SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,266,930
|
|
|
$
|
1,139,643
|
|
|
$
|
3,094,150
|
|
|
$
|
2,807,023
|
|
|
Cost of goods sold
|
1,054,371
|
|
|
957,704
|
|
|
2,591,837
|
|
|
2,383,500
|
|
|
Gross profit
|
212,559
|
|
|
181,939
|
|
|
502,313
|
|
|
423,523
|
|
|
Selling, general and administrative expenses
|
73,432
|
|
|
51,711
|
|
|
227,268
|
|
|
162,092
|
|
|
Rationalization charges
|
561
|
|
|
7,821
|
|
|
4,485
|
|
|
13,929
|
|
|
Income from operations
|
138,566
|
|
|
122,407
|
|
|
270,560
|
|
|
247,502
|
|
|
Interest and other debt expense before loss on early extinguishment of debt
|
30,583
|
|
|
17,318
|
|
|
80,207
|
|
|
50,657
|
|
|
Loss on early extinguishment of debt
|
—
|
|
|
—
|
|
|
7,052
|
|
|
—
|
|
|
Interest and other debt expense
|
30,583
|
|
|
17,318
|
|
|
87,259
|
|
|
50,657
|
|
|
Income before income taxes
|
107,983
|
|
|
105,089
|
|
|
183,301
|
|
|
196,845
|
|
|
Provision for income taxes
|
35,601
|
|
|
35,319
|
|
|
59,762
|
|
|
67,190
|
|
|
Net income
|
$
|
72,382
|
|
|
$
|
69,770
|
|
|
$
|
123,539
|
|
|
$
|
129,655
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: (a)
|
|
|
|
|
|
|
|
|
Basic net income per share
|
$
|
0.66
|
|
|
$
|
0.58
|
|
|
$
|
1.12
|
|
|
$
|
1.07
|
|
|
Diluted net income per share
|
$
|
0.65
|
|
|
$
|
0.57
|
|
|
$
|
1.11
|
|
|
$
|
1.07
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share (a)
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
0.27
|
|
|
$
|
0.26
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares: (a)
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
110,391
|
|
|
120,891
|
|
|
110,327
|
|
|
120,934
|
|
|
Effect of dilutive securities
|
1,036
|
|
|
767
|
|
|
996
|
|
|
741
|
|
|
Diluted
|
111,427
|
|
|
121,658
|
|
|
111,323
|
|
|
121,675
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) Per share and share amounts for 2016 have been retroactively adjusted for the two-for-one stock split discussed in Note 1.
|
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
|
|
|
|
|
|
|
|
Net income
|
$
|
72,382
|
|
|
$
|
69,770
|
|
|
$
|
123,539
|
|
|
$
|
129,655
|
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
|
|
|
|
Changes in net prior service credit and actuarial losses
|
558
|
|
|
4,181
|
|
|
1,816
|
|
|
5,992
|
|
|
Change in fair value of derivatives
|
(51
|
)
|
|
228
|
|
|
(526
|
)
|
|
689
|
|
|
Foreign currency translation
|
14,369
|
|
|
2,625
|
|
|
52,303
|
|
|
6,863
|
|
|
Other comprehensive income
|
14,876
|
|
|
7,034
|
|
|
53,593
|
|
|
13,544
|
|
|
Comprehensive income
|
$
|
87,258
|
|
|
$
|
76,804
|
|
|
$
|
177,132
|
|
|
$
|
143,199
|
|
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2017 and 2016
(Dollars in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
|
2016
|
|
Cash flows provided by (used in) operating activities:
|
|
|
|
|
Net income
|
$
|
123,539
|
|
|
$
|
129,655
|
|
|
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
|
|
|
|
|
|
|
Depreciation and amortization
|
129,734
|
|
|
110,280
|
|
|
Rationalization charges
|
4,485
|
|
|
13,929
|
|
|
Stock compensation expense
|
11,052
|
|
|
9,724
|
|
|
Loss on early extinguishment of debt
|
7,052
|
|
|
—
|
|
|
Other changes that provided (used) cash, net of effects from acquisition:
|
|
|
|
|
|
|
Trade accounts receivable, net
|
(285,901
|
)
|
|
(231,674
|
)
|
|
Inventories
|
(2,895
|
)
|
|
(6,546
|
)
|
|
Trade accounts payable
|
1,725
|
|
|
(60,423
|
)
|
|
Accrued liabilities
|
16,003
|
|
|
34,371
|
|
|
Other, net
|
(9,247
|
)
|
|
(10,885
|
)
|
|
Net cash used in operating activities
|
(4,453
|
)
|
|
(11,569
|
)
|
|
|
|
|
|
|
Cash flows provided by (used in) investing activities:
|
|
|
|
|
|
|
Purchase of business, net of cash acquired
|
(1,028,729
|
)
|
|
—
|
|
|
Capital expenditures
|
(124,163
|
)
|
|
(151,522
|
)
|
|
Proceeds from asset sales
|
539
|
|
|
8,926
|
|
|
Net cash used in investing activities
|
(1,152,353
|
)
|
|
(142,596
|
)
|
|
|
|
|
|
|
Cash flows provided by (used in) financing activities:
|
|
|
|
|
|
|
Borrowings under revolving loans
|
1,108,208
|
|
|
601,558
|
|
|
Repayments under revolving loans
|
(680,986
|
)
|
|
(303,259
|
)
|
|
Proceeds from issuance of long-term debt
|
1,789,200
|
|
|
—
|
|
|
Repayments of long-term debt
|
(755,037
|
)
|
|
(7,775
|
)
|
|
Changes in outstanding checks - principally vendors
|
(78,944
|
)
|
|
(101,765
|
)
|
|
Dividends paid on common stock
|
(30,373
|
)
|
|
(31,344
|
)
|
|
Debt issuance costs
|
(16,643
|
)
|
|
—
|
|
|
Repurchase of common stock
|
(4,123
|
)
|
|
(9,634
|
)
|
|
Net cash provided by financing activities
|
1,331,302
|
|
|
147,781
|
|
|
|
|
|
|
|
Cash and cash equivalents:
|
|
|
|
|
|
|
Net increase (decrease)
|
174,496
|
|
|
(6,384
|
)
|
|
Balance at beginning of year
|
24,690
|
|
|
99,945
|
|
|
Balance at end of period
|
$
|
199,186
|
|
|
$
|
93,561
|
|
|
|
|
|
|
|
Interest paid, net
|
$
|
78,528
|
|
|
$
|
46,899
|
|
|
Income taxes paid, net
|
50,226
|
|
|
46,206
|
|
See accompanying notes.
