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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, 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 | New York Stock Exchange |
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, 2022, the number of shares outstanding of the Registrant’s common stock was 110,079,007.
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SILGAN HOLDINGS INC. |
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TABLE OF CONTENTS |
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Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| | | | | | | | | | | | | | | | | |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Dec. 31, 2021 |
| (unaudited) | | (unaudited) | | |
Assets | | | | | |
Current assets: | | | | | |
Cash and cash equivalents | $ | 243,609 | | | $ | 270,567 | | | $ | 631,439 | |
Trade accounts receivable, net | 1,124,051 | | | 1,033,680 | | | 711,332 | |
Inventories | 851,070 | | | 762,182 | | | 798,837 | |
Prepaid expenses and other current assets | 113,498 | | | 114,945 | | | 154,241 | |
Total current assets | 2,332,228 | | | 2,181,374 | | | 2,295,849 | |
| | | | | |
Property, plant and equipment, net | 1,886,596 | | | 1,963,349 | | | 1,993,877 | |
Goodwill | 1,914,894 | | | 2,039,033 | | | 2,038,408 | |
Other intangible assets, net | 757,882 | | | 839,332 | | | 830,772 | |
Other assets, net | 627,813 | | | 524,752 | | | 611,940 | |
| $ | 7,519,413 | | | $ | 7,547,840 | | | $ | 7,770,846 | |
| | | | | |
Liabilities and Stockholders’ Equity | | | | | |
Current liabilities: | | | | | |
Revolving loans and current portion of long-term debt | $ | 591,287 | | | $ | 934,246 | | | $ | 20,251 | |
Trade accounts payable | 688,383 | | | 761,018 | | | 1,133,318 | |
Accrued payroll and related costs | 110,358 | | | 110,452 | | | 109,279 | |
Accrued liabilities | 291,384 | | | 235,372 | | | 245,674 | |
Total current liabilities | 1,681,412 | | | 2,041,088 | | | 1,508,522 | |
| | | | | |
Long-term debt | 3,246,738 | | | 3,191,581 | | | 3,772,926 | |
Deferred income taxes | 425,181 | | | 383,154 | | | 435,252 | |
Other liabilities | 472,851 | | | 475,311 | | | 491,450 | |
| | | | | |
Stockholders’ equity: | | | | | |
Common stock | 1,751 | | | 1,751 | | | 1,751 | |
Paid-in capital | 335,924 | | | 320,132 | | | 325,448 | |
Retained earnings | 2,954,292 | | | 2,622,401 | | | 2,691,745 | |
Accumulated other comprehensive loss | (365,356) | | | (291,158) | | | (259,828) | |
Treasury stock | (1,233,380) | | | (1,196,420) | | | (1,196,420) | |
Total stockholders’ equity | 1,693,231 | | | 1,456,706 | | | 1,562,696 | |
| $ | 7,519,413 | | | $ | 7,547,840 | | | $ | 7,770,846 | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| | | | | | | |
Net sales | $ | 1,970,445 | | | $ | 1,651,070 | | | $ | 4,956,112 | | | $ | 4,237,841 | |
Cost of goods sold | 1,662,680 | | | 1,402,836 | | | 4,140,968 | | | 3,533,257 | |
Gross profit | 307,765 | | | 248,234 | | | 815,144 | | | 704,584 | |
Selling, general and administrative expenses | 96,680 | | | 90,299 | | | 320,521 | | | 282,072 | |
Rationalization charges | 2,726 | | | 2,315 | | | 7,533 | | | 13,026 | |
Other pension and postretirement income | (11,051) | | | (12,297) | | | (33,729) | | | (37,934) | |
Income before interest and income taxes | 219,410 | | | 167,917 | | | 520,819 | | | 447,420 | |
