and schedules included in this Annual Report which are incorporated here in this Annual Report by this reference.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Not applicable.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures.
We carried out an evaluation, under the supervision and with the participation of our management, including our Co-Chief Executive Officers and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended). Based upon that evaluation, as of the end of the period covered by this Annual Report our Co-Chief Executive Officers and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuring that all material information required to be disclosed in this Annual Report has been made known to them in a timely fashion.
There were no changes in our internal controls over financial reporting during the period covered by this Annual Report that have materially affected, or are reasonably likely to materially affect, these internal controls.
Management's Report on Internal Control Over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2004. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2004.
Our management's assessment of the effectiveness of our internal control over financial reporting as of December 31, 2004 has been audited by Ernst & Young LLP, our independent registered public accounting firm, as stated in their report which appears on page F-1.
Item 9B. Other Information.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The information required by this Item is set forth in our Proxy Statement
for our annual meeting of stockholders to be held on May 23, 2005 in the
sections entitled "Election of Directors", "Executive Officers" and "Section
16(a) Beneficial Ownership Reporting Compliance," and is incorporated here in
this Annual Report by this reference.
Item 11. Executive Compensation.
The information required by this Item is set forth in our Proxy Statement for our annual meeting of stockholders to be held on May 23, 2005 in the sections entitled "Election of Directors--Compensation of Directors", "Executive Compensation" and "Compensation Committee Interlocks and Insider Participation," and is incorporated here in this Annual Report by this reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The information required by this Item is set forth in our Proxy Statement for our annual meeting of stockholders to be held on May 23, 2005 in the sections entitled "Executive Compensation" and "Security Ownership of Certain Beneficial Owners and Management," and is incorporated here in this Annual Report by this reference.
Item 13. Certain Relationships and Related Transactions.
The information required by this Item is set forth in our Proxy Statement for our annual meeting of stockholders to be held on May 23, 2005 in the section entitled "Certain Relationships and Related Transactions," and is incorporated here in this Annual Report by this reference.
Item 14. Principal Accountant Fees and Services.
The information required by this item is set forth in our Proxy Statement for our annual meeting of stockholders to be held on May 23, 2005 in the section entitled "Ratification of Appointment of Independent Registered Public Accounting Firm" and is incorporated here in this Annual Report by this reference.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Financial Statements:
Report of Independent Registered Public Accounting Firm on Internal Control Over
Financial Reporting........................................................................... F-1
Report of Independent Registered Public Accounting Firm............................................ F-3
Consolidated Balance Sheets at December 31, 2004 and 2003.......................................... F-4
Consolidated Statements of Income for the years ended December 31, 2004, 2003
and 2002...................................................................................... F-5
Consolidated Statements of Stockholders' Equity for the years ended December 31,
2004, 2003 and 2002........................................................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 2004, 2003
and 2002...................................................................................... F-7
Notes to Consolidated Financial Statements......................................................... F-8
Schedules:
I. Condensed Financial Information of Registrant:
Condensed Balance Sheets of Silgan Holdings Inc. (Parent Company) at
December 31, 2004 and 2003............................................................ F-49
Condensed Statements of Income of Silgan Holdings Inc. (Parent Company)
for the years ended December 31, 2004, 2003 and 2002.................................. F-50
Condensed Statements of Cash Flows of Silgan Holdings Inc. (Parent
Company) for the years ended December 31, 2004, 2003 and 2002......................... F-51
Notes to Condensed Financial Statements................................................... F-52
II. Valuation and Qualifying Accounts for the years ended December 31,
2004, 2003 and 2002....................................................................... F-54
|
All other financial statement schedules not listed have been omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto.
Exhibits:
Exhibit
Number Description
------- -----------
3.1 Restated Certificate of Incorporation of Silgan Holdings (incorporated
by reference to Exhibit 3.1 filed with our Annual Report on Form 10-K
for the year ended December 31, 1996, Commission File No. 000-22117).
3.2 Amended and Restated By-laws of Silgan Holdings (incorporated by
reference to Exhibit 3.2 filed with our Annual Report on Form 10-K for
the year ended December 31, 1996, Commission File No. 000-22117).
4.1 Indenture, dated as of November 14, 2003, between Silgan Holdings and
National City Bank, N.A., as trustee, with respect to the 6 3/4%
Senior Subordinated Notes due 2013 (incorporated by reference to
Exhibit 4.1 filed with our Registration Statement on Form S-4, dated
January 13, 2004, Registration Statement No. 333-11893).
4.2 Form of Silgan Holdings 6 3/4% Senior Subordinated Notes due 2013
(incorporated by reference to Exhibit 4.2 filed with our Registration
Statement on Form S-4, dated January 13, 2004, Registration Statement
No. 333-11893).
4.3 Registration Rights Agreement dated as of October 30, 2003 between
Silgan Holdings and Morgan Stanley & Co. Incorporated, Deutsche Bank
Securities Inc. and Banc of America Securities LLC (incorporated by
reference to Exhibit 4.3 filed with our Registration Statement on Form
S-4, dated January 13, 2004, Registration Statement No. 333-11893).
10.1 Amended and Restated Stockholders Agreement, dated as of November 6,
2001, among R. Philip Silver, D. Greg Horrigan and Silgan Holdings
(incorporated by reference to Exhibit 10.1 filed with our Annual
Report on Form 10-K for the year ended December 31, 2001, Commission
File No. 000-22117).
10.2 Credit Agreement, dated as of June 28, 2002, among Silgan Holdings,
Silgan Containers, Silgan Plastics, Silgan Containers Manufacturing
Corporation, Silgan Can Company, each other Revolving Borrower party
thereto from time to time, each other Incremental Term Loan Borrower
party thereto from time to time, the lenders from time to time party
thereto, Deutsche Bank Trust Company Americas, as Administrative
Agent, Bank of America, N.A. and Citicorp USA, Inc., as Co-Syndication
Agents, Morgan Stanley Senior Funding, Inc. and Fleet National Bank,
as Co-Documentation Agents, Deutsche Bank Securities Inc. and Banc of
America Securities LLC, as Joint Lead Arrangers, and Deutsche Bank
Securities Inc., Banc of America Securities LLC and Salomon Smith
Barney Inc., as Joint Book Managers (incorporated by reference to
Exhibit 99.1 filed with our Current Report on Form 8-K, dated July 12,
2002, Commission File No. 000-22117).
10.3 First Amendment to the Credit Agreement dated as of November 4, 2003
among Silgan Holdings, Silgan Containers, Silgan Plastics, Silgan
Containers Manufacturing Corporation, Silgan Can Company, the Lenders,
and Deutsche Bank Trust Company Americas, as Administrative Agent
(incorporated by reference to Exhibit 10.4 filed with our Registration
Statement on Form S-4, dated January 13, 2004, Registration Statement
No. 333-11893).
|
Exhibit
Number Description
------- -----------
10.4 Second Amendment to the Credit Agreement dated as of July 15, 2004
among Silgan Holdings, Silgan Containers, Silgan Plastics, Silgan
Containers Manufacturing Corporation, Silgan Can Company, the Lenders,
and Deutsche Bank Trust Company Americas, as Administrative Agent
|
(incorporated by reference to Exhibit 10 filed with our Quarterly Report Form 10-Q for the quarterly period ended June 30, 2004, Commission File No. 000-22117).
10.5 US Security Agreement, dated as of June 28, 2002, among Silgan Holdings, Silgan Containers, Silgan Plastics, Silgan Containers Manufacturing Corporation, Silgan Can Company, Silgan Corporation, Silgan LLC, RXI Plastics, Inc., Silgan Vacuum Closure Holding Company and Deutsche Bank Trust Company Americas, as Collateral Agent (incorporated by reference to Exhibit 99.2 filed with our Current Report on Form 8-K, dated July 12, 2002, Commission File No. 000-22117).
10.6 US Pledge Agreement, dated as of June 28, 2002, among Silgan Holdings, Silgan Containers, Silgan Plastics, Silgan Containers Manufacturing Corporation, Silgan Can Company, Silgan Corporation, Silgan LLC, RXI Plastics, Inc., Silgan Vacuum Closure Holding Company and Deutsche Bank Trust Company Americas, as Collateral Agent (incorporated by reference to Exhibit 99.3 filed with our Current Report on Form 8-K, dated July 12, 2002, Commission File No. 000-22117).
10.7 US Borrower/Subsidiaries Guaranty, dated as of June 28, 2002, made by each of Silgan Holdings, Silgan Containers, Silgan Plastics, Silgan Containers Manufacturing Corporation, Silgan Corporation, Silgan LLC, RXI Plastics, Inc. and Silgan Vacuum Closure Holding Company in favor of the creditors thereunder (incorporated by reference to Exhibit 99.4 filed with our Current Report on Form 8-K, dated July 12, 2002, Commission File No. 000-22117).
10.8 Asset Purchase Agreement, dated as of June 2, 1995, between American National Can Company and Silgan Containers (incorporated by reference to Exhibit 1 filed with our Current Report on Form 8-K dated August 14, 1995, Commission File No. 33-28409).
10.9 Purchase Agreement, dated as of June 1, 1998, by and among Campbell, Silgan Can Company and Silgan Containers (incorporated by reference to Exhibit 2 filed with our Current Report on Form 8-K dated June 15, 1998, Commission File No. 000-22117).
10.10 Equity Underwriting Agreement, dated November 6, 2001, among Silgan Holdings, The Morgan Stanley Leveraged Equity Fund II, L.P., and Deutsche Banc Alex. Brown Inc. and Morgan Stanley & Co. Incorporated as representatives of the several underwriters listed on Schedule I thereto (incorporated by reference to Exhibit 10.17 filed with our Annual Report on Form 10-K for the year ended December 31, 2001, Commission File No. 000-22117).
+10.11 Employment Agreement, dated April 12, 2004, between Silgan Holdings Inc. and Anthony J. Allott (incorporated by reference to Exhibit 10 filed with our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2004, Commission File No. 000-22117).
Exhibit Number Description ------- ----------- |
*+10.12 Employment Agreement dated June 30, 2004 between Silgan Holdings Inc. and Robert B. Lewis.
+10.13 Employment Agreement, dated as of September 14, 1987, between James Beam and Canaco Corporation (Silgan Containers) (incorporated by reference to Exhibit 10(vi) filed with Silgan Corporation's Registration Statement on Form S-1, dated January 11, 1988, Registration Statement No. 33-18719).
+10.14 Employment Agreement, dated as of September 1, 1989, between Silgan
Corporation, InnoPak Plastics Corporation (Silgan Plastics), Russell
F. Gervais and Aim Packaging, Inc. (incorporated by reference to
Exhibit 5 filed with Silgan Corporation's Report on Form 8-K, dated
March 15, 1989, Commission File No. 33-18719).
+10.15 Employment Agreement dated as of August 1, 1995 between Silgan Containers (as assignee of Silgan Holdings) and Glenn A. Paulson, as amended pursuant to an amendment dated March 1, 1997 (incorporated by reference to Exhibit 10.19 filed with our Annual Report on Form 10-K for the year ended December 31, 1999, Commission File No. 000-22117).
+10.16 InnoPak Plastics Corporation (Plastics) Pension Plan for Salaried Employees (incorporated by reference to Exhibit 10.32 filed with Silgan Corporation's Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 33-18719).
+10.17 Containers Pension Plan for Salaried Employees (incorporated by reference to Exhibit 10.34 filed with Silgan Corporation's Annual Report on Form 10-K for the year ended December 31, 1988, Commission File No. 33-18719).
+10.18 Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan (incorporated by reference to Exhibit 10.21 filed with our Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 000-22117).
+10.19 Form of Silgan Holdings Nonstatutory Stock Option Agreement (incorporated by reference to Exhibit 10.22 filed with our Annual Report on Form 10-K for the year ended December 31, 1996, Commission File No. 000-22117).
10.20 Silgan Holdings Inc. 2002 Non-Employee Directors Stock Option Plan (incorporated by reference to Exhibit 10.23 filed with our Annual Report on Form 10-K for the year ended December 31, 2002, Commission File No. 000-22117).
+10.21 Silgan Holdings Inc. Senior Executive Performance Plan (incorporated by reference to Exhibit 10.19 filed with our Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 000-22117).
*+10.22 Silgan Holdings Inc. 2004 Stock Incentive Plan.
Exhibit Number Description ------- ----------- |
*+10.23 Form of Option Agreement (Employee) under the Silgan Holdings Inc. 2004 Stock Incentive Plan.
*+10.24 Form of Restricted Stock Unit Agreement (Employee) under the Silgan Holdings 2004 Stock Incentive Plan.
*+10.25 Form of Restricted Stock Unit Agreement (Outside Director) under the Silgan Holdings Inc. 2004 Stock Incentive Plan.
*12 Computation of Ratio of Earnings to Fixed Charges for the years ended December 31, 2004, 2003, 2002, 2001 and 2000.
14 Code of Ethics applicable to Silgan Holdings' principal executive officers, principal financial officer, principal accounting officer or controller or persons performing similar functions (incorporated by reference to Exhibit 14 filed with our Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 000-22117).
21 Subsidiaries of the Registrant (incorporated by reference to Exhibit 21 filed with our Annual Report on Form 10-K for the year ended December 31, 2003, Commission File No. 000-22117).
*23 Consent of Ernst & Young LLP.
*31.1 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.2 Certification by the Co-Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
*31.3 Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.
*32.1 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
*32.2 Certification by the Co-Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
*32.3 Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
SILGAN HOLDINGS INC.
Date: March 7, 2005 By /s/ R. Philip Silver
--------------------------
R. Philip Silver
Co-Chairman of the Board and
Co-Chief Executive Officer
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
Co-Chairman of the Board and
Co-Chief Executive Officer
/s/ R. Philip Silver (Principal Executive Officer) March 7, 2005
-----------------------
(R. Philip Silver)
Co-Chairman of the Board and
Co-Chief Executive Officer
/s/ D. Greg Horrigan (Principal Executive Officer) March 7, 2005
-----------------------
(D. Greg Horrigan)
/s/ John W. Alden Director March 7, 2005
-----------------------
(John W. Alden)
/s/ Jeffrey C. Crowe Director March 7, 2005
-----------------------
(Jeffrey C. Crowe)
/s/ William C. Jennings Director March 7, 2005
-----------------------
(William C. Jennings)
/s/ Edward A. Lapekas Director March 7, 2005
-----------------------
(Edward A. Lapekas)
Executive Vice President and
Chief Financial Officer
(Principal Financial and
/s/ Robert B. Lewis (Accounting Officer) March 7, 2005
-----------------------
(Robert B. Lewis)
|
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting
The Board of Directors and Stockholders of Silgan Holdings Inc.
We have audited management's assessment, included in the accompanying Management's Report on Internal Control Over Financial Reporting, that Silgan Holdings Inc. maintained effective internal control over financial reporting as of December 31, 2004 based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). Silgan Holdings Inc.'s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management's assessment and an opinion on the effectiveness of the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management's assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, management's assessment that Silgan Holdings Inc. maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Silgan Holdings Inc. maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Silgan Holdings Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004 and our report dated March 2, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 2, 2005
|
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders of Silgan Holdings Inc.
We have audited the accompanying consolidated balance sheets of Silgan Holdings Inc. as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2004. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Silgan Holdings Inc. at December 31, 2004 and 2003, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Silgan Holdings Inc.'s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 2, 2005 expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 2, 2005
|
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2004 and 2003
(Dollars in thousands, except per share data)
2004 2003
---- ----
Assets
Current assets:
Cash and cash equivalents ...................... $ 35,416 $ 12,100
Trade accounts receivable, less allowances
of $2,827 and $3,086 respectively ........... 148,073 159,273
Inventories .................................... 318,665 320,194
Prepaid expenses and other current assets ...... 53,776 53,731
---------- ----------
Total current assets ....................... 555,930 545,298
Property, plant and equipment, net .................. 792,936 817,850
Goodwill, net ....................................... 198,346 202,421
Other assets, net ................................... 49,947 55,515
---------- ----------
$1,597,159 $1,621,084
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt .............. $ 21,804 $ 48,670
Trade accounts payable ......................... 244,116 211,639
Accrued payroll and related costs .............. 57,364 65,940
Accrued liabilities ............................ 21,152 24,518
---------- ----------
Total current liabilities .................. 344,436 350,767
Long-term debt ...................................... 819,864 953,910
Other liabilities ................................... 225,423 195,602
Commitments and contingencies
Stockholders' equity:
Common stock ($0.01 par value per share;
100,000,000 shares authorized,
21,108,367 and 20,958,517 shares issued
and 18,422,891 and 18,273,041 shares
outstanding, respectively) ................... 211 210
Paid-in capital ................................ 131,685 125,758
Retained earnings .............................. 136,768 60,905
Accumulated other comprehensive income (loss)... 859 (5,675)
Unamortized stock compensation ................. (1,694) --
Treasury stock at cost (2,685,476 shares) ...... (60,393) (60,393)
---------- ----------
Total stockholders' equity ................. 207,436 120,805
---------- ----------
$1,597,159 $1,621,084
========== ==========
|
See notes to consolidated financial statements.
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2004, 2003 and 2002
(Dollars in thousands, except per share data)
2004 2003 2002
---- ---- ----
Net sales .............................................. $2,420,445 $2,312,165 $1,988,284
Cost of goods sold ..................................... 2,110,059 2,026,687 1,749,731
---------- ---------- ----------
Gross profit ...................................... 310,386 285,478 238,553
Selling, general and administrative expenses ........... 108,716 108,393 76,216
Rationalization charges (credits) ...................... 2,089 8,993 (5,603)
---------- ---------- ----------
Income from operations ............................ 199,581 168,092 167,940
Interest and other debt expense before loss on
early extinguishment of debt ....................... 55,632 78,861 73,789
Loss on early extinguishment of debt ................... 1,590 19,173 983
---------- ---------- ----------
Interest and other debt expense ................... 57,222 98,034 74,772
Income before income taxes and equity
in losses of affiliate ........................ 142,359 70,058 93,168
Provision for income taxes ............................. 58,214 27,743 36,806
---------- ---------- ----------
Income before equity in losses of affiliate ....... 84,145 42,315 56,362
Equity in losses of affiliate, net of income taxes ..... -- (281) (2,554)
---------- ---------- ----------
Net income ........................................ $ 84,145 $ 42,034 $ 53,808
========== ========== ==========
Basic net income per share ............................. $4.58 $2.30 $2.97
===== ===== =====
Diluted net income per share ........................... $4.52 $2.28 $2.93
===== ===== =====
Dividends per share .................................... $0.45 $ -- $ --
===== ===== =====
|
See notes to consolidated financial statements.
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the years ended December 31, 2004, 2003 and 2002
(Dollars and shares in thousands)
Common Stock Retained Accumulated
------------- Paid- Earnings Other Unamortized Total
Par in (Accumulated Comprehensive Stock Treasury Stockholders'
Shares Value Capital Deficit) Income (Loss) Compensation Stock Equity
------ ----- -------- ----------- ------------- ------------ -------- -------------
Balance at January 1, 2002 ............... 17,854 $205 $118,319 $(34,937) $ (8,046) $ -- $(60,393) $ 15,148
Comprehensive income:
Net income ............................ -- -- -- 53,808 -- -- -- 53,808
Minimum pension liability, net of
tax benefit of $8,336 ............... -- -- -- -- (12,792) -- -- (12,792)
Change in fair value of derivatives,
net of tax provision of $314 ........ -- -- -- -- 453 -- -- 453
Foreign currency translation .......... -- -- -- -- (82) -- -- (82)
--------
Comprehensive income .................. 41,387
--------
Stock option exercises, including
tax benefit of $2,254 .................. 377 4 6,553 -- -- -- -- 6,557
------ ---- -------- -------- -------- ------- -------- --------
Balance at December 31, 2002 ............. 18,231 209 124,872 18,871 (20,467) -- (60,393) 63,092
Comprehensive income:
Net income ............................ -- -- -- 42,034 -- -- -- 42,034
Minimum pension liability, net of
tax provision of $3,961 ............. -- -- -- -- 6,106 -- -- 6,106
Change in fair value of derivatives,
net of tax provision of $1,338 ...... -- -- -- -- 2,053 -- -- 2,053
Foreign currency translation .......... -- -- -- -- 6,633 -- -- 6,633
--------
Comprehensive income .................. 56,826
--------
Stock option exercises, including
tax benefit of $240 .................... 42 1 886 -- -- -- -- 887
------ ---- -------- -------- -------- ------- -------- --------
Balance at December 31, 2003 ............. 18,273 210 125,758 60,905 (5,675) -- (60,393) 120,805
Comprehensive income:
Net income ............................ -- -- -- 84,145 -- -- -- 84,145
Minimum pension liability, net of
tax benefit of $1,406 ............... -- -- -- -- (2,154) -- -- (2,154)
Change in fair value of derivatives,
net of tax provision of $2,409 ....... -- -- -- -- 3,686 -- -- 3,686
Foreign currency translation .......... -- -- -- -- 5,002 -- -- 5,002
--------
Comprehensive income .................. 90,679
--------
Dividends declared on common stock ....... -- -- -- (8,282) -- -- -- (8,282)
Issuance of restricted stock units ....... -- -- 1,929 -- -- (1,929) -- --
Amortization of stock compensation ....... -- -- -- -- -- 235 -- 235
Stock option exercises and other awards,
including tax benefit of $1,736 ........ 150 1 3,998 -- -- -- -- 3,999
------ ---- -------- -------- -------- ------- -------- --------
Balance at December 31, 2004 ............. 18,423 $211 $131,685 $136,768 $ 859 $(1,694) $(60,393) $207,436
====== ==== ======== ======== ======== ======= ======== ========
See notes to consolidated financial statements.
|
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2004, 2003 and 2002
(Dollars in thousands)
2004 2003 2002
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income ........................................................ $ 84,145 $ 42,034 $ 53,808
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation ................................................. 118,450 110,724 94,936
Amortization of other intangibles ............................ 23 590 779
Amortization of debt issuance costs .......................... 3,937 3,888 2,588
Rationalization charges (credits) ............................ 2,089 8,993 (5,603)
Loss on early extinguishment of debt ......................... 1,590 19,173 983
Equity in losses of affiliate ................................ -- 457 4,222
Deferred income tax provision ................................ 42,535 25,742 25,219
Other changes that provided (used) cash, net of
effects from acquisitions:
Trade accounts receivable, net .......................... 11,200 (12,465) 20,246
Inventories ............................................. 1,449 28,109 (10,209)
Trade accounts payable .................................. 26,420 14,244 (14,725)
Accrued liabilities ..................................... (15,095) (6,443) (12,273)
Other, net .............................................. 995 (11,224) (10,255)
--------- --------- -----------
Net cash provided by operating activities .................... 277,738 223,822 149,716
--------- --------- -----------
Cash flows provided by (used in) investing activities:
Purchases of businesses, net of cash acquired ..................... -- (207,793) --
Capital expenditures .............................................. (102,868) (105,912) (119,160)
Proceeds from asset sales ......................................... 9,983 3,739 1,915
--------- --------- -----------
Net cash used in investing activities ........................ (92,885) (309,966) (117,245)
--------- --------- -----------
Cash flows provided by (used in) financing activities:
Borrowings under revolving loans .................................. 954,325 905,800 1,163,580
Repayments under revolving loans .................................. (979,325) (880,800) (1,496,605)
Proceeds from stock option exercises .............................. 2,262 647 4,303
Changes in outstanding checks - principally vendors ............... 6,057 11,084 13,577
Proceeds from issuance of long-term debt .......................... -- 550,000 656,000
Repayments of long-term debt ...................................... (135,912) (540,545) (310,573)
Dividends paid on common stock .................................... (8,282) -- --
Debt issuance costs ............................................... (662) (6,260) (22,444)
--------- --------- -----------
Net cash (used in) provided by financing
activities ............................................... (161,537) 39,926 7,838
--------- --------- -----------
Cash and cash equivalents:
Net increase (decrease) ........................................... 23,316 (46,218) 40,309
Balance at beginning of year ...................................... 12,100 58,318 18,009
--------- --------- -----------
Balance at end of year ............................................ $ 35,416 $ 12,100 $ 58,318
========= ========= ===========
Interest paid .......................................................... $ 55,494 $ 93,514 $ 73,251
Income taxes paid, net of refunds ...................................... 5,008 2,803 14,374
See notes to consolidated financial statements.