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF
STOCKHOLDERS' EQUITY
For the nine months ended September 30, 2017 and 2016
(Dollars and shares in thousands)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated Other Comprehensive Loss
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Total Stockholders’ Equity
|
|
|
Shares Outstanding
|
|
Par Value
|
|
Paid-in Capital
|
|
Retained Earnings
|
|
|
Treasury Stock
|
|
|
Balance at December 31, 2015
|
60,393
|
|
|
$
|
876
|
|
|
$
|
237,291
|
|
|
$
|
1,446,193
|
|
|
$
|
(208,806
|
)
|
|
$
|
(836,370
|
)
|
|
$
|
639,184
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
129,655
|
|
|
—
|
|
|
—
|
|
|
129,655
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
13,544
|
|
|
—
|
|
|
13,544
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(31,344
|
)
|
|
—
|
|
|
—
|
|
|
(31,344
|
)
|
|
Stock compensation expense
|
—
|
|
|
—
|
|
|
9,724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,724
|
|
|
Adoption of accounting standard update related to stock compensation accounting
|
—
|
|
|
—
|
|
|
598
|
|
|
(73
|
)
|
|
—
|
|
|
—
|
|
|
525
|
|
|
Net issuance of treasury stock for vested restricted stock units
|
94
|
|
|
—
|
|
|
(892
|
)
|
|
—
|
|
|
—
|
|
|
(1,542
|
)
|
|
(2,434
|
)
|
|
Repurchases of common stock
|
(147
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(7,200
|
)
|
|
(7,200
|
)
|
|
Balance at September 30, 2016
|
60,340
|
|
|
$
|
876
|
|
|
$
|
246,721
|
|
|
$
|
1,544,431
|
|
|
$
|
(195,262
|
)
|
|
$
|
(845,112
|
)
|
|
$
|
751,654
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
55,051
|
|
|
$
|
876
|
|
|
$
|
249,763
|
|
|
$
|
1,558,594
|
|
|
$
|
(223,856
|
)
|
|
$
|
(1,115,962
|
)
|
|
$
|
469,415
|
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
123,539
|
|
|
—
|
|
|
—
|
|
|
123,539
|
|
|
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
53,593
|
|
|
—
|
|
|
53,593
|
|
|
Dividends declared on common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
(30,373
|
)
|
|
—
|
|
|
—
|
|
|
(30,373
|
)
|
|
Stock compensation expense
|
—
|
|
|
—
|
|
|
11,052
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,052
|
|
|
Net issuance of treasury stock for vested restricted stock units
|
180
|
|
|
—
|
|
|
(1,287
|
)
|
|
—
|
|
|
—
|
|
|
(2,836
|
)
|
|
(4,123
|
)
|
|
Two-for-one stock split
|
55,142
|
|
|
875
|
|
|
(875
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Balance at September 30, 2017
|
110,373
|
|
|
$
|
1,751
|
|
|
$
|
258,653
|
|
|
$
|
1,651,760
|
|
|
$
|
(170,263
|
)
|
|
$
|
(1,118,798
|
)
|
|
$
|
623,103
|
|
See accompanying notes.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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, 2016 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.
Deferred income taxes as of December 31, 2016 and September 30, 2016 previously included in other liabilities have been presented as a separate line item on the Condensed Consolidated Balance Sheet to conform to current period presentation.
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, 2016.
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 2017 assessment performed during the third quarter.
Stock Split
.
On May 3, 2017, our Board of Directors declared a two-for-one stock split of our issued common stock. The stock split was effected on May 26, 2017 in the form of a stock dividend. Stockholders of record at the close of business on May 15, 2017 were issued one additional share of common stock for each share of common stock owned on that date. Information pertaining to the number of shares outstanding, per share amounts and stock compensation has been retroactively adjusted in the accompanying financial statements and related footnotes to reflect this stock split for all periods presented, except for the Condensed Consolidated Balance Sheets and Statements of Stockholders’ Equity. Stockholders’ equity reflects the stock split by reclassifying from paid-in capital to common stock an amount equal to the par value of the additional shares issued as a result of the stock split.
Recently Adopted Accounting Pronouncement.