Interest and other debt expense before loss on early extinguishment of debt | 33,743 | | | 27,039 | | | 91,752 | | | 79,868 | |
Loss on early extinguishment of debt | — | | | — | | | 1,481 | | | 883 | |
Interest and other debt expense | 33,743 | | | 27,039 | | | 93,233 | | | 80,751 | |
Income before income taxes | 185,667 | | | 140,878 | | | 427,586 | | | 366,669 | |
Provision for income taxes | 46,964 | | | 34,586 | | | 111,333 | | | 92,620 | |
Net income | $ | 138,703 | | | $ | 106,292 | | | $ | 316,253 | | | $ | 274,049 | |
| | | | | | | |
Earnings per share: | | | | | | | |
Basic net income per share | $ | 1.26 | | | $ | 0.96 | | | $ | 2.86 | | | $ | 2.48 | |
Diluted net income per share | $ | 1.25 | | | $ | 0.96 | | | $ | 2.85 | | | $ | 2.47 | |
| | | | | | | |
Weighted average number of shares: | | | | | | | |
Basic | 110,281 | | | 110,465 | | | 110,572 | | | 110,372 | |
Effect of dilutive securities | 460 | | | 732 | | | 548 | | | 739 | |
Diluted | 110,741 | | | 111,197 | | | 111,120 | | | 111,111 | |
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See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2022 and 2021
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
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Net income | $ | 138,703 | | | $ | 106,292 | | | $ | 316,253 | | | $ | 274,049 | |
Other comprehensive income (loss), net of tax: | | | | | | | |
Changes in net prior service credit and actuarial losses | 693 | | | 2,156 | | | 1,731 | | | 5,910 | |
Change in fair value of derivatives | 421 | | | 1,071 | | | 2,698 | | | 2,540 | |
Foreign currency translation | (58,254) | | | (30,952) | | | (109,957) | | | (38,655) | |
Other comprehensive loss | (57,140) | | | (27,725) | | | (105,528) | | | (30,205) | |
Comprehensive income | $ | 81,563 | | | $ | 78,567 | | | $ | 210,725 | | | $ | 243,844 | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2022 and 2021
(Dollars in thousands)
(Unaudited)
| | | | | | | | | | | |
| 2022 | | 2021 |
Cash flows provided by (used in) operating activities: | | | |
Net income | $ | 316,253 | | | $ | 274,049 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | |
Depreciation and amortization | 201,912 | | | 185,968 | |
Rationalization charges | 7,533 | | | 13,026 | |
Stock compensation expense | 12,917 | | | 15,605 | |
Loss on early extinguishment of debt | 1,481 | | | 883 | |
Other changes that provided (used) cash, net of effects from acquisitions: | | | |
Trade accounts receivable, net | (459,131) | | | (415,331) | |
Inventories | (92,181) | | | (78,738) | |
Trade accounts payable | (165,717) | | | 62,303 | |
Accrued liabilities | 64,458 | | | (33,488) | |
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Other, net | (5,047) | | | (30,055) | |
Net cash used in operating activities | (117,522) | | | (5,778) | |
| | | |
Cash flows provided by (used in) investing activities: | | | |
Purchase of businesses, net of cash acquired | (1,333) | | | (718,430) | |
Capital expenditures | (162,271) | | | (172,994) | |
Other, net | 1,993 | | | 2,234 | |
Net cash used in investing activities | (161,611) | | | (889,190) | |
| | | |
Cash flows provided by (used in) financing activities: | | | |
Borrowings under revolving loans | 813,628 | | | 1,155,199 | |
Repayments under revolving loans | (290,327) | | | (248,310) | |
Proceeds from issuance of long-term debt | 6,042 | | | 499,725 | |
Repayments of long-term debt | (300,314) | | | (500,000) | |
