QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
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, 2019, the number of shares outstanding of the Registrant’s common stock was 110,768,306.
Revolving loans and current portion of long-term debt
$
841,430
$
733,404
$
170,214
Trade accounts payable
550,557
552,897
712,739
Accrued payroll and related costs
69,191
71,658
68,773
Accrued liabilities
156,599
101,895
127,342
Total current liabilities
1,617,777
1,459,854
1,079,068
Long-term debt
1,809,955
2,186,275
2,134,400
Deferred income taxes
274,107
279,449
268,036
Other liabilities
403,648
220,704
216,525
Stockholders’ equity:
Common stock
1,751
1,751
1,751
Paid-in capital
285,061
272,301
276,062
Retained earnings
2,118,860
1,970,875
1,997,785
Accumulated other comprehensive loss
(287,923
)
(212,256
)
(268,808
)
Treasury stock
(1,149,219
)
(1,120,754
)
(1,125,525
)
Total stockholders’ equity
968,530
911,917
881,265
$
5,074,017
$
5,058,199
$
4,579,294
See accompanying notes.
-3-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2019 and 2018
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
Net sales
$
1,321,342
$
1,306,999
$
3,441,635
$
3,378,383
Cost of goods sold
1,113,727
1,102,892
2,884,510
2,840,991
Gross profit
207,615
204,107
557,125
537,392
Selling, general and administrative expenses
76,065
73,690
233,816
228,691
Rationalization charges
3,195
288
48,594
1,483
Other pension and postretirement income
(4,340
)
(8,326
)
(13,320
)
(27,536
)
Income before interest and income taxes
132,695
138,455
288,035
334,754
Interest and other debt expense before loss on
early extinguishment of debt
26,767
28,199
82,272
88,602
Loss on early extinguishment of debt
1,676
—
1,676
2,493
Interest and other debt expense
28,443
28,199
83,948
91,095
Income before income taxes
104,252
110,256
204,087
243,659
Provision for income taxes
22,978
25,517
45,117
57,857
Net income
$
81,274
$
84,739
$
158,970
$
185,802
Earnings per share:
Basic net income per share
$
0.73
$
0.77
$
1.43
$
1.68
Diluted net income per share
$
0.73
$
0.76
$
1.43
$
1.66
Weighted average number of shares:
Basic
111,058
110,657
110,985
110,599
Effect of dilutive securities
463
1,036
554
1,010
Diluted
111,521
111,693
111,539
111,609
See accompanying notes.
-4-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
Net income
$
81,274
$
84,739
$
158,970
$
185,802
Other comprehensive income (loss), net of tax:
Changes in net prior service credit and actuarial losses
2,625
807
7,745
2,441
Change in fair value of derivatives
(159
)
476
(2,647
)
673
Foreign currency translation
(25,016
)
(4,576
)
(24,213
)
(26,397
)
Other comprehensive loss
(22,550
)
(3,293
)
(19,115
)
(23,283
)
Comprehensive income
$
58,724
$
81,446
$
139,855
$
162,519
See accompanying notes.
-5-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2019 and 2018
(Dollars in thousands)
(Unaudited)
2019
2018
Cash flows provided by (used in) operating activities:
Net income
$
158,970
$
185,802
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization
156,780
146,246
Rationalization charges
48,594
1,483
Stock compensation expense
12,669
11,162
Loss on early extinguishment of debt
1,676
2,493
Other changes that provided (used) cash:
Trade accounts receivable, net
(250,783
)
(271,636
)
Inventories
(75,414
)
(32,743
)
Trade accounts payable
(63,609
)
(11,185
)
Accrued liabilities
(10,475
)
(11,227
)
Other, net
19,181
(7,304
)
Net cash (used in) provided by operating activities
(2,411
)
13,091
Cash flows provided by (used in) investing activities:
Capital expenditures
(166,848
)
(134,636
)
Other, net
509
236
Net cash used in investing activities
(166,339
)
(134,400
)
Cash flows provided by (used in) financing activities:
Borrowings under revolving loans
1,139,329
923,639
Repayments under revolving loans
(464,759
)
(266,477
)
Repayments of long-term debt
(308,161
)
(286,200
)
Changes in outstanding checks - principally vendors
(83,670
)
(87,795
)
Dividends paid on common stock
(38,615
)
(33,843
)
Debt issuance costs
—
(2,866
)
Repurchase of common stock under stock plan
(27,364
)
(3,057
)
Net cash provided by financing activities
216,760
243,401
Effect of exchange rate changes on cash and cash equivalents
(3,440
)
(4,256
)
Cash and cash equivalents:
Net increase
44,570
117,836
Balance at beginning of year
72,819
53,533
Balance at end of period
$
117,389
$
171,369
Interest paid, net
$
97,630
$
104,040
Income taxes paid, net
31,067
39,400
See accompanying notes.