In January 2017, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, that provides guidance to simplify the test for goodwill impairment. This guidance eliminates the requirement to assign the fair value of a reporting unit to each of its assets and liabilities to quantify a goodwill impairment charge. Under this amended guidance, the goodwill impairment charge to be recognized will be determined based on comparing the carrying value of the reporting unit to its fair value. As permitted, we have adopted this amendment early in conjunction with our annual assessment of goodwill as of July 1, 2017 and have applied it prospectively. The adoption of this amendment did not have any effect on our financial position, results of operations or cash flows.
Recently Issued Accounting Pronouncements.
In May 2014, the FASB issued an ASU that amends the guidance for revenue recognition. This amendment contains principles that will require an entity to recognize revenue to depict the transfer of goods and services to customers at an amount that an entity expects to be entitled to in exchange for those goods or services. This amendment permits the use of one of two retrospective transition methods. We will adopt this amendment on January 1, 2018, using the modified retrospective transition method. The adoption of this amendment may require us to accelerate the recognition of revenue as compared to the current standards for certain customers in cases where we produce products unique to those customers and for which we have an enforceable right of payment for production completed to date. We will continue to assess the impact of this amendment on our financial position, results of operations and cash flows.
In February 2016, the FASB issued an ASU that amends existing guidance for certain leases by lessees. This amendment will require an entity 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. In addition, this amendment clarifies the presentation requirements of the effects of leases in the statement of income and statement of cash flows. This amendment will be effective for us on January 1, 2019. Early adoption is permitted. This amendment is required to be adopted using a modified
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
retrospective approach. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.
In August 2016, the FASB issued an ASU that provides guidance for cash flow classification for certain cash receipts and cash payments to address diversity in practice with respect to whether items are classified on the statement of cash flows as either operating, investing or financing activities. This amendment will be effective for us on January 1, 2018. Early adoption is permitted. This amendment is required to be adopted using a retrospective approach and is not expected to have a material impact on our statement of cash flows.
In March 2017, the FASB issued an ASU that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment will require an entity to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost (which include interest cost, expected return on plan assets, amortization of prior service cost or credit and actuarial gains and losses) separately and as a line item below operating income on our statement of income. In addition, capitalization of net periodic benefit cost in assets will be limited to the service cost component. This amendment will be effective for us on January 1, 2018. Early adoption is permitted. This amendment is required to be adopted (i) retrospectively with respect to the disaggregation of the service cost component from the other components of net periodic benefit cost and the separate reporting of the other components of net periodic benefit cost outside of operating income and (ii) prospectively with respect to the capitalization in assets of the service cost component. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.
In August 2017, the FASB issued an ASU that (i) amends the hedge accounting recognition and presentation requirements to better portray the economic results of an entity's risk management activities in its financial statements and (ii) simplifies the application of hedge accounting guidance under GAAP. This amendment will require an entity to present the earnings effect of the hedging instrument in the same income line item in which the earnings effect of the hedged item is reported. This amendment will be effective for us on January 1, 2019. Early adoption is permitted. This amendment is required to be adopted using a modified retrospective approach and is not expected to have a material impact on our financial position, results of operations or cash flows based on our current level of hedging activity.
Note 2. Acquisition
Dispensing Systems Acquisition
On April 6, 2017, we acquired the specialty closures and dispensing systems operations of WestRock Company, now operating under the name Silgan Dispensing Systems, or SDS. SDS is a leading global supplier of highly engineered triggers, pumps, sprayers and dispensing closure solutions for food, health care, garden, home and beauty products. It operates a global network of thirteen facilities across North America, Europe, South America and Asia. SDS represents a strategically important acquisition for us, providing us with an opportunity to expand our closures franchise. SDS is included in our Closures segment as of the acquisition date.
For the year ended December 31, 2016, SDS generated net sales of approximately
$570 million
. We acquired SDS for a purchase price in cash of
$1.029 billion
, net of cash acquired. We incurred acquisition related costs for SDS totaling
$25.2 million
, including
$0.8 million
and
$23.8 million
for the three and nine months ended September 30, 2017, respectively, which are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Income. We funded the purchase price for this acquisition through term and revolving loan borrowings under our amended and restated senior secured credit facility. See Note 7 for further information.
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 8). 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, and the related tax impact of any adjustments to such valuations. Based upon revised estimates of fair value of certain assets and liabilities from our preliminary purchase price allocation presented in our Quarterly Report on Form 10-Q for the period ended June 30, 2017, we decreased goodwill by
$17.6 million
, primarily related to a decrease in deferred income tax liabilities.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
The allocated fair value of assets acquired and liabilities assumed are summarized as follows (in thousands):
|
|
|
|
|
|
|
|
Trade accounts receivable
|
$
|
109,565
|
|
|
Inventories
|
79,758
|
|
|
Property, plant and equipment
|
255,616
|
|
|
Other intangible assets
|
245,000
|
|
|
Other assets
|
40,577
|
|
|
Trade accounts payable and accrued liabilities
|
(77,807
|
)
|
|
Deferred income taxes
|
(105,167
|
)
|
|
Other liabilities
|
(24,697
|
)
|
|
Total identifiable net assets
|
522,845
|
|
|
Goodwill
|
505,884
|
|
|
Cash paid at closing, net of cash acquired
|
$
|
1,028,729
|
|
Goodwill of
$505.9 million
consists largely of our increased capacity to serve our global customers and achieve operational synergies and has been assigned to our closures segment. A portion of the goodwill is expected to be deductible for income tax purposes. Other intangible assets consist of customer relationships of
$220.0 million
with an estimated remaining life of
22
years and technology know-how of
$25.0 million
with an estimated remaining life of
7
years. Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives of up to
35
years.
