UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | | | | | | | |
| ☒ | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended September 30, 2021March 31, 2022
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
SILGAN HOLDINGS INC.
(Exact name of Registrant as specified in its charter) | | | | | | | | | | | |
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) |
(203) 975-7110
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| | | | | | | | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | SLGN | Nasdaq Global Select Market |
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 ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | | | | | | | |
Large accelerated filer | ☒
| | Accelerated filer | | ☐
| |
Non-accelerated filer | ☐
| | Smaller reporting company | | ☐ | |
| | | Emerging growth company | | ☐ | |
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of October 31, 2021,April 30, 2022, the number of shares outstanding of the Registrant’s common stock was 110,410,229.110,800,407.
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SILGAN HOLDINGS INC. |
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Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | | Sept. 30, 2021 | | Sept. 30, 2020 | | Dec. 31, 2020 | | March 31, 2022 | | March 31, 2021 | | Dec. 31, 2021 |
| | (unaudited) | | (unaudited) | | | | (unaudited) | | (unaudited) | | |
Assets | Assets | | | | | | Assets | | | | | |
Current assets: | Current assets: | | | | | | Current assets: | | | | | |
Cash and cash equivalents | Cash and cash equivalents | $ | 270,567 | | | $ | 193,759 | | | $ | 409,481 | | Cash and cash equivalents | $ | 259,564 | | | $ | 190,131 | | | $ | 631,439 | |
Trade accounts receivable, net | Trade accounts receivable, net | 1,033,680 | | | 865,436 | | | 619,535 | | Trade accounts receivable, net | 852,876 | | | 738,088 | | | 711,332 | |
Inventories | Inventories | 762,182 | | | 678,181 | | | 677,534 | | Inventories | 1,018,685 | | | 788,637 | | | 798,837 | |
Prepaid expenses and other current assets | Prepaid expenses and other current assets | 114,945 | | | 84,715 | | | 92,643 | | Prepaid expenses and other current assets | 150,646 | | | 102,382 | | | 154,241 | |
Total current assets | Total current assets | 2,181,374 | | | 1,822,091 | | | 1,799,193 | | Total current assets | 2,281,771 | | | 1,819,238 | | | 2,295,849 | |
| Property, plant and equipment, net | Property, plant and equipment, net | 1,963,349 | | | 1,785,787 | | | 1,840,758 | | Property, plant and equipment, net | 1,979,681 | | | 1,811,593 | | | 1,993,877 | |
Goodwill | Goodwill | 2,039,033 | | | 1,702,463 | | | 1,741,496 | | Goodwill | 2,024,340 | | | 1,701,040 | | | 2,038,408 | |
Other intangible assets, net | Other intangible assets, net | 839,332 | | | 633,256 | | | 637,208 | | Other intangible assets, net | 817,450 | | | 613,220 | | | 830,772 | |
Other assets, net | Other assets, net | 524,752 | | | 508,982 | | | 492,931 | | Other assets, net | 607,168 | | | 496,381 | | | 611,940 | |
| | $ | 7,547,840 | | | $ | 6,452,579 | | | $ | 6,511,586 | | | $ | 7,710,410 | | | $ | 6,441,472 | | | $ | 7,770,846 | |
| Liabilities and Stockholders’ Equity | Liabilities and Stockholders’ Equity | | | | | | Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | Current liabilities: | | | | | | Current liabilities: | | | | | |
Revolving loans and current portion of long-term debt | Revolving loans and current portion of long-term debt | $ | 934,246 | | | $ | 284,465 | | | $ | 28,036 | | Revolving loans and current portion of long-term debt | $ | 539,134 | | | $ | 195,122 | | | $ | 20,251 | |
Trade accounts payable | Trade accounts payable | 761,018 | | | 592,881 | | | 802,541 | | Trade accounts payable | 850,532 | | | 629,494 | | | 1,133,318 | |
Accrued payroll and related costs | Accrued payroll and related costs | 110,452 | | | 119,369 | | | 130,088 | | Accrued payroll and related costs | 109,096 | | | 105,745 | | | 109,279 | |
Accrued liabilities | Accrued liabilities | 235,372 | | | 245,626 | | | 230,955 | | Accrued liabilities | 218,194 | | | 224,747 | | | 245,674 | |
Total current liabilities | Total current liabilities | 2,041,088 | | | 1,242,341 | | | 1,191,620 | | Total current liabilities | 1,716,956 | | | 1,155,108 | | | 1,508,522 | |
| Long-term debt | Long-term debt | 3,191,581 | | | 3,163,305 | | | 3,223,217 | | Long-term debt | 3,445,633 | | | 3,163,292 | | | 3,772,926 | |
Deferred income taxes | Deferred income taxes | 383,154 | | | 371,966 | | | 355,995 | | Deferred income taxes | 433,843 | | | 357,587 | | | 435,252 | |
Other liabilities | Other liabilities | 475,311 | | | 456,104 | | | 487,881 | | Other liabilities | 475,739 | | | 489,129 | | | 491,450 | |
| Stockholders’ equity: | Stockholders’ equity: | | | | | | Stockholders’ equity: | | | | | |
Common stock | Common stock | 1,751 | | | 1,751 | | | 1,751 | | Common stock | 1,751 | | | 1,751 | | | 1,751 | |
Paid-in capital | Paid-in capital | 320,132 | | | 301,463 | | | 306,363 | | Paid-in capital | 328,201 | | | 309,635 | | | 325,448 | |
Retained earnings | Retained earnings | 2,622,401 | | | 2,348,728 | | | 2,395,395 | | Retained earnings | 2,758,697 | | | 2,452,996 | | | 2,691,745 | |
Accumulated other comprehensive loss | Accumulated other comprehensive loss | (291,158) | | | (272,352) | | | (260,953) | | Accumulated other comprehensive loss | (244,642) | | | (291,806) | | | (259,828) | |
Treasury stock | Treasury stock | (1,196,420) | | | (1,160,727) | | | (1,189,683) | | Treasury stock | (1,205,768) | | | (1,196,220) | | | (1,196,420) | |
Total stockholders’ equity | Total stockholders’ equity | 1,456,706 | | | 1,218,863 | | | 1,252,873 | | Total stockholders’ equity | 1,638,239 | | | 1,276,356 | | | 1,562,696 | |
| | $ | 7,547,840 | | | $ | 6,452,579 | | | $ | 6,511,586 | | | $ | 7,710,410 | | | $ | 6,441,472 | | | $ | 7,770,846 | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30,March 31, 2022 and 2021 and 2020
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | | | | | | | | | | | | |
Net sales | Net sales | $ | 1,651,070 | | | $ | 1,488,499 | | | $ | 4,237,841 | | | $ | 3,695,353 | | Net sales | $ | 1,441,886 | | | $ | 1,238,110 | | |
Cost of goods sold | Cost of goods sold | 1,402,836 | | | 1,230,148 | | | 3,533,257 | | | 3,027,809 | | Cost of goods sold | 1,208,433 | | | 1,016,644 | | |
Gross profit | Gross profit | 248,234 | | | 258,351 | | | 704,584 | | | 667,544 | | Gross profit | 233,453 | | | 221,466 | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 90,299 | | | 91,525 | | | 282,072 | | | 282,011 | | Selling, general and administrative expenses | 100,011 | | | 97,379 | | |
Rationalization charges | Rationalization charges | 2,315 | | | 2,505 | | | 13,026 | | | 7,247 | | Rationalization charges | 1,379 | | | 10,357 | | |
Other pension and postretirement income | Other pension and postretirement income | (12,297) | | | (9,712) | | | (37,934) | | | (29,122) | | Other pension and postretirement income | (11,329) | | | (12,819) | | |
Income before interest and income taxes | Income before interest and income taxes | 167,917 | | | 174,033 | | | 447,420 | | | 407,408 | | Income before interest and income taxes | 143,392 | | | 126,549 | | |
Interest and other debt expense before loss on early extinguishment of debt | Interest and other debt expense before loss on early extinguishment of debt | 27,039 | | | 27,725 | | | 79,868 | | | 77,051 | | Interest and other debt expense before loss on early extinguishment of debt | 29,349 | | | 26,423 | | |
Loss on early extinguishment of debt | Loss on early extinguishment of debt | — | | | — | | | 883 | | | 1,481 | | Loss on early extinguishment of debt | 1,481 | | | 883 | | |
Interest and other debt expense | Interest and other debt expense | 27,039 | | | 27,725 | | | 80,751 | | | 78,532 | | Interest and other debt expense | 30,830 | | | 27,306 | | |
Income before income taxes | Income before income taxes | 140,878 | | | 146,308 | | | 366,669 | | | 328,876 | | Income before income taxes | 112,562 | | | 99,243 | | |
Provision for income taxes | Provision for income taxes | 34,586 | | | 33,457 | | | 92,620 | | | 80,253 | | Provision for income taxes | 27,687 | | | 25,962 | | |
Net income | Net income | $ | 106,292 | | | $ | 112,851 | | | $ | 274,049 | | | $ | 248,623 | | Net income | $ | 84,875 | | | $ | 73,281 | | |
| Earnings per share: | Earnings per share: | | Earnings per share: | | |
Basic net income per share | Basic net income per share | $ | 0.96 | | | $ | 1.02 | | | $ | 2.48 | | | $ | 2.24 | | Basic net income per share | $ | 0.77 | | | $ | 0.66 | | |
Diluted net income per share | Diluted net income per share | $ | 0.96 | | | $ | 1.01 | | | $ | 2.47 | | | $ | 2.23 | | Diluted net income per share | $ | 0.76 | | | $ | 0.66 | | |
| Weighted average number of shares: | Weighted average number of shares: | | Weighted average number of shares: | | |
Basic | Basic | 110,465 | | | 110,921 | | | 110,372 | | | 110,895 | | Basic | 110,600 | | | 110,206 | | |
Effect of dilutive securities | Effect of dilutive securities | 732 | | | 691 | | | 739 | | | 565 | | Effect of dilutive securities | 793 | | | 824 | | |
Diluted | Diluted | 111,197 | | | 111,612 | | | 111,111 | | | 111,460 | | Diluted | 111,393 | | | 111,030 | | |
|
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands)
(Unaudited)
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| Net income | Net income | $ | 106,292 | | | $ | 112,851 | | | $ | 274,049 | | | $ | 248,623 | | Net income | $ | 84,875 | | | $ | 73,281 | | |
Other comprehensive income (loss), net of tax: | Other comprehensive income (loss), net of tax: | | Other comprehensive income (loss), net of tax: | | |
Changes in net prior service credit and actuarial losses | Changes in net prior service credit and actuarial losses | 2,156 | | | 1,807 | | | 5,910 | | | 4,555 | | Changes in net prior service credit and actuarial losses | 499 | | | 1,878 | | |
Change in fair value of derivatives | Change in fair value of derivatives | 1,071 | | | 681 | | | 2,540 | | | (1,670) | | Change in fair value of derivatives | 2,337 | | | 641 | | |
Foreign currency translation | Foreign currency translation | (30,952) | | | 22,520 | | | (38,655) | | | (15,495) | | Foreign currency translation | 12,350 | | | (33,372) | | |
Other comprehensive (loss) income | (27,725) | | | 25,008 | | | (30,205) | | | (12,610) | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | 15,186 | | | (30,853) | | |
Comprehensive income | Comprehensive income | $ | 78,567 | | | $ | 137,859 | | | $ | 243,844 | | | $ | 236,013 | | Comprehensive income | $ | 100,061 | | | $ | 42,428 | | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the ninethree months ended September 30,March 31, 2022 and 2021 and 2020
(Dollars in thousands)
(Unaudited)