Changes in outstanding checks - principally vendors | (225,863) | | | (84,216) | |
Dividends paid on common stock | (54,325) | | | (47,030) | |
Debt issuance costs | — | | | (4,909) | |
| | | |
Repurchase of common stock | (39,402) | | | (8,573) | |
| | | |
| | | |
Net cash (used in) provided by financing activities | (90,561) | | | 761,886 | |
| | | |
Effect of exchange rate changes on cash and cash equivalents | (18,136) | | | (5,832) | |
| | | |
Cash and cash equivalents: | | | |
Net decrease | (387,830) | | | (138,914) | |
Balance at beginning of year | 631,439 | | | 409,481 | |
Balance at end of period | $ | 243,609 | | | $ | 270,567 | |
| | | |
Interest paid, net | $ | 91,037 | | | $ | 79,107 | |
Income taxes paid, net | 66,959 | | | 79,812 | |
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three and nine months ended September 30, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| | | | | | | |
Common stock - shares outstanding | | | | | | | |
Balance at beginning of period | 110,215 | | | 110,408 | | | 110,410 | | | 110,057 | |
Net issuance of treasury stock for vested restricted stock units | — | | | 2 | | | 455 | | | 353 | |
Repurchases of common stock | — | | | — | | | (650) | | | — | |
Balance at end of period | 110,215 | | | 110,410 | | | 110,215 | | | 110,410 | |
| | | | | | | |
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 | 331,877 | | | 314,873 | | | 325,448 | | | 306,363 | |
Stock compensation expense | 4,047 | | | 5,268 | | | 12,917 | | | 15,605 | |
Net issuance of treasury stock for vested restricted stock units | — | | | (9) | | | (2,441) | | | (1,836) | |
Balance at end of period | 335,924 | | | 320,132 | | | 335,924 | | | 320,132 | |
| | | | | | | |
Retained earnings | | | | | | | |
Balance at beginning of period | 2,833,431 | | | 2,531,783 | | | 2,691,745 | | | 2,395,395 | |
Net income | 138,703 | | | 106,292 | | | 316,253 | | | 274,049 | |
Dividends declared on common stock | (17,842) | | | (15,674) | | | (53,706) | | | (47,043) | |
Balance at end of period | 2,954,292 | | | 2,622,401 | | | 2,954,292 | | | 2,622,401 | |
| | | | | | | |
Accumulated other comprehensive loss | | | | | | | |
Balance at beginning of period | (308,216) | | | (263,433) | | | (259,828) | | | (260,953) | |
Other comprehensive loss | (57,140) | | | (27,725) | | | (105,528) | | | (30,205) | |
Balance at end of period | (365,356) | | | (291,158) | | | (365,356) | | | (291,158) | |
| | | | | | | |
Treasury stock | | | | | | | |
Balance at beginning of period | (1,233,380) | | | (1,196,394) | | | (1,196,420) | | | (1,189,683) | |
Net issuance of treasury stock for vested restricted stock units | — | | | (26) | | | (10,593) | | | (6,737) | |
Repurchases of common stock | — | | | — | | | (26,367) | | | — | |
Balance at end of period | (1,233,380) | | | (1,196,420) | | | (1,233,380) | | | (1,196,420) | |
Total stockholders' equity | $ | 1,693,231 | | | $ | 1,456,706 | | | $ | 1,693,231 | | | $ | 1,456,706 | |
| | | | | | | |
Dividends declared on common stock per share | $ | 0.16 | | | $ | 0.14 | | | $ | 0.48 | | | $ | 0.42 | |
See accompanying notes.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 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, 2021 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, 2021.
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 2022 assessment performed during the third quarter.