Our consolidated results of operations for the nine months ended September 30, 2017 included the results for SDS since the acquisition date. Net sales from the SDS operations of
$149.8 million
and
$292.5 million
were included in our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017, respectively. SDS's income from operations was
$21.0 million
and
$28.7 million
for the three and nine months ended September 30, 2017, respectively. For the nine months ended September 30, 2017, SDS's income from operations included the pre-tax unfavorable impact of an
$11.9 million
charge related to the inventory write-up as a result of purchase accounting in connection with the acquisition.
Pro Forma Information
The following unaudited pro forma financial information includes our historical results of operations for the three and nine months ended September 30, 2017 and 2016 and gives pro forma effect to the SDS acquisition as if it had been completed as of January 1, 2016. The pro forma results of operations include interest expense related to incremental borrowings used to finance the acquisition and adjustments to depreciation and amortization expense for the valuation of property, plant and equipment and intangible assets. Net income excludes the unfavorable impact of the initial inventory write-up of
$11.9 million
before income taxes for the nine months ended September 30, 2017 and acquisition related costs of
$0.8 million
and
$23.8 million
before income taxes for the three and nine months ended September 30, 2017, respectively. Net income for the nine months ended September 30, 2016 includes the unfavorable impact of the initial inventory write-up and acquisition related costs of
$11.9 million
and
$25.2 million
before income taxes, respectively. The pro forma results of operations do not give effect to potential synergies or additional costs resulting from the integration of SDS with our existing operations.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
The unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016 is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the SDS acquisition been completed as of the beginning of the periods presented, nor should it be taken as indicative of our future consolidated results of operations or financial condition.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
(Dollars in thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,266,930
|
|
|
$
|
1,272,237
|
|
|
$
|
3,247,728
|
|
|
$
|
3,235,248
|
|
|
Net income
|
$
|
72,964
|
|
|
$
|
71,933
|
|
|
$
|
153,482
|
|
|
$
|
120,251
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
Basic net income per share
|
$
|
0.66
|
|
|
$
|
0.60
|
|
|
$
|
1.39
|
|
|
$
|
0.99
|
|
|
Diluted net income per share
|
$
|
0.65
|
|
|
$
|
0.59
|
|
|
$
|
1.38
|
|
|
$
|
0.99
|
|
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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 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, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
(Dollars in thousands)
|
|
Metal Containers
|
$
|
326
|
|
|
$
|
4,280
|
|
|
$
|
3,288
|
|
|
$
|
8,333
|
|
|
Closures
|
134
|
|
|
64
|
|
|
535
|
|
|
482
|
|
|
Plastic Containers
|
101
|
|
|
3,477
|
|
|
662
|
|
|
5,114
|
|
|
|
$
|
561
|
|
|
$
|
7,821
|
|
|
$
|
4,485
|
|
|
$
|
13,929
|
|
|
|
|
|
|
|
|
|
|
Activity in reserves for our rationalization plans for the nine months ended September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
and Benefits
|
|
Plant
Exit
Costs
|
|
Non-Cash
Asset
Write-Down
|
|
Total
|
|
|
|
(Dollars in thousands)
|
|
Balance at December 31, 2016
|
|
$
|
945
|
|
|
$
|
2,426
|
|
|
$
|
—
|
|
|
$
|
3,371
|
|
|
Charged to expense
|
|
989
|
|
|
544
|
|
|
2,952
|
|
|
4,485
|
|
|
Utilized and currency translation
|
|
(1,697
|
)
|
|
(1,061
|
)
|
|
(2,952
|
)
|
|
(5,710
|
)
|
|
Balance at September 30, 2017
|
|
$
|
237
|
|
|
$
|
1,909
|
|
|
$
|
—
|
|
|
$
|
2,146
|
|
Rationalization reserves as of September 30, 2017 were recorded in our Consolidated Balance Sheets as accrued liabilities and other liabilities of
$0.9 million
and
$1.2 million
, respectively. Remaining expenses for our rationalization plans of
$2.2 million
are expected primarily within the next twelve months. Remaining cash expenditures for our rationalization plans of
$4.3 million
are expected through 2023.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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, 2016
|
$
|
(83,105
|
)
|
|
$
|
540
|
|
|
$
|
(141,291
|
)
|
|
$
|
(223,856
|
)
|
|
Other comprehensive income before reclassifications
|
172
|
|
|
(429
|
)
|
|
52,303
|
|
|
52,046
|
|
|
Amounts reclassified from accumulated other
comprehensive loss
|
1,644
|
|
|
(97
|
)
|
|
—
|
|
|
1,547
|
|
|
Other comprehensive income
|
1,816
|
|
|
(526
|
)
|
|
52,303
|
|
|
53,593
|
|
|
Balance at September 30, 2017
|
$
|
(81,289
|
)
|
|
$
|
14
|
|
|
$
|
(88,988
|
)
|
|
$
|
(170,263
|
)
|
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, 2017 were net (losses) of
$(0.6) million
and
$(2.5) million
, respectively, excluding income tax benefits of
$0.2 million
and
$0.8 million
, respectively. For the three and nine months ended September 30, 2017, these net (losses) consisted of amortization of net actuarial (losses) of
$(1.3) million
and
$(4.8) million
and amortization of net prior service credit of
$0.8 million
and
$2.3 million
, respectively. Amortization of net actuarial losses and net prior service credit is a component of net periodic benefit (credit) cost. 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, 2017 were not significant. See Note 8 for further information.