| | | 2021 | | 2020 | | 2022 | | 2021 |
Cash flows provided by (used in) operating activities: | Cash flows provided by (used in) operating activities: | | | | Cash flows provided by (used in) operating activities: | | | |
Net income | Net income | $ | 274,049 | | | $ | 248,623 | | Net income | $ | 84,875 | | | $ | 73,281 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | Depreciation and amortization | 185,968 | | | 163,454 | | Depreciation and amortization | 69,067 | | | 60,872 | |
Rationalization charges | Rationalization charges | 13,026 | | | 7,247 | | Rationalization charges | 1,379 | | | 10,357 | |
Stock compensation expense | Stock compensation expense | 15,605 | | | 13,880 | | Stock compensation expense | 4,879 | | | 5,010 | |
Loss on early extinguishment of debt | Loss on early extinguishment of debt | 883 | | | 1,481 | | Loss on early extinguishment of debt | 1,481 | | | 883 | |
Other changes that provided (used) cash, net of effects from acquisitions: | Other changes that provided (used) cash, net of effects from acquisitions: | | | | Other changes that provided (used) cash, net of effects from acquisitions: | | | |
Trade accounts receivable, net | Trade accounts receivable, net | (415,331) | | | (311,008) | | Trade accounts receivable, net | (141,113) | | | (103,549) | |
Inventories | Inventories | (78,738) | | | 2,435 | | Inventories | (222,137) | | | (118,132) | |
Trade accounts payable | Trade accounts payable | 62,303 | | | (73,814) | | Trade accounts payable | (29,881) | | | (59,825) | |
Accrued liabilities | Accrued liabilities | (33,488) | | | 57,187 | | Accrued liabilities | (23,291) | | | (32,062) | |
| Other, net | Other, net | (30,055) | | | 8,981 | | Other, net | (12,660) | | | (8,983) | |
Net cash (used in) provided by operating activities | (5,778) | | | 118,466 | | |
Net cash used in operating activities | | Net cash used in operating activities | (267,401) | | | (172,148) | |
| Cash flows provided by (used in) investing activities: | Cash flows provided by (used in) investing activities: | | | | Cash flows provided by (used in) investing activities: | | | |
Purchase of businesses, net of cash acquired | Purchase of businesses, net of cash acquired | (718,430) | | | (940,875) | | Purchase of businesses, net of cash acquired | (1,333) | | | — | |
Capital expenditures | Capital expenditures | (172,994) | | | (165,163) | | Capital expenditures | (68,491) | | | (68,764) | |
Other, net | Other, net | 2,234 | | | 999 | | Other, net | (203) | | | 402 | |
Net cash used in investing activities | Net cash used in investing activities | (889,190) | | | (1,105,039) | | Net cash used in investing activities | (70,027) | | | (68,362) | |
| Cash flows provided by (used in) financing activities: | Cash flows provided by (used in) financing activities: | | | | Cash flows provided by (used in) financing activities: | | | |
Borrowings under revolving loans | Borrowings under revolving loans | 1,155,199 | | | 993,406 | | Borrowings under revolving loans | 544,624 | | | 170,457 | |
Repayments under revolving loans | Repayments under revolving loans | (248,310) | | | (748,539) | | Repayments under revolving loans | (24,408) | | | (31,310) | |
Proceeds from issuance of long-term debt | Proceeds from issuance of long-term debt | 499,725 | | | 1,639,661 | | Proceeds from issuance of long-term debt | — | | | 499,725 | |
Repayments of long-term debt | Repayments of long-term debt | (500,000) | | | (766,170) | | Repayments of long-term debt | (300,000) | | | (500,000) | |
Changes in outstanding checks - principally vendors | Changes in outstanding checks - principally vendors | (84,216) | | | (79,006) | | Changes in outstanding checks - principally vendors | (225,863) | | | (84,216) | |
Dividends paid on common stock | Dividends paid on common stock | (47,030) | | | (40,432) | | Dividends paid on common stock | (18,722) | | | (16,055) | |
Debt issuance costs | Debt issuance costs | (4,909) | | | (10,265) | | Debt issuance costs | — | | | (4,633) | |
| Repurchase of common stock | Repurchase of common stock | (8,573) | | | (13,155) | | Repurchase of common stock | (11,474) | | | (8,275) | |
| Net cash provided by financing activities | 761,886 | | | 975,500 | | |
Net cash (used in) provided by financing activities | | Net cash (used in) provided by financing activities | (35,843) | | | 25,693 | |
| Effect of exchange rate changes on cash and cash equivalents | Effect of exchange rate changes on cash and cash equivalents | (5,832) | | | 1,008 | | Effect of exchange rate changes on cash and cash equivalents | 1,396 | | | (4,533) | |
| Cash and cash equivalents: | Cash and cash equivalents: | | | | Cash and cash equivalents: | | | |
Net decrease | Net decrease | (138,914) | | | (10,065) | | Net decrease | (371,875) | | | (219,350) | |
Balance at beginning of year | Balance at beginning of year | 409,481 | | | 203,824 | | Balance at beginning of year | 631,439 | | | 409,481 | |
Balance at end of period | Balance at end of period | $ | 270,567 | | | $ | 193,759 | | Balance at end of period | $ | 259,564 | | | $ | 190,131 | |
| Interest paid, net | Interest paid, net | $ | 79,107 | | | $ | 70,948 | | Interest paid, net | $ | 33,116 | | | $ | 31,655 | |
Income taxes paid, net | Income taxes paid, net | 79,812 | | | 91,378 | | Income taxes paid, net | 6,718 | | | 15,297 | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three and nine months ended September 30,March 31, 2022 and 2021 and 2020
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| Common stock - shares outstanding | Common stock - shares outstanding | | Common stock - shares outstanding | | |
Balance at beginning of period | Balance at beginning of period | 110,408 | | | 110,886 | | | 110,057 | | | 110,780 | | Balance at beginning of period | 110,410 | | | 110,057 | | |
Net issuance of treasury stock for vested restricted stock units | Net issuance of treasury stock for vested restricted stock units | 2 | | | — | | | 353 | | | 365 | | Net issuance of treasury stock for vested restricted stock units | 390 | | | 329 | | |
Repurchases of common stock | — | | | — | | | — | | | (259) | | |
| Balance at end of period | Balance at end of period | 110,410 | | | 110,886 | | | 110,410 | | | 110,886 | | Balance at end of period | 110,800 | | | 110,386 | | |
| Common stock - par value | Common stock - par value | | Common stock - par value | | |
Balance at beginning and end of period | Balance at beginning and end of period | $ | 1,751 | | | $ | 1,751 | | | $ | 1,751 | | | $ | 1,751 | | Balance at beginning and end of period | $ | 1,751 | | | $ | 1,751 | | |
| Paid-in capital | Paid-in capital | | Paid-in capital | | |
Balance at beginning of period | Balance at beginning of period | 314,873 | | | 296,639 | | | 306,363 | | | 289,422 | | Balance at beginning of period | 325,448 | | | 306,363 | | |
Stock compensation expense | Stock compensation expense | 5,268 | | | 4,824 | | | 15,605 | | | 13,880 | | Stock compensation expense | 4,879 | | | 5,010 | | |
Net issuance of treasury stock for vested restricted stock units | Net issuance of treasury stock for vested restricted stock units | (9) | | | — | | | (1,836) | | | (1,839) | | Net issuance of treasury stock for vested restricted stock units | (2,126) | | | (1,738) | | |
Balance at end of period | Balance at end of period | 320,132 | | | 301,463 | | | 320,132 | | | 301,463 | | Balance at end of period | 328,201 | | | 309,635 | | |
| Retained earnings | Retained earnings | | Retained earnings | | |
Balance at beginning of period | Balance at beginning of period | 2,531,783 | | | 2,249,391 | | | 2,395,395 | | | 2,141,302 | | Balance at beginning of period | 2,691,745 | | | 2,395,395 | | |
Net income | Net income | 106,292 | | | 112,851 | | | 274,049 | | | 248,623 | | Net income | 84,875 | | | 73,281 | | |
Dividends declared on common stock | Dividends declared on common stock | (15,674) | | | (13,514) | | | (47,043) | | | (40,532) | | Dividends declared on common stock | (17,923) | | | (15,680) | | |
Adoption of accounting standards update related to credit losses in 2020 | — | | | — | | | — | | | (665) | | |
Balance at end of period | Balance at end of period | 2,622,401 | | | 2,348,728 | | | 2,622,401 | | | 2,348,728 | | Balance at end of period | 2,758,697 | | | 2,452,996 | | |
| Accumulated other comprehensive loss | Accumulated other comprehensive loss | | Accumulated other comprehensive loss | | |
Balance at beginning of period | Balance at beginning of period | (263,433) | | | (297,360) | | | (260,953) | | | (259,742) | | Balance at beginning of period | (259,828) | | | (260,953) | | |
Other comprehensive (loss) income | (27,725) | | | 25,008 | | | (30,205) | | | (12,610) | | |
Other comprehensive income (loss) | | Other comprehensive income (loss) | 15,186 | | | (30,853) | | |
Balance at end of period | Balance at end of period | (291,158) | | | (272,352) | | | (291,158) | | | (272,352) | | Balance at end of period | (244,642) | | | (291,806) | | |
| Treasury stock | Treasury stock | | Treasury stock | | |
Balance at beginning of period | Balance at beginning of period | (1,196,394) | | | (1,160,727) | | | (1,189,683) | | | (1,149,411) | | Balance at beginning of period | (1,196,420) | | | (1,189,683) | | |
Net issuance of treasury stock for vested restricted stock units | Net issuance of treasury stock for vested restricted stock units | (26) | | | — | | | (6,737) | | | (4,382) | | Net issuance of treasury stock for vested restricted stock units | (9,348) | | | (6,537) | | |
Repurchases of common stock | — | | | — | | | — | | | (6,934) | | |
| Balance at end of period | Balance at end of period | (1,196,420) | | | (1,160,727) | | | (1,196,420) | | | (1,160,727) | | Balance at end of period | (1,205,768) | | | (1,196,220) | | |
Total stockholders' equity | Total stockholders' equity | $ | 1,456,706 | | | $ | 1,218,863 | | | $ | 1,456,706 | | | $ | 1,218,863 | | Total stockholders' equity | $ | 1,638,239 | | | $ | 1,276,356 | | |
| Dividends declared on common stock per share | Dividends declared on common stock per share | $ | 0.14 | | | $ | 0.12 | | | $ | 0.42 | | | $ | 0.36 | | Dividends declared on common stock per share | $ | 0.16 | | | $ | 0.14 | | |
|
See accompanying notes.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year.
The Condensed Consolidated Balance Sheet at December 31, 20202021 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Effective with the first quarter of 2021, we renamed our Closures segment as our Dispensing and Specialty Closures segment and our Plastic Containers segment as our Custom Containers segment, in each case to better capture the evolving nature of their products and our ongoing strategic focus. Each of these segments continues to consist of the same operations as prior to it being renamed.