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies
Nature of Business. Silgan Holdings Inc., or Holdings, conducts its business through its wholly owned operating subsidiaries, Silgan Containers Corporation, or Containers, and Silgan Plastics Corporation, or Plastics. We are engaged in the manufacture and sale of 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. Our businesses are principally based in the United States.
Basis of Presentation. The consolidated financial statements include the accounts of Holdings and its subsidiaries. All significant intercompany transactions have been eliminated. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
The principal functional currency for our foreign operations is the Canadian dollar. Balance sheet accounts of our foreign subsidiaries are translated at exchange rates in effect at the balance sheet date, while revenue and expense accounts are translated at average rates prevailing during the year. Translation adjustments are reported as a component of accumulated other comprehensive income (loss).
Certain prior years' amounts have been reclassified to conform with the current year's presentation.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly liquid investments which are readily convertible to cash and have maturities of three months or less at the time of purchase. As a result of our cash management system, checks issued for payment may create negative book balances. Checks outstanding in excess of related book balances totaling approximately $105.5 million at December 31, 2004 and $99.4 million at December 31, 2003 are included in trade accounts payable in our Consolidated Balance Sheets. Changes in outstanding checks are included in financing activities in our Consolidated Statements of Cash Flows to treat them as, in substance, cash advances.
Inventories. Inventories are valued at the lower of cost or market (net realizable value) and the cost is principally determined on the last-in, first-out basis, or LIFO.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies (continued)
Property, Plant and Equipment, Net. Property, plant and equipment, net is stated at historical cost less accumulated depreciation. Major renewals and betterments that extend the life of an asset are capitalized and repairs and maintenance expenditures are charged to expense as incurred. Design and development costs for molds, dies and other tools that we do not own and that will be used to produce products that will be sold under long-term supply arrangements are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of depreciable assets. The principal estimated useful lives are 35 years for buildings and range between 3 to 18 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease.
Interest incurred on amounts borrowed in connection with the installation of major machinery and equipment acquisitions is capitalized. Capitalized interest of $0.7 million, $1.0 million and $1.4 million in 2004, 2003 and 2002, respectively, was recorded as part of the cost of the assets to which it relates and is amortized over the assets' estimated useful life.
Goodwill, Net. We review goodwill for impairment as of July 1 of each year and more frequently if circumstances indicate a possible impairment. We determined that goodwill was not impaired in our third quarter 2004 review. Changes in the carrying amount of goodwill, net are as follows:
Metal Food Plastic
Containers Containers Total
---------- ---------- -----
(Dollars in thousands)
Balance at December 31, 2002 ... $ 47,680 $ 93,801 $141,481
Acquisitions ................... 55,350 5,050 60,400
Currency translation ........... -- 540 540
-------- -------- --------
Balance at December 31, 2003 ... 103,030 99,391 202,421
Adjustments .................... (5,722) 1,413 (4,309)
Currency translation ........... -- 234 234
-------- -------- --------
Balance at December 31, 2004 ... $ 97,308 $101,038 $198,346
======== ======== ========
|
Goodwill, net was adjusted in 2004 primarily for deferred tax items and the finalization of the valuation of assets for 2003 acquisitions.
Goodwill, net for our metal food container business includes accumulated amortization of $14.7 million at both December 31, 2004 and 2003. Goodwill, net for our plastic container business includes accumulated amortization of $11.1 million at both December 31, 2004 and 2003.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies (continued)
Impairment of Long-Lived Assets. We assess long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. An impairment exists if the estimate of future undiscounted cash flows generated by the assets is less than the carrying value of the assets. If impairment is determined to exist, any related impairment loss is then measured by comparing the fair value of the assets to their carrying amount.
Other Assets, Net. Other assets, net consist principally of debt issuance costs which are being amortized on a straight-line basis over the terms of the related debt agreements (4 to 9 years) and an intangible pension asset.
Hedging Instruments. We account for derivative financial instruments under Statement of Financial Accounting Standards, or SFAS, No. 133, "Accounting for Derivative Instruments and Hedging Activities," as amended and interpreted, which requires all derivatives to be recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income (loss), 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 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.
Income Taxes. We account for income taxes using the liability method in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment of such change. Income taxes are calculated for Holdings, Silgan Equipment Company, or Silgan Equipment, and the acquired steel container manufacturing business of Campbell Soup Company, or CS Can, on a separate return basis. U.S. income taxes have not been provided on the accumulated earnings of our foreign subsidiaries as these earnings are expected to be indefinitely reinvested. See Note 12 for further discussion.
Revenue Recognition. Revenues are recognized when goods are shipped and the title and risk of loss pass to the customer. For those sites where we operate within the customer's facilities, title and risk of loss pass to the customer upon delivery of product to clearly delineated areas within the common facility, at which time we recognize revenues. Shipping and handling fees and costs incurred in connection with products sold are recorded in cost of goods sold in our Consolidated Statements of Income.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies (continued)
Stock-Based Compensation. We currently have one stock-based compensation plan in effect, which plan replaced two previous plans under which stock options are still outstanding. Under our current stock-based compensation plan, we have issued options and restricted stock units to our officers, other key employees and outside directors. A restricted stock unit represents the right to receive one share of our common stock at a future date. Unvested restricted stock units do not have dividend or voting rights and may not be disposed of or transferred during the vesting period. See Note 13 for further discussion. We apply the recognition and measurement principles of Accounting Principles Board, or APB, Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for stock awards issued under 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. Restricted stock units issued are accounted for as fixed grants and, accordingly, the fair value at the grant date has been charged to stockholders' equity as unamortized stock compensation and is being amortized ratably over the respective vesting period. Compensation expense of $0.2 million was amortized in 2004.
If we had applied the fair value recognition provisions of SFAS No. 123, "Accounting for Stock-Based Compensation," for the years ended December 31, 2004, 2003 and 2002, net income and basic and diluted net income per share would have been as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands, except per share data)
Net income, as reported .......................... $84,145 $42,034 $53,808
Add: Stock based compensation expense
included in reported net income, net of
income taxes ................................... 135 -- --
Deduct: Total stock-based employee
compensation expense determined under
the fair value method for all awards, net
of income taxes ................................ 1,747 1,441 1,165
------- ------- -------
Pro forma net income ............................. $82,533 $40,593 $52,643
======= ======= =======
Earnings per share:
Basic net income per share - as reported ...... $4.58 $2.30 $2.97
===== ===== =====
Basic net income per share - pro forma ........ 4.49 2.22 2.90
===== ===== =====
Diluted net income per share - as reported .... $4.52 $2.28 $2.93
===== ===== =====
Diluted net income per share - pro forma ...... 4.45 2.22 2.88
===== ===== =====
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies (continued)
Recently Adopted Accounting Pronouncements. In January 2003, the Financial Accounting Standards Board, or the FASB, issued Interpretation, or FIN, No. 46, "Consolidation of Variable Interest Entities," which expands upon existing accounting guidance on consolidation. A variable interest entity either does not have equity investors with voting rights or has equity investors that do not provide sufficient financial resources for the entity to support its activities. FIN No. 46, as revised, requires a variable interest entity to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entity's activities or is entitled to receive a majority of the entity's residual returns. The provisions of FIN No. 46 were effective for us on March 31, 2004. The adoption of FIN No. 46 did not effect our financial position or results of operations.
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 requires that gains or losses from the extinguishment of our debt will no longer be classified as extraordinary items. Upon adoption in 2003, the extraordinary item for loss on early extinguishment of debt of $1.0 million before income taxes that was recorded in the second quarter of 2002, as a result of the refinancing of our previous senior secured credit facility with our new senior secured credit facility, was reclassified to loss on early extinguishment of debt in our Consolidated Statements of Income.
In December 2003, the FASB issued a revised SFAS No. 132, "Employers' Disclosures about Pensions and Other Postretirement Benefits." The revised SFAS No. 132 requires additional disclosures about plan assets, benefit obligations, expected cash flows and net periodic benefit costs for defined benefit plans. In 2003, we adopted the additional disclosure requirements, except for certain disclosures about estimated future benefit payments which were adopted in 2004.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Summary of Significant Accounting Policies (continued)
Recently Issued Accounting Pronouncements. In November 2004, the FASB issued SFAS No. 151, "Inventory Costs, an amendment of ARB No. 43, Chapter 4." SFAS No. 151 clarifies that abnormal amounts of idle facility expense, freight, handling costs and wasted materials should be recognized as current period charges in all circumstances. SFAS No. 151 will be effective for us beginning January 1, 2006. We do not expect the adoption of SFAS No. 151 to have a significant effect on our financial position, results of operations or cash flows.
In December 2004, the FASB issued SFAS No. 123(R), "Share-Based Payment." SFAS No. 123(R) requires that public companies recognize compensation expense in an amount equal to the fair value of the share-based payment. SFAS No. 123(R) is effective for us beginning with the third quarter of 2005. SFAS No. 123(R) permits companies to adopt its requirements using one of two methods:
1. A "modified prospective" method in which compensation cost is recognized beginning with the effective date (a) based on the requirements of SFAS No. 123(R) for all share-based payments granted after the effective date and (b) based on the requirements of SFAS No. 123 for all awards granted to employees prior to the effective date of SFAS No. 123(R) that remain unvested on the effective date.
2. A "modified retrospective" method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under SFAS No. 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption.
We are still assessing which transition method to utilize.
As permitted by SFAS No. 123, we currently account for share-based payments to employees using APB No. 25's intrinsic value method and, as such, recognize no compensation expense for employee stock options. Accordingly, the adoption of SFAS No. 123(R)'s fair value method will have an impact on our results of operations, although it will have no impact on our overall financial position. The impact of adoption of SFAS No. 123(R) cannot be predicted at this time because it will depend on levels of share-based payments granted in the future. However, had we adopted SFAS No. 123(R) in prior periods, the impact of that standard would have approximated the impact of SFAS No. 123 as described in the disclosure of pro forma net income and diluted net income per share in Note 1 to our Consolidated Financial Statements. SFAS No. 123(R) also requires the benefits of tax deductions in excess of recognized compensation expense to be reported as a financing cash flow activity, rather than as an operating cash flow activity as required under current literature. This requirement will reduce net operating cash flows and increase net financing cash flows in periods after adoption. While we cannot estimate what those amounts will be in the future (because they depend on, among other things, when employees exercise stock options), the amounts of operating cash flows recognized in prior periods for such excess tax deductions were $1.7 million, $0.2 million and $2.3 million in 2004, 2003 and 2002, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 2. Acquisitions
In January 2003, we acquired substantially all of the assets of Thatcher Tubes LLC and its affiliates, or Thatcher Tubes, a privately held manufacturer and marketer of decorated plastic tubes serving primarily the personal care industry. Including additional production capacity installed shortly before the acquisition, the purchase price for the assets was approximately $32 million in cash. Thatcher Tubes operates as part of our plastic container business.
In March 2003, we acquired the remaining 65 percent equity interest in the Amcor White Cap, LLC, or White Cap, joint venture that we did not already own from Amcor White Cap, Inc. for approximately $37 million in cash. Additionally, we refinanced debt of White Cap in the amount of approximately $88 million and purchased equipment subject to a third party lease for approximately $5 million. This business operates under the name Silgan Closures LLC, or Silgan Closures, as part of our metal food container business.
In April 2003, we acquired PCP Can Manufacturing, Inc., or Pacific Coast Can, a subsidiary of Pacific Coast Producers, or Pacific Coast, through which Pacific Coast self-manufactured a majority of its metal food containers. The purchase price was approximately $44 million in cash, including approximately $29 million for inventory. As part of the transaction, we entered into a ten-year supply agreement with Pacific Coast under which Pacific Coast has agreed to purchase from us substantially all of its metal food container requirements.
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 was finalized during 2004 when valuations and integration plans were completed.
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
During 2004, we approved and announced to employees a plan to exit our Benton Harbor, Michigan metal food container manufacturing facility and another operation. This decision resulted in a charge to earnings during 2004 of $0.7 million, of which $0.2 million was for the non-cash write-down in carrying value of assets. Through December 31, 2004, we made cash payments totaling $0.5 million related to these plans. All actions under these plans have been completed.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
During 2003, we established acquisition reserves in connection with our purchases of Thatcher Tubes, White Cap and Pacific Coast Can aggregating approximately $6.0 million, recorded pursuant to plans that we began to assess and formulate at the date of the acquisitions. During 2004, we finalized these plans and reduced the related acquisition reserves by approximately $0.5 million. These plans included exiting the Lodi, California metal food container manufacturing facility, the Chicago, Illinois and Queretaro, Mexico metal closures manufacturing facilities and the Culiacan, Mexico plastic container manufacturing facility. These plans included the termination of approximately 380 plant and administrative employees and other related plant exit costs. These reserves consisted of employee severance and benefits costs of $4.2 million and plant exit costs of $1.3 million related to the closing of the previously discussed acquired facilities. All of these facilities have ceased manufacturing operations. Through December 31, 2004, a total of $4.0 million and $1.3 million has been expended for employee severance and benefits and plant exit costs related to these plans, respectively. At December 31, 2004, these reserves had an aggregate balance of $0.2 million. Cash payments related to these reserves are expected to continue through the second quarter of 2005.
Activity in our 2003 acquisition plan reserves is summarized as follows:
Employee
Severance Plant Exit
and Benefits Costs Total
------------ ----- -----
(Dollars in thousands)
Balance at December 31, 2002 ............. $ -- $ -- $ --
2003 Reserves Established ................ 4,451 1,559 6,010
2003 Utilized ............................ (1,167) (523) (1,690)
------- ------ -------
Balance at December 31, 2003 ............. 3,284 1,036 4,320
Finalization of 2003 Acquisition
Plan Reserves ......................... (268) (239) (507)
2004 Utilized ............................ (2,856) (751) (3,607)
------- ------ -------
Balance at December 31, 2004 ............. $ 160 $ 46 $ 206
======= ====== =======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
During 2003, we approved and announced to employees plans to exit our Norwalk, Connecticut and Anaheim, California plastic container manufacturing facilities and our Queretaro, Mexico metal closures manufacturing facility, as well as to consolidate certain administrative functions of the Silgan Closures business. These plans included the termination of approximately 120 plant employees and other related exit costs. These decisions resulted in a charge to earnings of $9.0 million ($1.2 million for the metal food container business and $7.8 million for the plastic container business) in 2003, which consisted of $5.3 million for the non-cash write-down in carrying value of assets, $2.1 million for employee severance and benefits costs and $1.6 million for plant exit costs. During 2004, additional rationalization charges of $1.3 million were recorded related to these plans ($1.0 million for the metal food container business and $0.3 million for the plastic container business). Since inception, a total of $2.3 million and $1.3 million has been expended for employee severance and benefits and plant exit costs, respectively, and $6.0 million has been recorded for the non-cash write-down in carrying value of assets. At December 31, 2004, these reserves had an aggregate balance of $0.7 million. The timing of certain cash payments related to these reserves is dependent upon the expiration of a lease obligation. Accordingly, cash payments related to these reserves are expected through 2010.
Activity in our 2003 rationalization plan reserves is summarized as follows:
Employee Non-Cash
Severance Plant Exit Asset
and Benefits Costs Write-Down Total
------------ ----- ---------- -----
(Dollars in thousands)
Balance at December 31, 2002 .......... $ -- $ -- $ -- $ --
2003 Rationalization Charge ........... 2,097 1,588 5,308 8,993
2003 Utilized ......................... (1,502) (617) (5,308) (7,427)
------- ------ ------- -------
Balance at December 31, 2003 .......... 595 971 -- 1,566
2004 Rationalization Charge ........... 272 408 662 1,342
2004 Utilized ......................... (830) (689) (662) (2,181)
------- ------ ------- -------
Balance at December 31, 2004 .......... $ 37 $ 690 $ -- $ 727
======= ====== ======= =======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
During 2001, we approved and announced to employees a plan to exit our Fairfield, Ohio plastic container facility. The plan included the termination of approximately 150 plant employees and other related plant exit costs, including equipment dismantle costs and contractual rent obligations. This decision resulted in a rationalization charge of $3.5 million, which consisted of $0.9 million for employee severance and benefits and $2.6 million for plant exit costs. During 2002, all actions under this plan related to employee severance and benefits were completed at amounts less than originally estimated, and, accordingly, we reversed $0.2 million of rationalization reserves as a rationalization credit. Through December 31, 2004, a total of $2.4 million has been expended relating to this plan. At December 31, 2004, this reserve had a remaining balance of $0.9 million related to plant exit costs. Although we have closed the plant, the timing of cash payments is dependent upon the expiration of a lease obligation. Accordingly, cash payments related to closing this facility are expected through 2009.
Activity in our Fairfield rationalization plan reserve is summarized as follows:
Employee
Severance Plant Exit
and Benefits Costs Total
------------ ----- -----
(Dollars in thousands)
Balance at December 31, 2001 ............. $ 237 $1,867 $2,104
2002 Rationalization Credit .............. (237) -- (237)
2002 Utilized ............................ -- (273) (273)
----- ------ ------
Balance at December 31, 2002 ............. -- 1,594 1,594
2003 Utilized ............................ -- (321) (321)
----- ------ ------
Balance at December 31, 2003 ............. -- 1,273 1,273
2004 Utilized ............................ -- (380) (380)
----- ------ ------
Balance at December 31, 2004 ............. $ -- $ 893 $ 893
===== ====== ======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
Acquisition reserves established in connection with our purchase of the Food Metal and Specialty Business of American National Can Company, or AN Can, in 1995 aggregating approximately $49.5 million were recorded pursuant to plans that we began to assess and formulate at the date of the acquisition and which were finalized in 1996. These reserves consisted of employee severance and benefits costs ($26.1 million) for the termination of approximately 500 plant, selling and administrative employees, plant exit costs ($6.6 million) related to the planned closure of the St. Louis, Missouri plant, the downsizing of the Hoopeston, Illinois and Savage, Minnesota facilities and the restructuring of the St. Paul, Minnesota plant and liabilities incurred in connection with the acquisition ($16.8 million). Through December 31, 2003, a total of $49.5 million has been expended related to these plans, which consisted of $26.1 million for employee severance and benefits costs, $6.6 million for plant exit costs and $16.8 million for payment of acquisition related liabilities. During 2003, all actions under this plan were completed.
Activity in our AN Can acquisition plan reserve is summarized as follows:
Employee
Severance Plant Exit Acquisition
and Benefits Costs Liabilities Total
------------ ----- ----------- -----
(Dollars in thousands)
Balance at December 31, 2001 ..... $1,491 $ 1,977 $ 2,000 $ 5,468
2002 Utilized .................... (744) (858) (2,000) (3,602)
------ ------- ------- -------
Balance at December 31, 2002 ..... 747 1,119 -- 1,866
2003 Utilized .................... (747) (1,119) -- (1,866)
------ ------- ------- -------
Balance at December 31, 2003 ..... $ -- $ -- $ -- $ --
====== ======= ======= =======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
During 2001, we approved and announced to employees separate plans to exit our Northtown, Missouri and Kingsburg, California metal food container facilities and to cease operation of the composite container department at our Waukegan, Illinois metal food container facility.
During 2002, in order to support new business, we decided to continue to operate our Kingsburg facility and to utilize certain Northtown assets with carrying values that were previously written down as part of this restructuring charge. As a result, we recorded a $2.8 million rationalization credit, which consisted of $2.2 million related to certain assets with carrying values that were previously written down but were placed back in service and $0.6 million for the reversal of rationalization reserves related to employee severance and benefits and plant exit costs. The assets that remained in service were recorded in our Consolidated Balance Sheets at their depreciated cost, which approximated fair value. Also, during 2002, all actions related to our rationalization plans for our Northtown, Missouri and Waukegan, Illinois metal food container manufacturing facilities were completed at amounts less than originally estimated. Accordingly, we reversed $0.2 million of rationalization reserves as a rationalization credit.
During 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 Consolidated Balance Sheets at their depreciated cost, which approximated fair value.
Rationalization charges (credits) for the years ended December 31 are summarized as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
2004 Rationalization plans ................ $ 747 $ -- $ --
2003 Rationalization plans ................ 1,342 8,993 --
Fairfield plan ............................ -- -- (237)
Northtown, Kingsburg and Waukegan plans ... -- -- (3,041)
Other assets .............................. -- -- (2,325)
------ ------ -------
$2,089 $8,993 $(5,603)
====== ====== =======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 3. Rationalization Charges (Credits) and Acquisition Reserves
(continued)
At December 31, rationalization and acquisition reserves were included in our Consolidated Balance Sheets as follows:
2004 2003
---- ----
(Dollars in thousands)
Accrued liabilities ............. $ 877 $5,572
Other liabilities ............... 949 1,587
------ ------
$1,826 $7,159
====== ======
|
Note 4. Accumulated Other Comprehensive Income (Loss)
Accumulated other comprehensive income (loss) is reported in our Consolidated Statements of Stockholders' Equity. Amounts included in accumulated other comprehensive income (loss) at December 31 are as follows:
2004 2003
---- ----
(Dollars in thousands)
Foreign currency translation ........... $ 9,637 $ 4,635
Change in fair value of derivatives .... 2,925 (761)
Minimum pension liability .............. (11,703) (9,549)
-------- -------
Accumulated other comprehensive
income (loss) ..................... $ 859 $(5,675)
======== =======
|
The amount reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive income (loss) for the years ended December 31, 2004, 2003 and 2002 was net losses of $3.4 million, $2.2 million and $5.0 million, net of income taxes, respectively.
We estimate that we will reclassify $0.9 million of income, net of income taxes, of the change in fair value of derivatives component of accumulated other comprehensive income (loss) 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. See Note 9 which includes a discussion of hedging activities.
For the year ended December 31, 2002, the foreign currency translation and
minimum pension liability components of accumulated other comprehensive income
(loss) included $0.4 million and $5.6 million, respectively, related to our
equity investment in White Cap. See Note 7 which includes a discussion of our
equity investment in White Cap.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 5. Inventories
The components of inventories at December 31 are as follows:
2004 2003
---- ----
(Dollars in thousands)
Raw materials ...................... $ 63,225 $ 36,732
Work-in-process .................... 50,366 52,815
Finished goods ..................... 198,697 213,481
Spare parts and other .............. 19,324 20,267
-------- --------
331,612 323,295
Adjustment to value inventory
at cost on the LIFO method ...... (12,947) (3,101)
-------- --------
$318,665 $320,194
======== ========
|
Inventories include $33.2 million and $30.3 million recorded on the first-in, first-out method at December 31, 2004 and 2003, respectively.
Note 6. Property, Plant and Equipment, Net
Property, plant and equipment, net, at December 31 is as follows:
2004 2003
---- ----
(Dollars in thousands)
Land ..................................... $ 8,984 $ 10,060
Buildings and improvements ............... 166,443 168,236
Machinery and equipment .................. 1,395,481 1,309,756
Construction in progress ................. 55,428 60,068
---------- ----------
1,626,336 1,548,120
Accumulated depreciation ................. (833,400) (730,270)
---------- ----------
Property, plant and equipment, net ... $ 792,936 $ 817,850
========== ==========
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 7. Investment in Equity Affiliate
Prior to March 2003, we held a 35 percent interest in a joint venture company with Amcor Ltd. that was a leading supplier of an extensive range of metal and plastic vacuum 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.
In March 2003, we acquired the remaining 65 percent equity interest in the White Cap joint venture that we did not already own. The business now operates under the name Silgan Closures LLC. Prior to our acquisition of White Cap, we accounted for our investment in the White Cap joint venture using the equity method. During 2002, we recorded equity in losses of White Cap of $2.6 million, net of income taxes, which included our portion of White Cap's rationalization charge to close its Chicago, Illinois metal closure manufacturing facility of $2.0 million, net of income taxes, and $0.7 million, net of income taxes, for our portion of White Cap's gain on the sale of certain assets at a price in excess of book value. For the first two months of 2003, we recorded equity in losses of White Cap of $0.3 million, net of income taxes. The results of Silgan Closures since March 2003 have been included with the results of our metal food container business.