Other comprehensive income before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2017 consisted of (i) foreign currency gains related to translation of quarter-end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of
$23.0 million
and
$78.1 million
, respectively, (ii) foreign currency (losses) related to intra-entity foreign currency transactions that are of a long-term investment nature of
$(1.1) million
and
$(0.4) million
, respectively, and (iii) foreign currency (losses) related to our net investment hedges of
$(11.9) million
and
$(40.4) million
, respectively, excluding income tax benefits of
$4.4 million
and
$15.0 million
, respectively. See Note 8 for further discussion.
Note 5. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
2017
|
|
Sept. 30,
2016
|
|
Dec. 31,
2016
|
|
|
(Dollars in thousands)
|
|
Raw materials
|
$
|
211,959
|
|
|
$
|
213,020
|
|
|
$
|
179,451
|
|
|
Work-in-process
|
132,071
|
|
|
113,393
|
|
|
121,331
|
|
|
Finished goods
|
415,645
|
|
|
389,073
|
|
|
355,072
|
|
|
Other
|
13,128
|
|
|
13,931
|
|
|
15,528
|
|
|
|
772,803
|
|
|
729,417
|
|
|
671,382
|
|
|
Adjustment to value inventory
at cost on the LIFO method
|
(68,419
|
)
|
|
(91,326
|
)
|
|
(68,419
|
)
|
|
|
$
|
704,384
|
|
|
$
|
638,091
|
|
|
$
|
602,963
|
|
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
Note 6. Goodwill and Other Intangible Assets, Net
Changes in the carrying amount of goodwill were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
Containers
|
|
Closures
|
|
Plastic
Containers
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Balance at December 31, 2016
|
$
|
110,312
|
|
|
$
|
267,954
|
|
|
$
|
226,448
|
|
|
$
|
604,714
|
|
|
Acquisition
|
—
|
|
|
505,884
|
|
|
—
|
|
|
505,884
|
|
|
Currency translation
|
5,756
|
|
|
42,798
|
|
|
1,301
|
|
|
49,855
|
|
|
Balance at September 30, 2017
|
$
|
116,068
|
|
|
$
|
816,636
|
|
|
$
|
227,749
|
|
|
$
|
1,160,453
|
|
In connection with our acquisition of SDS as discussed in Note 2, we recognized goodwill of
$505.9 million
.
The components of other intangible assets, net were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30, 2017
|
|
Dec. 31, 2016
|
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Gross Amount
|
|
Accumulated Amortization
|
|
Definite-lived intangibles:
|
(Dollars in thousands)
|
|
Customer relationships
|
$
|
428,538
|
|
|
$
|
(68,702
|
)
|
|
$
|
195,076
|
|
|
$
|
(53,298
|
)
|
|
Other
|
41,497
|
|
|
(11,423
|
)
|
|
14,927
|
|
|
(8,063
|
)
|
|
|
470,035
|
|
|
(80,125
|
)
|
|
210,003
|
|
|
(61,361
|
)
|
|
Indefinite-lived intangibles:
|
|
|
|
|
|
|
|
|
Trade names
|
32,140
|
|
|
—
|
|
|
32,140
|
|
|
—
|
|
|
|
$
|
502,175
|
|
|
$
|
(80,125
|
)
|
|
$
|
242,143
|
|
|
$
|
(61,361
|
)
|
|
|
|
|
|
|
|
|
|
In connection with our acquisition of SDS as discussed in Note 2, we recognized intangible assets for customer relationships of
$220.0 million
and technology know-how of
$25.0 million
.
Amortization expense was
$6.8 million
and
$16.7 million
for the three and nine months ended September 30, 2017, respectively, and
$3.3 million
and
$9.9 million
for the three and nine months ended September 30, 2016, respectively. Amortization expense is expected to be
$23.7 million
,
$27.6 million
,
$27.5 million
,
$26.9 million
and
$25.4 million
for the years ended December 31, 2017 through 2021, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
Note 7. Long-Term Debt
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sept. 30,
2017
|
|
Sept. 30,
2016
|
|
Dec. 31,
2016
|
|
|
(Dollars in thousands)
|
|
Bank debt
|
|
|
|
|
|
|
Bank revolving loans
|
$
|
598,751
|
|
|
$
|
306,557
|
|
|
$
|
99,500
|
|
|
U.S. term loans
|
800,000
|
|
|
346,750
|
|
|
310,250
|
|
|
Canadian term loans
|
27,365
|
|
|
45,393
|
|
|
44,274
|
|
|
Euro term loans
|
—
|
|
|
234,853
|
|
|
196,668
|
|
|
Other foreign bank revolving and term loans
|
49,596
|
|
|
95,121
|
|
|
120,500
|
|
|
Total bank debt
|
1,475,712
|
|
|
1,028,674
|
|
|
771,192
|
|
|
5% Senior Notes
|
280,000
|
|
|
500,000
|
|
|
500,000
|
|
|
5½% Senior Notes
|
300,000
|
|
|
300,000
|
|
|
300,000
|
|
|
4¾% Senior Notes
|
300,000
|
|
|
—
|
|
|
—
|
|
|
3¼% Senior Notes
|
767,910
|
|
|
—
|
|
|
—
|
|
|
Total debt - principal
|
3,123,622
|
|
|
1,828,674
|
|
|
1,571,192
|
|
|
Less unamortized debt issuance costs
|
17,452
|
|
|
10,263
|
|
|
9,609
|
|
|
Total debt
|
3,106,170
|
|
|
1,818,411
|
|
|
1,561,583
|
|
|
Less current portion
|
640,390
|
|
|
454,212
|
|
|
217,127
|
|
|
|
$
|
2,465,780
|
|
|
$
|
1,364,199
|
|
|
$
|
1,344,456
|
|
At September 30, 2017, the current portion of long-term debt consisted of
$598.8 million
of bank revolving loans under our amended and restated senior secured credit facility and
$41.6 million
of foreign bank revolving and term loans.