Goodwill and Other Intangible Assets. We review goodwill and other indefinite-lived intangible assets for impairment as of July 1 of each year and more frequently if circumstances indicate a possible impairment. We determined that our goodwill and other indefinite-lived intangible assets were not impaired in our annual 2021 assessment performed during the third quarter.2021.
Note 2. Revenue
The following tables present our revenues disaggregated by reportable segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenues by segment for the three months ended March 31 were as follows:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Dispensing and Specialty Closures | Dispensing and Specialty Closures | $ | 533,329 | | | $ | 475,105 | | | $ | 1,588,449 | | | $ | 1,242,725 | | Dispensing and Specialty Closures | $ | 597,927 | | | $ | 509,352 | | |
Metal Containers | Metal Containers | 942,125 | | | 856,660 | | | 2,120,740 | | | 1,962,370 | | Metal Containers | 650,726 | | | 554,081 | | |
Custom Containers | Custom Containers | 175,616 | | | 156,734 | | | 528,652 | | | 490,258 | | Custom Containers | 193,233 | | | 174,677 | | |
| | $ | 1,651,070 | | | $ | 1,488,499 | | | $ | 4,237,841 | | | $ | 3,695,353 | | | $ | 1,441,886 | | | $ | 1,238,110 | | |
Revenues by geography for the three months ended March 31 were as follows:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
North America | North America | $ | 1,274,025 | | | $ | 1,143,562 | | | $ | 3,140,924 | | | $ | 2,858,561 | | North America | $ | 1,086,224 | | | $ | 898,402 | | |
Europe and other | Europe and other | 377,045 | | | 344,937 | | | 1,096,917 | | | 836,792 | | Europe and other | 355,662 | | | 339,708 | | |
| | $ | 1,651,070 | | | $ | 1,488,499 | | | $ | 4,237,841 | | | $ | 3,695,353 | | | $ | 1,441,886 | | | $ | 1,238,110 | | |
Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $99.1 million, $86.4 million, and $78.2 million as of March 31, 2022 and 2021 and December 31, 2021, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $94.6 million, $80.2 million, and $83.0 million as of September 30, 2021 and 2020 and December 31, 2020, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.
Note 3. Acquisitions
Gateway Plastics Acquisition
On September 20, 2021, we acquired Gateway Plastics LLC, or Silgan Specialty Packaging, a manufacturer and seller of dispensing closures and integrated dispensing packaging solutions, such as a combined container and closure or 100% recyclable dispensing beverage pods, to consumer goods product companies primarily for the food and beverage markets. The purchase price for this acquisition of $483.8 million, net of cash acquired, was funded with revolving loan borrowings under our amended and restated senior secured credit facility, as amended, or the Credit Agreement. The purchase price is subject to adjustments for working capital, net indebtedness and seller's transaction expenses. The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches, primarily using Level 3 inputs (as defined in Note 9). For this acquisition, we applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date, and we recognized goodwill of $200.7 million which is expected to be deductible for income tax purposes, a customer relationship intangible asset of $166.0 million with an estimated remaining life of 22 years and technology know-how of $3.4 million with an estimated remaining life of 5 years. The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets. Silgan Specialty Packaging's results of operations were included in our Dispensing and Specialty Closures segment since the acquisition date and were not significant since such date.
Unicep Packaging Acquisition
On September 30, 2021, we acquired Unicep Packaging LLC, or Unicep, a Specialty Contract Manufacturer and Developer, or SCMD, solutions provider that develops, formulates, manufactures and sells precision dosing dispensing packaging solutions, such as diagnostic test components, oral care applications and skin care products, primarily for the health care, diagnostics, animal health, oral care and personal care markets. The purchase price for this acquisition of $236.9 million, net of cash acquired, was funded with revolving loan borrowings under the Credit Agreement. The purchase price is subject to adjustments for working capital, net indebtedness and seller's transaction expenses. The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches, primarily using Level 3 inputs (as defined in Note 9). For this acquisition, we applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date, and we recognized goodwill of $142.8 million which is expected to be deductible for income tax purposes, a customer relationship intangible asset of $72.0 million with an estimated remaining life of 18 years, technology know-how of $4.0 million with an estimated remaining life of 10 years and a trade name of $3.7 million with an estimated remaining life of 10 years. The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets. Unicep's results of operations were included in our Dispensing and Specialty Closures segment since the acquisition date and were not significant since such date.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 4.3. Rationalization Charges
We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Rationalization charges by segment for the three months ended March 31 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Three Months Ended | | Nine Months Ended |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 |
| | (Dollars in thousands) |
Dispensing and Specialty Closures | | $ | 406 | | | $ | 787 | | | $ | 5,704 | | | $ | 2,229 | |
Metal Containers | | 1,822 | | | 1,639 | | | 7,068 | | | 4,755 | |
Custom Containers | | 87 | | | 79 | | | 254 | | | 263 | |
| | $ | 2,315 | | | $ | 2,505 | | | $ | 13,026 | | | $ | 7,247 | |
| | | | | | | | | | | | | | | | | | |
| | | | |
| | | | | | | | |
| | 2022 | | 2021 | | | | |
| | (Dollars in thousands) |
Dispensing and Specialty Closures | | $ | — | | | $ | 5,231 | | | | | |
Metal Containers | | 1,274 | | | 5,021 | | | | | |
Custom Containers | | 105 | | | 105 | | | | | |
| | $ | 1,379 | | | $ | 10,357 | | | | | |
Activity in reserves for our rationalization plans were as follows:
| | | Employee Severance and Benefits | | Plant Exit Costs | | Non-Cash Asset Write-Down | | Total | | Employee Severance and Benefits | | Plant Exit Costs | | Non-Cash Asset Write-Down | | Total |
| | | (Dollars in thousands) | | | (Dollars in thousands) |
Balance at December 31, 2020 | | $ | 41,005 | | | $ | 555 | | | $ | — | | | $ | 41,560 | | |
Balance at December 31, 2021 | | Balance at December 31, 2021 | | $ | 41,090 | | | $ | 157 | | | $ | — | | | $ | 41,247 | |
Charged to expense | Charged to expense | | 7,262 | | | 1,210 | | | 4,554 | | | 13,026 | | Charged to expense | | 621 | | | 733 | | | 25 | | | 1,379 | |
Utilized and currency translation | Utilized and currency translation | | (5,253) | | | (1,638) | | | (4,554) | | | (11,445) | | Utilized and currency translation | | (1,839) | | | (702) | | | (25) | | | (2,566) | |
Balance at September 30, 2021 | | $ | 43,014 | | | $ | 127 | | | $ | — | | | $ | 43,141 | | |
Balance at March 31, 2022 | | Balance at March 31, 2022 | | $ | 39,872 | | | $ | 188 | | | $ | — | | | $ | 40,060 | |
Non-cash asset write-downs were the result of comparing the carrying value of certain production related assets to their fair value using estimated future discounted cash flows, a Level 3 fair value measurement (see Note 97 for information regarding a Level 3 fair value measurement).
Rationalization reserves as of September 30, 2021March 31, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $7.1$4.8 million and other liabilities of $36.0$35.3 million. ExclusiveExcluding the impact of the footprint optimization plan for our Metal Container segment and our resulting withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $1.2$0.6 million and $5.9$2.2 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1$1.0 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 5.4. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity. Amounts included in accumulated other comprehensive loss, net of tax, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Unrecognized Net Defined Benefit Plan Costs | | Change in Fair Value of Derivatives | | Foreign Currency Translation | | Total |
| (Dollars in thousands) |
Balance at December 31, 2020 | $ | (168,604) | | | $ | (4,656) | | | $ | (87,693) | | | $ | (260,953) | |
Other comprehensive loss before reclassifications | — | | | 1,022 | | | (38,655) | | | (37,633) | |
Amounts reclassified from accumulated other comprehensive loss | 5,910 | | | 1,518 | | | — | | | 7,428 | |
Other comprehensive loss | 5,910 | | | 2,540 | | | (38,655) | | | (30,205) | |
Balance at September 30, 2021 | $ | (162,694) | | | $ | (2,116) | | | $ | (126,348) | | | $ | (291,158) | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Unrecognized Net Defined Benefit Plan Costs | | Change in Fair Value of Derivatives | | Foreign Currency Translation | | Total |
| (Dollars in thousands) |
Balance at December 31, 2021 | $ | (119,474) | | | $ | (2,327) | | | $ | (138,027) | | | $ | (259,828) | |
Other comprehensive income before reclassifications | — | | | 2,018 | | | 12,350 | | | 14,368 | |
Amounts reclassified from accumulated other comprehensive loss | 499 | | | 319 | | | — | | | 818 | |
Other comprehensive income | 499 | | | 2,337 | | | 12,350 | | | 15,186 | |
Balance at March 31, 2022 | $ | (118,975) | | | $ | 10 | | | $ | (125,677) | | | $ | (244,642) | |
The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021March 31, 2022 were net (losses) of $(2.9)$(0.7) million, and $(8.1) million, respectively, excluding an income tax benefitsbenefit of $0.8 million and $2.2 million, respectively. For the three and nine months ended September 30, 2021, these$0.2 million. These net (losses) consisted of amortization of net actuarial (losses) of $(3.3) million and $(9.3)$(1.1) million and amortization of net prior service credit of $0.4 million and $1.2 million, respectively.million. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 119 for further information.
The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021March 31, 2022 were not significant.
Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2021March 31, 2022 consisted of (i) foreign currency (losses)gains related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $(40.5)$3.0 million, and $(63.1) million, respectively, (ii) foreign currency (losses) gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $(0.1) million and $0.8 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $12.6$11.3 million, and $30.9 million, respectively, excluding an income tax (provision) of $(3.0) million and $(7.3) million, respectively.$(2.7) million. See Note 97 for further discussion.
Note 6.5. Inventories
Inventories consisted of the following:
| | | | | | | | | | | | | | | | | |
| Sept. 30, 2021 | | Sept. 30, 2020 | | Dec. 31, 2020 |
| (Dollars in thousands) |
Raw materials | $ | 333,202 | | | $ | 294,896 | | | $ | 270,066 | |
Work-in-process | 152,429 | | | 154,157 | | | 167,100 | |
Finished goods | 370,134 | | | 370,406 | | | 335,346 | |
Other | 16,005 | | | 15,217 | | | 14,610 | |
| 871,770 | | | 834,676 | | | 787,122 | |
Adjustment to value inventory at cost on the LIFO method | (109,588) | | | (156,495) | | | (109,588) | |
| $ | 762,182 | | | $ | 678,181 | | | $ | 677,534 | |
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 7. Goodwill and Other Intangibles
Changes in the carrying amount of goodwill were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Dispensing and Specialty Closures | | Metal Containers | | Custom Containers | | Total |
| (Dollars in thousands) |
Balance at December 31, 2020 | $ | 1,396,191 | | | $ | 117,938 | | | $ | 227,367 | | | $ | 1,741,496 | |
Acquisitions | 346,916 | | | — | | | — | | | 346,916 | |
Currency translation | (46,610) | | | (2,869) | | | 100 | | | (49,379) | |
Balance at September 30, 2021 | $ | 1,696,497 | | | $ | 115,069 | | | $ | 227,467 | | | $ | 2,039,033 | |
| | | | | | | |
In connection with our acquisitions of Silgan Specialty Packaging and Unicep as discussed in Note 3, we recognized goodwill of $343.5 million.