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 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
Dispensing and Specialty Closures | $ | 575,530 | | | $ | 533,329 | | | $ | 1,775,888 | | | $ | 1,588,449 | |
Metal Containers | 1,212,034 | | | 942,125 | | | 2,617,156 | | | 2,120,740 | |
Custom Containers | 182,881 | | | 175,616 | | | 563,068 | | | 528,652 | |
| $ | 1,970,445 | | | $ | 1,651,070 | | | $ | 4,956,112 | | | $ | 4,237,841 | |
Revenues by geography were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
North America | $ | 1,592,775 | | | $ | 1,274,025 | | | $ | 3,833,613 | | | $ | 3,140,924 | |
Europe and other | 377,670 | | | 377,045 | | | 1,122,499 | | | 1,096,917 | |
| $ | 1,970,445 | | | $ | 1,651,070 | | | $ | 4,956,112 | | | $ | 4,237,841 | |
Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $113.3 million, $94.6 million, and $78.2 million as of September 30, 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, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 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 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
Dispensing and Specialty Closures | $ | 346 | | | $ | 406 | | | $ | 346 | | | $ | 5,704 | |
Metal Containers | 2,480 | | | 1,822 | | | 7,182 | | | 7,068 | |
Custom Containers | (100) | | | 87 | | | 5 | | | 254 | |
| $ | 2,726 | | | $ | 2,315 | | | $ | 7,533 | | | $ | 13,026 | |
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, 2021 | $ | 41,090 | | | $ | 157 | | | $ | — | | | $ | 41,247 | |
Charged to expense | 5,324 | | | 348 | | | 1,861 | | | 7,533 | |
Utilized and currency translation | (5,908) | | | (378) | | | (1,861) | | | (8,147) | |
Balance at September 30, 2022 | $ | 40,506 | | | $ | 127 | | | $ | — | | | $ | 40,633 | |
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 7 for information regarding a Level 3 fair value measurement).
Rationalization reserves as of September 30, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $4.4 million and other liabilities of $36.2 million. Excluding the impact of our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $3.1 million and $6.0 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 $0.9 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, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 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, 2021 | $ | (119,474) | | | $ | (2,327) | | | $ | (138,027) | | | $ | (259,828) | |
Other comprehensive loss before reclassifications | — | | | 3,135 | | | (109,957) | | | (106,822) | |
Amounts reclassified from accumulated other comprehensive loss | 1,731 | | | (437) | | | — | | | 1,294 | |
Other comprehensive loss | 1,731 | | | 2,698 | | | (109,957) | | | (105,528) | |
Balance at September 30, 2022 | $ | (117,743) | | | $ | 371 | | | $ | (247,984) | | | $ | (365,356) | |
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, 2022 were net (losses) of $(0.9) million and $(2.4) million, respectively, excluding income tax benefits of $0.3 million and $0.7 million, respectively. For the three and nine months ended September 30, 2022, these net (losses) consisted of amortization of net actuarial (losses) of $(1.3) million and $(3.5) million and amortization of net prior service credit of $0.4 million and $1.1 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 9 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, 2022 were not significant.
Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2022 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 $(82.5) million and $(168.1) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $1.2 million and $3.1 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $30.2 million and $72.2 million, respectively, excluding income tax (provisions) of $(7.1) million and $(17.1) million, respectively. See Note 7 for further discussion.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 5. Inventories
Inventories consisted of the following:
| | | | | | | | | | | | | | | | | |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Dec. 31, 2021 |
| (Dollars in thousands) |
Raw materials | $ | 452,307 | | | $ | 333,202 | | | $ | 394,102 | |
Work-in-process | 231,036 | | | 152,429 | | | 157,406 | |
Finished goods | 542,044 | | | 370,134 | | | 394,378 | |
Other | 16,857 | | | 16,005 | | | 15,731 | |
| 1,242,244 | | | 871,770 | | | 961,617 | |
Adjustment to value inventory at cost on the LIFO method | (391,174) | | | (109,588) | | | (162,780) | |
| $ | 851,070 | | | $ | 762,182 | | | $ | 798,837 | |
During the nine months ended September 30, 2022, we implemented an inventory management program which resulted in permanent reductions of inventories valued under the last-in, first-out basis. This resulted in liquidations of inventory layers carried at costs prevailing in prior years and thereby decreased cost of goods sold by $26.2 million and $33.5 million for the three and nine months ended September 20, 2022, respectively.