Note 8. Long-Term Debt
Long-term debt at December 31 is as follows:
2004 2003
---- ----
(Dollars in thousands)
Bank debt:
Bank revolving loans ................ $ -- $ 25,000
Bank A term loans ................... 63,669 83,330
Bank B term loans ................... 574,999 691,250
-------- ----------
Total bank debt ................... 638,668 799,580
-------- ----------
Subordinated debt:
6 3/4% Senior Subordinated Notes .... 200,000 200,000
Other ............................... 3,000 3,000
-------- ----------
Total subordinated debt ........... 203,000 203,000
-------- ----------
Total debt ............................. 841,668 1,002,580
Less current portion ................ 21,804 48,670
-------- ----------
$819,864 $ 953,910
======== ==========
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8. Long-Term Debt (continued)
The aggregate annual maturities of our debt are as follows (dollars in thousands):
2005 ............ $ 21,804
2006 ............ 21,804
2007 ............ 21,804
2008 ............ 576,256
2009 ............ --
Thereafter ...... 200,000
--------
$841,668
========
|
On June 28, 2002, we completed the refinancing of our previous U.S. senior secured credit facility, or the Previous U.S. Credit Agreement, by entering into a new $850 million senior secured credit facility, or the Credit Agreement. As a result of refinancing our Previous U.S. Credit Agreement, we recorded a loss on early extinguishment of debt of $1.0 million in 2002 for the write-off of unamortized debt issuance costs related to the Previous U.S. Credit Agreement. The Credit Agreement initially provided us with $100 million of A term loans and $350 million of B term loans and also provides us with up to $400 million of revolving loans.
Pursuant to the Credit Agreement, we also had a $275 million uncommitted incremental term loan facility. The uncommitted incremental term 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 B term loans; and be used to finance permitted acquisitions, refinance any indebtedness assumed as part of a permitted acquisition, refinance or repurchase subordinated debt and repay outstanding revolving loans.
On March 3, 2003, we completed a $150 million incremental term loan borrowing under the Credit Agreement, reducing the uncommitted incremental term loan facility to $125 million. The proceeds were used largely to finance the acquisitions of White Cap and Thatcher Tubes. The terms of this incremental term loan borrowing are the same as those for B term loans under the Credit Agreement.
On November 13, 2003, we amended the Credit Agreement to, among other things, increase the uncommitted incremental term loan facility by $200 million and provide us with greater ability to redeem our 9% Senior Subordinated Debentures due 2009, or the 9% Debentures, or any other subordinated indebtedness. This increased our uncommitted incremental term loan facility under the Credit Agreement to $325 million. On December 15, 2003, we completed a $200 million incremental term loan borrowing under the Credit Agreement. The terms of this incremental term loan borrowing are the same as those for B term loans under the Credit Agreement. We used the proceeds from this incremental term loan to redeem a portion of our outstanding 9% Debentures. Our uncommitted incremental term loan facility under the Credit Agreement at December 31, 2004 was $125 million.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8. Long-Term Debt (continued)
The A term loans and revolving loans mature on June 28, 2008 and the B term loans mature on November 30, 2008. Principal on the A term loans and B term loans is required to be repaid in scheduled annual installments.
The Credit Agreement requires us to prepay term loans with proceeds received from the incurrence of indebtedness, except proceeds used to refinance other existing indebtedness; with proceeds received from certain assets sales; and, under certain circumstances, with 50 percent of our excess cash flow, as defined in the Credit Agreement. Generally, prepayments are allocated pro rata to the A term loans and B 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 term loans.
During 2004, we repaid scheduled installments of $16.7 million of A term loans and $7.0 million of B term loans under the Credit Agreement. In addition, in the fourth quarter of 2004, we utilized excess cash flows to voluntarily prepay $3.0 million of A term loans and $109.2 million of B term loans under the Credit Agreement. As a result of our 2004 prepayments under the Credit Agreement, we recorded a loss on early extinguishment of debt of $1.6 million for the write-off of a portion of our debt issuance costs. During 2003, we repaid scheduled installments of $16.7 million of A term loans and $7.0 million of B term loans under the Credit Agreement. During 2002, we repaid scheduled installments of $1.8 million of B term loans under the Credit Agreement. During 2002, we repaid $119.4 million of A term loans and $186.6 million of B term loans under the Previous U.S. Credit Agreement.
Revolving loans may be used for working capital needs and other general corporate purposes, including acquisitions. Revolving loans may be borrowed, repaid and reborrowed over the life of the Credit Agreement until their final maturity. We are required to maintain, for at least one period of 30 consecutive days during each calendar year, total average unutilized revolving loan commitments of at least $90 million. At December 31, 2004, there were no revolving loans outstanding, as compared to $25.0 million outstanding at December 31, 2003. After taking into account letters of credit of $31.4 million, borrowings available under the revolving credit facility of the Credit Agreement were $368.6 million on December 31, 2004.
On July 15, 2004, we completed an amendment to our Credit Agreement that lowered the margin on our B term loans by twenty-five basis points to 1.75 percent.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8. Long-Term Debt (continued)
Borrowings under the Credit Agreement may be designated as base rate or Eurodollar rate borrowings. The base rate is the higher of the prime lending rate of Deutsche Bank Trust Company Americas or 1/2 of one percent in excess of the overnight federal funds rate. Currently, base rate borrowings bear interest at the base rate plus a margin of 0.75 percent, and Eurodollar rate borrowings bear interest at the Eurodollar rate plus a margin of 1.75 percent. In accordance with the Credit Agreement, the interest rate margin on base rate and Eurodollar rate borrowings is reset quarterly based upon our total leverage ratio, as defined in the Credit Agreement. As of December 31, 2004, the interest rate for Eurodollar rate borrowings was 4.33 percent. There were no base rate borrowings outstanding at December 31, 2004. For 2004, 2003 and 2002, the weighted average annual interest rate paid on term loans was 3.5 percent, 3.4 percent and 4.0 percent, respectively; and the weighted average annual interest rate paid on revolving loans was 3.4 percent, 3.5 percent and 3.3 percent, respectively. We have entered into interest rate swap agreements with an aggregate notional amount of $450 million to convert interest rate exposure from variable rates to fixed rates of interest. See Note 9 which includes a discussion of the interest rate swap agreements.
The Credit Agreement provides for the payment of a commitment fee ranging from 0.25 percent to 0.50 percent per annum on the daily average unused portion of commitments available under the revolving loan facility (0.50 percent at December 31, 2004). The commitment fee is reset quarterly based on our total leverage ratio.
We may utilize up to a maximum of $50 million of our 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 do not exceed the amount of the commitment under such 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 maintained as Eurodollar rate loans (1.75 percent at December 31, 2004) and to the issuers of letters of credit of a facing fee of 1/4 of one percent per annum, calculated on the aggregate stated amount of all letters of credit.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8. Long-Term Debt (continued)
The indebtedness under the Credit Agreement is guaranteed by Holdings and certain of its U.S. subsidiaries and is secured by a security interest in substantially all of our real and personal property. The stock of certain of our subsidiaries has also been pledged as security to the lenders under the Credit Agreement. At December 31, 2004, we had assets of a U.S. subsidiary of $130.6 million which were restricted and could not be transferred to Holdings or any other subsidiary of Holdings. The Credit Agreement contains certain financial and operating covenants which limit, among other things, our ability and the ability of our subsidiaries to grant liens, sell assets and use the proceeds from certain asset sales, make certain payments (including dividends) on our capital stock, incur indebtedness or provide guarantees, make loans or investments, enter into transactions with affiliates, make certain capital expenditures, engage in any business other than the packaging business, and, with respect to our subsidiaries, issue 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.
Because we sell metal containers used in the fruit and vegetable packing process, 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 packing season. Due to our seasonal requirements, we incur short-term indebtedness to finance our working capital requirements. For 2004, 2003 and 2002, the average amount of revolving loans outstanding, including seasonal borrowings, was $170.3 million, $131.0 million and $258.8 million, respectively; and, after taking into account outstanding letters of credit, the highest amount of such borrowings was $305.3 million, $260.0 million and $485.3 million, respectively.
On November 14, 2003, we issued $200 million aggregate principal amount of 6 3/4% Senior Subordinated Notes due 2013, or the 6 3/4% Notes. The issue price for the 6 3/4% Notes was 100% of their principal amount. Net cash proceeds from this issuance were used to redeem a portion of our 9% Debentures.
The 6 3/4% Notes are general unsecured obligations of Holdings, subordinate in right of payment to obligations under the Credit Agreement and effectively subordinate to all obligations of the subsidiaries of Holdings. Interest on the 6 3/4% Notes is payable semi-annually in cash on the 15th day of each May and November.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 8. Long-Term Debt (continued)
The 6 3/4% Notes are redeemable, at the option of Holdings, in whole or in part, at any time after November 15, 2008 at the following redemption prices (expressed in percentages of principal amount) plus accrued and unpaid interest thereon to the redemption date if redeemed during the twelve month period beginning November 15, of the years set forth below:
Year Redemption Price ---- ---------------- 2008 ............ 103.375% 2009 ............ 102.250% 2010 ............ 101.125% Thereafter ...... 100.000% |
Upon the occurrence of a change of control, as defined in the indenture relating to the 6 3/4% Notes, Holdings is required to make an offer to purchase the 6 3/4% Notes at a purchase price equal to 101% of their principal amount, plus accrued interest to the date of purchase.
The indenture relating to the 6 3/4% Notes contains covenants which are generally less restrictive than those under the Credit Agreement.
In 2003, we redeemed all $500 million principal amount of our outstanding 9% Debentures. The redemption price was 103.375% of the principal amount, or $516.9 million, plus accrued and unpaid interest to the redemption date. As permitted under the Credit Agreement and the other documents governing our indebtedness, we funded the redemption with the 6 3/4% Notes, incremental term loans and revolving loans under the Credit Agreement and funds from operations. As a result, in 2003, we recorded a loss on early extinguishment of debt of $19.2 million for the premium paid in connection with this redemption and for the write-off of unamortized debt issuance costs and unamortized premium related to the 9% Debentures.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 9. Financial Instruments
The financial instruments recorded in our 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 cash and cash equivalents, 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 December 31 (bracketed amounts represent assets):
2004 2003
--------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------ ----- ------ -----
(Dollars in thousands)
Bank debt ....................... $638,668 $638,668 $799,580 $799,580
Subordinated debt ............... 200,000 208,000 200,000 199,250
Interest rate swap agreements ... (4,776) (4,776) 3,679 3,679
Natural gas swap agreements ..... 188 188 (218) (218)
|
Methods and assumptions used in estimating fair values are as follows:
Bank debt: The carrying amounts of our variable rate bank revolving loans and term loans approximate their fair values.
Subordinated debt: The fair value of our 6 3/4% Notes is estimated based on quoted market prices.
Interest rate and natural gas swap agreements: The fair value of the interest rate and natural gas swap agreements reflects the estimated amounts that we would pay or receive at December 31, 2004 and 2003 in order to terminate the contracts based on the present value of expected cash flows derived from market rates and prices.
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 utilize derivative financial instruments for speculative purposes.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 9. Financial Instruments (continued)
Our interest rate and natural gas swap agreements are accounted for as cash flow hedges. To the extent these swap agreements are effective pursuant to SFAS No. 133 in offsetting the variability of the hedged cash flows, changes in their fair values are recorded in accumulated other comprehensive income (loss), a component of stockholders' equity, and reclassified into earnings in future periods when earnings are also affected by the variability of the hedged cash flows. To the extent these swap agreements are not effective as hedges, changes in their fair values are recorded in net income. During 2004, 2003 and 2002, ineffectiveness for our hedges increased (reduced) net income by $1.0 million, ($0.5) million and ($0.2) million, respectively, and was recorded primarily in interest and other debt expense in our Consolidated Statements of Income.
The fair value of the outstanding swap agreements in effect at December 31, 2004 and 2003 was recorded in our Consolidated Balance Sheets as a net asset of $4.6 million ($5.1 million in other assets, $0.3 million in accrued interest payable and $0.2 million in other liabilities) and a net liability of $3.5 million ($2.4 million in other liabilities, $1.3 million in accrued interest payable and $0.2 million in other assets), respectively. See Note 4 which includes a discussion of the effects of hedging activities on accumulated other comprehensive income (loss).
We have entered into interest rate swap agreements with major banks to manage a portion of our exposure to interest rate fluctuations. The interest rate swap agreements effectively convert interest rate exposure from variable rates to fixed rates of interest. At December 31, 2004 and 2003, the aggregate notional principal amount of these agreements was $450 million and $550 million, respectively. These agreements are with financial institutions which are expected to fully perform under the terms thereof.
Under these agreements, we pay fixed rates of interest ranging from 1.3 percent to 3.3 percent and receive floating rates of interest based on three month LIBOR. These agreements mature as follows: $100 million aggregate notional principal amount in 2005, $150 million aggregate notional principal amount in 2006 and $100 million aggregate notional principal amount in each of 2007 and 2008. The difference between amounts to be paid or received on interest rate swap agreements is recorded in interest expense. Net payments of $7.2 million, $4.8 million and $7.2 million were made under these interest rate swap agreements for the years ended December 31, 2004, 2003 and 2002, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 9. Financial Instruments (continued)
We have entered into natural gas swap agreements with major financial institutions to manage a portion of our exposure to fluctuations in natural gas prices. We entered into natural gas swap agreements to hedge approximately 25 percent and 40 percent of our exposure to fluctuations in natural gas prices in 2004 and 2003, respectively. At December 31, 2004 and 2003, the aggregate notional principal amount of these agreements was 0.5 million (including 0.2 million that became effective on January 1, 2005) and 0.7 million MMBtu of natural gas, respectively. These agreements are with institutions that are expected to fully perform under the terms thereof.
Under these agreements, we pay fixed natural gas prices ranging from $5.46 to $6.90 per MMBtu and receive a NYMEX-based natural gas price. These gas swap agreements mature in 2005. Gains and losses on these natural gas swap agreements are deferred and recognized when the related costs are recorded to cost of goods sold. Payments received under natural gas swap agreements were $0.5 million and $1.2 million during 2004 and 2003, respectively. Payments made under natural gas swap agreements were $1.2 million during 2002.
We derive a significant portion of our revenue from multi-year supply agreements with many of our customers. Aggregate revenues from our three largest customers (Campbell Soup Company, Del Monte Corporation and Nestle Food Company) accounted for approximately 34.6 percent, 33.0 percent and 34.9 percent of our net sales in 2004, 2003 and 2002, respectively. The receivable balances from these customers collectively represented 27.4 percent and 32.4 percent of our trade accounts receivable at December 31, 2004 and 2003, respectively. As is common in the packaging industry, we provide extended payment terms to some of our customers due to the seasonality of the vegetable and fruit packing process. Exposure to losses is dependent on each customer's financial position. We perform ongoing credit evaluations of our customers' financial condition, and our receivables are generally not collateralized. We maintain an allowance for doubtful accounts which we believe is adequate to cover potential credit losses based on customer credit evaluations, collection history and other information.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 10. Commitments and Contingencies
We have a number of noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2020. Certain operating leases have renewal options as well as various purchase options. Minimum future rental payments under these leases are as set forth below for each of the following years (dollars in thousands):
2005 ........... $ 23,535
2006 ........... 21,041
2007 ........... 17,090
2008 ........... 11,467
2009 ........... 8,897
Thereafter ..... 32,191
--------
$114,221
========
|
Rent expense was approximately $27.4 million, $27.6 million and $23.5 million for the years ended December 31, 2004, 2003 and 2002, respectively.
At December 31, 2004, we had noncancelable commitments for 2005 capital expenditures of $11.7 million.
We are a party to routine legal proceedings arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.
Note 11. Retirement Benefits
We sponsor a number of defined benefit and defined contribution pension plans which cover substantially all employees, other than union employees covered by multi-employer defined benefit pension plans under collective bargaining agreements. Pension benefits are provided based on either a career average, final pay or years of service formula. With respect to certain hourly employees, pension benefits are provided based on stated amounts for each year of service.
We also sponsor other postretirement benefits plans, including unfunded defined benefit health care and life insurance plans, that provide postretirement benefits to certain employees. The plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features including deductibles and coinsurance. Retiree health care benefits are paid as covered expenses are incurred.
The measurement date for our retirement plans is December 31 of each year.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11. Retirement Benefits (continued)
The changes in benefit obligations and plan assets as well as the funded status of our retirement plans at December 31 are as follows:
Other
Pension Benefits Postretirement Benefits
------------------------- -------------------------
2004 2003 2004 2003
---- ---- ---- ----
(Dollars in thousands)
Change in Benefit Obligation
Obligation at beginning of year ..................... $322,796 $156,295 $ 92,877 $ 53,755
Service cost ..................................... 11,590 10,047 1,419 2,264
Interest cost .................................... 19,923 17,757 5,041 5,121
Actuarial losses (gains) ......................... 10,544 32,015 (7,401) 13,689
Plan amendments .................................. 1,226 12,159 -- --
Benefits paid .................................... (16,798) (15,252) (5,596) (4,869)
Participants' contributions ...................... -- -- 1,005 696
Acquisitions ..................................... -- 109,775 -- 22,221
-------- -------- -------- --------
Obligation at end of year ........................... 349,281 322,796 87,345 92,877
-------- -------- -------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year ...... 254,558 112,795 -- --
Actual return on plan assets ..................... 27,483 40,913 -- --
Employer contributions ........................... 37,029 42,584 4,591 4,173
Participants' contributions ...................... -- -- 1,005 696
Benefits paid .................................... (16,798) (15,252) (5,596) (4,869)
Acquisitions ..................................... -- 74,763 -- --
Expenses ......................................... (2,585) (1,245) -- --
-------- -------- -------- --------
Fair value of plan assets at end of year ............ 299,687 254,558 -- --
-------- -------- -------- --------
Funded Status
Funded Status ....................................... (49,594) (68,238) (87,345) (92,877)
Unrecognized actuarial loss ...................... 44,316 37,559 12,976 20,629
Unrecognized prior service cost .................. 20,728 22,831 24 29
-------- -------- -------- --------
Net asset (liability) recognized .................... $ 15,450 $ (7,848) $(74,345) $(72,219)
======== ======== ======== ========
Amounts recognized in the Consolidated
Balance Sheets
Prepaid benefit cost ............................. $ 28,735 $ 21,199 $ -- $ --
Accrued benefit cost ............................. (46,961) (61,273) (74,345) (72,219)
Intangible asset ................................. 14,306 16,416 -- --
Accumulated other comprehensive loss ............. 19,370 15,810 -- --
-------- -------- -------- --------
Net asset (liability) recognized .................... $ 15,450 $ (7,848) $(74,345) $(72,219)
======== ======== ======== ========
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11. Retirement Benefits (continued)
The accumulated benefit obligation for all defined benefit plans at December 31, 2004 and 2003 was $322.1 million and $295.8 million, respectively. For pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $259.8 million, $243.1 million and $218.6 million, respectively, at December 31, 2004 and $263.2 million, $242.4 million and $200.4 million, respectively, at December 31, 2003.
The benefits expected to be paid from our pension and other postretirement benefit plans, which reflect future years of services, and the Medicare subsidy expected to be received are as follows (dollars in thousands):
Other
Pension Postretirement
------- --------------
2005 ............ $ 17,215 $ 4,839
2006 ............ 18,112 5,216
2007 ............ 19,039 5,586
2008 ............ 20,014 5,733
2009 ............ 21,108 5,817
2010 - 2014 ..... 125,222 30,206
-------- -------
$220,710 $57,397
======== =======
|
Our principal pension and other postretirement benefit plans used the following weighted average actuarial assumptions to determine the benefit obligations at December 31:
2004 2003
---- ----
Discount rate ...................... 6.00% 6.25%
Expected return on plan assets ..... 9.00% 9.00%
Rate of compensation increase ...... 3.30% 3.30%
Health care cost trend rate:
Assumed for next year ........... 10% 10%
Ultimate rate ................... 5% 5%
Year that the ultimate rate
is reached ................... 2010 2009
|
Our expected return on plan assets is determined by the plan assets' historical long-term investment performance, current and expected asset allocation and estimates of future long-term returns on those types of plan assets.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11. Retirement Benefits (continued)
The components of the net periodic benefit cost for each of the years ended December 31 are as follows:
Other
Pension Benefits Postretirement Benefits
---------------------------------- ----------------------------
2004 2003 2002 2004 2003 2002
---- ---- ---- ---- ---- ----
(Dollars in thousands)
Service cost .................................... $ 11,590 $ 10,047 $ 7,787 $1,419 $2,264 $1,385
Interest cost ................................... 19,923 17,757 10,018 5,041 5,121 3,584
Expected return on plan assets .................. (22,249) (15,337) (9,144) -- -- --
Amortization of prior service cost .............. 3,329 2,802 2,164 5 5 5
Amortization of actuarial losses ................ 1,138 1,372 58 252 320 57
Settlement or curtailment loss .................. -- 149 -- -- -- --
-------- -------- ------- ------ ------ ------
Net periodic benefit cost ....................... $ 13,731 $ 16,790 $10,883 $6,717 $7,710 $5,031
======== ======== ======= ====== ====== ======
|
Our principal pension and other postretirement benefit plans used the following weighted average actuarial assumptions to determine net periodic benefit cost for the years ended December 31:
2004 2003 2002
---- ---- ----
Discount rate ...................... 6.25% 7.00% 7.25%
Expected return on plan assets ..... 9.00% 9.00% 9.00%
Rate of compensation increase ...... 3.30% 3.60% 3.60%
Health care cost trend rate ........ 10% 11% 9%
|
The assumed health care cost trend rates have a significant effect on the amounts reported for the health care plan. A one percentage point change in the assumed health care cost trend rates would have the following effects:
1-Percentage 1-Percentage
Point Increase Point Decrease
-------------- --------------
(Dollars in thousands)
Effect on service and interest cost ............. $ 720 $ (601)
Effect on postretirement benefit obligation ..... 7,990 (6,764)
|
In December 2003, the U.S. enacted into law the "Medicare Prescription Drug, Improvement and Modernization Act of 2003," or the Act. The Act introduces a prescription drug benefit under Medicare, or Medicare Part D, as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to Medicare Plan D.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11. Retirement Benefits (continued)
In January 2004, the FASB issued FASB Staff Position, or FSP, No. 106-1, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003." Since specific authoritative guidance on the accounting for the federal subsidy was pending, we elected to defer accounting for the effects of the Act as permitted by FSP No. 106-1. In May 2004, the FASB issued FSP No. 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003," that provides guidance on the accounting for the effects of the Act and was effective for us on July 1, 2004. FSP No. 106-2 supercedes FSP No. 106-1 and requires recognition of the change in postretirement benefit obligation resulting from the federal subsidy as an actuarial gain.
Some of our retiree medical programs already provide prescription drug coverage for retirees over age 65 that is at least as generous as the benefit to be provided under Medicare. This Act will reduce our share of the obligations for future retiree medical benefits in these instances. We have incorporated the effects of this Act at our December 31, 2004 postretirement plan measurement date and, accordingly, reduced our accumulated postretirement benefit obligation by $2.5 million at December 31, 2004.
We participate in several multi-employer pension plans which provide defined benefits to certain of our union employees. Amounts contributed to these plans and charged to pension cost in 2004, 2003 and 2002 were $6.1 million, $5.7 million and $4.7 million, respectively.
We also sponsor defined contribution pension and profit sharing plans covering substantially all employees. Our contributions to these plans are based upon employee contributions and operating profitability. Contributions charged to expense for these plans were $7.2 million in 2004, $7.7 million in 2003 and $6.4 million in 2002.
The weighted-average asset allocation for our pension plans at December 31 was as follows:
2004 2003
---- ----
Equity securities ............. 57% 57%
Debt securities ............... 41% 40%
Cash and cash equivalents ..... 2% 3%
---- ----
100% 100%
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 11. Retirement Benefits (continued)
Our investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the composition of our plan assets is broadly characterized as a 58%/42% allocation between equity and debt securities. This strategy utilizes indexed U.S. equity securities (which constitutes approximately 85 percent of equity securities) with a lesser allocation to indexed international equity securities and indexed investment grade U.S. debt securities. We attempt to mitigate investment risk by regularly rebalancing between equity and debt securities as contributions and benefit payments are made. At December 31, 2004 and 2003, the timing of our cash contributions resulted in a higher than targeted investment in cash and cash equivalents.