The components of other intangible assets, net were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Sept. 30, 2021 | | Dec. 31, 2020 |
| Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| (Dollars in thousands) |
Definite-lived intangibles: | | | | | | | |
Customer relationships | $ | 926,566 | | | $ | (163,998) | | | $ | 711,065 | | | $ | (147,014) | |
Other | 81,339 | | | (36,715) | | | 72,689 | | | (31,672) | |
| 1,007,905 | | | (200,713) | | | 783,754 | | | (178,686) | |
Indefinite-lived intangibles: | | | | | | | |
Trade names | 32,140 | | | — | | | 32,140 | | | — | |
| $ | 1,040,045 | | | $ | (200,713) | | | $ | 815,894 | | | $ | (178,686) | |
| | | | | | | |
In connection with our acquisitions of Silgan Specialty Packaging and Unicep as discussed in Note 3, we recognized intangible assets for customer relationships of $238.0 million, technology know-how of $7.4 million and a trade name of $3.7 million.
Amortization expense was $10.5 million and $31.1 million for the three and nine months ended September 30, 2021, respectively, and $10.4 million and $25.4 million for the three and nine months ended September 30, 2020, respectively. Amortization expense is expected to be $45.1 million, $52.8 million, $52.7 million, $52.7 million and $48.7 million for the years ended December 31, 2021 through 2025, respectively. | | | | | | | | | | | | | | | | | |
| March 31, 2022 | | March 31, 2021 | | Dec. 31, 2021 |
| (Dollars in thousands) |
Raw materials | $ | 295,713 | | | $ | 263,580 | | | $ | 394,102 | |
Work-in-process | 263,878 | | | 167,137 | | | 157,406 | |
Finished goods | 607,087 | | | 452,553 | | | 394,378 | |
Other | 14,787 | | | 14,955 | | | 15,731 | |
| 1,181,465 | | | 898,225 | | | 961,617 | |
Adjustment to value inventory at cost on the LIFO method | (162,780) | | | (109,588) | | | (162,780) | |
| $ | 1,018,685 | | | $ | 788,637 | | | $ | 798,837 | |
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 8.6. Long-Term Debt
Long-term debt consisted of the following:
| | | Sept. 30, 2021 | | Sept. 30, 2020 | | Dec. 31, 2020 | | March 31, 2022 | | March 31, 2021 | | Dec. 31, 2021 |
| | (Dollars in thousands) | | (Dollars in thousands) |
Bank debt | Bank debt | | | | | | Bank debt | | | | | |
Bank revolving loans | Bank revolving loans | $ | 910,000 | | | $ | 246,000 | | | $ | — | | Bank revolving loans | $ | 508,000 | | | $ | 137,000 | | | $ | — | |
U.S. term loans | U.S. term loans | 400,000 | | | 900,000 | | | 900,000 | | U.S. term loans | 1,000,000 | | | 400,000 | | | 1,000,000 | |
| Other foreign bank revolving and term loans | Other foreign bank revolving and term loans | 36,003 | | | 39,825 | | | 30,407 | | Other foreign bank revolving and term loans | 50,014 | | | 60,030 | | | 38,862 | |
Total bank debt | Total bank debt | 1,346,003 | | | 1,185,825 | | | 930,407 | | Total bank debt | 1,558,014 | | | 597,030 | | | 1,038,862 | |
| 4¾% Senior Notes | 4¾% Senior Notes | 300,000 | | | 300,000 | | | 300,000 | | 4¾% Senior Notes | — | | | 300,000 | | | 300,000 | |
3¼% Senior Notes | 3¼% Senior Notes | 753,285 | | | 762,223 | | | 795,307 | | 3¼% Senior Notes | 723,190 | | | 763,945 | | | 739,180 | |
4⅛% Senior Notes | 4⅛% Senior Notes | 600,000 | | | 600,000 | | | 600,000 | | 4⅛% Senior Notes | 600,000 | | | 600,000 | | | 600,000 | |
2¼% Senior Notes | 2¼% Senior Notes | 579,450 | | | 586,325 | | | 611,775 | | 2¼% Senior Notes | 556,300 | | | 587,650 | | | 568,600 | |
1.4% Senior Secured Notes | 1.4% Senior Secured Notes | 500,000 | | | — | | | — | | 1.4% Senior Secured Notes | 500,000 | | | 500,000 | | | 500,000 | |
Finance leases | Finance leases | 69,061 | | | 35,035 | | | 34,480 | | Finance leases | 67,714 | | | 33,936 | | | 68,730 | |
Total debt - principal | Total debt - principal | 4,147,799 | | | 3,469,408 | | | 3,271,969 | | Total debt - principal | 4,005,218 | | | 3,382,561 | | | 3,815,372 | |
Less unamortized debt issuance costs and debt discount | Less unamortized debt issuance costs and debt discount | 21,972 | | | 21,638 | | | 20,716 | | Less unamortized debt issuance costs and debt discount | 20,451 | | | 24,147 | | | 22,195 | |
Total debt | Total debt | 4,125,827 | | | 3,447,770 | | | 3,251,253 | | Total debt | 3,984,767 | | | 3,358,414 | | | 3,793,177 | |
Less current portion | Less current portion | 934,246 | | | 284,465 | | | 28,036 | | Less current portion | 539,134 | | | 195,122 | | | 20,251 | |
| | $ | 3,191,581 | | | $ | 3,163,305 | | | $ | 3,223,217 | | | $ | 3,445,633 | | | $ | 3,163,292 | | | $ | 3,772,926 | |
At September 30, 2021,March 31, 2022, the current portion of long-term debt consisted of $910.0$508.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $21.6$28.4 million of other foreign bank revolving and term loans and $2.6$2.7 million of finance leases.
On February 1, 2021,March 28, 2022, we and certain of our subsidiaries entered into a Second Amendment to Amended and Restated Credit Agreement, or the Second Amendment, with certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent under the Credit Agreement. The Second Amendment amends the Credit Agreement to provide us with additional flexibility to issue new senior secured notes with related guarantees from our U.S. subsidiaries, which new senior secured notes and related guarantees may be secured on a pari passu basis with the U.S. Obligations by the U.S. Collateral (each as defined in the Second Amendment). The Second Amendment also makes minor technical changes and allows for certain additional internal corporate reorganizations.
1.4% SENIOR SECURED NOTES
On February 10, 2021, we issued $500.0redeemed all $300.0 million aggregate principal amount of our 1.4%outstanding 4¾% Senior Secured Notes due 2026,2025, or the 1.4%4¾% Notes, at 99.945a redemption price of 100 percent of their principal amount in a private placement in reliance on Rule 144Aplus accrued and Regulation S underunpaid interest to the Securities Act of 1933, as amended. The proceeds from the sale of the 1.4% Notes were $499.7 million.redemption date. We used the proceeds from the sale of the 1.4% Notes to prepay $500.0 million of our outstanding term loansfunded this redemption with revolving loan borrowings under the Credit Agreement. We paid the initial purchasers’ discountAgreement and offering expenses related to the sale of the 1.4% Notes with cash on hand. As a result of this prepayment,redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.9$1.5 million during the first quarter of 20212022 for the write-off of unamortized debt issuance costs.
The 1.4% Notes are guaranteed on a senior secured basis by our U.S. subsidiaries that guarantee the Credit Agreement. The 1.4% Notes are not guaranteed by any of our subsidiaries that do not guarantee the Credit Agreement, any of our foreign subsidiaries or any of our non-wholly owned subsidiaries. The 1.4% Notes and related guarantees are secured by pledges of equity interests, or the Collateral, that are owned by us and by each subsidiary guarantor, which equity interests are the same equity interests pledged to secure the obligations of U.S. borrowers under the Credit Agreement. The 1.4% Notes will share equally in the Collateral with the Credit Agreement. The guarantee of each such subsidiary guarantor will be released to the
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
extent such subsidiary no longer guarantees the Credit Agreement and in certain other circumstances, and the Collateral pledged by such subsidiary guarantor will also be released upon the release of such subsidiary guarantor’s guarantee.
The 1.4% Notes and related guarantees are senior secured obligations of us and the subsidiary guarantors. The 1.4% Notes and related guarantees rank equally in right of payment with all of our and the subsidiary guarantors’ existing and future senior indebtedness, including under the Credit Agreement and our 4¾% Senior Notes due 2025, or the 4¾% Notes, our 3¼% Senior Notes due 2025, or the 3¼% Notes, our 4⅛% Senior Notes due 2028, or the 4⅛% Notes, and our 2¼% Senior Notes due 2028, or the 2¼% Notes; are senior in right of payment to all of our and the subsidiary guarantors’ future indebtedness that is by its terms expressly subordinated in right of payment to the 1.4% Notes; rank equally in right of payment to all of our and the subsidiary guarantors’ existing and future senior secured indebtedness (including indebtedness under the Credit Agreement) that is secured by the Collateral on a first-priority basis, to the extent of the value of the Collateral; rank effectively senior to all of our and the subsidiary guarantors’ existing and future unsecured indebtedness and indebtedness secured on a junior basis, in each case to the extent of the value of the Collateral; rank effectively junior to all existing and future indebtedness that is secured by liens on assets that do not constitute a part of the Collateral, to the extent of the value of such assets; and are structurally subordinated to all existing and future indebtedness and other liabilities of each of our existing and future subsidiaries that do not guarantee the 1.4% Notes.
As a result of the guarantees by the subsidiary guarantors of the 1.4% Notes, such subsidiaries were also required to guarantee, and have now guaranteed, on a senior unsecured basis the 4¾% Notes, the 3¼% Notes, the 4⅛% Notes and the 2¼% Notes pursuant to supplemental indentures to the indenture for the 4¾% Notes and the 3¼% Notes, the indenture for the 4⅛% Notes and the indenture for the 2¼% Notes.
The 1.4% Notes are not, and are not required to be, registered under the Securities Act of 1933, as amended.
The 1.4% Notes mature on April 1, 2026. Interest on the 1.4% Notes will be payable semi-annually in cash on April 1 and October 1 of each year, beginning on October 1, 2021. The 1.4% Notes were issued pursuant to an indenture by and among Silgan, certain of our U.S. subsidiaries and Wells Fargo Bank, National Association, as trustee and collateral agent, which indenture contains covenants that are generally less restrictive than those in the Credit Agreement and substantially similar to the covenants in the indenture for the 4¾% Notes and the 3¼% Notes, the indenture for the 4⅛% Notes and the indenture for the 2¼% Notes.
Prior to March 1, 2026 (one month prior to the maturity date of the 1.4% Notes, or the Par Call Date) the 1.4% Notes will be redeemable at a redemption price equal to the greater of (i) 100 percent of the principal amount of the 1.4% Notes to be redeemed and (ii) the principal amount of the 1.4% Notes plus a “make-whole” amount, plus, in each case, accrued and unpaid interest thereon to the redemption date. On or after the Par Call Date, the 1.4% Notes will be redeemable at a redemption price equal to 100 percent of the aggregate principal amount of any 1.4% Notes being redeemed, plus accrued and unpaid interest thereon to the redemption date.