-6-
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the three and nine months ended September 30, 2019 and 2018
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
Common stock - shares outstanding
Balance at beginning of period
111,176
110,618
110,430
110,385
Net issuance of treasury stock for vested restricted stock units
—
—
746
233
Repurchases of common stock
(408
)
—
(408
)
—
Balance at end of period
110,768
110,618
110,768
110,618
Common stock - par value
Balance at beginning and end of period
$
1,751
$
1,751
$
1,751
$
1,751
Paid-in capital
Balance at beginning of period
280,636
268,559
276,062
262,201
Stock compensation expense
4,425
3,742
12,669
11,162
Net issuance of treasury stock for vested restricted stock units
—
—
(3,670
)
(1,062
)
Balance at end of period
285,061
272,301
285,061
272,301
Retained earnings
Balance at beginning of period
2,049,995
1,897,417
1,997,785
1,809,845
Net income
81,274
84,739
158,970
185,802
Dividends declared on common stock
(12,409
)
(11,281
)
(37,302
)
(33,833
)
Adoption of accounting standards updates related to leases in 2019 and revenue recognition in 2018
—
—
(593
)
9,061
Balance at end of period
2,118,860
1,970,875
2,118,860
1,970,875
Accumulated other comprehensive loss
Balance at beginning of period
(265,373
)
(208,963
)
(268,808
)
(188,973
)
Other comprehensive loss
(22,550
)
(3,293
)
(19,115
)
(23,283
)
Balance at end of period
(287,923
)
(212,256
)
(287,923
)
(212,256
)
Treasury stock
Balance at beginning of period
(1,137,107
)
(1,120,754
)
(1,125,525
)
(1,118,759
)
Net issuance of treasury stock for vested restricted stock units
—
—
(11,582
)
(1,995
)
Repurchases of common stock
(12,112
)
—
(12,112
)
—
Balance at end of period
(1,149,219
)
(1,120,754
)
(1,149,219
)
(1,120,754
)
Total stockholders' equity
$
968,530
$
911,917
$
968,530
$
911,917
Dividends declared on common stock per share
$
0.11
$
0.10
$
0.33
$
0.30
See accompanying notes.
-7-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 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, 2018 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, 2018.
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 2019 assessment performed during the third quarter.
Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, that amends existing guidance for certain leases by lessees. This amendment required us to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. We adopted this amendment on January 1, 2019 using the transition method, which allowed us to recognize the effects of applying this amendment as a cumulative effect to retained earnings as of January 1, 2019. We elected certain practical expedients permitted under the transition guidance for this amendment, which did not require us to reassess whether other contracts contain leases and allowed us to carryforward our lease classifications determined under the previous guidance. In addition, we elected to retain our previously determined assumptions concerning options to extend or terminate our leases. As a result of the adoption of this amendment, we recognized additional long-term assets of $160.8 million, additional related lease liabilities of $161.4 million and reduced retained earnings by $0.6 million all on January 1, 2019. The adoption of this amendment did not have a material impact on our results of operations or cash flows. See Note 2 for further information.
-8-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 2. Leases
We have noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2040. Certain operating leases have renewal options and rent escalation clauses as well as various purchase options.
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The depreciable life of lease right-of-use assets is generally the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise for such assets.
We recognized total lease expense of $18.7 million and $52.6 million for the three and nine months ended September 30, 2019, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. We did not recognize any new significant leases in our Condensed Consolidated Balance Sheet for the period ended September 30, 2019.
The aggregate annual maturities of operating lease liabilities are as follows (dollars in thousands):
Three months ended December 31, 2019
$
11,459
2020
44,800
2021
38,031
2022
30,278
2023
25,417
Thereafter
93,783
Total lease payments
243,768
Less imputed interest
(48,051
)
Total
$
195,717
Operating lease right-of-use assets as of September 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as other assets, net of $187.3 million. Operating lease liabilities of $195.7 million as of September 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $35.3 million and other liabilities of $160.4 million. At September 30, 2019, our operating leases had a weighted average discount rate of 5.7 percent and a weighted average remaining lease term of approximately seven years.
To a lesser extent, we have certain leases that qualify as finance leases. Finance lease right-of-use assets as of September 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as property, plant and equipment, net of $33.9 million. Finance lease liabilities of $33.4 million as of September 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as revolving loans and current portion of long term-debt of $1.6 million and long-term debt of $31.8 million.
At September 30, 2019, we did not have any significant operating or finance leases that had not commenced.