Note 6. Long-Term Debt
Long-term debt consisted of the following:
| | | | | | | | | | | | | | | | | |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Dec. 31, 2021 |
| (Dollars in thousands) |
Bank debt | | | | | |
Bank revolving loans | $ | 497,000 | | | $ | 910,000 | | | $ | — | |
U.S. term loans | 1,000,000 | | | 400,000 | | | 1,000,000 | |
| | | | | |
Other foreign bank revolving and term loans | 66,649 | | | 36,003 | | | 38,862 | |
Total bank debt | 1,563,649 | | | 1,346,003 | | | 1,038,862 | |
| | | | | |
| | | | | |
4¾% Senior Notes | — | | | 300,000 | | | 300,000 | |
3¼% Senior Notes | 636,740 | | | 753,285 | | | 739,180 | |
4⅛% Senior Notes | 600,000 | | | 600,000 | | | 600,000 | |
2¼% Senior Notes | 489,800 | | | 579,450 | | | 568,600 | |
1.4% Senior Secured Notes | 500,000 | | | 500,000 | | | 500,000 | |
Finance leases | 66,109 | | | 69,061 | | | 68,730 | |
Total debt - principal | 3,856,298 | | | 4,147,799 | | | 3,815,372 | |
Less unamortized debt issuance costs and debt discount | 18,273 | | | 21,972 | | | 22,195 | |
Total debt | 3,838,025 | | | 4,125,827 | | | 3,793,177 | |
Less current portion | 591,287 | | | 934,246 | | | 20,251 | |
| $ | 3,246,738 | | | $ | 3,191,581 | | | $ | 3,772,926 | |
At September 30, 2022, the current portion of long-term debt consisted of $497.0 million of bank revolving loans and $50.0 million of U.S. term loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $41.6 million of other foreign bank revolving and term loans and $2.7 million of finance leases.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of our outstanding 4¾% Senior Notes due 2025, or the 4¾% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest 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 $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.
Note 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, 2022:
| | | | | | | | | | | |
| Carrying Amount | | Fair Value |
| (Dollars in thousands) |
Assets: | | | |
Cash and cash equivalents | $ | 243,609 | | | $ | 243,609 | |
| | | |
| | | |
Liabilities: | | | |
Bank debt | $ | 1,563,649 | | | $ | 1,563,649 | |
| | | |
| | | |
3¼% Senior Notes | 636,740 | | | 601,083 | |
4⅛% Senior Notes | 599,287 | | | 532,200 | |
2¼% Senior Notes | 489,800 | | | 394,632 | |
1.4% Senior Secured Notes | 499,811 | | | 427,000 | |
| | | |
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, 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, 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 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.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
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.
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 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, 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, 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 and nine months ended September 30, 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 September 30, 2022 was not significant.
Foreign Currency Exchange Rate Risk
In an effort to minimize our foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in 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, 2022 were $30.2 million and $72.2 million, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 8. Commitments and Contingencies
On July 12, 2022, we concluded a settlement with the European Commission to end a long-running investigation of our metal packaging operations in Europe. This investigation was started in 2015 by the German antitrust authority and was transferred in 2018 to the European Commission. With the settlement, the European Commission closed its investigation and we paid a fine of €23.9 million in October 2022, although we do not fully concur with the facts and legal qualifications put forth by the European Commission.
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 9. Retirement Benefits
The components of the net periodic pension benefit credit were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
Service cost | $ | 2,937 | | | $ | 3,177 | | | $ | 9,507 | | | $ | 10,754 | |
Interest cost | 5,131 | | | 4,579 | | | 15,430 | | | 13,288 | |
Expected return on plan assets | (17,220) | | | (19,892) | | | (51,849) | | | (59,590) | |
Amortization of prior service cost | 62 | | | 67 | | | 170 | | | 183 | |
Amortization of actuarial losses | 1,370 | | | 3,464 | | | 3,682 | | | 9,518 | |
| | | | | | | |
Net periodic benefit credit | $ | (7,720) | | | $ | (8,605) | | | $ | (23,060) | | | $ | (25,847) | |
The components of the net periodic other postretirement benefit credit were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
Service cost | $ | 5 | | | $ | 25 | | | $ | 56 | | | $ | 81 | |
Interest cost | 96 | | | 82 | | | 314 | | | 272 | |
Amortization of prior service credit | (415) | | | (460) | | | (1,247) | | | (1,373) | |
Amortization of actuarial gains | (75) | | | (137) | | | (229) | | | (232) | |
Net periodic benefit credit | $ | (389) | | | $ | (490) | | | $ | (1,106) | | | $ | (1,252) | |
Note 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 2020 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2021 and 2022 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 11. Treasury Stock
On 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, 2026. During the nine months ended September 30, 2022, we repurchased an aggregate of 649,727 shares of our common stock at an average price per share of $40.56, for a total purchase price of $26.4 million. At September 30, 2022, we had approximately $273.6 million remaining under this authorization for the repurchase of our common stock.