We will be required to make an offer to repurchase the 1.4% Notes at a repurchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest to the date of repurchase, upon the occurrence of a change of control repurchase event as provided in the indenture for the 1.4% Notes.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 9.7. Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at September 30, 2021:March 31, 2022:
| | | | | | | | | | | |
| Carrying Amount | | Fair Value |
| (Dollars in thousands) |
Assets: | | | |
Cash and cash equivalents | $ | 270,567 | | | $ | 270,567 | |
| | | |
| | | |
Liabilities: | | | |
Bank debt | $ | 1,346,003 | | | $ | 1,346,003 | |
| | | |
4¾% Notes | 300,000 | | | 304,140 | |
3¼% Notes | 753,285 | | | 760,291 | |
4⅛% Notes | 599,172 | | | 616,500 | |
2¼% Notes | 579,450 | | | 584,607 | |
1.4% Notes | 499,758 | | | 492,000 | |
| | | |
| | | | | | | | | | | |
| Carrying Amount | | Fair Value |
| (Dollars in thousands) |
Assets: | | | |
Cash and cash equivalents | $ | 259,564 | | | $ | 259,564 | |
| | | |
| | | |
Liabilities: | | | |
Bank debt | $ | 1,558,014 | | | $ | 1,558,014 | |
| | | |
| | | |
3¼% Senior Notes | 723,190 | | | 721,671 | |
4⅛% Senior Notes | 599,229 | | | 575,280 | |
2¼% Senior Notes | 556,300 | | | 507,624 | |
1.4% Senior Secured Notes | 499,784 | | | 456,550 | |
| | | |
Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Financial Instruments Measured at Fair Value
The financial assets and liabilities that were measured on a recurring basis at September 30, 2021March 31, 2022 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.
Financial Instruments Not Measured at Fair Value
Our bank debt, 4¾3¼% Notes, 3¼%Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 4¾3¼% Notes, 3¼%Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were estimated based on quoted market prices, a Level 1 input.
Derivative Instruments and Hedging Activities
Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
We utilize certain derivative financial instruments to manage a portion of our interest rate, foreign currency exchange rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate, foreign currency exchange rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate, foreign currency exchange 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. The notional principal amounts outstanding under foreign currency exchange rate agreements and natural gas swap agreements were not significant as of September 30, 2021.
In addition, weWe also utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss.
Interest Rate Swap Agreements
We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three and nine months ended September 30, 2021.March 31, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at September 30, 2021March 31, 2022 was not significant.
Natural Gas Swap Agreements
We have entered into natural gas swap agreements to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income and was not significant for the three months ended March 31, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at March 31, 2022 was not significant.
Foreign Currency Exchange Rate Risk
In an effort to minimize our foreign currency exchange rate risk, in addition to limited foreign currency exchange rate derivative financial instruments, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros and Canadian dollars.Euros. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations, including net investment hedges related to the 3¼% Senior Notes which are Euro denominated. Foreign currency gains related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2021March 31, 2022 were $12.6 million and $30.9 million, respectively.$11.3 million.
Note 10.8. Commitments and Contingencies
A competition authority in Germany commenced an antitrust investigation in 2015 involving the industry association for metal packaging in Germany and its members, including our metal closures and metal container subsidiaries in Germany. At the end of April 2018, the European Commission commenced an antitrust investigation involving the metal packaging industry in Europe including our metal closures and metal container subsidiaries, which should effectively close out the investigation in Germany. Given the current stage of the investigation, we cannot reasonably assess what actions may result from these investigations or estimate what costs we may incur as a result thereof.
We are a party to other legal proceedings, contract disputes and claims 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.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 11.9. Retirement Benefits
The components of the net periodic pension benefit credit for the three months ended March 31 were as follows:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Service cost | Service cost | $ | 3,177 | | | $ | 2,983 | | | $ | 10,754 | | | $ | 9,958 | | Service cost | $ | 3,300 | | | $ | 3,788 | | |
Interest cost | Interest cost | 4,579 | | | 5,816 | | | 13,288 | | | 17,236 | | Interest cost | 5,159 | | | 4,354 | | |
Expected return on plan assets | Expected return on plan assets | (19,892) | | | (18,104) | | | (59,590) | | | (54,091) | | Expected return on plan assets | (17,314) | | | (19,848) | | |
Amortization of prior service cost | Amortization of prior service cost | 67 | | | 43 | | | 183 | | | 154 | | Amortization of prior service cost | 55 | | | 58 | | |
Amortization of actuarial losses | Amortization of actuarial losses | 3,464 | | | 2,993 | | | 9,518 | | | 8,862 | | Amortization of actuarial losses | 1,155 | | | 3,026 | | |
| Net periodic benefit credit | Net periodic benefit credit | $ | (8,605) | | | $ | (6,269) | | | $ | (25,847) | | | $ | (17,881) | | Net periodic benefit credit | $ | (7,645) | | | $ | (8,622) | | |
The components of the net periodic other postretirement benefit credit for the three months ended March 31 were as follows:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | (Dollars in thousands) | | (Dollars in thousands) |
Service cost | Service cost | $ | 25 | | | $ | 18 | | | $ | 81 | | | $ | 66 | | Service cost | $ | 25 | | | $ | 28 | | |
Interest cost | Interest cost | 82 | | | 142 | | | 272 | | | 425 | | Interest cost | 109 | | | 95 | | |
Amortization of prior service credit | Amortization of prior service credit | (460) | | | (487) | | | (1,373) | | | (1,454) | | Amortization of prior service credit | (416) | | | (456) | | |
Amortization of actuarial gains | Amortization of actuarial gains | (137) | | | (115) | | | (232) | | | (254) | | Amortization of actuarial gains | (77) | | | (48) | | |
Net periodic benefit credit | Net periodic benefit credit | $ | (490) | | | $ | (442) | | | $ | (1,252) | | | $ | (1,217) | | Net periodic benefit credit | $ | (359) | | | $ | (381) | | |
Note 12.10. Income Taxes
Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 20192020 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 20202021 and 20212022 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.
Note 13.11. Treasury Stock
On October 17, 2016,March 4, 2022, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021.2026. We did not repurchase any shares of our common stock pursuant to this authorization during the ninethree months ended September 30, 2021. At September 30, 2021, we had approximately $76.6 million remaining under this authorization for the repurchase of our common stock.March 31, 2022.
During the first ninethree months of 2021,2022, we issued 576,232667,004 treasury shares which had an average cost of $3.19 per share for restricted stock units that vested during the period. In accordance with the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, we repurchased 223,030276,826 shares of our common stock at an average cost of $38.44$41.45 to satisfy minimum employee withholding tax requirements resulting from the vesting of such restricted stock units.
We account for treasury shares using the first-in, first-out (FIFO) cost method. As of September 30, 2021, 64,702,267March 31, 2022, 64,312,089 shares of our common stock were held in treasury.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30,March 31, 2022 and 2021 and 2020 and for the
three and nine months then ended is unaudited)
Note 14.12. Stock-Based Compensation
We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first ninethree months of 2021, 364,7692022, 409,900 restricted stock units were granted to certain of our officers and other key employees and outside directors.employees. The fair value of these restricted stock units at the grant date was $14.1$17.0 million, which is being amortized ratably over the respective vesting period from the grant date.
Note 15.13. Segment Information
Reportable segment information for the three months ended March 31 was as follows:
| | | Dispensing and Specialty Closures | | Metal Containers | | Custom Containers | | Corporate | | Total | | Dispensing and Specialty Closures | | Metal Containers | | Custom Containers | | Corporate | | Total |
| | (Dollars in thousands) | | (Dollars in thousands) |
Three Months Ended September 30, 2021 | | | | | | | | | | |
Three Months Ended March 31, 2022 | | Three Months Ended March 31, 2022 | | | | | | | | | |
Net sales | Net sales | $ | 533,329 | | | $ | 942,125 | | | $ | 175,616 | | | $ | — | | | $ | 1,651,070 | | Net sales | $ | 597,927 | | | $ | 650,726 | | | $ | 193,233 | | | $ | — | | | $ | 1,441,886 | |
Depreciation and amortization(1) | Depreciation and amortization(1) | 30,830 | | | 21,231 | | | 10,072 | | | 38 | | | 62,171 | | Depreciation and amortization(1) | 36,619 | | | 21,064 | | | 9,883 | | | 42 | | | 67,608 | |
Rationalization charges | Rationalization charges | 406 | | | 1,822 | | | 87 | | | — | | | 2,315 | | Rationalization charges | — | | | 1,274 | | | 105 | | | — | | | 1,379 | |
Segment income | Segment income | 60,090 | | | 94,271 | | | 22,704 | | | (9,148) | | | 167,917 | | Segment income | 87,313 | | | 38,009 | | | 24,694 | | | (6,624) | | | 143,392 | |
| Three Months Ended September 30, 2020 | | | | | | | | | | |
Three Months Ended March 31, 2021 | | Three Months Ended March 31, 2021 | | | | | | | | | |
Net sales | Net sales | $ | 475,105 | | | $ | 856,660 | | | $ | 156,734 | | | $ | — | | | $ | 1,488,499 | | Net sales | $ | 509,352 | | | $ | 554,081 | | | $ | 174,677 | | | $ | — | | | $ | 1,238,110 | |
Depreciation and amortization(1) | Depreciation and amortization(1) | 27,777 | | | 21,008 | | | 9,207 | | | 39 | | | 58,031 | | Depreciation and amortization(1) | 28,890 | | | 21,249 | | | 9,373 | | | 39 | | | 59,551 | |
Rationalization charges | Rationalization charges | 787 | | | 1,639 | | | 79 | | | — | | | 2,505 | | Rationalization charges | 5,231 | | | 5,021 | | | 105 | | | — | | | 10,357 | |
Segment income | Segment income | 64,161 | | | 94,497 | | | 21,887 | | | (6,512) | | | 174,033 | | Segment income | 65,645 | | | 45,614 | | | 24,486 | | | (9,196) | | | 126,549 | |
| Nine Months Ended September 30, 2021 | | | | | | | | | | |
Net sales | $ | 1,588,449 | | | $ | 2,120,740 | | | $ | 528,652 | | | $ | — | | | $ | 4,237,841 | | |
Depreciation and amortization(1) | 88,821 | | | 63,809 | | | 29,077 | | | 119 | | | 181,826 | | |
Rationalization charges | 5,704 | | | 7,068 | | | 254 | | | — | | | 13,026 | | |
Segment income | 199,571 | | | 198,520 | | | 74,434 | | | (25,105) | | | 447,420 | | |
| Nine Months Ended September 30, 2020 | | | | | | | | | | |
Net sales | $ | 1,242,725 | | | $ | 1,962,370 | | | $ | 490,258 | | | $ | — | | | $ | 3,695,353 | | |
Depreciation and amortization(1) | 69,927 | | | 62,034 | | | 28,046 | | | 120 | | | 160,127 | | |
Rationalization charges | 2,229 | | | 4,755 | | | 263 | | | — | | | 7,247 | | |
Segment income | 167,971 | | | 213,757 | | | 66,918 | | | (41,238) | | | 407,408 | | |
|
_____________
(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.4$1.5 million and $1.2$1.3 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively and $4.1 million and $3.3 million for the nine months ended September 30, 2021 and 2020, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2021 and 2020 and for the
three and nine months then ended is unaudited)
Total segment income is reconciled to income before income taxes for the three months ended March 31 as follows:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | | (Dollars in thousands) | | | (Dollars in thousands) |
Total segment income | Total segment income | | $ | 167,917 | | | $ | 174,033 | | | $ | 447,420 | | | $ | 407,408 | | Total segment income | | $ | 143,392 | | | $ | 126,549 | | |
Interest and other debt expense | Interest and other debt expense | | 27,039 | | | 27,725 | | | 80,751 | | | 78,532 | | Interest and other debt expense | | 30,830 | | | 27,306 | | |
Income before income taxes | Income before income taxes | | $ | 140,878 | | | $ | 146,308 | | | $ | 366,669 | | | $ | 328,876 | | Income before income taxes | | $ | 112,562 | | | $ | 99,243 | | |
Sales and segment income of our metal containers segment and of part of our Dispensingdispensing and Specialty Closures segment and our Metal Containerspecialty closures segment are dependent, in part, upon the vegetable and fruit harvests in the United States and, vegetable harvests.to a lesser extent, in a variety of national growing regions in Europe. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual segment income during that quarter.