-9-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 3. Revenue
The following tables present our revenues disaggregated by reportable business 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 business segment were as follows:
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
(Dollars in thousands)
Metal containers
$
822,262
$
797,768
$
1,904,941
$
1,808,585
Closures
353,436
360,816
1,072,979
1,109,924
Plastics
145,644
148,415
463,715
459,874
$
1,321,342
$
1,306,999
$
3,441,635
$
3,378,383
Revenues by geography were as follows:
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
(Dollars in thousands)
North America
$
1,078,187
$
1,056,099
$
2,747,518
$
2,651,225
Europe and other
243,155
250,900
694,117
727,158
$
1,321,342
$
1,306,999
$
3,441,635
$
3,378,383
Our contracts generally include standard commercial payment terms generally acceptable in each region. We do not provide financing with extended payment terms beyond generally standard commercial payment terms for the applicable industry. We have no significant obligations for refunds, warranties or similar obligations.
Trade accounts receivable, net are shown separately on our Condensed Consolidated Balance Sheet. Contract assets are the result of the timing of revenue recognition, billings and cash collections. Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $73.4 million, $77.2 million, and $72.5 million as of September 30, 2019 and 2018 and December 31, 2018, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheet.
-10-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 4. Rationalization Charges
We continually evaluate cost reduction opportunities across each of our businesses, 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 business segment were as follows:
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
(Dollars in thousands)
Metal containers
$
3,035
$
72
$
42,280
$
812
Closures
72
111
5,979
150
Plastic containers
88
105
335
521
$
3,195
$
288
$
48,594
$
1,483
In June 2019, we announced a footprint optimization plan for our metal container business, which includes the closing of our metal container manufacturing facilities in Mt. Vernon, Missouri and Waupun, Wisconsin anticipated to occur in the fourth quarter of 2019. These plant closings, in conjunction with the prior ratification of a new labor agreement at our Menomonee Falls, Wisconsin metal container manufacturing facility that provided for the withdrawal for that facility from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, will result in our complete withdrawal from the Central States Pension Plan. We estimate net rationalization charges for this plan of $3.7 million for the plant closings and $56.4 million for the withdrawal from the Central States Pension Plan. We recorded total rationalization charges for this plan of $40.7 million in the first nine months of 2019 largely to recognize the present value of the estimated withdrawal liability related to the Central States Pension Plan. Remaining expenses and cash expenditures for the plant closings are not expected to be significant. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.0 million per year and be recognized annually for the next twenty years, and remaining cash expenditures related to the withdrawal from the Central States Pension Plan are expected to be approximately $2.8 million annually for the next twenty years, beginning in 2020.
Rationalization charges in the first nine months of 2019 for the closures business were primarily related to the announced shutdown in the first quarter of 2019 of the Torello, Spain metal closures manufacturing facility.
Activity in reserves for our rationalization plans were as follows:
Employee
Severance
and Benefits
Plant
Exit
Costs
Non-Cash
Asset
Write-Down
Total
(Dollars in thousands)
Balance at December 31, 2018
$
130
$
1,482
$
—
$
1,612
Charged to expense
42,556
808
5,230
48,594
Utilized and currency translation
(2,543
)
(1,241
)
(5,230
)
(9,014
)
Balance at September 30, 2019
$
40,143
$
1,049
$
—
$
41,192
Rationalization reserves as of September 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $5.3 million and other liabilities of $35.9 million. Exclusive of the footprint optimization plan for our metal container business and withdrawal from the Central States Pension Plan discussed above, remaining expenses for our rationalization plans of $2.4 million are expected primarily through 2019 and remaining cash expenditures for our rationalization plans of $5.0 million are expected through 2023.
-11-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 5. 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, 2018
$
(154,466
)
$
(1,008
)
$
(113,334
)
$
(268,808
)
Other comprehensive loss before reclassifications
—
(2,975
)
(24,213
)
(27,188
)
Amounts reclassified from accumulated other
comprehensive loss
7,745
328
—
8,073
Other comprehensive loss
7,745
(2,647
)
(24,213
)
(19,115
)
Balance at September 30, 2019
$
(146,721
)
$
(3,655
)
$
(137,547
)
$
(287,923
)
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, 2019 were net (losses) of $(3.5) million and $(10.3) million, respectively, excluding income tax benefits of $0.8 million and $2.6 million, respectively. For the three and nine months ended September 30, 2019, these net (losses) consisted of amortization of net actuarial (losses) of $(4.1) million and $(12.0) million and amortization of net prior service credit of $0.6 million and $1.7 million, respectively. 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 10 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, 2019 were not significant.
Other comprehensive income before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2019 consisted of (i) foreign currency (losses) related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $(36.1) million and $(37.7) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $0.3 million and $0.9 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $14.1 million and $16.5 million, respectively, excluding income tax (provisions) of $(3.3) million and $(3.9) million, respectively. See Note 8 for further discussion.