During the first nine months of 2022, we issued 765,917 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 310,904 shares of our common stock at an average cost of $41.92 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, 2022, 64,896,981 shares of our common stock were held in treasury.
Note 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 nine months of 2022, 429,731 restricted stock units were granted to certain of our officers, other key employees and outside directors. The fair value of these restricted stock units at the grant date was $17.9 million, which is being amortized ratably over the respective vesting period from the grant date.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2022 and 2021 and for the
three and nine months then ended is unaudited)
Note 13. Segment Information
Reportable segment information was as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Dispensing and Specialty Closures | | Metal Containers | | Custom Containers | | Corporate | | Total |
| (Dollars in thousands) |
Three Months Ended September 30, 2022 | | | | | | | | | |
Net sales | $ | 575,530 | | | $ | 1,212,034 | | | $ | 182,881 | | | $ | — | | | $ | 1,970,445 | |
Depreciation and amortization(1) | 36,056 | | | 17,811 | | | 9,882 | | | 39 | | | 63,788 | |
Rationalization charges | 346 | | | 2,480 | | | (100) | | | — | | | 2,726 | |
Segment income | 79,163 | | | 121,267 | | | 24,262 | | | (5,282) | | | 219,410 | |
| | | | | | | | | |
Three Months Ended September 30, 2021 | | | | | | | | | |
Net sales | $ | 533,329 | | | $ | 942,125 | | | $ | 175,616 | | | $ | — | | | $ | 1,651,070 | |
Depreciation and amortization(1) | 30,830 | | | 21,231 | | | 10,072 | | | 38 | | | 62,171 | |
Rationalization charges | 406 | | | 1,822 | | | 87 | | | — | | | 2,315 | |
Segment income | 60,090 | | | 94,271 | | | 22,704 | | | (9,148) | | | 167,917 | |
| | | | | | | | | |
Nine Months Ended September 30, 2022 | | | | | | | | | |
Net sales | $ | 1,775,888 | | | $ | 2,617,156 | | | $ | 563,068 | | | $ | — | | | $ | 4,956,112 | |
Depreciation and amortization(1) | 109,216 | | | 58,749 | | | 29,699 | | | 120 | | | 197,784 | |
Rationalization charges | 346 | | | 7,182 | | | 5 | | | — | | | 7,533 | |
Segment income (2) | 257,825 | | | 225,634 | | | 79,846 | | | (42,486) | | | 520,819 | |
| | | | | | | | | |
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 | |
_____________
(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.3 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, and $4.1 million for each of the nine months ended September 30, 2022 and 2021.
(2)Corporate includes a charge of $25.2 million for the settlement with the European Commission for the nine months ended September 30, 2022.
Total segment income is reconciled to income before income taxes as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| Sept. 30, 2022 | | Sept. 30, 2021 | | Sept. 30, 2022 | | Sept. 30, 2021 |
| | | | | | | |
| (Dollars in thousands) |
Total segment income | $ | 219,410 | | | $ | 167,917 | | | $ | 520,819 | | | $ | 447,420 | |
Interest and other debt expense | 33,743 | | | 27,039 | | | 93,233 | | | |