Note 16. Subsequent Event
Easytech Closures Acquisition
On October 1, 2021, we acquired Easytech Closures S.p.A., or Easytech, a manufacturer and seller of easy-open and sanitary metal ends used with metal containers primarily for food applications in Europe. The purchase price for this acquisition of $28.5 million, net of cash acquired, was funded with revolving loan borrowings under the Credit Agreement. Easytech's results of operations will be included in our Metal Container segment.
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934, as amended. Such forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 20202021 and in our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
General
We are a leading manufacturer of sustainable rigid packaging solutions for consumer goods products. We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care, fragrance and beauty products; steel and aluminum containers for human and pet food and general line products; and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products. We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom plastic containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets.
Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns. We have grown our net sales and income from operations largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market. If acquisition opportunities are not identified over a longer period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes.
RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented:three months ended March 31:
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
Net sales | Net sales | | | | | | Net sales | | | | |
Dispensing and Specialty Closures | Dispensing and Specialty Closures | 32.3 | % | | 31.9 | % | | 37.5 | % | | 33.6 | % | Dispensing and Specialty Closures | 41.5 | % | | 41.1 | % | |
Metal Containers | Metal Containers | 57.1 | | | 57.6 | | | 50.0 | | | 53.1 | | Metal Containers | 45.1 | | | 44.8 | | |
Custom Containers | Custom Containers | 10.6 | | | 10.5 | | | 12.5 | | | 13.3 | | Custom Containers | 13.4 | | | 14.1 | | |
Consolidated | Consolidated | 100.0 | | | 100.0 | | | 100.0 | | | 100.0 | | Consolidated | 100.0 | | | 100.0 | | |
Cost of goods sold | Cost of goods sold | 85.0 | | | 82.6 | | | 83.4 | | | 81.9 | | Cost of goods sold | 83.8 | | | 82.1 | | |
Gross profit | Gross profit | 15.0 | | | 17.4 | | | 16.6 | | | 18.1 | | Gross profit | 16.2 | | | 17.9 | | |
Selling, general and administrative expenses | Selling, general and administrative expenses | 5.5 | | | 6.2 | | | 6.6 | | | 7.7 | | Selling, general and administrative expenses | 7.0 | | | 7.9 | | |
Rationalization charges | Rationalization charges | 0.1 | | | 0.2 | | | 0.3 | | | 0.2 | | Rationalization charges | 0.1 | | | 0.8 | | |
Other pension and postretirement income | Other pension and postretirement income | (0.8) | | | (0.7) | | | (0.9) | | | (0.8) | | Other pension and postretirement income | (0.8) | | | (1.0) | | |
Income before interest and income taxes | Income before interest and income taxes | 10.2 | | | 11.7 | | | 10.6 | | | 11.0 | | Income before interest and income taxes | 9.9 | | | 10.2 | | |
Interest and other debt expense | Interest and other debt expense | 1.7 | | | 1.9 | | | 1.9 | | | 2.1 | | Interest and other debt expense | 2.1 | | | 2.2 | | |
Income before income taxes | Income before income taxes | 8.5 | | | 9.8 | | | 8.7 | | | 8.9 | | Income before income taxes | 7.8 | | | 8.0 | | |
Provision for income taxes | Provision for income taxes | 2.1 | | | 2.2 | | | 2.2 | | | 2.2 | | Provision for income taxes | 1.9 | | | 2.1 | | |
Net income | Net income | 6.4 | % | | 7.6 | % | | 6.5 | % | | 6.7 | % | Net income | 5.9 | % | | 5.9 | % | |
Summary unaudited results of operations for the periods presentedthree months ended March 31 are provided below.
| | | | Three Months Ended | | Nine Months Ended | |
| | Sept. 30, 2021 | | Sept. 30, 2020 | | Sept. 30, 2021 | | Sept. 30, 2020 | | 2022 | | 2021 | |
| | (dollars in millions) | | (dollars in millions) |
Net sales | Net sales | | | | | Net sales | | | | |
Dispensing and Specialty Closures | Dispensing and Specialty Closures | $ | 533.4 | | | $ | 475.1 | | | $ | 1,588.4 | | | $ | 1,242.7 | | Dispensing and Specialty Closures | $ | 597.9 | | | $ | 509.3 | | |
Metal Containers | Metal Containers | 942.1 | | | 856.7 | | | 2,120.7 | | | 1,962.4 | | Metal Containers | 650.7 | | | 554.1 | | |
Custom Containers | Custom Containers | 175.6 | | | 156.7 | | | 528.7 | | | 490.3 | | Custom Containers | 193.3 | | | 174.7 | | |
Consolidated | Consolidated | $ | 1,651.1 | | | $ | 1,488.5 | | | $ | 4,237.8 | | | $ | 3,695.4 | | Consolidated | $ | 1,441.9 | | | $ | 1,238.1 | | |
| Segment income | Segment income | | Segment income | | |
Dispensing and Specialty Closures (1) | Dispensing and Specialty Closures (1) | $ | 60.1 | | | $ | 64.2 | | | $ | 199.6 | | | $ | 168.0 | | Dispensing and Specialty Closures (1) | $ | 87.3 | | | $ | 65.7 | | |
Metal Containers (2) | Metal Containers (2) | 94.3 | | | 94.5 | | | 198.5 | | | 213.8 | | Metal Containers (2) | 38.0 | | | 45.6 | | |
Custom Containers (3) | Custom Containers (3) | 22.7 | | | 21.9 | | | 74.4 | | | 66.9 | | Custom Containers (3) | 24.7 | | | 24.5 | | |
Corporate (4) | (9.2) | | | (6.6) | | | (25.1) | | | (41.3) | | |
Corporate | | Corporate | (6.6) | | | (9.2) | | |
Consolidated | Consolidated | $ | 167.9 | | | $ | 174.0 | | | $ | 447.4 | | | $ | 407.4 | | Consolidated | $ | 143.4 | | | $ | 126.6 | | |
(1) Includes rationalization charges of $0.4 million and $0.8$5.2 million for the three months ended September 30, 2021 and 2020, respectively, and $5.7 million and $2.2 million for the nine months ended September 30, 2021 and 2020, respectively. Includes a charge for the write-up of inventory for purchase accounting of $0.9 million as a result of the acquisition of Silgan Specialty Packaging for the three and nine months ended September 30, 2021 and $3.5 million as a result of the acquisition of the dispensing operations of the Albéa Group for the nine months ended September 30, 2020.March 31, 2021.
(2) Includes rationalization charges of $1.8$1.3 million and $1.6$5.0 million for the three months ended September 30,March 31, 2022 and 2021, and 2020, respectively, and $7.1 million and $4.7 million for the nine months ended September 30, 2021 and 2020, respectively.
(3) Includes rationalization charges of $0.1 million for each of the three months ended September 30, 2021March 31, 2022 and 2020 and $0.2 million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively.2021.
(4) Includes costs attributed to announced acquisitions of $4.1 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $4.1 million and $19.0 million for the nine months ended September 30, 2021 and 2020, respectively.
Three Months Ended September 30, 2021March 31, 2022 Compared with Three Months Ended September 30, 2020March 31, 2021
Overview. Consolidated net sales were $1.65$1.44 billion in the thirdfirst quarter of 2021,2022, a 10.916.5 percent increase as compared to the thirdfirst quarter of 20202021 primarily due to higher average selling prices due to the pass through of higher raw material and other manufacturinginflationary costs across all segments, higher unit volumes in the Dispensingdispensing and Specialty Closuresspecialty closures segment including from acquisitions, and Metal Container segments, a more favorable mix of products sold in the Custom Containercustom containers segment, partially offset by lower unit volumes and a higher percentage of smaller cans sold in the metal containers segment, lower volumes in the custom containers segment and the impact of favorablefrom unfavorable foreign currency translation, partially offset by lower volumes in the Custom Container segment and a less favorable mix of products sold in the Dispensing and Specialty Closures and Metal Container segments.translation. Income before interest and income taxes for the thirdfirst quarter of 20212022 was $167.9$143.4 million, a $6.1$16.8 million decreaseincrease as compared to the same period in 2020,2021 primarily due to the unfavorable
favorable impact in the current year period from the delayed pass through of significantlylower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs a less favorable mix of products sold, higher costs as a result of laborin both the dispensing and supply chain challenges in the Dispensingspecialty closures and Specialty Closurescustom containers segments, strong manufacturing performance and Metal Container segments, lower volumes in the Custom Container segment, higher costs attributed to announced acquisitions and the negative impact in the current year period of a charge from the write-up of inventory for purchase accounting related to the acquisition of Silgan Specialty Packaging, partially offset byoperating efficiencies, higher unit volumes in the Dispensingdispensing and Specialty Closuresspecialty closures segment and Metal Container segments, strong operating performance and cost controllower rationalization charges, partially offset by inflation in manufacturing costs, lower volumes in the Custom Container segment,metal containers and custom containers segments, the pass throughmix impact of other cost increases and productivity improvementsmore smaller cans sold in the Dispensing and Specialty Closuresmetal containers segment and higher pension income.the impact of unfavorable foreign currency translation. Results for the thirdfirst quarters of 20212022 and 20202021 included rationalization charges of $2.3$1.4 million and $2.5$10.3 million, respectively. Results for the thirdfirst quarters of 20212022 and 20202021 also included costs attributable to announced acquisitionsa loss on early extinguishment of $4.1debt of $1.5 million and $0.7$0.9 million, respectively. Net income for the thirdfirst quarter of 20212022 was $106.3$84.9 million as compared to $112.9$73.3 million for the same period in 2020.2021. Net income per diluted share for the thirdfirst quarter of 20212022 was $0.96$0.76 as compared to $1.01$0.66 for the same period in 2020.2021.
Net Sales. The $162.6$203.8 million increase in consolidated net sales in the thirdfirst quarter of 20212022 as compared to the thirdfirst quarter of 20202021 was the result of higher net sales across all the segments.