Based on current tax law, there are no minimum required contributions to our pension plans in 2005. However, this is subject to change based on current tax proposals before Congress, as well as asset performance significantly above or below the assumed long-term rate of return on plan assets. In order to reduce our unfunded pension liability, it has been our recent practice to make contributions in excess of the ERISA minimum requirements, to the extent they are tax deductible. Therefore, at our discretion, we may fund amounts in excess of the minimum in 2005.
Note 12. Income Taxes
The components of the provision for income taxes are as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
Current:
Federal ................................. $ 7,727 $(1,081) $ 5,527
State ................................... 4,620 (194) 843
Foreign ................................. 3,332 3,100 3,549
------- ------- -------
Current income tax provision ........ 15,679 1,825 9,919
------- ------- -------
Deferred:
Federal ................................. 39,724 22,885 22,825
State ................................... 2,776 2,763 2,325
Foreign ................................. 35 94 69
------- ------- -------
Deferred income tax provision ....... 42,535 25,742 25,219
------- ------- -------
$58,214 $27,567 $35,138
======= ======= =======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 12. Income Taxes (continued)
The provision for income taxes is included in our Consolidated Statements of Income as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
Income before equity in losses of affiliate .... $58,214 $27,743 $36,806
Equity in losses of affiliate .................. -- (176) (1,668)
------- ------- -------
$58,214 $27,567 $35,138
======= ======= =======
|
The provision for income taxes varied from income taxes computed at the statutory U.S. federal income tax rate as a result of the following:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
Income taxes computed at the statutory
U.S. federal income tax rate ............... $49,825 $24,360 $31,131
State income taxes, net of federal
tax benefit ................................ 6,028 3,174 3,148
Tax liabilities no longer required ............. (464) (2,420) --
Valuation allowance ............................ 1,874 1,488 --
Other .......................................... 951 965 859
------- ------- -------
$58,214 $27,567 $35,138
======= ======= =======
Effective tax rate ............................. 40.9% 39.6% 39.5%
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 12. Income Taxes (continued)
Deferred income taxes reflect the net tax effect of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases. Significant components of our deferred tax assets and liabilities at December 31 are as follows:
2004 2003
---- ----
(Dollars in thousands)
Deferred tax assets:
Pension and postretirement liabilities ........... $ 32,721 $ 35,421
Rationalization and other accrued liabilities .... 16,133 22,247
AMT and other credit carryforwards ............... 18,397 30,089
Net operating loss carryforwards ................. 26,353 27,251
Other ............................................ 12,631 27,334
--------- ---------
Total deferred tax assets .................... 106,235 142,342
--------- ---------
Deferred tax liabilities:
Property, plant and equipment .................... (148,107) (134,588)
Other ............................................ (7,015) (9,838)
--------- ---------
Total deferred tax liabilities ............... (155,122) (144,426)
--------- ---------
Valuation allowance ................................... (17,963) (18,713)
--------- ---------
Net deferred tax liability ............................ $ (66,850) $ (20,797)
========= =========
|
At December 31, 2004 and 2003, the net deferred tax liability in our Consolidated Balance Sheets was comprised of current deferred tax assets of $36.4 million and $39.7 million, respectively, and long-term deferred tax liabilities of $103.3 million and $60.5 million, respectively.
The valuation allowance in 2004 includes deferred tax assets of $7.7 million resulting from prior year acquired operations. Subsequent recognition of these tax benefits, if any, will be allocated to reduce goodwill of the acquired operations. The valuation allowance also includes losses of certain foreign operations of $2.0 million, capital loss carryforwards of $4.1 million and state and local net operating loss and credit carryforwards totaling $4.1 million.
The valuation allowance for deferred tax assets decreased in 2004 by $0.8 million. This net change was principally comprised of a decrease related to prior year acquired operations totaling $2.7 million, which was partially offset by an increase related to state and local and foreign net operating loss carryforwards, or NOLs, totaling $1.9 million.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 12. Income Taxes (continued)
We file a consolidated U.S. federal income tax return that includes all domestic subsidiaries except CS Can and Silgan Equipment. CS Can and Silgan Equipment file separate U.S. federal income tax returns. At December 31, 2004, CS Can has federal NOLs of approximately $32.2 million that are available to offset its future taxable income and that expire from 2020 through 2022. Silgan Equipment has federal NOLs of approximately $19.5 million that expire in 2023 and which have a full valuation allowance recorded against them in purchase accounting.
At December 31, 2004, we had $13.4 million of alternative minimum tax credits and CS Can had $0.7 million of alternative minimum tax credits which are available indefinitely to reduce future income tax payments. We also had state tax NOLs of approximately $5.1 million, net of any valuation allowances, that are available to offset future taxable income and that expire from 2005 to 2023.
Pre-tax income of our Canadian subsidiaries was $9.8 million in 2004, $9.4 million in 2003 and $11.1 million in 2002. At December 31, 2004, approximately $42.6 million of accumulated earnings of our Canadian subsidiaries are expected to be indefinitely reinvested. Accordingly, applicable U.S. federal income taxes have not been provided. Determination of the amount of unrecognized deferred U.S. income tax liability and foreign tax credit carryforwards associated with the unremitted foreign earnings is not practicable due to the complexity associated with the hypothetical tax calculation.
On October 22, 2004, the American Jobs Creation Act, or the AJCA, was signed into law. The AJCA includes a deduction of 85 percent on certain foreign earnings that are repatriated during the calendar years of 2004 and 2005. We may elect to apply this provision to qualifying earnings repatriated in 2005. We have started an evaluation of the effects of the repatriation provision; however, we do not expect to be able to complete this evaluation until after Congress or the Treasury Department provides additional clarifying language on key elements of the provision. We expect to complete our evaluation of the repatriation provision within a reasonable period of time following the publication of the additional clarifying language. The range of possible amounts that we are evaluating for repatriation under this provision is between zero and $42.6 million. The related potential range of income tax cannot be evaluated at this time.
Note 13. Stock-Based Compensation
In May 2004, we adopted the Silgan Holdings Inc. 2004 Stock Incentive Plan, or the Plan, which provides for awards of stock options, stock appreciation rights, restricted stock, stock units and performance awards to our officers, other key employees and outside directors. The Plan replaces our previous stock option plans, and all shares of our common stock reserved for issuance under those plans will no longer be available for issuance except with respect to stock options granted thereunder prior to adoption of the Plan.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 13. Stock-Based Compensation (continued)
Shares of our common stock issued under the Plan shall be authorized but unissued shares or treasury shares. The maximum aggregate number of shares of our common stock that may be issued in connection with stock options, stock appreciation rights, stock units, restricted shares and performance awards under the Plan shall not exceed 900,000 shares. Each award of stock options or stock appreciation rights under the Plan will reduce the number of shares of our common stock available for future issuance under the Plan by the number of shares of our common stock subject to the award. Each award of restricted stock or stock units under the Plan, in contrast, will reduce the number of shares of our common stock available for future issuance under the Plan by two shares for every one restricted share or stock unit awarded. As of December 31, 2004, 800,000 shares were available for issuance under the Plan.
The following is a summary of stock option activity for years ended December 31, 2004, 2003 and 2002:
Weighted Average
Options Exercise Price
------- ----------------
Options outstanding at December 31, 2001 ..... 1,137,692 $14.20
=========
Granted ................................. 151,440 $37.89
Exercised ............................... (377,172) 11.41
Canceled ................................ (144,600) 15.57
---------
Options outstanding at December 31, 2002 ..... 767,360 19.99
=========
Granted ................................. 231,500 $29.18
Exercised ............................... (42,200) 15.33
Canceled ................................ (29,800) 17.97
---------
Options outstanding at December 31, 2003 ..... 926,860 22.56
=========
Granted ................................. 35,000 $45.14
Exercised ............................... (149,100) 15.18
Canceled ................................ (10,000) 8.13
---------
Options outstanding at December 31, 2004 ..... 802,760 25.10
=========
|
At December 31, 2004, 2003 and 2002, the remaining contractual life of options outstanding was 5.8 years, 6.7 years and 7.4 years, respectively, and there were 396,041, 346,048 and 220,280 options exercisable with weighted average exercise prices of $21.69, $18.71 and $17.88, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 13. Stock-Based Compensation (continued)
The following is a summary of stock options outstanding and exercisable at December 31, 2004 by range of exercise price:
Outstanding Exercisable
----------------------------------------------- ---------------------------
Range of Remaining Weighted Weighted
Exercise Contractual Average Average
Prices Number Life (Years) Exercise Price Number Exercise Price
-------- ------ ------------ -------------- ------ --------------
$ 9.81 - $13.88 19,500 5.4 $10.52 10,300 $10.40
14.09 265,320 5.1 14.09 175,040 14.09
17.00 - 26.44 164,500 5.6 20.60 100,500 20.55
28.88 - 33.08 182,500 6.1 32.74 49,525 32.57
36.75 - 46.95 170,940 7.0 40.03 60,676 38.53
------- -------
802,760 396,041
======= =======
|
The weighted average fair value of options granted was $20.25, $16.08 and $25.49 for 2004, 2003 and 2002, respectively.
The fair value was calculated using the Black-Scholes option-pricing model based on the following weighted average assumptions for grants made in 2004, 2003 and 2002:
2004 2003 2002
---- ---- ----
Risk-free interest rate ............. 3.4% 3.7% 5.4%
Expected volatility ................. 54.4% 56.7% 59.6%
Dividend yield ...................... 1.0% -- --
Expected option life (years) ........ 5 6 8
|
In 2004, we granted 37,000 restricted stock units to certain of our officers and key employees. The fair value of these units at the date of grant was $1.8 million. These restricted stock units vest ratably over a five-year period from the date of grant.
In May 2004, we granted 3,000 restricted stock units to the independent members of our Board of Directors, which vested in full six months from the date of grant. The fair value of these units at the date of grant was $0.1 million.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 14. Capital Stock and Dividends
Our authorized capital stock consists of 100,000,000 shares of common stock, par value $.01 per share, and 10,000,000 shares of preferred stock, par value $.01 per share.
Our Board of Directors previously authorized the repurchase of up to $70.0 million of our common stock from time to time in the open market, through privately negotiated transactions or through block purchases. Our repurchases of common stock are recorded as treasury stock and result in a charge to stockholders' equity. As of December 31, 2004, we had repurchased 2,708,976 shares of our common stock for $61.0 million.
In 2004, our Board of Directors initiated a quarterly dividend on our common stock and in April, July and November approved a $0.15 per share quarterly cash dividend. The cash payments for dividends in 2004 totaled $8.3 million.
In February 2005, our Board of Directors approved a 33 percent increase to the quarterly cash dividend and simultaneously declared a quarterly cash dividend on our common stock of $0.20 per share, payable on March 15, 2005 to holders of record of our common stock on March 1, 2005. The cash payment for this dividend is expected to be approximately $3.7 million.
Note 15. Earnings Per Share
The components of the calculation of earnings per share are as follows:
2004 2003 2002
---- ---- ----
(Dollars and shares in thousands)
Net income .......................................... $84,145 $42,034 $53,808
======= ======= =======
Weighted average number of shares used in:
Basic earnings per share ........................ 18,373 18,249 18,135
Dilutive common stock equivalents:
Stock options and restricted stock units ..... 239 165 242
------ ------ ------
Diluted earnings per share ...................... 18,612 18,414 18,377
====== ====== ======
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 15. Earnings Per Share (continued)
Options to purchase 10,000 to 15,000 shares of common stock at prices ranging from $42.72 to $46.95 per share for 2004, 135,940 to 233,440 shares of common stock at prices ranging from $22.13 to $42.22 per share for 2003 and 16,494 to 174,223 shares of common stock at prices ranging from $25.15 to $44.22 per share for 2002 were outstanding but were excluded from the computation of diluted earnings per share because the exercise prices for such options were greater than the average market price of the common stock and, therefore, the effect would be antidilutive. In addition, 14,424 restricted stock units issued at values ranging from $46.95 to $47.25 were also excluded from the 2004 computation of diluted earnings per share because they were antidilutive.
Note 16. Related Party Transactions
Prior to 2003, pursuant to management services agreements, or the Management Agreements, entered into between each of Holdings, Containers and Plastics and S&H Inc., or S&H, a company wholly owned by R. Philip Silver, the Co-Chairman and Co-Chief Executive Officer of Holdings, and D. Greg Horrigan, the Co-Chairman and Co-Chief Executive Officer of Holdings, S&H provided Holdings and its subsidiaries with general management, supervision and administrative services. The parties to the Management Agreements agreed to terminate the Management Agreements effective January 1, 2003. As a result, Messrs. Silver and Horrigan became employees of Holdings effective January 1, 2003, and neither Holdings nor its subsidiaries made any payment in 2003 under the Management Agreements.
In 2002, in consideration for its services, S&H received a fee in an amount equal to 90.909 percent of 4.95 percent of our consolidated EBDIT (as defined in the Management Agreements) until our consolidated EBDIT had reached the scheduled amount set forth in the Management Agreements, plus reimbursement for all related out-of-pocket expenses. We paid $5.2 million to S&H under the Management Agreements in 2002. These payments to S&H were allocated, based upon EBDIT, as a charge to income from operations of each of our business segments.
Prior to July 2003, Leigh Abramson, a former Managing Director of Morgan Stanley, served as a director of Holdings. In each of 2003 and 2002, we entered into natural gas swap agreements with Morgan Stanley Capital Group, Inc., or MSCG, an affiliate of Morgan Stanley, for an aggregate notional principal amount of 0.8 million MMBtu of natural gas. During each of 2003 and 2002, an aggregate notional principal amount of 0.9 million MMBtu of these natural gas swap agreements were settled under which we received $1.2 million in 2003 from MSCG and paid insignificant amounts to MSCG in 2002. In 2003, we paid Morgan Stanley and Morgan Stanley Senior Funding, Inc., an affiliate of Morgan Stanley, a combined $2.2 million in underwriting fees related to the issuance of the 6 3/4% Notes and the Credit Agreement. In 2002, we paid Morgan Stanley and Morgan Stanley Senior Funding, Inc. a combined $4.9 million in underwriting fees related to the Credit Agreement and the add-on issuance of the 9% Debentures.
Landstar System, Inc. provided transportation services to our subsidiaries in the amount of $1.4 million, $1.1 million and $0.4 million in 2004, 2003 and 2002, respectively. Mr. Crowe, a director of Holdings, is the Chairman of the Board of Landstar System, Inc.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 17. Business Segment Information
We are engaged in the packaging industry and report our results in two business segments: metal food containers and plastic containers. The metal food containers segment manufactures steel and aluminum containers for human and pet food and metal, composite and plastic vacuum closures for food and beverage products. The plastic containers segment manufactures 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. These segments are strategic business operations that offer different products. Each are managed separately because each business produces a packaging product requiring different technology, production and marketing strategies. Each segment operates primarily in the United States. There are no inter-segment sales. The accounting policies of the business segments are the same as those described in Note 1.
Our metal food container business' sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in those 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 (see Note 18).
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 17. Business Segment Information (continued)
Information for each of the past three years for our business segments is as follows:
Metal Food Plastic
Containers(1) Containers(2) Corporate Total
------------- ------------- --------- -----
(Dollars in thousands)
2004
----
Net sales ............................... $1,842,095 $578,350 $ -- $2,420,445
Depreciation and amortization ........... 76,957 41,481 35 118,473
Segment income from operations .......... 154,718 52,074 (7,211) 199,581
Segment assets .......................... 1,030,604 529,236 -- 1,559,840
Capital expenditures .................... 59,039 43,778 51 102,868
2003
----
Net sales ............................... $1,750,510 $561,655 $ -- $2,312,165
Depreciation and amortization ........... 70,349 40,925 40 111,314
Segment income from operations .......... 125,938 48,010 (5,856) 168,092
Segment assets .......................... 1,081,463 499,848 -- 1,581,311
Capital expenditures .................... 67,610 38,294 8 105,912
2002
----
Net sales ............................... $1,486,950 $501,334 $ -- $1,988,284
Depreciation and amortization ........... 59,435 36,225 55 95,715
Segment income from operations .......... 120,587 52,916 (5,563) 167,940
Segment assets .......................... 901,628 472,549 -- 1,374,177
Capital expenditures .................... 82,836 36,287 37 119,160
|
(1) Segment income from operations for the metal food container business
includes rationalization charges of $1.8 million in 2004, rationalization
charges of $1.2 million in 2003 and rationalization credits of $5.4 million
in 2002.
(2) Segment income from operations for the plastic container business includes
rationalization charges of $0.3 million in 2004, rationalization charges of
$7.8 million in 2003 and a rationalization credit of $0.2 million in 2002.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 17. Business Segment Information (continued)
Total segment income from operations is reconciled to income before income taxes and equity in losses of affiliate as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
Total segment income from operations ....... $199,581 $168,092 $167,940
Interest and other debt expense ............ 57,222 98,034 74,772
-------- -------- --------
Income before income taxes and
equity in losses of affiliate ...... $142,359 $ 70,058 $ 93,168
======== ======== ========
|
Total segment assets at December 31 are reconciled to total assets as follows:
2004 2003
---- ----
(Dollars in thousands)
Total segment assets ............. $1,559,840 $1,581,311
Other assets ..................... 37,319 39,773
---------- ----------
Total assets ................ $1,597,159 $1,621,084
========== ==========
|
Financial information relating to our operations by geographic area is as follows:
2004 2003 2002
---- ---- ----
(Dollars in thousands)
Net sales:
United States ................... $2,348,710 $2,241,204 $1,928,058
Canada .......................... 71,735 65,419 60,226
Mexico .......................... -- 5,542 --
---------- ---------- ----------
Total net sales ............... $2,420,445 $2,312,165 $1,988,284
========== ========== ==========
Long-lived assets:
United States ................... $960,929 $ 985,591
Canada .......................... 30,353 28,058
Mexico .......................... -- 6,622
------- ----------
Total long-lived assets ....... $991,282 $1,020,271
======== ==========
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 17. Business Segment Information (continued)
Net sales are attributed to the country from which the product was manufactured and shipped.
Sales of our metal food containers segment to Nestle Food Company accounted for 9.5 percent, 9.5 percent and 12.1 percent of our consolidated net sales during 2004, 2003 and 2002, respectively. Sales of our metal food containers segment to Campbell Soup Company accounted for 12.8 percent, 11.1 percent and 11.4 percent of our consolidated net sales during 2004, 2003 and 2002, respectively. Sales of our metal food containers segment to Del Monte Corporation accounted for 10.6 percent, 10.8 percent, and 9.9 percent of our consolidated net sales during 2004, 2003 and 2002, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 18. Quarterly Results of Operations (Unaudited)
The following table presents our quarterly results of operations for the years
ended December 31, 2004 and 2003:
First Second Third Fourth
----- ------ ----- ------
(Dollars in thousands, except per share data)
2004 (1)
----
Net sales .................................. $518,331 $551,311 $784,847 $565,956
Gross profit ............................... 62,160 71,755 105,801 70,670
Net income ................................. 11,085 18,239 38,455 16,366
Basic net income per share (3) ............. $0.61 $0.99 $2.09 $0.89
Diluted net income per share (3) ........... 0.60 0.98 2.06 0.88
Dividends per share ........................ $ -- $0.15 $0.15 $0.15
2003 (2)
----
Net sales .................................. $454,377 $545,240 $760,971 $551,577
Gross profit ............................... 49,597 70,195 102,196 63,490
Net income (loss) .......................... 4,166 13,538 26,763 (2,433)
Basic net income (loss) per share (3) ...... $0.23 $0.74 $1.47 $(0.13)
Diluted net income (loss) per share (3) .... 0.23 0.74 1.45 (0.13)
---------------------------------
|
(1) Net income for the first, second, third and fourth quarters of 2004
includes rationalization charges of $1.0 million, $0.2 million, $0.1
million and $0.8 million, respectively. Net income for the fourth quarter
of 2004 includes a benefit of $3.0 million for a litigation settlement and
a loss on early extinguishment of debt of $1.6 million. In addition, in the
fourth quarter of 2004, we recognized additional tax expense of $2.0
million resulting from a change in our annual effective income tax rate and
a benefit to health and welfare expense of $1.9 million, net of income
taxes, to adjust estimated amounts to our most current claim information.
(2) Net income (loss) for the third and fourth quarters of 2003 includes
rationalization charges of $7.6 million and $1.4 million, respectively. Net
income (loss) for the third and fourth quarters of 2003 includes a loss on
early extinguishment of debt of $1.0 million and $18.2 million,
respectively.
(3) Earnings per share data is computed independently for each of the periods
presented. Accordingly, the sum of the quarterly earnings per share amounts
may not equal the total for the year.
SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED BALANCE SHEETS
December 31, 2004 and 2003
(Dollars in thousands)
2004 2003
---- ----
Assets
Current assets:
Cash and cash equivalents ....................... $ 130 $ 62
Notes receivable - subsidiaries ................. 21,804 23,670
Interest receivable - subsidiaries .............. 1,841 2,445
Other current assets ............................ 5,315 423
---------- ----------
Total current assets .......................... 29,090 26,600
Notes receivable - subsidiaries .................... 816,864 950,910
Investment in and amounts due from subsidiaries .... 192,173 111,321
Other assets ....................................... 15,585 27,484
---------- ----------
$1,053,712 $1,116,315
========== ==========
Liabilities and Stockholders' Equity
Current liabilities:
Current portion of long-term debt ............... $ 21,804 $ 23,670
Accrued interest payable ........................ 1,841 2,445
Accounts payable and accrued liabilities ........ 4,445 4,169
---------- ----------
Total current liabilities ..................... 28,090 30,284
Long-term debt ..................................... 816,864 950,910
Other liabilities .................................. 1,322 14,316
Stockholders' equity:
Common stock .................................... 211 210
Paid-in capital ................................. 131,685 125,758
Retained earnings ............................... 136,768 60,905
Accumulated other comprehensive income (loss) ... 859 (5,675)
Unamortized stock compensation .................. (1,694) --
Treasury stock at cost (2,685,476 shares) ....... (60,393) (60,393)
---------- ----------
Total stockholders' equity .................... 207,436 120,805
---------- ----------
$1,053,712 $1,116,315
========== ==========
|
See notes to condensed financial statements.
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED STATEMENTS OF INCOME
For the years ended December 31, 2004, 2003 and 2002
(Dollars in thousands)
2004 2003 2002
---- ---- ----
Net sales .............................................. $ -- $ -- $ --
Cost of goods sold ..................................... -- -- --
------- ------- -------
Gross profit ...................................... -- -- --
Selling, general and administrative expenses ........... 5,322 5,557 4,495
------- ------- -------
Loss from operations .............................. (5,322) (5,557) (4,495)
Interest and other debt expense ........................ -- -- --
------- ------- -------
Loss before income taxes and equity in
earnings of consolidated subsidiaries .......... (5,322) (5,557) (4,495)
Benefit from income taxes .............................. (2,177) (2,201) (1,779)
------- ------- -------
Loss before equity in earnings
of consolidated subsidiaries .................... (3,145) (3,356) (2,716)
Equity in earnings of consolidated subsidiaries ........ 87,290 45,390 56,524
------- ------- -------
Net income ........................................ $84,145 $42,034 $53,808
======= ======= =======
|
See notes to condensed financial statements.