Senior Notes Offerings
On February 13, 2017, we issued
$300 million
aggregate principal amount of our 4¾% Senior Notes due 2025, or the 4¾% Notes, and
€650 million
aggregate principal amount of our 3¼% Senior Notes due 2025, or the 3¼% Notes, in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended.
The 4¾% Notes and the 3¼% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with our existing and future unsecured unsubordinated indebtedness, including our 5% Senior Notes due 2020, or the 5% Notes, and our 5½% Senior Notes due 2022, or the 5½% Notes, and ahead of our existing and future subordinated debt, if any. The 4¾% Notes and the 3¼% Notes are structurally subordinated to Silgan’s secured debt to the extent of the assets securing such debt and effectively subordinated to all obligations of subsidiaries of Silgan.
The 4¾% Notes and the 3¼% Notes will mature on March 15, 2025. Interest on the 4¾% Notes and the 3¼% Notes will be payable semi-annually in cash on March 15 and September 15 of each year, commencing on September 15, 2017. The 4¾% Notes and the 3¼% Notes were issued pursuant to an indenture by and among Silgan, U.S. Bank National Association, as trustee, Elavon Financial Services DAC, UK Branch, as paying agent in respect of the 3¼% Notes, and Elavon Financial Services DAC, as registrar and transfer agent in respect of the 3¼% Notes, which indenture contains covenants that are substantially similar to the covenants in the indentures for the 5% Notes and the 5½% Notes.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
The 4¾% Notes are redeemable, at our option, in whole or in part, at any time after March 15, 2020, initially at
102.375 percent
of their principal amount plus accrued and unpaid interest thereon to the redemption date, declining ratably to
100 percent
of their principal amount, plus accrued and unpaid interest thereon to the redemption date, on or after March 15, 2022.
The 3¼% Notes are redeemable, at our option, in whole or in part, at any time after March 15, 2020, initially at
101.625 percent
of their principal amount plus accrued and unpaid interest thereon to the redemption date, declining ratably to
100 percent
of their principal amount, plus accrued and unpaid interest thereon to the redemption date, on or after March 15, 2022.
In addition, prior to March 15, 2020, we may redeem up to
35 percent
of the aggregate principal amount of each of the 4¾% Notes and the 3¼% Notes from the proceeds of certain equity offerings at a redemption price of
104.750 percent
of their principal amount in the case of the 4¾% Notes and
103.250 percent
of their principal amount in the case of the 3¼% Notes, plus, in each case, accrued and unpaid interest thereon to the date of redemption. We may also redeem each of the 4¾% Notes and the 3¼% Notes, in whole or in part, prior to March 15, 2020 at a redemption price equal to
100 percent
of their principal amount plus a make-whole premium as provided in the indenture for the 4¾% Notes and the 3¼% Notes, together with, in each case, accrued and unpaid interest thereon to the date of redemption. We will be required to make an offer to repurchase each of the 4¾% Notes and the 3¼% Notes at a repurchase price equal to
101 percent
of their principal amount, plus, in each case, accrued and unpaid interest thereon to the date of repurchase, upon the occurrence of a change of control repurchase event as provided in the indenture for the 4¾% Notes and the 3¼% Notes.
The net proceeds from the sale of the 4¾% Notes were approximately
$296.5 million
and the net proceeds from the sale of the 3¼% Notes were approximately
€643.4 million
, in each case after deducting the initial purchasers' discount and offering expenses. We used the net proceeds from the sale of the 4¾% Notes to prepay
$212.3 million
of our outstanding U.S. term loans and repay a portion of our outstanding revolving loans under our previous senior secured credit facility. We used a portion of the net proceeds from the sale of the 3¼% Notes to prepay the remaining balance of
€187.0 million
of Euro term loans under our previous senior secured credit facility, repay all remaining outstanding revolving loans under our previous senior secured credit facility, repay approximately
€34.0 million
of certain other foreign bank revolving and term loans of certain of our non U.S. subsidiaries and redeem
$220.0 million
aggregate principal amount of the 5% Notes. In addition, we prepaid
$98.0 million
of our outstanding U.S. term loans and Cdn.
$14.0 million
of our outstanding Canadian term loans under our previous senior secured credit facility during the first quarter of 2017. As a result of the aggregate prepayments of our outstanding term loans under our previous senior secured credit facility and the partial redemption of the 5% Notes, we recorded a pre-tax charge for the loss on early extinguishment of debt of
$6.5 million
in 2017.