Net sales for the Dispensingdispensing and Specialty Closuresspecialty closures segment increased $58.3$88.6 million, or 12.317.4 percent, in the thirdfirst quarter of 20212022 as compared to the same period in 2020.2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other manufacturinginflationary costs and higher unit volumes of approximately twoeight percent, andpartially offset by the impact of favorableunfavorable foreign currency translation of approximately $4 million, partially offset by a less favorable mix of products sold.$15 million. The increase in unit volumes was principally the result of higher volumes for the beauty, fragrance, beverage and food markets as well as the inclusion of the recently acquired Silgan Specialty Packaging,recent acquisitions and higher volumes for beauty and fragrance products, partially offset by a decrease in volumes for hygiene and home cleaning products largely duewhich continued to the ongoingbe impacted by an inventory managementcorrection throughout the supply chain, and for those products which surgedmetal closures as a result of customer pre-buy activity in 2020 during the pandemic.late 2021 in advance of significant metal inflation this year.
Net sales for the Metal Containermetal containers segment increased $85.4$96.6 million, or 10.017.4 percent, in the thirdfirst quarter of 20212022 as compared to the same period in 2020.2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs, higherpartially offset by lower unit volumes of approximately sixfourteen percent, partially offset by a higher percentage of smaller cans sold.sold and the impact of unfavorable foreign currency translation of approximately $7 million. The increasedecrease in unit volumes was primarily due toprincipally the result of higher volumes for pet foodcustomer purchases in late 2021 in advance of significant metal inflation this year and seasonal vegetable markets.customers’ ongoing supply chain and labor challenges in the current year period.
Net sales for the Custom Containercustom containers segment increased $18.9$18.6 million, or 12.110.6 percent, in the thirdfirst quarter of 20212022 as compared to the same period in 2020.2021. This increase was principally due to higher average selling prices related to the pass through of significantly higher raw materialresin costs and a more favorable mix of products sold, and the impact of favorable foreign currency translation of approximately $2 million, partially offset by lower volumes of approximately fourteen percent as compared to record pandemic driven volumes in the prior year period.eight percent. The decline in volumes was primarily due primarily to a decreasestrong pandemic driven demand in certain consumer health and personal and home care products, partially offset by growth in pet food products.the first quarter of 2021.
Gross Profit. Gross profit margin decreased 2.41.7 percentage points to 15.016.2 percent in the thirdfirst quarter of 20212022 as compared to the same period in 20202021 for the reasons discussed below in "Income before Interest and Income Taxes."
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 5.57.0 percent in the thirdfirst quarter of 20212022 as compared to 6.27.9 percent in the same period in 2020.2021. Selling, general and administrative expenses decreased $1.2increased $2.6 million to $90.3$100.0 million for the thirdfirst quarter of 20212022 as compared to $91.5$97.4 million for the same period in 2020.
Income before Interest and Income Taxes. Income before interest and income taxes for the third quarter of 2021 decreased by $6.1 million as compared to the third quarter of 2020, and margins decreased to 10.2 percent from 11.7 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of higher costs attributed to announced acquisitions and lower income in the Dispensing and Specialty Closures segment, partially offset by higher income in the Custom Container segment.
Segment income of the Dispensing and Specialty Closures segment for the third quarter of 2021 decreased $4.1 million as compared to the same period in 2020, and segment income margin decreased to 11.3 percent from 13.5 percent over the same periods due primarily to the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, a less favorable mix of products sold, higher costs associated with labor and supply chain challenges and the negative impact of a $0.9 million charge from the write-up of inventory for purchase accounting in 2021 related to the acquisition of Silgan Specialty Packaging, partially offset by the pass through of other cost increases, plant productivity improvements and higher unit volumes.
Segment income of the Metal Container segment for the third quarter of 2021 decreased $0.2 million as compared to the same period in 2020, and segment income margin decreased to 10.0 percent from 11.0 percent over the same periods. The decrease in segment income was primarily attributable to operational inefficiencies and higher costs as a result of labor and supply chain challenges and the mix effect of smaller cans sold, mostly offset by higher unit volumes and higher pension income. Rationalization charges were $1.8 million and $1.6 million in the third quarters of 2021 and 2020, respectively.
Segment income of the Custom Container segment for the third quarter of 2021 increased $0.8 million as compared to the same period in 2020, while segment income margin decreased to 12.9 percent from 14.0 percent over the same periods. The increase in segment income was primarily attributable to strong operating performance and cost control, partially offset by lower volumes as compared to record pandemic driven volumes in the prior year period and a less favorable mix of products sold.
Interest and Other Debt Expense. Interest and other debt expense for the third quarter of 2021 decreased $0.7 million to $27.0 million as compared to $27.7 million in the same period in 2020. This decrease was primarily due to lower weighted average interest rates during the current quarter due to lower variable market rates.
Provision for Income Taxes. The effective tax rates were 24.6 percent and 22.9 percent for the third quarters of 2021 and 2020, respectively. The effective tax rate in the third quarter of 2020 was favorably impacted by an audit period expiration.
Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020
Overview. Consolidated net sales were $4.24 billion in the first nine months of 2021, a 14.7 percent increase as compared to the first nine months of 2020 primarily as a result of higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, the pass through of higher raw material and other manufacturing costs, the impact of favorable foreign currency translation and a more favorable mix of products sold in the Custom Container segment, partially offset by lower volumes in the Custom Container segment and a higher percentage of smaller cans sold in the Metal Container segment. Income before interest and income taxes for the first nine months of 2021 increased by $40.0 million as compared to the same period in 2020 primarily due to higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, strong operating performance in all of the segments, lower corporate expenses, higher pension income, a more favorable mix of products sold in the Custom Container segment, the negative impact in the prior year period of a charge for the purchase accounting write-up of acquired inventory of the dispensing operations of the Albéa Group, or the Albéa Dispensing Business, and the inclusion in the prior year period of a charge in the Custom Container segment for a non-commercial legal dispute relating to prior periods. These increases were partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, higher operating costs largely as a result of labor and supply chain challenges, lower volumes in the Custom Container segment, higher rationalization charges, a higher percentage of smaller cans sold in the Metal Container segment, foreign currency transaction losses and the negative impact of a charge for the purchase accounting write-up of inventory related to the acquisition of Silgan Specialty Packaging. Results for the first nine months of 2021 and 2020 included rationalization charges of $13.0 million and $7.2 million and a loss on early extinguishment of debt of $0.9 million and $1.5 million, respectively. Results for the first nine months of 2021 and 2020 also included costs attributed to acquisitions of $4.1 million and $19.0 million, respectively. Net income for the first nine months of 2021 was $274.0 million as compared to $248.6 million for the same period in 2020. Net income per diluted share for the first nine months of 2021 was $2.47 as compared to $2.23 for the same period in 2020.
Net Sales. The $542.4 million increase in consolidated net sales in the first nine months of 2021 as compared to the first nine months of 2020 was the result of higher net sales across all the segments.
Net sales for the Dispensing and Specialty Closures segment increased $345.7 million, or 27.8 percent, in the first nine months of 2021 as compared to the same period in 2020. This increase was primarily the result of higher unit volumes of approximately six percent, the pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $31 million. The increase in unit volumes was principally the result of the inclusion of volumes
from the Albéa Dispensing Business which was acquired in June 2020 and strong volumes for beverage, beauty and fragrance products.
Net sales for the Metal Container segment increased $158.3 million, or 8.1 percent, in the first nine months of 2021 as compared to the same period in 2020. This increase was primarily the result of the pass through of higher raw material and other manufacturing costs, higher unit volumes of approximately four percent and the impact of favorable foreign currency translation of approximately $12 million, partially offset by a higher percentage of smaller cans sold. The increase in unit volumes was primarily due to the continued high consumer demand levels for food cans, partially offset by the negative impact on volume of production shortfalls caused by raw material and labor supply challenges across the supply chain.
Net sales for the Custom Container segment increased $38.4 million, or 7.8 percent, in the first nine months of 2021 as compared to the same period in 2020. This increase was primarily due to the pass through of higher raw material costs, a more favorable mix of products sold and the impact of favorable foreign currency translation of approximately $7 million, partially offset by lower volumes of approximately nine percent. The decrease in volumes was due primarily to a decrease in certain consumer health and personal and home care products largely due to the prior year initial pantry filling in response to the emerging pandemic, partially offset by growth in pet food products.
Gross Profit. Gross profit margin decreased 1.5 percentage points to 16.6 percent in the first nine months of 2021 as compared to the same period in 2020 for the reasons discussed below in "Income before Interest and Income Taxes".
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 6.6 percent for the first nine months of 2021 as compared to 7.7 percent in the same period in 2020. Selling, general and administrative expenses were $282.1 million for the first nine months of 2021 as compared to $282.0 million for the same period in 2020. The inclusion of selling, general and administrative expenses from the Albéa Dispensing Business which was acquired in June 2020 and costs attributed to announced acquisitions of $4.1 million in the current year period were mostly offset by the inclusion in the prior year period of costs attributed to announced acquisitions of $19.0 million, one-time plant employee incentive payments and a charge of $2.8 million in the Custom Container segment for a non-commercial legal dispute relating to prior periods.2021.
Income before Interest and Income Taxes. Income before interest and income taxes for the first nine monthsquarter of 20212022 increased by $40.0$16.8 million as compared to the first nine monthsquarter of 2020,2021, while margins decreased to 10.69.9 percent from 11.010.2 percent over the same periods. The increase in income before interest and income taxes was primarily due tothe result of higher income in the Dispensingdispensing and Specialty Closuresspecialty closures and Custom Containercustom containers segments, and lower corporate expenses primarily as a result of higher costs attributed to announced acquisitions in the prior year period, partially offset by lower income in the Metal Container segment and higher rationalization charges.metal containers segment. Rationalization charges were $13.0$1.4 million and $7.2$10.3 million forin the first nine monthsquarters of 20212022 and 2020,2021, respectively.
Segment income of the Dispensingdispensing and Specialty Closuresspecialty closures segment for the first nine monthsquarter of 20212022 increased $31.6$21.6 million as compared to the same period in 2020, while2021, and segment income margin decreasedincreased to 12.614.6 percent from 13.512.9 percent over the same periods. The increase in segment income was primarily due to higher unit volumes, strong operating performance, the pass through of other cost increases and the inclusion in the prior year period of a $3.5 million charge for the purchase accounting write-up of inventory of the Albéa Dispensing Business. These increases were partially offset by the unfavorablefavorable impact in the current year period from the delayed pass through of significantlylower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs, higher costs associated with laborunit volumes including from recent acquisitions, improved operating efficiencies and supply chain challenges, higherlower rationalization charges, partially offset by inflation in manufacturing costs and the impact of unfavorable foreign currency transaction losses and a $0.9 million charge in the current year period related to the acquisition of Silgan Specialty Packaging. translation.Rationalization charges were $5.7 million and $2.2$5.2 million in the first nine monthsquarter of 2021 and 2020, respectively.2021.
Segment income of the Metal Containermetal containers segment for the first nine monthsquarter of 20212022 decreased $15.3$7.6 million as compared to the same period in 2020,2021, and segment income margin decreased to 9.45.8 percent from 10.98.2 percent over the same periods. The decrease in segment income was due primarily attributable to higher production costs, less efficient manufacturing processes and lower production levels largely as a resultunit volumes, the mix impact of labor and supply chain challenges, a higher percentage ofmore smaller cans sold and higher rationalization charges,inflation in manufacturing costs, partially offset by higher unit volumesstrong manufacturing performance. The decrease in segment income margin was primarily due to to the mathematical consequence of the pass through of inflation in raw material and higher pension income. other manufacturing costs in the first quarter of 2022.Rationalization charges were $7.1$1.3 million and $4.7$5.0 million in the first nine monthsquarters of 2022 and 2021, and 2020, respectively.