SILGAN HOLDINGS INC. (Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2004, 2003 and 2002
(Dollars in thousands)
2004 2003 2002
---- ---- ----
Cash flows provided by (used in) operating activities:
Net income .................................................... $ 84,145 $ 42,034 $ 53,808
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in earnings of consolidated subsidiaries ......... (87,290) (45,390) (56,524)
Deferred income tax benefit ............................. (2,177) (2,201) (1,779)
Changes in other assets and liabilities, net ............ 11,410 4,910 (360)
--------- --------- ---------
Net cash provided by (used in) operating activities ..... 6,088 (647) (4,855)
--------- --------- ---------
Cash flows provided by (used in) investing activities:
Notes receivable - subsidiaries ............................... 135,912 (26,330) (347,824)
--------- --------- ---------
Net cash provided by (used in) investing activities ..... 135,912 (26,330) (347,824)
--------- --------- ---------
Cash flows provided by (used in) financing activities:
Proceeds from issuance of long-term debt ...................... -- 550,000 656,000
Repayments of long-term debt .................................. (135,912) (523,670) (307,751)
Dividends paid on common stock ................................ (8,282) -- --
Proceeds from stock option exercises .......................... 2,262 647 4,303
--------- --------- ---------
Net cash (used in) provided by financing activities ..... (141,932) 26,977 352,552
--------- --------- ---------
Cash and cash equivalents:
Net increase (decrease) ....................................... 68 -- (127)
Balance at beginning of year .................................. 62 62 189
--------- --------- ---------
Balance at end of year ........................................ $ 130 $ 62 $ 62
========= ========= =========
|
See notes to condensed financial statements.
SILGAN HOLDINGS INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 1. Basis of Presentation
Silgan Holdings Inc., or Holdings or the Parent Company, has two wholly owned subsidiaries, Silgan Containers Corporation, or Containers, and Silgan Plastics Corporation, or Plastics. Holdings' investment in its subsidiaries is stated at cost plus its share of the undistributed earnings/losses of its subsidiaries. The Parent Company's financial statements should be read in conjunction with our Consolidated Financial Statements included elsewhere in this Annual Report on Form 10-K.
Certain prior years' amounts have been reclassified to conform with the current year's presentation.
Note 2. Long-Term Debt
Long-term debt at December 31 is as follows:
2004 2003
---- ----
(Dollars in thousands)
Bank debt:
Bank A term loans ....................... $ 63,669 $ 83,330
Bank B term loans ....................... 574,999 691,250
-------- --------
Total bank debt ....................... 638,668 774,580
Subordinated debt:
6 3/4% Senior Subordinated Notes ........ 200,000 200,000
-------- --------
Total subordinated debt ............... 200,000 200,000
Total debt ................................. 838,668 974,580
Less current portion .................... 21,804 23,670
-------- --------
$816,864 $950,910
======== ========
|
SILGAN HOLDINGS INC. (Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
December 31, 2004, 2003 and 2002
Note 2. Long-Term Debt (continued)
The aggregate annual maturities of long-term debt at December 31, 2004 are as follows (dollars in thousands):
2005 ............ $ 21,804
2006 ............ 21,804
2007 ............ 21,804
2008 ............ 573,256
2009 ............ --
Thereafter ...... 200,000
--------
$838,668
========
|
As of December 31, 2004 and 2003, the obligations of Holdings had been pushed down to its subsidiaries. In 2004, 2003 and 2002, Holdings received interest income from its subsidiaries in the same amount as the interest expense it incurred on its obligations.
Note 3. Guarantees
Pursuant to the Credit Agreement, Holdings guarantees all of the indebtedness of its subsidiaries incurred under the Credit Agreement. Holdings' subsidiaries may borrow up to $400 million of revolving loans under the Credit Agreement. Holdings' guarantee under the Credit Agreement is secured by a pledge by Holdings of all of the stock of its subsidiaries.
Note 4. Dividends from Subsidiaries
For the years ended December 31, 2004, 2003 and 2002, Holdings did not receive any cash dividends from its consolidated subsidiaries accounted for by the equity method.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
SILGAN HOLDINGS INC.
For the years ended December 31, 2004, 2003 and 2002
(Dollars in thousands)
Additions
----------------------
Balance at Charged to Charged Balance
beginning costs and to other at end of
Description of period expenses accounts Deductions period
----------- ---------- ---------- -------- ---------- ---------
For the year ended
December 31, 2004:
Allowance for doubtful
accounts receivable ......................... $3,086 $315 $33 $(607)(1) $2,827
====== ==== === ===== ======
For the year ended
December 31, 2003:
Allowance for doubtful
accounts receivable ......................... $2,864 $494 $27 $(299)(1) $3,086
====== ==== === ===== ======
For the year ended
December 31, 2002:
Allowance for doubtful
accounts receivable ......................... $3,449 $119 $-- $(704)(1) $2,864
====== ==== === ===== ======
|
(1) Uncollectible accounts written off, net of recoveries.
INDEX TO EXHIBITS
Exhibit No. Exhibit
----------- -------
+10.12 Employment Agreement dated June 30, 2004 between Silgan
Holdings Inc. and Robert B. Lewis.
+10.22 Silgan Holdings Inc. 2004 Stock Incentive Plan.
+10.23 Form of Option Agreement (Employee) under the Silgan
Holdings Inc. 2004 Stock Incentive Plan.
+10.24 Form of Restricted Stock Unit Agreement (Employee) under the
Silgan Holdings 2004 Stock Incentive Plan.
+10.25 Form of Restricted Stock Unit Agreement (Outside Director)
under the Silgan Holdings Inc. 2004 Stock Incentive Plan.
12 Computation of Ratio of Earnings to Fixed Charges for the
years ended December 31, 2004, 2003, 2002, 2001 and 2000.
23 Consent of Ernst & Young LLP.
31.1 Certification by the Co-Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
31.2 Certification by the Co-Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
31.3 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act.
32.1 Certification by the Co-Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
32.2 Certification by the Co-Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
32.3 Certification by the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act.
--------------
|
+Management contract or compensatory plan or arrangement.
Exhibit 10.12
SILGAN HOLDINGS INC.
Anthony J. Allott 4 Landmark Square Executive Vice President and Suite 400 Chief Financial Officer Stamford, CT 06901
Telephone: (203) 975-7110 Fax: (203) 975-7902 email: tallott@silgan.com June 30, 2004
Mr. Robert B. Lewis
55 Tanners Drive
Wilton, CT
Dear Bob:
We are very pleased to make the following offer to you to join Silgan Holdings Inc. Beginning on your start date, you will be employed on a full-time at will basis by Silgan Holdings Inc., serving as its Executive Vice President and Chief Financial Officer. Additionally, you will serve as an officer of various subsidiaries of Silgan Holdings Inc. You will report to the President of Silgan Holdings Inc. Your employment start date will be mutually determined, but will be no later than August 16, 2004.
While you are employed by Silgan Holdings Inc., as compensation for your services, Silgan Holdings Inc. will pay you a salary, which for 2004 shall be at an annual rate of $400,000. Your salary shall be payable to you in accordance with the prevailing payroll practices (including the withholding of taxes) of Silgan Holdings Inc. Your salary shall be subject to increase at the discretion of the Compensation Committee of the Board of Directors of Silgan Holdings Inc.
While you are employed by Silgan Holdings Inc., you shall also be eligible to receive an annual bonus for each year (pro rated for 2004), payable in the following year in accordance with Silgan Holdings Inc.'s practices (including the withholding of taxes), in an amount up to a maximum of thirty percent (30%) of your annual salary for that year. Your bonus for any year shall be payable to you on the same basis that annual bonuses are payable to the Co-Chief Executive Officers and President of Silgan Holdings Inc. for such year under and based on the Silgan Holdings Inc. Senior Executive Performance Plan. For 2004, bonuses in an amount equal to the applicable maximum amount are payable to the Co-Chief Executive Officers and President of Silgan Holdings Inc. under and based on such plan if Silgan Holdings Inc. achieves EBITDA (as defined in such plan) of at least the amount of EBITDA of Silgan Holdings Inc. for 2003.
During your employment with Silgan Holdings Inc., you will be entitled to
(i) receive health and welfare benefits that are made available generally to
employees of Silgan Holdings Inc., with the full cost for such benefits to be
borne by you, and (ii) to participate in the 401(K) savings plan and
supplemental savings plan that other employees of Silgan Holdings Inc.
participate in, subject to the rules and policies thereof, except that you will
not be entitled to any matching contributions in respect of your contributions
to such 401(K) savings plan or
Mr. Robert B. Lewis -2- June 30, 2004
supplemental savings plan. The health and welfare benefits that are made available generally to employees of Silgan Holdings Inc. currently consist of a comprehensive medical plan, a long-term disability plan and a supplemental life plan, under all of which you would be covered on the first month after 90 days of full-time employment.
Pursuant to the Silgan Holdings Inc. 2004 Stock Incentive Plan, on your start date you will be granted (i) 25,000 restricted stock units, representing an equivalent number of shares of common stock of Silgan Holdings Inc., and (ii) non-qualified options to purchase 20,000 shares of common stock of Silgan Holdings Inc. The restricted stock units will vest ratably over a five-year period beginning one year after your start date. The exercise price for the options will be the average of the high and low sales prices of the common stock of Silgan Holdings Inc. on your start date, as reported by the Nasdaq National Market System. Subject to the terms of the Stock Incentive Plan, the options will vest ratably over a five-year period beginning one year after your start date and will have a term of seven years.
You will be entitled to three weeks paid vacation in 2004 (prorated for 2004 based on your start date). Thereafter, you will be entitled to paid vacation annually in accordance with the policies of Silgan Holdings Inc.
Other than as set forth above, you shall not be entitled to participate in any other benefit plans of, or receive any other benefits from, Silgan Holdings Inc. or any of its subsidiaries, including, without limitation, under any pension plan, except that you shall be entitled to also participate in and receive benefits under any stock option, restricted stock or other stock based compensation plan in which other officers of Silgan Holdings Inc. participate.
In the event that your employment with Silgan Holdings Inc. is terminated without cause by Silgan Holdings Inc., you will be entitled to receive a lump sum severance payment in an amount equal to the sum of (i) your annual salary at such time plus (ii) your annual bonus, calculated at thirty percent (30%) of your annual salary at such time.
Please understand that this letter constitutes only an offer of employment and is contingent upon satisfactory results of a pre-placement physical, including a drug screen, to be completed prior to your start date with a physician of our choice and at the expense of Silgan Holdings Inc., and upon approval by the Board of Directors of Silgan Holdings Inc. and its Compensation Committee.
We very much look forward to you joining us at Silgan Holdings Inc.
Sincerely,
/s/ Anthony J. Allott --------------------- Anthony J. Allott |
EXHIBIT 10.22
SILGAN HOLDINGS INC.
2004 STOCK INCENTIVE PLAN
(Adopted by the Board of Directors effective as of April 12, 2004)
TABLE OF CONTENTS
-----------------
Page
----
SECTION 1. ESTABLISHMENT AND PURPOSE....................................1
SECTION 2. DEFINITIONS..................................................1
"162(m) Employee"...................................................1
"Affiliate".........................................................1
"Award".............................................................1
"Award Agreement"...................................................1
"Board of Directors"................................................1
"Cause".............................................................1
"Change in Control".................................................1
"Code"..............................................................3
"Committee".........................................................3
"Company"...........................................................3
"Disability"........................................................3
"Employee"..........................................................3
"Exchange Act"......................................................3
"Exercise Price"....................................................3
"Fair Market Value".................................................3
"Key Employee"......................................................3
"Maximum Amount"....................................................3
"Option"............................................................3
"Outside Director"..................................................3
"Parent"............................................................4
"Participant".......................................................4
"Performance Award".................................................4
"Performance Criteria"..............................................4
"Performance Cycle".................................................4
"Plan"..............................................................4
"Prior Plans".......................................................4
"Purchase Price"....................................................4
"Restricted Share"..................................................4
-i-
|
"Restricted Stock Unit".............................................4
"Retirement"........................................................4
"SAR"...............................................................4
"Service"...........................................................4
"Share".............................................................4
"Stock".............................................................5
"Stock Unit"........................................................5
"Subsidiary"........................................................5
SECTION 3. ADMINISTRATION...............................................5
(a) Committee Composition...........................................5
(b) Committee Procedures............................................5
(c) Committee Responsibilities......................................5
(d) Delegation......................................................7
SECTION 4. ELIGIBILITY..................................................7
SECTION 5. STOCK SUBJECT TO PLAN........................................7
(a) Basic Limitation................................................7
(b) Application of Limitation.......................................7
(c) Dividends and Dividend Equivalents..............................8
(d) Limits on Individual Grants.....................................8
SECTION 6. RESTRICTED SHARES............................................8
(a) Award Agreement.................................................8
(b) Payment for Awards..............................................8
(c) Vesting.........................................................8
(d) Voting and Dividend Rights......................................9
SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES................9
(a) Duration of Offers and Nontransferability of Rights.............9
(b) Withholding Taxes...............................................9
SECTION 8. TERMS AND CONDITIONS OF OPTIONS..............................9
(a) Award Agreement.................................................9
(b) Exercise Price..................................................9
(c) Withholding Taxes..............................................10
(d) Exercisability.................................................10
(e) Term of the Option.............................................10
-ii-
|
(f) Effect of Change in Control....................................11
(g) No Rights as a Stockholder.....................................11
(h) Prohibition on Repricing.......................................11
SECTION 9. PAYMENT FOR SHARES..........................................11
(a) General Rule...................................................11
(b) Surrender of Stock.............................................11
(c) Cashless Exercise..............................................12
SECTION 10. STOCK APPRECIATION RIGHTS..................................12
(a) Award Agreement................................................12
(b) Exercise Price.................................................12
(c) Exercisability.................................................12
(d) Term of SAR....................................................12
(e) Effect of Change in Control....................................13
(f) Exercise of SARs...............................................13
(g) Prohibition on Repricing.......................................14
SECTION 11. RESTRICTED STOCK UNITS.....................................14
(a) Award Agreement................................................14
(b) Payment for Awards.............................................14
(c) Vesting Conditions.............................................14
(d) Voting and Dividend Rights.....................................14
(e) Settlement of Stock Units......................................15
(f) Creditors' Rights..............................................15
SECTION 12. PERFORMANCE AWARDS.........................................15
(a) Award Agreement................................................15
(b) Eligibility....................................................15
(c) Performance Cycle..............................................15
(d) Earn-Out.......................................................15
(e) Vesting........................................................16
(f) Settlement of Performance Awards...............................16
(g) Dividend Equivalents...........................................16
(h) Section 162(m) of the Code.....................................16
SECTION 13. LEAVES OF ABSENCE..........................................17
SECTION 14. TERMINATION FOR CAUSE......................................17
-iii-
|
SECTION 15. DIRECTOR AWARDS............................................17
(a) Annual Grant...................................................17
(b) Vesting........................................................17
(c) Option Term....................................................17
SECTION 16. DEATH OF RECIPIENT.........................................18
SECTION 17. ADJUSTMENT OF SHARES.......................................18
(a) Adjustments....................................................18
(b) Dissolution or Liquidation.....................................19
(c) Reorganizations................................................19
(d) Reservation of Rights..........................................19
SECTION 18. DEFERRAL OF AWARDS.........................................20
(a) Deferral Forms.................................................20
(b) Deferral Conditions............................................20
(c) Effect of a Change in Control..................................20
(d) Voting and Dividend Rights.....................................20
SECTION 19. FRACTIONAL SHARES..........................................21
SECTION 20. AWARDS UNDER OTHER PLANS...................................21
SECTION 21. NONTRANSFERABILITY OF AWARD................................21
SECTION 22. LEGAL AND REGULATORY REQUIREMENTS..........................21
SECTION 23. WITHHOLDING TAXES..........................................22
(a) General........................................................22
(b) Method of Satisfying Withholding Obligations...................22
SECTION 24. NO EMPLOYMENT RIGHTS.......................................22
SECTION 25. NO SEGREGATION OF ASSETS...................................22
SECTION 26. EFFECT ON OTHER PLANS......................................22
SECTION 27. DURATION AND AMENDMENTS....................................22
(a) Term of the Plan...............................................22
(b) Right to Amend or Terminate the Plan...........................22
(c) Effect of Amendment or Termination.............................23
SECTION 28. CHOICE OF LAW..............................................23
SECTION 29. SEVERABILITY...............................................23
SECTION 30. EXECUTION..................................................23
|
SILGAN HOLDINGS INC.
2004 STOCK INCENTIVE PLAN
SECTION 1. ESTABLISHMENT AND PURPOSE.
The Plan was adopted by the Board of Directors effective as of April 12, 2004. The purpose of the Plan is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging officers, other Key Employees and Outside Directors to focus on critical long-range objectives, (b) encouraging the attraction and retention of officers, other Key Employees and Outside Directors with exceptional qualifications and (c) linking officers, other Key Employees and Outside Directors directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Options, SARs, Stock Units and/or Performance Awards. Any Awards granted under the Plan shall be contingent on the approval of the Plan by the Company's stockholders. If their approval is not obtained, the Plan will have no effect, and any Awards granted under the Plan shall be rescinded.
SECTION 2. DEFINITIONS.
"162(m) Employee" shall mean an Employee who is a "covered employee" within the meaning of Section 162(m)(3) of the Code.
"Affiliate" shall mean any entity other than a Subsidiary, if the Company and/or one of more Subsidiaries own less than 50% of such entity.
"Award" shall mean any award of a Restricted Share, an Option, a SAR or a Stock Unit or a Performance Award under the Plan.
"Award Agreement" shall mean the agreement between the Company and the recipient of an Award, which contains the terms, conditions and restrictions pertaining to such Award.
"Board of Directors" shall mean the Board of Directors of the Company, as constituted from time to time.
"Cause" shall have the definition given to such term in the Employee's employment agreement if the Employee has such an agreement containing a definition of "Cause". If the Employee does not have such an agreement, "Cause" shall mean gross misconduct or willful and material breach of the individual's duties as an Employee, as determined by the Committee in its sole discretion.
"Change in Control" shall mean the occurrence of any of the following events:
(i) an acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more
of either (A) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities") or (B) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock"); excluding, however, the following: (i) any acquisition directly from the Company, other than an acquisition by virtue of the exercise of a conversion privilege, unless the security being so converted was itself directly acquired from the Company, (ii) any acquisition by the Company, (iii) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any entity controlled by the Company, or (iv) any acquisition pursuant to a transaction that complies with clauses (A) and (B) of paragraph (iii) of this definition; or
(ii) a change in the composition of the Board of Directors such that the individuals who, as of the effective date of the Plan, constitute the Board of Directors (such Board of Directors shall be hereinafter referred to as the "Incumbent Board") cease for any reason to constitute two thirds of the Board of Directors; provided, however, for purposes of this paragraph, that any individual (i) who was nominated to the Board of Directors in accordance with the procedures described in the Stockholders Agreement between R. Philip Silver and D. Greg Horrigan and the Board of Directors, dated as of February 14, 1997, as that agreement may be amended from time to time, or (ii) whose election or nomination for election by the Company's stockholders was approved by a vote of a majority of those individuals who are members of the Board of Directors and who were also members of the Incumbent Board (or deemed to be such pursuant to this proviso) shall be considered as though such individual was a member of the Incumbent Board; but, provided further, that any such individual whose initial assumption of office occurs as a result of any actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board of Directors shall not be so considered as a member of the Incumbent Board; or
(iii) consummation of a reorganization, merger, consolidation or sale or other disposition of all or substantially all of the assets of the Company ("Corporate Transaction"); excluding, however, such a Corporate Transaction pursuant to which (A) all or substantially all of the individuals and entities who are beneficial owners of the Outstanding Company Voting Securities and Outstanding Company Common Stock, respectively, immediately prior to such Corporate Transaction shall beneficially own, directly or indirectly, more than 50% of, respectively, the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors or the outstanding shares of common stock, as the case may be, of the corporation resulting from such Corporate Transaction (including, without limitation, a corporation that as the result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership immediately prior to such Corporate Transaction of the Outstanding Company Voting Securities or Outstanding Company Common Stock, as the case may be, and (B) individuals who were members of the Incumbent Board shall constitute at least a majority of the members of the board of directors of the corporation resulting from such Corporate Transaction.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Committee" shall mean the committee designated by the Board of Directors, which is authorized to administer the Plan, as described in Section 3 hereof.
"Company" shall mean Silgan Holdings Inc., a Delaware corporation.
"Disability" shall mean a condition entitling an Employee to long-term disability benefits under a long-term disability plan sponsored by the Company or a Parent or Subsidiary of the Company, or under the U.S. Social Security Act. For Outside Directors, "Disability" shall mean the inability by reason of illness or injury to perform substantially all duties as an Outside Director during any continuous period of 180 days.
"Employee" shall mean any individual who is classified as an employee on the payroll records of the Company, a Parent or a Subsidiary.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Exercise Price" shall mean, in the case of an Option, the amount for which one Common Share may be purchased upon exercise of such Option, as specified in the applicable Award Agreement. "Exercise Price," in the case of a SAR, shall mean an amount, as specified in the applicable Award Agreement, which is subtracted from the Fair Market Value of one Common Share in determining the amount payable upon exercise of such SAR.
"Fair Market Value" with respect to a Share, shall mean, for any particular determination date, (i) if the Stock is listed or admitted to trade on a national securities exchange, the average of the high and low sales prices for the Stock on such date on the composite tape of the principal national securities exchange on which the Stock is so listed or admitted to trade, (ii) if the Stock is not listed or admitted to trade on a national securities exchange, the average of the high and low sales prices for the Stock on such date as furnished by the National Association of Securities Dealers, Inc. through NASDAQ (or a similar organization if NASDAQ is no longer reporting such information), or (iii) if the Stock is not listed or admitted to trade on a national securities exchange and if sales prices for the Stock are not so furnished through NASDAQ or a similar organization, the fair market value of the Stock on such date as determined in good faith by the Committee, taking into consideration, among other things, recent sales of the Stock.
"Key Employee" means any Employee (including any officer) who is designated by the Committee as eligible to receive Awards under the Plan.
"Maximum Amount" shall mean the maximum amount of Performance Awards that can be earned if the Performance Criteria are satisfied, as determined by the Committee.
"Option" shall mean a nonstatutory stock option granted under Section 8 of the Plan and entitling the holder to purchase Shares.
"Outside Director" shall mean a member of the Board of Directors who is not an Employee of the Company, a Parent or a Subsidiary. Service as an Outside Director shall be considered Service for all purposes of the Plan.
"Parent" shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be a Parent commencing as of such date.
"Participant" shall mean an individual or estate who holds an Award.
"Performance Award" shall mean an Award granted under Section 12 of the Plan.
"Performance Criteria" shall mean, with respect to any Performance Award, the business criteria selected by the Committee to measure the level of performance of the Company during the Performance Cycle. The Committee may select as the Performance Criteria for a Performance Cycle any one or combination of the measures set forth on Exhibit A. Any such amendment of the Performance Criteria shall have no effect on Awards granted before the date of such amendment.
"Performance Cycle" shall mean, with respect to any Award that vests based on Performance Measures, the period of 12 months or longer over which the level of performance will be assessed. The first Performance Cycle under the Plan shall begin on such date as is set by the Committee, in its discretion, but in no event earlier than January 1, 2004, provided that 162(m) Employees may not receive Performance Awards under this Plan for any Performance Cycle beginning prior to January 1, 2005.
"Plan" shall mean this 2004 Stock Incentive Plan of Silgan Holdings Inc., as amended from time to time.
"Prior Plans" shall mean the Silgan Holdings Inc. Fourth Amended and Restated 1989 Stock Option Plan and the Silgan Holdings, Inc. 2002 Non-Employee Directors Stock Option Plan.
"Purchase Price" shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Committee.
"Restricted Share" shall mean a Share awarded under Section 6 of the Plan.
"Restricted Stock Unit" shall mean a Stock Unit awarded under Section 11 of the Plan.
"Retirement" shall mean voluntary termination of Service on or after age 60 with 10 years of Service.
"SAR" shall mean a stock appreciation right granted under Section 10 of the Plan.
"Service" shall mean service as an Employee or Outside Director.
"Share" shall mean one share of Stock, as adjusted in accordance with
Section 17 (if applicable).
"Stock" shall mean the authorized and issuable common stock of the Company ($.01 par value).
"Stock Unit" shall mean a bookkeeping entry representing the equivalent of one Share, as awarded under Section 11 of the Plan.
"Subsidiary" shall mean any corporation, if the Company and the other subsidiaries of the Company own, in the aggregate, not less than 50% of the total combined voting power of all classes of outstanding stock of such corporation. A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.
SECTION 3. ADMINISTRATION.