Credit Agreement
On March 24, 2017, we completed an amendment and restatement of our previous senior secured credit facility, or our Credit Agreement, which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. Our Credit Agreement provides us with revolving loans, or the Revolving Loans, consisting of a multicurrency revolving loan facility of approximately
$1.19 billion
and a Canadian revolving loan facility of Cdn
$15.0 million
and provided us with Cdn
$45.5 million
of term loans designated Canadian A term loans. In addition, our credit agreement provided us with
$800.0 million
of term loans designated U.S. A term loans which were borrowed to fund a portion of the purchase price paid in connection with our acquisition of SDS. See Note 2 for further information.
The Revolving Loans generally may be borrowed, repaid and reborrowed from time to time until March 24, 2022. Proceeds from the Revolving Loans may be used for working capital and general corporate purposes (including acquisitions, capital expenditures, dividends, stock repurchases and repayments of other debt).
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
The
$800.0 million
U.S. A term loans and the Cdn
$45.5 million
of Canadian A term loans, collectively the Term Loans, mature on March 24, 2023. The Term Loans are payable in installments as follows (expressed as a percentage of the original principal amount of the applicable Term Loan outstanding on the date that it is borrowed), with the remaining outstanding principal amounts to be repaid on the maturity date of the Term Loans:
|
|
|
|
|
|
|
Date
|
Percentage
|
|
December 31, 2018
|
5%
|
|
|
December 31, 2019
|
10%
|
|
|
December 31, 2020
|
10%
|
|
|
December 31, 2021
|
10%
|
|
|
December 31, 2022
|
10%
|
|
If, on the date that is 91 days prior to the maturity date of any of the 5% Notes and the 5½% Notes, or collectively the Prior Notes, all of the Prior Notes that mature on such maturity date have not been (a) repaid in full, (b) amended to extend the final maturity date thereof to a date that is more than
90
days after the maturity date of the Revolving Loans or the Terms Loans, as applicable, or (c) refinanced with other senior notes with a final maturity date that is more than
90
days after the maturity date of the Revolving Loans or the Terms Loans, as applicable, then the Revolving Loans and the Term Loans will mature on the date that is 91 days prior to the earliest maturity date of the Prior Notes that remain outstanding.
Our Credit Agreement also contains certain mandatory repayment provisions, including requirements to prepay loans with proceeds in excess of certain amounts received from certain assets sales. Generally, mandatory repayments are applied pro rata to each of the Term Loans and applied first to the next two scheduled amortization payments which are due on December 31 of the year of such mandatory repayment and the next succeeding year (or, if no such payment is due on December 31 of such year, to the payment due on December 31 of the immediately succeeding year or of the next succeeding year in which a payment is to be made) and, to the extent in excess thereof, pro rata to the remaining installments of each of the Term Loans. Voluntary prepayments of Term Loans may be applied to any tranche of Term Loans at our discretion and are applied to the scheduled amortization payments in direct order of maturity.
Our Credit Agreement also provides us with an uncommitted multicurrency incremental loan facility for up to U.S.
$1.25 billion
(which amount may be increased as provided in our Credit Agreement), which may take the form of one or more incremental term loan facilities and/or increased commitments under the revolving loan facilities, subject to certain limitations. The uncommitted incremental loan facility provides, among other things, that any incremental loan borrowing shall:
|
|
|
|
•
|
be denominated in a single currency, either in U.S. Dollars, Euros, Pounds Sterling or Canadian Dollars;
|
|
|
|
|
•
|
be in a minimum aggregate amount of at least U.S.
$50 million
;
|
|
|
|
|
•
|
have a maturity date no earlier than the maturity date for the Term Loans and a weighted average life to maturity of no less than the weighted average life to maturity of the Term Loans; and
|
|
|
|
|
•
|
be used by us and certain of our foreign subsidiaries for working capital and other general corporate purposes, including to finance acquisitions and refinance any indebtedness assumed as a part of such acquisitions, to refinance or repurchase debt as permitted and to pay outstanding Revolving Loans.
|
As of September 30, 2017, we had borrowings outstanding under our Credit Agreement of
$800.0 million
of U.S. A term loans, Cdn
$34.1 million
of Canadian A term loans and
$595.0 million
and
£2.8 million
, totaling U.S. denominated
$598.8 million
(with non-U.S. denominated amounts translated at exchange rates in effect at such date), of Revolving Loans.
Under our Credit Agreement, the interest rate for U.S. term loans will be either the Eurodollar Rate or the base rate under our Credit Agreement plus a margin, the interest rate for Canadian term loans will be either the CDOR Rate or the Canadian prime rate under our Credit Agreement plus a margin and the interest rate for Euro or Pounds Sterling term loans will be the Euro Rate under our Credit Agreement plus a margin. Outstanding Revolving Loans incur interest at the same rates as the U.S. term loans in the case of U.S. dollar denominated Revolving Loans and as the Canadian term loans in the case of Canadian dollar denominated Revolving Loans. Euro and Pounds Sterling denominated Revolving Loans incur interest at the applicable Euro Rate plus the applicable margin.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
At September 30, 2017, the margin for Term Loans and Revolving Loans maintained as Eurodollar Rate, CDOR Rate or Euro Rate loans was
2.00
percent and the margin for Term Loans and Revolving Loans maintained as base rate or Canadian prime rate loans was
1.00
percent. The interest rate margin on all loans will be reset quarterly based upon our Total Net Leverage Ratio as provided in our Credit Agreement.