-12-
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 6. Inventories
Inventories consisted of the following:
Sept. 30, 2019
Sept. 30, 2018
Dec. 31, 2018
(Dollars in thousands)
Raw materials
$
275,015
$
250,051
$
288,860
Work-in-process
127,590
125,336
123,574
Finished goods
413,864
384,815
335,180
Other
12,620
12,999
13,075
829,089
773,201
760,689
Adjustment to value inventory
at cost on the LIFO method
(125,883
)
(82,823
)
(125,883
)
$
703,206
$
690,378
$
634,806
Note 7. Long-Term Debt
Long-term debt consisted of the following:
Sept. 30, 2019
Sept. 30, 2018
Dec. 31, 2018
(Dollars in thousands)
Bank debt
Bank revolving loans
$
766,000
$
698,000
$
—
U.S. term loans
800,000
800,000
800,000
Canadian term loans
15,943
23,335
22,103
Other foreign bank revolving and term loans
37,062
36,143
129,697
Total bank debt
1,619,005
1,557,478
951,800
5½% Senior Notes
—
300,000
300,000
4¾% Senior Notes
300,000
300,000
300,000
3¼% Senior Notes
708,630
754,260
744,380
Finance leases
33,440
21,950
21,543
Total debt - principal
2,661,075
2,933,688
2,317,723
Less unamortized debt issuance costs
9,690
14,009
13,109
Total debt
2,651,385
2,919,679
2,304,614
Less current portion
841,430
733,404
170,214
$
1,809,955
$
2,186,275
$
2,134,400
At September 30, 2019, the current portion of long-term debt consisted of $766.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $40.0 million of term loans under the Credit Agreement, $33.8 million of other foreign bank revolving and term loans and $1.6 million of finance leases.
On August 1, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 5½% Senior Notes due 2022, or the 5½% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest up to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.7 million during the third quarter of 2019 for the write-off of unamortized debt issuance costs.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 8. 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, 2019:
Carrying
Amount
Fair
Value
(Dollars in thousands)
Assets:
Cash and cash equivalents
$
117,389
$
117,389
Liabilities:
Bank debt
$
1,619,005
$
1,619,005
4¾% Senior Notes
300,000
307,761
3¼% Senior Notes
708,630
728,394
Derivative instruments (accrued and other liabilities)
4,779
4,779
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, 2019 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, 4¾% Senior Notes and 3¼% Senior 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 4¾% Senior Notes and 3¼% Senior 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.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 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 and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest 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 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.
We 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. We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk.
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 month periods ended September 30, 2019. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at September 30, 2019 was not significant.
Natural Gas Swap Agreements
We have entered into natural gas swap agreements with a major financial institution 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 and nine month periods ended September 30, 2019. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at September 30, 2019 was not significant.
Foreign Currency Exchange Rate Risk
In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros and Canadian dollars. 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. We have designated the 3¼% Senior Notes, which are Euro denominated, as net investment hedges. Foreign currency gains related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2019 were $14.1 million and $16.5 million, respectively.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 9. 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 container and closures 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 container and closures subsidiaries, which should effectively close out the investigation in Germany. Given the continued early 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.
Note 10. Retirement Benefits
The components of the net periodic pension benefit credit were as follows:
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
(Dollars in thousands)
Service cost
$
2,871
$
3,411
$
9,383
$
10,842
Interest cost
7,149
6,348
21,241
18,953
Expected return on plan assets
(15,200
)
(17,137
)
(45,425
)
(51,382
)
Amortization of prior service cost
46
34
86
103
Amortization of actuarial losses
4,084
1,877
12,324
5,450
Net periodic benefit credit
$
(1,050
)
$
(5,467
)
$
(2,391
)
$
(16,034
)
The components of the net periodic other postretirement benefit (credit) cost were as follows:
Three Months Ended
Nine Months Ended
Sept. 30, 2019
Sept. 30, 2018
Sept. 30, 2019
Sept. 30, 2018
(Dollars in thousands)
Service cost
$
16
$
15
$
60
$
78
Interest cost
200
158
569
483
Amortization of prior service (credit) cost
(586
)
561
(1,749
)
(738
)
Amortization of actuarial gains
(33
)
(167
)
(366
)
(405
)
Net periodic benefit (credit) cost
$
(403
)
$
567
$
(1,486
)
$
(582
)
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2019 and 2018 and for the
three and nine months then ended is unaudited)
Note 11. 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 2017 tax year with no material change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2018 and 2019 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.
Note 12. Treasury Stock
On October 17, 2016, 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. During the nine months ended September 30, 2019, we repurchased an aggregate of 407,540 shares of our common stock at an average price per share of $29.70, for a total purchase price of $12.1 million. At September 30, 2019, we had approximately $112.5 million remaining under this authorization for the repurchase of our common stock.
During the first nine months of 2019, we issued 1,281,777 treasury shares which had an average cost of $2.86 per share for restricted stock units that vested during the period. In accor