(a) Committee Composition. The Plan shall be administered by the Committee. The Committee shall consist of two or more directors of the Company, who shall be appointed by the Board of Directors. In addition, the composition of the Committee shall satisfy
(i) such requirements as the Securities and Exchange Commission may establish for administrators acting under plans intended to qualify for exemption under Rule 16b-3 (or its successor) under the Exchange Act;
(ii) such requirements as the Internal Revenue Service may establish for outside directors acting under plans intended to qualify for exemption under Section 162(m)(4)(C) of the Code; and
(iii) such rules as the applicable national securities exchange may establish for directors serving on the compensation committee of a company listed on such exchange or, if the Stock is not listed on any national securities exchange, such rules as the National Association of Securities Dealers may establish for directors serving on the compensation committee of a company listed on NASDAQ.
(b) Committee Procedures. The Board of Directors shall designate one of the members of the Committee as chairman. The Committee may hold meetings at such times and places as it shall determine. The acts of a majority of the Committee members present at meetings at which a quorum exists, or acts reduced to or approved in writing by all Committee members, shall be valid acts of the Committee.
(c) Committee Responsibilities. Subject to the provisions of the Plan, the Committee shall have full authority and discretion to take the following actions:
(i) To interpret the Plan and to apply its provisions;
(ii) To adopt, amend or rescind rules, procedures and forms relating to the Plan;
(iii) To authorize any person to execute, on behalf of the Company, any instrument required to carry out the purposes of the Plan;
(iv) To determine when Shares are to be awarded or offered for sale and when Options are to be granted under the Plan;
(v) To select the Award recipients;
(vi) To determine the number of Shares to be offered to each Participant or to be made subject to each Option;
(vii) To prescribe the terms and conditions of each award or sale of Shares, including (without limitation) the Purchase Price and the vesting of the Award, and to specify the provisions of the Award Agreement relating to such award or sale;
(viii) To prescribe the terms and conditions of each Option, including (without limitation) the Exercise Price and the vesting or duration of the Option, and to specify the provisions of the Award Agreement relating to such Option;
(ix) To prescribe the terms and conditions of each Performance Award, including (without limitation) the applicable Performance Criteria, the vesting of the Award and the timing of distributions, to specify the provisions of the Award Agreement relating to such Performance Award, to evaluate the applicable level of performance over a Performance Cycle, and to certify the level of performance attained with respect to the Performance Criteria;
(x) To amend any outstanding Award Agreement, subject to applicable legal restrictions, to applicable stock exchange or stock market rules, and to the consent of the Participant who entered into such agreement, provided that the prohibitions on the repricing of Stock Options and Stock Appreciation Rights, as described in Sections 8(h) and 10(f), respectively, may not be waived, and the terms and conditions of Awards to officers and directors subject to Section 16 of the Exchange Act cannot be modified, amended or waived other than on account of death, disability, retirement, a change in control, or a termination of employment in connection with a business transfer;
(xi) To prescribe the consideration for the grant of each Award under the Plan and to determine the sufficiency of such consideration;
(xii) To make any adjustments to the Plan (including, but not limited to, adjustment of the number of Shares available under the Plan or any Award) and any Award granted under the Plan as may be appropriate pursuant to Section 17;
(xiii) To make any modifications to the Plan that the Committee may determine to be necessary to implement and administer the Plan in countries outside the United States;
(xiv) To determine under which circumstances Awards may be deferred by a Participant and the extent to which a deferral shall be credited with dividend equivalents, interest or any other form of investment return;
(xv) To determine the disposition of each Award under the Plan in the event of a Participant's divorce or dissolution of marriage;
(xvi) To determine whether Awards under the Plan shall be granted in replacement of other grants under an incentive or other compensation plan of an acquired business;
(xvii) To correct any defect, supply any omission, or reconcile any inconsistency in the Plan or any Award Agreement; and
(xviii) To take any other actions deemed necessary or advisable for the administration of the Plan.
(d) Delegation. The Committee may not delegate any authority or responsibility granted to the Committee in subsection (c) of this Section 3.
SECTION 4. ELIGIBILITY.
Only officers and other Key Employees shall be eligible for the grant of SARs and Performance Awards. Officers , other Key Employees and Outside Directors shall be eligible for the grant of Restricted Shares, Stock Units and Options.
SECTION 5. STOCK SUBJECT TO PLAN.
(a) Basic Limitation. Shares offered under the Plan shall be authorized but
unissued Shares or treasury Shares. The maximum aggregate number of Shares that
may be issued in connection with Options, SARs, Stock Units, Restricted Shares
and Performance Awards awarded under the Plan shall not exceed 900,000 Shares,
which includes the number of Shares remaining available for future grants under
the Prior Plans as of the date this Plan is approved by stockholders. The
limitation of this Section 5(a) shall be subject to adjustment pursuant to
Section 17.
(b) Application of Limitation. The number of Shares available for future Awards under the Plan shall be reduced (i) in the case of Awards of Options and SARs, by the number of Shares issuable upon exercise of such Options, and (ii) in the case of Awards of Restricted Shares or Stock Units by two Shares for every one Restricted Share or Stock Unit awarded. For this purpose, when an Option and SAR are awarded in tandem, so that exercise of one results in cancellation of the other, the Option and SAR shall be deemed to relate to the same Share. If Awards are forfeited or cancelled or expire or terminate for any other reason before being exercised, then the corresponding Shares shall again become available for Awards under the Plan. Shares granted under this Plan in connection with Awards that are assumed, converted or substituted as a result of the acquisition of another business, corporation or other entity by the Company or a combination of the Company with another business, corporation or entity shall not reduce the number of Shares available for Awards under the Plan. Shares granted under the Prior Plans shall not again become available for Awards under the Plan, even if the Shares expire or terminate or are forfeited, cancelled, or settled in cash.
(c) Dividends and Dividend Equivalents. The Committee in its discretion may provide in any Award Agreement that dividends and dividend equivalents shall be paid or credited on vested Awards or on all Awards granted under the Award Agreement. Any dividend equivalents paid or credited under the Plan shall not be applied against the number of Awards available under the Plan. Dividends and dividend equivalents may be distributed immediately or credited to a deferred compensation account established for the Participant by the Committee as an entry on the Company's books, as elected by the Participant. The Committee shall determine any terms and conditions on deferral of a dividend or dividend equivalent, including any interest or other form of investment return.
(d) Limits on Individual Grants. Subject to Section 17, no Participant may be granted Awards of more than 112,500 Restricted Shares or Stock Units (or any combination thereof) during any period of 36 consecutive months. Performance Awards shall be paid in Restricted Shares or Stock Units, and shall be subject to the limit set forth in the preceding sentence. Subject to Section 17, no Participant may be granted Awards of Options or SARs (or any combination thereof) with respect to more than 225,000 Shares during any period of 36 consecutive months (for this purpose, when an Option and SAR are awarded in tandem, so that exercise of one results in cancellation of the other, the Option and SAR shall be deemed to relate to the same Shares).
SECTION 6. RESTRICTED SHARES.
(a) Award Agreement. Each grant of Restricted Shares under the Plan shall be evidenced by an Award Agreement between the recipient and the Company. Such Restricted Shares shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The Committee may condition a Participant's eligibility for a grant of Restricted Shares on the achievement by the Company or a Subsidiary or business unit of the Company of a target level of performance for a specified Performance Cycle, in which case the Award shall be a Performance Award subject to Section 12. The provisions of the various Award Agreements granting Restricted Shares under the Plan need not be identical.
(b) Payment for Awards. Subject to the following sentence, Restricted Shares may be sold or awarded under the Plan for such consideration as the Committee may determine, including (without limitation) cash, cash equivalents, past service and future service. To the extent that an Award consists of newly issued Restricted Shares, the Award recipient shall furnish consideration with a value not less than the par value of such Restricted Shares in the form of cash, cash equivalents, or past services rendered to the Company (or a Parent or Subsidiary), as the Committee may determine.
(c) Vesting. Each Award of Restricted Shares to an Employee shall become fully vested, in the discretion of the Committee, over a period no shorter than three years from the date of grant, as specified in the Award Agreement, except that Restricted Shares granted to a new Employee in the fiscal year of the Company in which his or her Service first commences may become vested more quickly, but over a period no shorter than one year from the date of grant. Vesting shall occur, at once or in installments, upon satisfaction of the conditions specified in the Award Agreement. If the conditions on vesting have not been satisfied as of the Employee's termination of employment, the unvested Shares shall be forfeited, provided that an Award
Agreement may provide for accelerated vesting in the event of the Employee's death, Disability or Retirement or other events. Restricted Shares shall immediately become vested in the event of a Change in Control unless the Shares vest on the basis of the performance of the Company, a Subsidiary or a business unit, in which case the provisions of Section 12 shall control, or the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Restricted Shares or substitutes its own stock for the outstanding Restricted Shares or the outstanding Restricted Shares are converted into stock of the surviving corporation or its parent or subsidiary. If the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Restricted Shares or substitutes its own stock for the Restricted Stock, a Participant's assumed or substituted Shares shall become fully vested in the event the Participant's service with the Company or the acquiring or surviving corporation (or with any of their respective parent or subsidiary corporations) is terminated involuntarily without Cause within 24 months after the Change in Control. The vesting requirements of Restricted Shares granted to Outside Directors shall be subject to Section 15(b).
(d) Voting and Dividend Rights. Participants holding Restricted Shares awarded under the Plan shall have the same voting, dividend and other rights as the Company's other stockholders, except that Restricted Shares shall be forfeited if the Participant attempts to sell, transfer, assign, pledge or otherwise encumber or dispose of the Shares before the Award vests.
SECTION 7. OTHER TERMS AND CONDITIONS OF AWARDS OR SALES.
(a) Duration of Offers and Nontransferability of Rights. Any right to acquire Shares under the Plan (other than pursuant to an Option) shall automatically expire if not exercised by the Participant 30 days after the grant of such right was communicated to him or her by the Committee. Such right shall not be transferable and shall be exercisable only by the Participant to whom such right was granted.
(b) Withholding Taxes. As a condition to the purchase of Shares, the Participant shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with such purchase.
SECTION 8. TERMS AND CONDITIONS OF OPTIONS.
(a) Award Agreement. Each grant of an Option under the Plan shall be evidenced by an Award Agreement between the recipient and the Company. All Options granted under the Plan shall be nonstatutory stock options. Such Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions that are not inconsistent with the Plan and that the Committee deems appropriate for inclusion in an Award Agreement. The provisions of the various Award Agreements granting Options under the Plan need not be identical.
(b) Exercise Price. Each Award Agreement granting Options shall specify the Exercise Price. The Exercise Price of an Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant, except for Options granted in connection with Awards that are assumed, converted or substituted as a result of the acquisition of another business, corporation or other entity by the Company or a combination of the Company with another business,
corporation or entity. Subject to the foregoing in this Section 8(b), the
Exercise Price under any Option shall be determined by the Committee at its sole
discretion. The Exercise Price shall be payable in one of the forms described in
Section 9.
(c) Withholding Taxes. As a condition to the exercise of an Option, the Participant shall make such arrangements as the Committee may require for the satisfaction of any federal, state or local withholding tax obligations that may arise in connection with such exercise.
(d) Exercisability. Each Award Agreement granting Options shall specify the date when all or any installment of the Option is to become exercisable. Each Option granted to an Employee shall become fully vested, in the discretion of the Committee, over a period no shorter than 12 months. Vesting shall occur, at once or in installments, upon satisfaction of the conditions specified in the Award Agreement. If the conditions on vesting have not been satisfied as of the Employee's termination of employment, the unvested Options shall be forfeited. Subject to the foregoing in this subsection (d), the Committee at its sole discretion shall determine when all or any installment of an Option is to become exercisable. Such provisions need not be uniform among all Options issued pursuant to the Plan. The vesting requirements of Options granted to Outside Directors shall be subject to Section 15(b).
(e) Term of the Option. The Award Agreement granting Options to an Employee shall also specify the term of the Option, which term shall not be longer than seven years, and shall provide for extension of the Option term or expiration of the Option prior to the end of the term in the event of the termination of the Employee's Service, as described below:
(i) In the event of the Employee's termination of Service due to death or Disability, the term of the Option shall expire as of the earlier of the first anniversary of such termination of Service or the original expiration date specified in the Award Agreement; provided , however, that there shall be a minimum period of six months following such death to exercise any vested Options, regardless of the original expiration date specified in the Award Agreement.
(ii) In the event of the Employee's Retirement, the term of the Option shall expire as of the earlier of the first anniversary of the Employee's Retirement or the original expiration date specified in the Award Agreement; provided, however, that if the Employee dies during such post-Retirement period, there shall be a minimum period of six months following such death to exercise any vested Options, regardless of the original expiration date specified in the Award Agreement.
(iii) In the event of the involuntary termination of the Employee's Service without Cause, the term of the Option shall expire as of the earlier of 90 days following the date of the Employee's termination or the original expiration date specified in the Award Agreement; provided, however, that if the Employee dies during such 90-day period there shall be a minimum period of six months following such death to exercise any vested Options, regardless of the original expiration date specified in the Award Agreement.
(iv) In the event of the Employee's voluntary resignation (other than Retirement) or the Employee's involuntary termination of Service for Cause, all outstanding Options shall immediately be cancelled.
Options granted to an Employee may be awarded in combination with SARs, and such an Award shall provide that the Options shall not be exercisable unless the related SARs are forfeited. Subject to the foregoing in this subsection (e), the Committee at its sole discretion shall determine when an Option is to expire. Such provisions need not be uniform among all Options issued pursuant to the Plan.
The term of any Option granted to Outside Directors shall conform to the requirements of Section 15(c).
(f) Effect of Change in Control. An Option shall become exercisable as to all of the Shares subject to such Option in the event of a Change in Control, unless the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Options or substitutes its own stock for the Shares underlying the outstanding Options. If the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Options or substitutes its own stock for the Shares underlying the outstanding Options, a Participant's assumed Options or substituted options shall become exercisable as to all of the shares subject to such options in the event the Participant's service with the Company or the acquiring or surviving corporation (or with any of their respective parent or subsidiary corporations) is terminated involuntarily without Cause within 24 months after the Change in Control.
(g) No Rights as a Stockholder. A Participant or a transferee of a
Participant shall have no rights as a stockholder with respect to any Shares
covered by his Option until the date of the issuance of a stock certificate for
such Shares. No adjustments shall be made to the Award, except as provided in
Section 17.
(h) Prohibition on Repricing. The Committee shall not reduce the Exercise Price of an Option (except for adjustments permitted by Section 17), or cancel and replace an existing Option with an Option having a lower Exercise Price, without first obtaining approval for such actions from the Company's stockholders.
SECTION 9. PAYMENT FOR SHARES.
(a) General Rule. The entire Exercise Price of Shares issued under the Plan shall be payable in lawful money of the United States of America or an approved cash equivalent at the time when such Shares are purchased, either alone or in combination with one or both of the payment methods permitted under Section 9(b) and 9(c) below.
(b) Surrender of Stock. To the extent that an Award Agreement so provides, payment may be made all or in part by surrendering, or attesting to the ownership of, Shares that have already been owned by the Participant or his representative for more than six months. Such Shares shall be valued at their Fair Market Value on the date when the new Shares are purchased under the Plan. Notwithstanding the foregoing, the Participant shall not surrender, or attest to the ownership of, Shares in payment of the Exercise Price if such action would cause the Company
to recognize compensation expense (or additional compensation expense) with respect to the Option for financial reporting purposes.
(c) Cashless Exercise. To the extent that an Award Agreement so provides, payment may be made all or in part by delivery (on a form prescribed by the Committee) of an irrevocable direction to a securities broker to sell Shares and to deliver all or part of the sale proceeds to the Company in payment of the aggregate Exercise Price.
SECTION 10. STOCK APPRECIATION RIGHTS.
(a) Award Agreement. Each grant of a SAR under the Plan shall be evidenced by an Award Agreement between the recipient and the Company. Such SAR shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Award Agreements granting SARs under the Plan need not be identical.
(b) Exercise Price. Each Award Agreement granting SARs shall specify the
Exercise Price. The Exercise Price of a SAR shall not be less than 100% of the
Fair Market Value of a Share on the date of grant, except for SARs granted in
combination with Options or in connection with Awards that are assumed,
converted or substituted as a result of the acquisition of another business,
corporation or other entity by the Company or a combination of the Company with
another business, corporation or entity. Subject to the foregoing in this
Section 10(b), the Exercise Price under any SAR shall be determined by the
Committee at its sole discretion.
(c) Exercisability. Each Award Agreement granting SARs shall specify the date when all or any installment of the SAR is to become exercisable. Each SAR shall become fully vested, in the discretion of the Committee, over a period no shorter than 12 months. Vesting shall occur, at once or in installments, upon satisfaction of the conditions specified in the Award Agreement. If the conditions on vesting have not been satisfied as of the Participant's termination of employment, the unvested SAR shall be forfeited. Subject to the foregoing in this Section 10(c), the Committee at its sole discretion shall determine when all or any installment of a SAR is to become exercisable. Such provisions need not be uniform among all SARs issued pursuant to the Plan.
(d) Term of SAR. The Award Agreement granting the SAR shall also specify the term of the SAR, which term shall not be longer than seven years, and may provide for extension of the SAR term or expiration prior to the end of the SAR term in the event of the termination of the Participant's employment.
(i) In the event of the Participant's termination of Service due to death or Disability, the term of the SAR shall expire as of the earlier of the first anniversary of such termination of Service or the original expiration date specified in the Award Agreement; provided , however, that there shall be a minimum period of six months to exercise any vested SARs following such termination of Service, regardless of the original expiration date specified in the Award Agreement.
(ii) In the event of the Participant's Retirement, the term of the SAR shall expire as of the earlier of the first anniversary of the Participant's Retirement or the original expiration date specified in the Award Agreement; provided, however, that if the Participant dies during such post-Retirement period, there shall be a minimum period of six months following such death to exercise any vested SARs, regardless of the original expiration date specified in the Award Agreement.
(iii) In the event of the involuntary termination of the Participant's Service without Cause, the term of the SAR shall expire as of the earlier of 90 days following the date of the Participant's termination or the original expiration date specified in the Award Agreement; provided, however, that if the Participant dies during such 90-day period there shall be a minimum period of six months following such death to exercise any vested SARs, regardless of the original expiration date specified in the Award Agreement.
(iv) In the event of the Participant's voluntary resignation (other than Retirement) or the Participant's involuntary termination of Service for Cause, all outstanding SARs shall immediately be cancelled.
A SAR may be awarded in combination with an Option either at the time of the Option grant or any time thereafter. Such an Award shall provide that the SAR shall not be exercisable unless the related Option is forfeited. A SAR granted under the Plan may provide that it shall be exercisable only in the event of a Change in Control. Subject to the foregoing in this Section 10(c), the Committee at its sole discretion shall determine when a SAR is to expire. Such provisions need not be uniform among all SARs issued pursuant to the Plan.
(e) Effect of Change in Control. A SAR shall become fully exercisable in the event of a Change in Control, unless the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding SAR or substitutes its own stock for the Shares underlying the outstanding SARs. If the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding SARs or substitutes its own stock for the Shares underlying the outstanding SARs, a Participant's assumed SARs or substituted SARs shall become exercisable as to all of the shares subject to such SARs in the event the Participant's service with the Company or the acquiring or surviving corporation (or with any of their respective parent or subsidiary corporations) is terminated involuntarily without Cause within 24 months after the Change in Control.
(f) Exercise of SARs. If, on the date when a SAR expires, the Exercise Price under such SAR is less than the Fair Market Value on such date but any portion of such SAR has not been exercised or surrendered, then such SAR shall automatically be deemed to be exercised as of such date with respect to such portion. Upon exercise of a SAR, the Participant holding the SAR (or any person having the right to exercise the SAR after his or her death) shall receive from the Company (a) Shares, (b) cash or (c) a combination of Shares and cash, as the Committee shall determine. The amount of any cash or the Fair Market Value of any Shares received upon exercise of a SAR shall, in the aggregate, be equal to the amount by which the Fair Market Value (on the date of surrender) of the Shares subject to the SAR exceeds the Exercise Price.
(g) Prohibition on Repricing. The Committee shall not reduce the Exercise Price of a SAR (except for adjustments permitted by Section 17), or cancel and replace an existing SAR with a SAR having a lower Exercise Price, without first obtaining approval for such actions from the Company's stockholders.
SECTION 11. RESTRICTED STOCK UNITS.
(a) Award Agreement. Each grant of Restricted Stock Units under the Plan
shall be evidenced by an Award Agreement between the recipient and the Company.
Such Stock Units shall be subject to all applicable terms of the Plan and may be
subject to any other terms that are not inconsistent with the Plan. The Award
Agreement shall specify the number of Restricted Stock Units and the
circumstances (if any) under which the Stock Units can be deferred. The
Committee may condition a Participant's eligibility for a grant of Restricted
Stock Units on the achievement by the Company or a Subsidiary or business unit
of the Company of a target level of performance for a specified Performance
Cycle, in which case the Award shall be a Performance Award subject to Section
12. The provisions of the various Award Agreements granting Stock Units under
the Plan need not be identical.
(b) Payment for Awards. To the extent that an Award is granted in the form of Stock Units, no cash consideration shall be required of the Award recipients.
(c) Vesting Conditions. Each Award of Restricted Stock Units to an Employee shall become fully vested, in the discretion of the Committee, over a period no shorter than three years, as specified in the Award Agreement, except that Restricted Stock Units granted to a new Employee in the fiscal year of the Company in which his Service commences may vest more quickly. Vesting shall occur, at once or in installments, upon satisfaction of the conditions specified in the Award Agreement. If the conditions on vesting have not been satisfied as of the Employee's termination of employment or directorship, the unvested Stock Units shall be forfeited. Restricted Stock Units shall immediately become vested in the event of a Change in Control unless the Stock Units vest on the basis of the performance of the Company, a Subsidiary or a business unit, in which case the provisions of Section 12 shall control, or unless the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Stock Units or substitutes its own stock for the outstanding Stock Units. If the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Stock Units or substitutes its own stock for the Shares underlying the outstanding Stock Units, a Participant's assumed or substituted Restricted Stock Units shall become immediately vested in the event the Participant's service with the Company or the acquiring or surviving corporation (or with any of their respective parent or subsidiary corporations) is terminated involuntarily without Cause within 24 months after the Change in Control. The vesting requirements of Restricted Stock Units granted to Outside Directors shall be subject to Section 15(b).
(d) Voting and Dividend Rights. Participants holding Stock Units shall have no voting rights. Prior to settlement or forfeiture, any Stock Unit awarded under the Plan may, at the Committee's discretion, carry with it a right to dividend equivalents. Such right entitles the holder to be credited with an amount equal to all cash dividends paid on one Share while the Stock Unit is outstanding. The Committee, in its discretion, may grant dividend equivalents from the date of grant or only after a Stock Unit is vested.
(e) Settlement of Stock Units. Settlement of vested Stock Units shall be made in the form of Shares, except that dividend equivalents credited on Stock Units shall be paid in cash. Distribution of Shares attributable to Stock Units may occur or commence when all vesting and settlement conditions applicable to the Stock Units have been satisfied or have lapsed, or it may be deferred to any later date in accordance with Section 18. Until an Award of Stock Units is settled, the number of such Stock Units shall be subject to adjustment pursuant to Section 17.
(f) Creditors' Rights. A Participant holding Stock Units shall have no rights thereby other than those of a general creditor of the Company. Stock Units represent an unfunded and unsecured obligation of the Company, subject to the terms and conditions of the applicable Award Agreement.
SECTION 12. PERFORMANCE AWARDS.
(a) Award Agreement. Each grant of Performance Awards under this Plan shall be evidenced by an Award Agreement between the recipient and the Company. Such Performance Awards shall be subject to all applicable terms of the Plan and may be subject to any other terms that are not inconsistent with the Plan. The provisions of the various Award Agreements granting Performance Awards under the Plan need not be identical.
(b) Eligibility. Within 90 days after the commencement of a Performance Cycle, the Committee shall determine the Employees who are eligible to receive a Performance Award for the Performance Cycle, provided that the Committee may determine the eligibility of any Employee other than a 162(m) Employee after the expiration of this 90-day period.
(c) Performance Cycle. Performance Awards shall be granted in connection with a Performance Cycle, as determined by the Committee in its discretion, provided that a Performance Cycle may be no shorter than 12 months and no longer than 5 years.