Segment income of the Custom Containercustom containers segment for the first nine monthsquarter of 20212022 increased $7.5$0.2 million as compared to the same period in 2020, and2021, while segment income margin increaseddecreased to 14.112.8 percent from 13.614.0 percent over the same periods. The increase in segment income was primarily attributable to strong operating performance and cost control, a morethe favorable miximpact in the current year period from the delayed pass through of products sold andlower resin costs as compared to the inclusionunfavorable impact in the prior year period of a $2.8 million charge for a non-commercial legal dispute relating to prior periods, partially offset by lower volumes andfrom the delayed pass through of higher resin costs.
costs and strong operational performance, partially offset by lower volumes. The decrease in segment income margin was primarily due to the mathematical consequence of the pass through of higher raw material costs in the first quarter of 2022.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first nine monthsquarter of 20212022 increased $2.8$2.9 million to $79.9$29.3 million as compared to $77.1$26.4 million in the same period in 2020 principally2021. This increase was primarily due to higher weighted average outstanding borrowings primarily related toduring the acquisitionquarter as a result of the Albéa Dispensing Businessacquisitions in June 2020, partially offset by lower weighted average interest rates due to lower variable market rates.the third and fourth quarters of 2021. In February 2021,March 2022, we issuedredeemed all $300.0 million aggregate principal amount of the 1.4% Notes and utilized the proceeds therefrom to prepay outstanding term loans under the Credit Agreement.4¾% Notes. In conjunction with this prepayment, we recognized a loss on early extinguishment of debt of $0.9$1.5 million in the first quarter of 2021. In the first nine months of 2020, we recognized a loss on early extinguishment of debt of $1.5 million in conjunction with the prepayment of term loans under the Credit Agreement.2022.
Provision for Income Taxes. The effective tax rates were 25.324.6 percent and 24.426.2 percent for the first nine monthsquarters of 20212022 and 2020,2021, respectively. The effective tax rate for the first nine monthsquarter of 20202021 was favorablyunfavorably impacted by an audit period expiration.higher income in less favorable tax jurisdictions.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility. Our liquidity requirements arise 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, the funding of our seasonal working capital needs and other general corporate uses.
On February 10, 2021,March 28, 2022, we issued $500.0redeemed all $300.0 million aggregate principal amount of the 1.4%outstanding 4¾% Notes at 99.945a redemption price of 100 percent of their principal amount. The proceeds fromamount plus accrued and unpaid interest to the sale of the 1.4% Notes were $499.7 million.redemption date. We used the proceeds from the sale of the 1.4% Notes to prepay $500.0 million of our outstanding term loansfunded this redemption with revolving loan borrowings under the Credit Agreement. We paid the initial purchasers' discountAgreement and offering expenses related to the sale of the 1.4% Notes with cash on hand. As a result of this prepayment,redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.9$1.5 million during the first quarter of 20212022 for the write-off of unamortized debt issuance costs.
We acquired Silgan Specialty Packaging and Unicep in September 2021 and Easytech on October 1, 2021. We funded the purchase price for each of these acquisitions with revolving loan borrowings under the Credit Agreement. You should also read Notes 3, 8 and 16Note 6 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021March 31, 2022 included elsewhere in this Quarterly Report.
For the ninethree months ended September 30, 2021,March 31, 2022, we used proceeds from the net borrowings of revolving loans of $906.9 million, the issuance of the 1.4% Notes of $499.7$520.2 million and cash and cash equivalents of $138.9$371.9 million (including the positive effect of exchange rate changes of $1.4 million) to fund acquisitionsthe redemption of the 4¾% Notes for $718.4$300.0 million, repaymentscash used in operations of long-term debt$267.4 million, decreases in outstanding checks of $500.0$225.9 million, net capital expenditures and other investing activities of $170.8$70.0 million, dividends paid on our common stock of $18.7 million, and repurchases of our common stock of $11.5 million under our stock-based compensation plan.
For the three months ended March 31, 2021, we used proceeds from the issuance of the 1.4% Senior Secured Notes of $499.7 million, net borrowings of revolving loans of $139.2 million and cash and cash equivalents of $219.4 million to fund repayments of long-term debt of $500.0 million, cash used in operations of $172.2 million, decreases in outstanding checks of $84.2 million, net capital expenditures and other investing activities of $68.4 million, dividends paid on our common stock of $47.0$16.1 million, repurchases of our common stock of $8.6$8.3 million under our stock-based compensation plan, cash used in operations of $5.8 million, debt issuance costs of $4.9$4.6 million and the negative effect of exchange rate changes on cash and cash equivalents of $5.8$4.5 million.
For the nine months ended September 30, 2020, we used net proceeds from the issuance of the 2¼% Notes and the additional 4⅛% Notes and from incremental term loans borrowed under the Credit Agreement of $1,639.7 million, net borrowings of revolving loans of $244.9 million, cash provided by operations of $118.5 million and cash and cash equivalents of $10.0 million (excluding the positive effect of exchange rate changes of $1.0 million) to fund the purchases of the Albéa Dispensing Business and Cobra Plastics for $940.9 million, repayments of long-term debt of $766.2 million, net capital expenditures and other investing activities of $164.2 million, decreases in outstanding checks of $79.0 million, dividends paid on our common stock of $40.4 million, repurchases of our common stock of $13.1 million and debt issuance costs of $10.3 million.
At September 30, 2021,March 31, 2022, we had $910.0$508.0 million of revolving loans outstanding under the Credit Agreement. After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at September 30, 2021March 31, 2022 was $258.9 million and Cdn $15.0$972.2 million.
Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements. Our peak seasonal working capital requirements have historically averaged approximately $350 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the
available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.
We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases 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.
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 20212022 with all of these covenants.
Guaranteed Securities
Each of the 4¾3¼% Notes, the 3¼%Senior Notes, the 4⅛% Senior Notes, the 2¼% Senior Notes and the 1.4% Senior Secured Notes were issued by Silgan and are guaranteed by certain wholly ownedour U.S. subsidiaries of Silgan,that also guarantee our obligations under the Credit Agreement, collectively the Obligor Group.
The following summarized financial information relates to the Obligor Group as of September 30, 2021March 31, 2022 and December 31, 20202021 and for the ninethree months ended September 30, 2021.March 31, 2022. Intercompany transactions, equity investments and other intercompany activity within the Obligor Group have been eliminated from the summarized financial information. Investments in subsidiaries of Silgan that are not part of the Obligor Group of $2.18$1.5 billion and $1.46$1.4 billion as of September 30, 2021March 31, 2022 and December 31, 2020,2021, respectively, are not included in noncurrent assets in the table below.
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | Sept. 30, 2021 | | Dec. 31, 2020 | | | | |
| | | (Dollars in millions) |
| | | | | | | | | |
Current assets | | | $1,338.0 | | $1,104.1 | | | | |
Noncurrent assets | | | 3,346.1 | | 3,324.0 | | | | |
Current liabilities | | | 1,699.4 | | 891.1 | | | | |
Noncurrent liabilities | | | 3,707.6 | | 3,744.6 | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| | | | | |
| | | March 31, 2022 | | Dec. 31, 2021 | | | | |
| | | (Dollars in millions) |
| | | | | | | | | |
Current assets | | | $1,412.5 | | $1,506.9 | | | | |
Noncurrent assets | | | 4,144.9 | | 4,159.9 | | | | |
Current liabilities | | | 1,348.1 | | 1,159.2 | | | | |
Noncurrent liabilities | | | 4,050.6 | | 4,392.4 | | | | |
At September 30, 2021March 31, 2022 and December 31, 2020,2021, the Obligor Group held current receivables due from other subsidiary companies of $38.0$36.9 million and $54.8$70.5 million, respectively; long-term notes receivable due from other subsidiary companies of $815.5$778.5 million and $818.9$782.4 million, respectively; and current payables due to other subsidiary companies of $6.8$6.6 million and $13.4$7.3 million, respectively.
| | | | | | | | | | | | |
| | | |
| | | | NineThree months ended Sept. 30, 2021 March 31, 2022 |
| | | | (Dollars in millions) |
| | | | |
Net sales | | | | $3,123.81,046.0 |
Gross profit | | | | 449.4143.7 | |
Net income | | | | 208.157.3 | |
For the ninethree months ended September 30, 2021,March 31, 2022, net income in the table above excludes income from equity method investments of other subsidiary companies of $65.9$27.6 million. For the ninethree months ended September 30, 2021,March 31, 2022, the Obligor Group recorded the following transactions with other subsidiary companies: sales to such other subsidiary companies of $30.0$9.6 million; net credits from such other subsidiary companies of $21.4$7.3 million; and net interest income from such other subsidiary companies of $15.0$4.9 million. For the ninethree months ended September 30, 2021,March 31, 2022, the Obligor Group received dividends from other subsidiary companies of $16.0$0.2 million.
Rationalization Charges
We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Under our rationalization plans, we made cash payments of $6.9$2.5 million and $7.7$2.0 million for the ninethree months ended September 30,March 31, 2022 and 2021, and 2020, respectively. ExclusiveExcluding the impact of the footprint optimization plan for our Metal Container segment and our resulting withdrawal from the Central States Pension Plan announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $1.2$0.6 million and $5.9$2.2 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1$1.0 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.
You should also read Note 43 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021March 31, 2022 included elsewhere in this Quarterly Report.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international operations, fromin foreign currency exchange rates. In the normal course of business, we also have 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.
Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020.2021. Since such filing, other than the changes discussed in Notes 86 and 97 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021March 31, 2022 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.
Item 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.
On June 1, 2020,In 2021, we acquired the Albéa Dispensing Business.Gateway Plastics LLC, Unicep Packaging LLC and Easytech Closures S.p.A. We are currently in the process of integrating the internal controls and procedures of the Albéa Dispensing Business into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of the Albéa Dispensing Business in our annual assessment of the effectiveness of our internal control over financial reporting for our 2021 fiscal year.
We acquired Silgan Specialty Packaging and Unicep in September 2021. You should read Note 3 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 included elsewhere in this Quarterly Report for further information. We are currently in the process of integrating the internal controls and procedures of boththese acquired entities into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of Silgan Specialty Packaging and Unicepthese acquired entities in our annual assessment of the effectiveness of our internal control over financial reporting for our 2022 fiscal year.
Part II. Other Information
Item 6. Exhibits
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Exhibit Number | | Description |
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*10.1 | | |
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*10.2 | | |
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22 | | |
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*31.1 | | |
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*31.2 | | |
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*32.1 | | |
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*32.2 | | |
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101.INS | | XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
| | |
101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
| | |
___________________
*Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
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| SILGAN HOLDINGS INC. |
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Dated: NovemberMay 4, 2021 2022 | /s/ Robert B. Lewis | |
| Robert B. Lewis |
| Executive Vice President and |
| Chief Financial Officer |
| (Principal Financial and |
| Accounting Officer) |