(d) Earn-Out.
(i) Within 90 days after the commencement of a Performance Cycle, the Committee shall fix and establish in writing the Performance Criteria that shall apply to that Performance Cycle and the Maximum Amount that may be paid to each recipient of a Performance Award. The Committee shall also set forth the minimum level of performance, based on objective factors, that must be attained during the Performance Cycle before any Performance Award shall be paid, and, if applicable, the maximum amount that may be earned upon attainment of various levels of performance that equal or exceed the minimum required level, and any vesting schedule that shall apply after the Performance Award is earned.
(ii) The Committee may, in its discretion, select Performance Criteria that measure the performance of the Company or one or more business units or Subsidiaries of the Company. The Committee may select Performance Criteria that are absolute or relative to the performance of one or more comparable companies or an index of comparable companies.
(iii) The Committee, in its discretion, may, on a case-by-case basis, reduce, but not increase, the Performance Awards payable to any Employee with respect to any given
Performance Cycle, provided that no reduction shall result in an increase in the dollar amount or number of Shares payable under any Performance Award of another Employee.
(iv) No 162(m) Employee shall be paid any Performance Award until the Committee certifies in writing the level of performance attained for the Performance Cycle in relation to the applicable Performance Criteria. Performance Awards awarded to Participants who are not 162(m) Employees shall be based on the Performance Criteria and payment formulas that the Committee, in its discretion, may establish for these purposes. These Performance Criteria and formulas may be the same as or different than the Performance Criteria and formulas that apply to 162(m) Employees.
(e) Vesting.
(i) Each Performance Award shall vest, in the discretion of the Committee, over such period as is specified in the Award Agreement. If the conditions on vesting have not been satisfied as of the Participant's termination of employment with respect to any earned Performance Awards, the unvested Performance Awards shall be forfeited.
(ii) In the event of a Change in Control, any Performance Award (including any dividend equivalents, interest or other forms of return credited on the Performance Award) that has been earned but remains unvested shall immediately become fully vested, unless the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Performance Award, converts the Performance Award to its own stock, or substitutes its own stock for any Shares underlying the Performance Award. If the acquiring or surviving corporation or its parent or subsidiary assumes the outstanding Performance Awards, converts the Performance Award to its own stock, or substitutes its own stock for any Shares underlying the Performance Award, a Participant's assumed or substituted Performance Awards shall become immediately vested in the event the Participant's service with the Company or the acquiring or surviving corporation (or with any of their respective parent or subsidiary corporations) is terminated involuntarily without Cause within 24 months after the Change in Control.
(f) Settlement of Performance Awards. Performance Awards shall be settled solely in the form of Restricted Shares or Stock Units or any combination of the foregoing.
(g) Dividend Equivalents. A Performance Award may be credited with dividend equivalents, interest or any other form of investment return, as determined by the Committee. These credits shall be distributed to the Participant immediately.
(h) Section 162(m) of the Code. It is the intent of the Company that Performance Awards be "performance-based compensation" for purposes of Section 162(m) of the Code, that this Section 12 be interpreted in a manner that satisfies the applicable requirements of Section 162(m)(C) of the Code and related regulations, and that the Plan be operated so that the Company may take a full tax deduction for Performance Awards. If any provision of this Plan or any Performance Award would otherwise frustrate or conflict with this intent, the provision shall be interpreted and deemed amended so as to avoid this conflict.
SECTION 13. LEAVES OF ABSENCE.
An Employee's Service shall cease when such Employee ceases to be actively employed by, or a consultant or adviser to, the Company (or any Subsidiary), as determined in the sole discretion of the Committee. Service does not terminate when an Employee goes on a bona fide leave of absence that was approved by the Company in writing, if the terms of the leave provide for continued service crediting or if continued service crediting is required by applicable law. Service terminates in any event when the approved leave ends, unless such Employee immediately returns to active work. The Committee shall determine which leaves count toward Service and when Service terminates for all purposes under the Plan.
SECTION 14. TERMINATION FOR CAUSE.
Notwithstanding anything to the contrary herein, if an Employee incurs a termination of Service for Cause, then all of the Employee's outstanding Options and SARs, whether vested or unvested, and all of the Employee's unvested Restricted Shares and Restricted Stock Units shall immediately be cancelled.
SECTION 15. DIRECTOR AWARDS.
(a) Annual Grant. On the first business day following the day of each annual meeting of the stockholders of the Company, each Outside Director shall be granted, in the discretion of the Board of Directors, 750 Restricted Shares, 750 Restricted Stock Units or an Option to purchase 1,500 Shares, in each case subject to adjustment as provided in Section 17. Notwithstanding anything to the contrary herein, the Board of Directors shall determine the terms of any Award to an Outside Director, which terms shall be set forth in an Award Agreement between the recipient and the Company. The terms of any Award of Restricted Shares shall conform to the provisions of Section 6, the terms of any Award of Restricted Stock Units shall conform to the provisions of Section 11, and the terms of any Award of Options shall conform to the provisions of Section 8, in each case except to the extent specifically modified by this Section 15.
(b) Vesting. Each Award of Restricted Shares, Restricted Stock Units or Options to an Outside Director shall become fully vested, in the sole discretion of the Board of Directors, over a period no shorter than six months, as specified in the Award Agreement. Vesting shall occur, at once or in installments, upon satisfaction of the conditions set forth in the Award Agreement. If the conditions on vesting have not been satisfied as of the termination of the Outside Director's Service, the unvested Awards shall be forfeited.
(c) Option Term. The Award Agreement granting an Option shall specify the term of the Award, which term shall not be longer than 10 years, and shall provide for expiration of the Option prior to the end of the term in the event of termination of the Outside Director's Service, as described below:
(i) In the event of termination of the Outside Director's Service due to death or Disability, the term of the Option shall expire as of the earlier of the first anniversary of such termination of Service or the original expiration date specified in the Award Agreement.
(ii) In the event of the Outside Director's involuntary termination of Service or termination of Service due to the expiration of the Outside Director's term on the Board of Directors, the term of the Option shall expire as of the earlier of 90 days following the date of the Outside Director's termination or the original expiration date specified in the Award Agreement.
(iii) In the event of the Outside Director's voluntary resignation prior to the expiration of the Outside Director's term on the Board of Directors, all outstanding Options shall immediately be cancelled and all unvested Restricted Shares shall immediately be forfeited.
SECTION 16. DEATH OF RECIPIENT.
Any Award that becomes payable after the recipient's death shall be distributed to the recipient's beneficiary or beneficiaries. Each recipient of an Award under the Plan shall designate one or more beneficiaries for this purpose by filing the prescribed form with the Company. A beneficiary designation may be changed by filing the prescribed form with the Company at any time before the Award recipient's death. If no beneficiary was designated or if no designated beneficiary survives the Award recipient, then any Award that becomes payable after the recipient's death shall be distributed to the recipient's estate.
SECTION 17. ADJUSTMENT OF SHARES.
(a) Adjustments. In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a declaration of a dividend payable in a form other than Shares in an amount that has a material effect on the price of Shares, a combination or consolidation of the outstanding Stock (by reclassification or otherwise) into a lesser number of Shares, a recapitalization, spin-off or a similar occurrence, the Committee shall make such adjustments as it, in its sole discretion, deems appropriate in one or more of:
(i) The number of Shares available for future Awards under Section 5(a);
(ii) The limitation on Shares available for grant to any individual under Section 5(d);
(iii) The number of Shares covered by each outstanding Option and SAR;
(iv) The Exercise Price under each outstanding Option and SAR; or
(v) The number of Stock Units included in any Award that has not yet been settled.
Except as provided in this Section 17, a Participant shall have no rights by reason of any issue by the Company of stock of any class or securities convertible into stock of any class, any subdivision or consolidation of shares of stock of any class, the payment of any stock dividend or any other increase or decrease in the number of shares of stock of any class. No adjustment shall be made with respect to Awards granted to a 162(m) Employee to the extent the adjustment
would cause the Award to fail to qualify as performance-based compensation under
Section 162(m) of the Code.
(b) Dissolution or Liquidation. To the extent not previously exercised or settled, all Awards shall terminate immediately prior to the dissolution or liquidation of the Company.
(c) Reorganizations. In the event that the Company is a party to a merger or other reorganization, outstanding Awards shall be subject to the agreement of merger or reorganization. Such agreement shall provide for the following:
(i) The continuation of the outstanding Awards by the Company, if the Company is a surviving corporation;
(ii) The assumption of the outstanding Awards by the surviving corporation or its parent or subsidiary, provided that any such Award shall become immediately and fully vested if the employment of the Participant holding the Award is involuntarily terminated without Cause within 24 months of the effective date of the reorganization;
(iii) The substitution by the surviving corporation or its parent or subsidiary of its own awards for the outstanding Awards, provided that any such Award shall become immediately and fully vested if the employment of the Participant holding the Award is involuntarily terminated without Cause within 24 months of the effective date of the reorganization;
(iv) Full exercisability or vesting and accelerated expiration of the outstanding Awards; or
(v) Settlement of the outstanding Awards (including any dividend equivalents, interest or other return credited to the Participant's deferred compensation account) in cash or cash equivalents followed by cancellation of such Awards.
When an Award is granted or at any time thereafter, the Committee, in its discretion, may specify how the Award shall be treated in the event of a merger or other reorganization if the agreement of merger or reorganization does not make provision for outstanding Awards.
(d) Reservation of Rights. Except as provided in this Section 17, a Participant shall have no rights by reason of any subdivision or consolidation of shares of stock of any class, the payment of any dividend or any other increase or decrease in the number of shares of stock of any class. Any issue by the Company of shares of stock of any class or securities convertible into shares of stock of any class shall not affect, and no adjustment by reason thereof shall be made with respect to, the number of Shares subject to an Award or the Exercise Price of Shares subject to an Option or SAR. The grant of an Award pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes to its capital or business structure, to merge or consolidate, or to dissolve, liquidate, sell or transfer all or any part of its business or assets.
SECTION 18. DEFERRAL OF AWARDS.
(a) Deferral Forms. The Committee (in its sole discretion) may permit an Employee or Outside Director to:
(i) have Shares that otherwise would be delivered to such Participant as a result of the exercise of an Option or SAR converted into an equal number of Stock Units;
(ii) have cash that otherwise would be paid to such Employee as a result of the exercise of a SAR credited to a deferred compensation account established for such Employee by the Committee as an entry on the Company's books; or
(iii) have Shares that otherwise would be delivered to such Participant as Restricted Shares or as a result of the exercise of an Option or SAR or the settlement of Stock Units converted into amounts credited to a deferred compensation account established for such Participant by the Committee as an entry on the Company's books. Such amounts shall be determined by reference to the Fair Market Value of such Shares as of the date when they otherwise would have been delivered to such Participant.
(b) Deferral Conditions. If the deferral or conversion of Awards is permitted, the Committee (in its sole discretion) may establish rules, procedures and forms pertaining to such Awards, including (without limitation) with respect to the settlement of deferred compensation accounts established under this Section 18. The Award Agreement may provide that, in the event of the Participant's death, disability, involuntary termination of Service or attainment of a particular age, a deferred Award shall be paid to the Participant, to the extent vested, unless the Participant affirmatively elects to continue to defer distribution.
(c) Effect of a Change in Control. In the event of a Change in Control, any amounts credited to a deferred compensation account shall continue to be deferred if the Stock of the Company continues to be publicly traded following the Change in Control, except to the extent that the Award Agreement provides otherwise. If the Stock of the Company is not publicly traded following the Change in Control, the full value of the deferred amounts shall be settled in cash or cash equivalents and immediately distributed to the Participant.
(d) Voting and Dividend Rights. A deferred compensation account established under this Section 18 may be credited with dividend equivalents, interest or other forms of investment return, as determined by the Committee in its discretion. Any dividend equivalents issued on the deferred amounts shall be paid to the Participant immediately. A Participant shall not have voting rights with respect to deferred Shares until the Shares are distributed to the Participant. A Participant for whom a deferred compensation account is established shall have no rights with respect to the deferred amounts other than the rights of a general creditor of the Company. Such an account shall represent an unfunded and unsecured obligation of the Company and shall be subject to the terms and conditions of the applicable agreement between the Participant and the Company.
SECTION 19. FRACTIONAL SHARES.
No fractional Shares shall be issued under the Plan. If a Participant acquires the right to receive a fractional Share under the Plan, the Participant shall receive, in lieu of the fractional Share, an amount in cash equal to the Fair Market Value of the fractional Share as of the date of settlement of the Award.
SECTION 20. AWARDS UNDER OTHER PLANS.
The Company may grant awards under other agreements, plans or programs. Such awards may be settled in the form of Shares issued under this Plan. Such Shares shall be treated for all purposes under the Plan as Shares issued in settlement of Stock Units and shall, when issued, reduce the number of Shares available under Section 5(a).
The Company may also grant Shares under this Plan in connection with Awards that are assumed, converted or substituted as a result of the acquisition of another business, corporation or other entity by the Company or a combination of the Company with another business, corporation or entity. Such Shares shall not reduce the number of Shares available under Section 5(a).
SECTION 21. NONTRANSFERABILITY OF AWARD.
No Award under the Plan shall be subject in any manner to alienation, anticipation, sale, assignment, pledge, encumbrance or transfer, and no other persons shall otherwise acquire any rights therein, except as provided below:
(a) An Award may be transferred by will or by the laws of descent or distribution.
(b) Restricted Shares may be freely transferred after the Shares vest and are delivered to the Participant, provided that Restricted Shares awarded to an affiliate of the Company may be transferred only pursuant to Rule 144 under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an effective registration for resale under the Securities Act. For purposes of this subsection (b), "affiliate" shall have the meaning assigned to that term under Rule 144.
SECTION 22. LEGAL AND REGULATORY REQUIREMENTS.
Shares shall not be issued under the Plan unless the issuance and delivery of such Shares complies with (or is exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, applicable state securities laws and regulations and the regulations of the National Association of Securities Dealers or any stock exchange on which the Company's securities may then be listed, and the Company has obtained the approval or favorable ruling from any governmental agency that the Company determines is necessary or advisable. Awards under the Plan are also intended to satisfy the requirements of Rule 16b-3 under the Exchange Act. If any provision of the Plan or any grant of an Award would otherwise frustrate or conflict with this intent, that provision shall be interpreted and deemed amended so as to avoid conflict. No Participant shall be entitled to receive, exercise, transfer or settle any Award if the grant,
exercise, transfer or settlement would violate the provisions of the Sarbanes-Oxley Act of 2002 or any other applicable law.
SECTION 23. WITHHOLDING TAXES.
(a) General. To the extent required by applicable federal, state, local or foreign law, a Participant shall make arrangements satisfactory to the Company for the satisfaction of any withholding tax obligations that arise in connection with the Plan. The Company shall not be required to issue any Shares or make any cash payment under the Plan until such obligations are satisfied.
(b) Method of Satisfying Withholding Obligations. The Committee, in its sole discretion, may permit a Participant to satisfy all or part of his or her withholding or income tax obligations by having the Company withhold all or a portion of any Shares or cash that otherwise would be issued to him or her, or by surrendering all or a portion of any Shares that he or she previously acquired and has held for at least six months. Such Shares shall be valued at their Fair Market Value as of the date when taxes otherwise would be withheld in cash. In no event may a Participant have Shares withheld that would otherwise be issued to him or her in excess of the number necessary to satisfy the legally required minimum tax withholding.
SECTION 24. NO EMPLOYMENT RIGHTS.
No provision of the Plan nor any right or Option granted under the Plan shall be construed to give any person the right to become, to be treated as, or to remain an Employee or director of the Company. The Company and its Subsidiaries reserve the right to terminate any person's employment at any time and for any reason, with or without notice.
SECTION 25. NO SEGREGATION OF ASSETS.
Neither the Company nor any Subsidiary shall be required to segregate any assets that may at any time be represented by Awards granted pursuant to the Plan.
SECTION 26. EFFECT ON OTHER PLANS.
Any gain realized pursuant to Awards under the Plan constitutes a special incentive payment to the Participant and shall not be taken into account as compensation for purposes of any other employee benefit plan of the Company or a Subsidiary, except as the Committee otherwise provides. The adoption of the Plan shall have no impact on Awards made or to be made under any other benefit plan covering an employee of the Company or a Subsidiary or any predecessor or successor of the Company or a Subsidiary.
SECTION 27. DURATION AND AMENDMENTS.
(a) Term of the Plan. The Plan, as set forth herein, shall terminate automatically on May 27, 2011, and may be terminated on any earlier date pursuant to subsection (b) below.
(b) Right to Amend or Terminate the Plan. The Board of Directors may amend the Plan at any time and from time to time. Rights and obligations under any Award granted before
amendment of the Plan shall not be materially impaired by such amendment, except with the consent of the person to whom the Award was granted. An amendment of the Plan shall be subject to the approval of the Company's stockholders only to the extent required by applicable laws, regulations or rules. Notwithstanding the foregoing, no material revision to the terms of the Plan shall be effective until the amendment is approved by the stockholders of the Company. A revision is "material" for this purpose if, among other changes, it materially increases the number of Shares that may be issued under the Plan (other than an increase described in Section 5(b) or Section 17 of the Plan), changes the types of Awards available under the Plan, materially expands the class of persons eligible to receive Awards under the Plan, materially extends the term of the Plan or decreases the Exercise Price at which Options or SARs may be granted (other than an adjustment in Exercise Price permitted by Section 17).
(c) Effect of Amendment or Termination. The termination of the Plan or any amendment thereof shall not affect any Share previously issued or any Award previously granted under the Plan. No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option or SAR or settlement of a Stock Unit granted prior to such termination.
SECTION 28. CHOICE OF LAW.
The Plan and all determinations made and actions taken under the Plan shall be governed by the internal substantive laws, and not the choice of law rules, of the State of Delaware and construed accordingly, to the extent not superseded by federal law.
SECTION 29. SEVERABILITY.
If any provision of the Plan is held unlawful or otherwise invalid or unenforceable in whole or in part, the unlawfulness, invalidity or unenforceability shall not affect any other parts of the Plan, which shall remain in full force and effect.
SECTION 30. EXECUTION.
To record the adoption of the Plan by the Board of Directors effective as of April 12, 2004, the Company has caused its authorized officer to execute the same.
SILGAN HOLDINGS INC.
By /s/ R. Philip Silver ----------------------------- R. Philip Silver Chairman of the Board and Co-Chief Executive Officer |
EXHIBIT A
PERFORMANCE CRITERIA
In establishing performance targets to measure the performance of the Company, a Subsidiary or a business unit during a specified period pursuant to Section 12 of the Plan, the Committee shall select one or more of the following business criteria:
(i) pre-tax or after-tax income;
(ii) earnings per Share;
(iii) income from operations;
(iv) earnings before interest expense and provision for income taxes (EBIT);
(v) earnings before interest expense, provision for income taxes, depreciation and amortization expenses (EBITDA);
(vi) net income;
(vii) revenue growth;
(viii) economic value added (EVA);
(ix) return on net or total assets;
(x) free cash flow from operations;
(xi) free cash flow per Share;
(xii) return on invested capital;
(xiii) return on stockholders' equity;
(xiv) expense reduction;
(xv) working capital;
(xvi) total stockholder return; and
(xvii) performance of the Company's stock price.
The Committee, in its discretion, may elect to exclude, in calculating performance under any of the above criteria, (i) unusual gains, unusual losses and other nonrecurring items, (ii) the amount of all charges and expenses incurred or income earned in connection with any refinancing, restructuring, rationalization, recapitalization or reorganization involving the Company and its Subsidiaries, (iii) the cumulative effects of accounting changes, (iv) discontinued operations, and (v) any business units, divisions, Subsidiaries or other entities sold or acquired. The Committee may determine no later than 90 days after the commencement of the applicable Performance
Cycle also to exclude other items, each determined in accordance with generally accepted accounting principles in the United States (to the extent applicable).
Exhibit 10.23
Silgan Holdings Inc.
2004 Stock Incentive Plan
FORM OF
OPTION AGREEMENT
Date of Grant: _________________
Shares for Which Option May Be Exercised: _____
OPTION AGREEMENT made in Stamford, Connecticut, between Silgan Holdings Inc. and ____________________________.
1. Grant of Award. The Company has granted you an Option to purchase _______ Shares of common stock of the Company, subject to the provisions of this Agreement. This Option is a nonqualified Option.
2. Exercise Price. The purchase price of the Shares covered by the Option will be $_____________ per Share.
3. Vesting. The Option will vest and become exercisable in five equal installments beginning 12 months after the Date of Grant with respect to the Shares covered by the Option as follows:
Date From Which Number Option Installment of May be Exercised Shares ------------------ ------ |
4. Term of Option. The Option must be exercised prior to, and will expire upon, the close of business on the date that is seven (7) years from the Date of Grant, subject to earlier termination or cancellation as provided in paragraphs 7 or 8 hereof.
5. Payment of Exercise Price. You may pay the Exercise Price by cash, certified check, bank draft, wire transfer or postal or express money order. Alternatively, payment may be made by (i) delivering to the Company a properly executed exercise notice with irrevocable instructions to a broker to deliver promptly to the Company sale or loan proceeds adequate to satisfy the portion of the Exercise Price being so paid, or (ii) tendering to the Company (by
physical delivery or attestation) certificates of common stock of the Company that you have held for six (6) months or longer and that have an aggregate Fair Market Value as of the day prior to the date of exercise equal to the portion of the Exercise Price being so paid. You may not, however, tender any form of payment that the Company determines, in its sole and absolute discretion, could violate any law or regulation. You are not required to purchase all Shares subject to the Option at one time, but you must pay the full Exercise Price for all Shares that you elect to purchase before they will be delivered.
6. Exercise of Option. Subject to the terms and conditions of this Agreement, the vested Option may be exercised by contacting the Secretary of the Company. If the Option is exercised after your death, the Company will deliver Shares only after the Secretary of the Company has determined that the person exercising the Option is the duly appointed executor or administrator of your estate or the person to whom the Option has been transferred by your will or by the applicable laws of descent and distribution.
7. Termination of Employment. If your employment with the Company terminates before the end of the Option's seven (7)-year term, your Option, to the extent vested, will remain exercisable as set forth below:
Event Exercise Period
--------------------------------------------------------------------------------
Retirement (voluntary Expires upon earlier of (i) original expiration
termination of Service date, or (ii) 12 months after date of Retirement.
on or after age 60 with If you die prior to end of this 12-month period,
10 years of Service) expires 6 months after death, even if later than
original expiration date. Unvested Option
immediately cancelled on date of Retirement.
--------------------------------------------------------------------------------
Death Expires upon earlier of (i) original expiration
date (but no earlier than 6 months after death),
or (ii) 12 months after date of death. Unvested
Option immediately cancelled on date of death.
--------------------------------------------------------------------------------
Disability Expires upon earlier of (i) original expiration
date, or (ii) 12 months after incurring
Disability. If you die prior to end of this
12-month period, expires 6 months after death,
even if later than original expiration date.
Unvested Option immediately cancelled on date of
termination due to Disability.
--------------------------------------------------------------------------------
Involuntary termination Expires upon earlier of (i) original expiration
of employment (other than date, or (ii) 90 days after date of termination
Retirement, death or of employment. If you die prior to end of this
Disability) not for Cause 90-day period, expires 6 months after death, even
if later than original expiration date.
Unvested Option immediately cancelled on date
of termination.
--------------------------------------------------------------------------------
Involuntary termination Options (vested and unvested) immediately
of employment for Cause cancelled.
--------------------------------------------------------------------------------
|
-------------------------------------------------------------------------------- Voluntary resignation Options (vested and unvested) immediately (other than Retirement) cancelled. -------------------------------------------------------------------------------- |
8. Change in Control. In the event of a Change in Control, the vesting of any unvested Options will be in accordance with the terms of the Plan.
9. Withholdings. The Company will have the right, prior to the issuance or delivery of any Shares in connection with the exercise of the Option, to withhold or demand from you the amount necessary to satisfy the applicable tax requirements, as determined by the Company.
10. Transfer of Award. You may not transfer any interest in your Option, except by will or the laws of descent and distribution. Any other attempt to dispose of your interest in your Option will be null and void.
11. Adjustments. In the event of any subdivision of the common stock of the Company, a declaration of a dividend payable in Shares, or a combination or consolidation of the outstanding common stock (by reclassification or otherwise), the Committee will make appropriate adjustments to the Exercise Price, the number and kind of Shares covered by the Option and other relevant provisions, to the extent necessary to prevent dilution or enlargement of the benefits or potential benefits intended to be provided by the Option. Any such determinations and adjustments made by the Committee will be binding on all persons.
12. Restrictions on Exercise. Exercise of the Option is subject to the conditions that, to the extent required at the time of exercise, (a) the Shares covered by the Option will be duly listed, upon official notice of issuance, with a national securities exchange or national securities association, and (b) a registration statement under the Securities Act of 1933 (the "Securities Act") with respect to the Shares will be effective or an exemption from registration will apply. The Company will not be required to deliver any Shares until all applicable federal and state laws and regulations and all applicable national securities exchange or national securities association rules have been complied with and all legal matters in connection with the issuance and delivery of the Shares have been approved by counsel of the Company.
13. Disposition of Securities. By accepting the Award and signing this Agreement, you acknowledge that you have read and understand the Company's policy on, and are aware of and understand your obligations under federal securities laws with respect to, trading in the Company's securities, and you agree not to use the Company's cashless exercise program (or any successor program) at any time when you possess material nonpublic information with respect to the Company or when using the program would otherwise result in a violation of securities law. The Company will have the right to recover, or receive reimbursement for, any compensation or profit you realize on the disposition of Shares received upon exercise of your Option to the extent that the Company has a right of recovery or reimbursement under applicable securities laws. If you are an "affiliate" of the Company, you may dispose of your Shares only pursuant to an effective registration statement under the Securities Act or an exemption or exclusion from the registration requirement.
14. Plan Terms Govern. The grant and exercise of the Option and the disposition of any Shares received upon exercise of the Option are subject to the terms of the Plan and any rules that the Committee may prescribe. The Plan document, as may be amended from time to time, is incorporated into this Agreement. Capitalized terms used in this Agreement have the meaning set forth in the Plan, unless otherwise stated in this Agreement. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the Plan will control. By accepting the Award, you acknowledge receipt of the Plan, as in effect on the date of this Agreement.
15. Personal Data. To comply with applicable law and to administer the Plan and this Agreement properly, the Company and its agents may hold and process your personal data, including your home address, Social Security number, employment status, hire date and termination date. By accepting the Award, you expressly consent to the use of this data by the Company and its agents and to the transfer of this data outside the country in which you perform services or reside.
16. Limitations. Nothing in this Agreement or the Plan gives you any right to continue in the employ of the Company or any of its Affiliates or to interfere in any way with the right of the Company or any of its Affiliates to terminate your employment at any time. Distribution of Shares upon exercise of the Option is not secured by a trust, insurance contract or other funding medium, and you do not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on your behalf. You have no voting rights or other rights as a stockholder of the Company pursuant to the Option until Shares are actually delivered to you.
17. Incorporation of Other Agreements. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Option. This Agreement supersedes any prior agreements, commitments or negotiations concerning the Option.
18. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of the other provisions of the Agreement, which will remain in full force and effect. Moreover, if any provision is found to be excessively broad in duration, scope or covered activity, the provision will be construed so as to be enforceable to the maximum extent compatible with applicable law.
By accepting this Award and signing below, you confirm the following:
(i) you have carefully read, fully understand and agree to all of the terms and conditions described in this Agreement and the Plan; and
(ii) you understand and agree that this Agreement and the Plan constitute the entire understanding between you and the Company regarding the Award, and that any prior agreements, commitments or negotiations concerning the Option are replaced and superseded.
SILGAN HOLDINGS INC.
By: __________________________________
Name:
Title:
EMPLOYEE
Exhibit 10.24
Silgan Holdings Inc.
2004 Stock Incentive Plan
FORM OF
RESTRICTED STOCK UNIT AGREEMENT
Date of Grant: ____________________
Restricted Stock Units: ____
RESTRICTED STOCK UNIT AGREEMENT made in Stamford, Connecticut, between Silgan Holdings Inc. and ___________________________.
1. Grant of Award. The Company has granted you ______________ Restricted Stock Units, subject to the provisions of this Agreement. The Company will hold the Restricted Stock Units in a bookkeeping account on your behalf until they are paid or are forfeited or cancelled.
2. Payment Amount. Each Restricted Stock Unit represents the equivalent of one (1) Share of common stock of the Company.
[3. Performance Measures. These Restricted Stock Units are intended to be "performance-based compensation", as that term is used in Section 162(m) of the Internal Revenue Code (the "Code"), and have been granted to you as a result of the attainment by the [Company] of its performance goals for the Performance Cycle beginning on ____________ and ending on _____________, as certified by the Compensation Committee (the "Committee").]*
4. Vesting. The restrictions on your Restricted Stock Units will lapse incrementally and your Restricted Stock Units will vest as follows:
Years from Vesting Percentage
Date of Grant
--------------------------- -------------------------
1 20%
--------------------------- -------------------------
2 40%
--------------------------- -------------------------
3 60%
--------------------------- -------------------------
4 80%
--------------------------- -------------------------
5 100%
--------------------------- -------------------------
-----------
|
*Include if grant is performance-based.
Your vested rights will be calculated on the anniversary of the Date of Grant. No partial credit will be given for partial years of employment. If your employment with the Company terminates before your Restricted Stock Units are fully vested, except in the event of a Change in Control, unvested Restricted Stock Units will immediately be forfeited, and your rights with respect to these Restricted Stock Units will end.
5. Form of Payment. Vested Restricted Stock Units will be settled in Shares.
[6. Deferral of Delivery.
(a) If you would like to defer delivery of all Shares to a date subsequent to the date of vesting of the Restricted Stock Units, you may make a written request to the Committee for deferral, including a suggested delivery date no earlier than 6 years and no later than 15 years following the Date of Grant. This request must be made within 30 days after the Date of Grant. The Committee may, in its sole discretion, determine whether to permit deferral of delivery in the manner requested. If the Committee does not accept your suggested delivery date, then you will be notified of this decision in writing and your Shares will be delivered to you as your Restricted Stock Units vest. If the Committee accepts your proposal, subject to Section 7 hereof, you will be bound by the deferred delivery date, unless the deferral period is extended as provided in (b).
(b) If your deferral period expires prior to the termination of your employment with the Company and you would like to extend your deferral period, you may, at least 13 months prior to the date on which your initial deferral period is scheduled to expire, make a written request to the Committee for an extension of the deferral period, including a revised delivery date no later than 30 years following the Date of Grant. The Committee may, in its sole discretion, determine whether to permit deferral of delivery in the manner requested. If the Committee does not accept your proposed revised delivery date, you will be notified of this decision in writing and the Shares will be delivered to you at the end of the initial deferral period. If the Committee accepts your proposal, subject to Section 7 hereof, you will be bound by the revised delivery date, which may not be revoked.
(c) Under no circumstances may a deferral period be extended more than once.
(d) Notwithstanding the foregoing, the Committee may, in its discretion, distribute Shares from your deferral account prior to the expiration of your deferral period in the event you have an unforeseeable emergency. An "unforeseeable emergency" for this purpose is an unanticipated emergency caused by an event beyond your control that would result in severe financial hardship if the distribution were not permitted. Emergency distributions will be limited to the amount necessary to satisfy the financial hardship.
(e) Except as otherwise determined by the Committee, in its sole discretion, you will be paid a Dividend Equivalent in an amount equal to any cash dividends paid by the Company upon one Share of common stock for each vested Restricted Stock Unit credited to your deferral account. Dividend Equivalents will be paid to you in cash as soon as practicable after dividends are distributed to stockholders.
(f) All deferral elections and distributions from your deferral account will be subject to applicable law, including changes in law affecting outstanding deferral elections. The
Committee has the authority to modify outstanding deferral elections to the extent necessary to comply with changes in applicable law.]**
[7. Termination of Employment. If your employment with the Company terminates for any reason (including in the event of your Retirement, death or Disability), Shares on any deferred vested Restricted Stock Units will be distributed to you as soon as practicable following such termination. If you are deceased, the Company will make a distribution to your estate only after the Board of Directors has determined that the payee is the duly appointed executor or administrator of your estate.]**
8. Change in Control. In the event of a Change in Control, the vesting of any unvested Restricted Stock Units [and the distribution of any Shares on Restricted Stock Units credited to your deferral account]** will be in accordance with the terms of the Plan.
9. Withholdings. The Company will have the right, prior to the issuance or delivery of any Shares on your Restricted Stock Units, to withhold or demand from you the amount necessary to satisfy the applicable tax requirements. Your withholding obligations will be satisfied through the withholding by the Company of Shares that otherwise would be issued to you on your Restricted Stock Units, unless you have notified the Company in writing at least 3 days prior to any date you are to receive Shares on your Restricted Stock Units that you will otherwise satisfy your applicable withholding tax obligations in cash. The Shares will be valued at their Fair Market Value as of the date when the Shares would otherwise be issued to you. Only full Shares may be used to satisfy your withholding tax obligations. If the legally required minimum tax withholding would result in a fractional Share being withheld, the withholding amount will be rounded up so that a full Share may be withheld instead.
10. Transfer of Award. You may not transfer any interest in your Restricted Stock Units, except by will or the laws of descent and distribution. Any other attempt to dispose of your interest in Restricted Stock Units will be null and void.
11. Adjustments. In the event of any subdivision of the common stock of the Company, a declaration of a dividend payable in Shares, or a combination or consolidation of the outstanding common stock (by reclassification or otherwise), the Committee will make appropriate adjustments to the number and kind of Shares covered by the Restricted Stock Units and other relevant provisions, to the extent necessary to prevent dilution or enlargement of the benefits or potential benefits intended to be provided by the Restricted Stock Units. Any such determinations and adjustments made by the Committee will be binding on all persons.
12. Restrictions on Distribution of Shares. The Company will not be required to deliver any Shares until all applicable federal and state laws and regulations and all applicable national securities exchange or national securities association rules have been complied with and all legal matters in connection with the issuance and delivery of the Shares have been approved by counsel of the Company.
13. Disposition of Securities. By accepting the Award and signing this Agreement, you acknowledge that you have read and understand the Company's policy on, and are aware of and understand your obligations under federal securities laws with respect to, trading in the
Company's securities. The Company will have the right to recover, or receive reimbursement for, any compensation or profit you realize on the disposition of Shares received for Restricted Stock Units to the extent that the Company has a right of recovery or reimbursement under applicable securities laws. If you are an "affiliate" of the Company, you may dispose of any Shares paid on your Restricted Stock Units only pursuant to an effective registration statement under the Securities Act of 1933 or an exemption or exclusion from the registration requirement.
14. Plan Terms Govern. The grant of Restricted Stock Units, the settlement of Restricted Stock Units in Shares, and the disposition of such Shares are subject to the provisions of the Plan and any rules that the Committee may prescribe. The Plan document, as may be amended from time to time, is incorporated into this Agreement. Capitalized terms used in this Agreement have the meaning set forth in the Plan, unless otherwise stated in this Agreement. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the Plan will control. By accepting the Award, you acknowledge receipt of the Plan, as in effect on the date of this Agreement.
15. Personal Data. To comply with applicable law and to administer the Plan and this Agreement properly, the Company and its agents may hold and process your personal data, including your home address, Social Security number, employment status, hire date and termination date. By accepting the Award, you expressly consent to the use of this data by the Company and its agents and to the transfer of this data outside the country in which you perform services or reside.
16. Limitations. Nothing in this Agreement or the Plan gives you any right to continue in the employ of the Company or any of its Affiliates or to interfere in any way with the right of the Company or any of its Affiliates to terminate your employment at any time. Distribution of Shares on your Restricted Stock Units is not secured by a trust, insurance contract or other funding medium, and you do not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on your behalf. You have no voting rights or other rights as a stockholder of the Company pursuant to the Restricted Stock Units until Shares are actually distributed to you.
17. Incorporation of Other Agreements. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Restricted Stock Units. This Agreement supersedes any prior agreements, commitments or negotiations concerning the Restricted Stock Units.
18. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of the other provisions of the Agreement, which will remain in full force and effect. Moreover, if any provision is found to be excessively broad in duration, scope or covered activity, the provision will be construed so as to be enforceable to the maximum extent compatible with applicable law.
By accepting this Award and signing below, you confirm the following:
(i) you have carefully read, fully understand and agree to all of the terms and conditions described in this Agreement and the Plan; and
(ii) you understand and agree that this Agreement and the Plan constitute the entire understanding between you and the Company regarding the Award, and that any prior agreements, commitments or negotiations concerning the Restricted Stock Units are replaced and superseded.
SILGAN HOLDINGS INC.
By: __________________________________
Name:
Title:
EMPLOYEE
Exhibit 10.25
Silgan Holdings Inc.
2004 Stock Incentive Plan
FORM OF
RESTRICTED STOCK UNIT AGREEMENT
Date of Grant: _____________________
Restricted Stock Units: _____
RESTRICTED STOCK UNIT AGREEMENT made in Stamford, Connecticut, between Silgan Holdings Inc. and ___________________________.
1. Grant of Award. The Company has granted you ____ Restricted Stock Units, subject to the provisions of this Agreement. The Company will hold the Restricted Stock Units in a bookkeeping account on your behalf until they become payable or are forfeited or cancelled.
2. Payment Amount. Each Restricted Stock Unit represents the equivalent of one (1) Share of common stock of the Company. [Except as otherwise determined by the Board of Directors, in its sole discretion, you will be paid a Dividend Equivalent in an amount equal to any cash dividends paid by the Company upon one Share of common stock for each vested Restricted Stock Unit credited to your account. Dividend Equivalents will be paid to you in cash as soon as practicable after dividends are distributed to stockholders.]*
3. Vesting. The restrictions on your Restricted Stock Units will lapse and the Restricted Stock Units will become fully vested _______ months after the Date of Grant. If your Service with the Company terminates prior to the end of this _______-month period, your Restricted Stock Units will immediately be forfeited, and your rights with respect to these Restricted Stock Units will end.
4. Form of Payment. Vested Restricted Stock Units will be settled in Shares.
[5. Deferral of Delivery.
(a) If you would like to defer delivery of Shares to a date subsequent to the date of vesting of the Restricted Stock Units, you may, provided that, no later than the day before the annual meeting of stockholders of the Company immediately prior to the Date of Grant, you made a written request to the Board of Directors for deferral, including a suggested delivery date up to 10 years following the Date of Grant. This request may be made within 30 days after the Date of Grant in the year in which the Plan is first approved by stockholders of the Company and in any other year in which you are nominated for election or reelection to the Board of Directors. The Board of Directors may, in its sole discretion, determine whether to permit deferral of
delivery in the manner requested. If the Board of Directors does not accept your suggested delivery date, then you will be notified of this decision in writing and your Shares will be delivered to you when the Restricted Stock Units vest. If the Board of Directors accepts yourproposal, you will be bound by the deferred delivery date, unless the deferral period is extended as provided in (b).
(b) If your deferral period expires prior to the termination of your directorship and you would like to extend your deferral period, you may, at least 13 months prior to the date on which your initial deferral period is scheduled to expire, make a written request to the Board of Directors for an extension of the deferral period, including a revised delivery date no later than 20 years following the Date of Grant. The Board of Directors may, in its sole discretion, determine whether to permit deferral of delivery in the manner requested. If the Board of Directors does not accept your proposed revised delivery date, you will be notified of this decision in writing and the Shares will be delivered to you at the end of the initial deferral period. If the Board of Directors accepts your proposal, you will be bound by the revised delivery date, which may not be revoked.
(c) Under no circumstances may a deferral period be extended more than once.
(d) All deferral elections and distributions from your deferal account will be subject to applicable law, including changes in law affecting outstanding deferral elections. The Board of Directors has the authority to modify outstanding deferral elections to the extent necessary to comply with changes in applicable law.]*
[6. Termination of Service. If your Service with the Company terminates for any reason (including in the event of your death or Disability), Shares on any deferred Restricted Stock Units will be distributed to you as soon as practicable following such termination. If you are deceased, the Company will make a distribution to your estate only after the Board of Directors has determined that the payee is the duly appointed executor or administrator of your estate.]*
[7. Change in Control. In the event of a Change in Control, the distribution of Shares on any Restricted Stock Units credited to your deferral account will be in accordance with the terms of the Plan.]*
8. Transfer of Award. You may not transfer any interest in Restricted Stock Units, except by will or the laws of descent and distribution. Any other attempt to dispose of your interest in Restricted Stock Units will be null and void.
9. Adjustments. In the event of any subdivision of the common stock of the Company, a declaration of a dividend payable in Shares, or a combination or consolidation of the outstanding common stock (by reclassification or otherwise), the Board of Directors will make appropriate adjustments to the number and kind of Shares covered by the Restricted Stock Units and other relevant provisions, to the extent necessary to prevent dilution or enlargement of the benefits or potential benefits intended to be provided by the Restricted Stock Units. Any such determinations and adjustments made by the Board of Directors will be binding on all persons.
10. Restrictions on Distribution of Shares. The Company will not be required to deliver any Shares until all applicable federal and state laws and regulations and all applicable national securities exchange or national securities association rules have been complied with and all legal matters in connection with the issuance and delivery of the Shares have been approved by counsel of the Company.
11. Disposition of Securities. You may dispose of any Shares paid on your Restricted Stock Units only pursuant to an effective registration statement under the Securities Act of 1933 or an exemption or exclusion from the registration requirement. By accepting the Award and signing this Agreement, you acknowledge that you have read and understand the Company's policy on, and are aware of and understand your obligations under federal securities laws with respect to, trading in the Company's securities. The Company will have the right to recover, or receive reimbursement for, any compensation or profit you realize on the disposition of Shares received for Restricted Stock Units to the extent that the Company has a right of recovery or reimbursement under applicable securities laws.
12. Plan Terms Govern. The grant of Restricted Stock Units, the settlement of Restricted Stock Units in Shares, and the disposition of such Shares are subject to the provisions of the Plan and any rules that the Board of Directors may prescribe. The Plan document, as may be amended from time to time, is incorporated into this Agreement. Capitalized terms used in this Agreement have the meaning set forth in the Plan, unless otherwise stated in this Agreement. In the event of any conflict between the terms of the Plan and the terms of this Agreement, the Plan will control. By accepting the Award, you acknowledge receipt of the Plan, as in effect on the date of this Agreement.
13. Personal Data. To comply with applicable law and to administer the Plan and this Agreement properly, the Company and its agents may hold and process your personal data, including your home address and Social Security number. By accepting the Award, you expressly consent to the use of this data by the Company and its agents and to the transfer of this data outside the country in which you perform services or reside.
14. Limitations. Nothing in this Agreement or the Plan gives you any right to continue in the Service of the Company or any of its Affiliates or to interfere in any way with the right of the Board of Directors or the stockholders to terminate your directorship at any time. Distribution of Shares on your Restricted Stock Units is not secured by a trust, insurance contract or other funding medium, and you do not have any interest in any fund or specific asset of the Company by reason of this Award or the account established on your behalf. You have no voting rights or other rights as a stockholder of the Company pursuant to the Restricted Stock Units until Shares are actually paid to you.
15. Incorporation of Other Agreements. This Agreement and the Plan constitute the entire understanding between you and the Company regarding the Restricted Stock Units. This Agreement supersedes any prior agreements, commitments or negotiations concerning the Restricted Stock Units.
16. Severability. The invalidity or unenforceability of any provision of this Agreement will not affect the validity or enforceability of the other provisions of the Agreement, which will remain in full force and effect. Moreover, if any provision is found to be excessively
broad in duration, scope or covered activity, the provision will be construed so as to be enforceable to the maximum extent compatible with applicable law.
By accepting this Award and signing below, you confirm the following:
(i) you have carefully read, fully understand and agree to all of the terms and conditions described in this Agreement and the Plan; and
(ii) you understand and agree that this Agreement and the Plan constitute the entire understanding between you and the Company regarding the Award, and that any prior agreements, commitments or negotiations concerning the Restricted Stock Units are replaced and superseded.
SILGAN HOLDINGS INC.
By: __________________________________
Name:
Title:
OUTSIDE DIRECTOR
EXHIBIT 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth Silgan Holdings Inc.'s computation of its ratio of earnings to fixed charges for the periods indicated.
Years Ended December 31,
------------------------------------------------------------------
2004(a) 2003(a) 2002(a) 2001 2000(a)
------- ------- ------- ---- -------
(Dollars in thousands)
Earnings before fixed charges:
Income before income taxes and
equity in losses of affiliates .......... $142,359 $ 70,058 $ 93,168 $ 76,127 $ 58,998
Interest and other debt expense ............. 57,222 98,034 74,772 81,192 98,104
Interest portion of rental expense .......... 893 932 747 1,146 1,330
-------- -------- -------- -------- --------
Earnings before fixed charges ............... $200,474 $169,024 $168,687 $158,465 $158,432
======== ======== ======== ======== ========
Fixed charges:
Interest and other debt expense ............. $ 57,222 $ 98,034 $ 74,772 $ 81,192 $ 98,104
Interest portion of rental expense .......... 893 932 747 1,146 1,330
Capitalized interest ........................ 679 993 1,358 1,571 2,367
-------- -------- -------- -------- --------
Total fixed charges ........................ $ 58,794 $ 99,959 $ 76,877 $ 83,909 $101,801
======== ======== ======== ======== ========
Ratio of earnings to fixed charges................ 3.41 1.69 2.19 1.89 1.56
|
EXHIBIT 23
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-40151) pertaining to the Fourth Amended and Restated 1989 Stock Option Plan of Silgan Holdings Inc., the Registration Statement (Form S-8 No. 333-106306) pertaining to the 2002 Non-Employee Directors Stock Option Plan of Silgan Holdings Inc. and the Registration Statement (Form S-8 No. 333-120695) pertaining to the 2004 Stock Incentive Plan of Silgan Holdings Inc. of our reports dated March 2, 2005, with respect to i) the consolidated financial statements and schedules of Silgan Holdings Inc., and ii) Silgan Holdings Inc. management's assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Silgan Holdings Inc. included in this Annual Report (Form 10-K) for the year ended December 31, 2004.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 2, 2005
|
EXHIBIT 31.1
CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, R. Philip Silver, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2004 of Silgan Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 7, 2005
/s/ R. Philip Silver
----------------------------
R. Philip Silver
Co-Chairman of the Board and
Co-Chief Executive Officer
|
EXHIBIT 31.2
CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, D. Greg Horrigan, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2004 of Silgan Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 7, 2005
/s/ D. Greg Horrigan
----------------------------
D. Greg Horrigan
Co-Chairman of the Board and
Co-Chief Executive Officer
|
EXHIBIT 31.3
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT
I, Robert B. Lewis, certify that:
1. I have reviewed this Annual Report on Form 10-K for the fiscal year ended December 31, 2004 of Silgan Holdings Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
b. Designed such internal control over financial reporting or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officers and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: March 7, 2005
/s/ Robert B. Lewis
----------------------------
Robert B. Lewis
Executive Vice President and
Chief Financial Officer
|
EXHIBIT 32.1
CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the Annual Report of Silgan Holdings Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, R. Philip Silver, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ R. Philip Silver -------------------- R. Philip Silver Co-Chairman of the Board and Co-Chief Executive Officer March 7, 2005 |
A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION BY THE CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the Annual Report of Silgan Holdings Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, D. Greg Horrigan, Co-Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ D. Greg Horrigan -------------------- D. Greg Horrigan Co-Chairman of the Board and Co-Chief Executive Officer March 7, 2005 |
A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.3
CERTIFICATION BY THE CHIEF FINANCIAL OFFICER
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT
In connection with the Annual Report of Silgan Holdings Inc. (the "Company") on Form 10-K for the fiscal year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Annual Report"), I, Robert B. Lewis, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) The Annual Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Annual Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
/s/ Robert B. Lewis -------------------- Robert B. Lewis Executive Vice President and Chief Financial Officer March 7, 2005 |
A signed original of this written statement required by Section 906 has been provided to Silgan Holdings Inc. and will be retained by Silgan Holdings Inc. and furnished to the Securities and Exchange Commission or its staff upon request.