Our Credit Agreement provides for the payment of a commitment fee ranging from
0.20
percent to
0.35
percent per annum on the daily average unused portion of commitments available under the revolving loan facilities (
0.35
percent at September 30, 2017). The commitment fee will be reset quarterly based upon our Total Net Leverage Ratio as provided in our Credit Agreement.
We may utilize up to a maximum of
$125 million
of our multicurrency revolving loan facility under the Credit Agreement for letters of credit as long as the aggregate amount of borrowings of Revolving Loans under the multicurrency revolving loan facility and letters of credit do not exceed the amount of the commitment under such multicurrency revolving loan facility. Our Credit Agreement provides for payment to the applicable lenders of a letter of credit fee equal to the applicable margin in effect for Revolving Loans under the multicurrency revolving loan facility, calculated on the stated amount of such letter of credit, and to the issuers of letters of credit of a fronting fee of the greater of (x)
$500
per annum and (y)
0.25
percent per annum calculated on the aggregate stated amount of such letters of credit, in each case for their stated duration.
The indebtedness under our Credit Agreement is guaranteed by us and our U.S., Canadian and Dutch subsidiaries. The stock of our U.S., Canadian and Dutch subsidiaries has been pledged as security to the lenders under our Credit Agreement. Our Credit Agreement contains certain financial and operating covenants which limit, subject to certain exceptions, among other things, our ability to incur additional indebtedness; create liens; consolidate, merge or sell assets; make certain advances, investments or loans; enter into certain transactions with affiliates; and engage in any business other than the packaging business and certain related businesses. In addition, we are required to meet specified financial covenants consisting of Interest Coverage and Total Net Leverage Ratios, each as defined in the Credit Agreement. We are currently in compliance with all covenants under the Credit Agreement.
As a result of entering into our Credit Agreement, we recorded a pre-tax charge for the loss on early extinguishment of debt of
$0.6 million
in 2017.
Partial Redemption of 5% Notes
On April 3, 2017, we utilized a portion of the net proceeds from the sale of the 3¼% Notes to redeem
$220.0 million
aggregate principal amount of the 5% Notes at a redemption price of
101.25
percent of their principal amount plus accrued and unpaid interest up to the redemption date. As a result of this partial redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of
$4.4 million
in 2017 for the premium paid in connection with this partial redemption and for the write-off of unamortized debt issuance costs.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
Amount
|
|
Fair
Value
|
|
|
(Dollars in thousands)
|
|
Assets:
|
|
|
|
|
Cash and cash equivalents
|
$
|
199,186
|
|
|
$
|
199,186
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
Bank debt
|
$
|
1,475,712
|
|
|
$
|
1,475,712
|
|
|
5% Senior Notes
|
280,000
|
|
|
284,021
|
|
|
5½% Senior Notes
|
300,000
|
|
|
309,132
|
|
|
4¾% Senior Notes
|
300,000
|
|
|
309,561
|
|
|
3¼% Senior Notes
|
767,910
|
|
|
790,118
|
|
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, 2017 consisted of our cash and cash equivalents and natural gas swap agreements. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of the swap agreements using the income approach. The fair value of the swap agreements 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, 5% Notes, 5½% Notes, 4¾% Notes, and 3¼% 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 5% Notes, 5½% Notes, 4¾% Notes and the 3¼% 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, 2017 and 2016 and for the
three and nine months then ended is unaudited)
We have utilized certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not 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. As of September 30, 2017, we did not have any outstanding interest rate swap agreements and the fair value of our outstanding natural gas swap agreements was not significant.
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.
In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with loans borrowed under our senior secured credit facilities 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, including net investment hedges related to our 3¼% Notes, which are Euro denominated. Foreign currency (losses) related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2017 were
$(11.9) million
and
$(40.4) million
, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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. Given the early stage of the investigation, we cannot reasonably assess what actions may result from the investigation or estimate what costs we may incur as a result of the investigation.
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, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
(Dollars in thousands)
|
|
Service cost
|
$
|
3,532
|
|
|
$
|
2,950
|
|
|
$
|
9,967
|
|
|
$
|
9,584
|
|
|
Interest cost
|
6,482
|
|
|
6,473
|
|
|
19,114
|
|
|
19,351
|
|
|
Expected return on plan assets
|
(15,832
|
)
|
|
(14,653
|
)
|
|
(47,258
|
)
|
|
(43,819
|
)
|
|
Amortization of prior service cost
|
75
|
|
|
113
|
|
|
235
|
|
|
415
|
|
|
Amortization of actuarial losses
|
1,501
|
|
|
2,326
|
|
|
5,208
|
|
|
6,493
|
|
|
Special termination benefits
|
—
|
|
|
—
|
|
|
—
|
|
|
2,900
|
|
|
Curtailment loss
|
—
|
|
|
—
|
|
|
—
|
|
|
180
|
|
|
Net periodic benefit credit
|
$
|
(4,242
|
)
|
|
$
|
(2,791
|
)
|
|
$
|
(12,734
|
)
|
|
$
|
(4,896
|
)
|
The components of the net periodic other postretirement benefit credit were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
Sept. 30, 2017
|
|
Sept. 30, 2016
|
|
|
(Dollars in thousands)
|
|
Service cost
|
$
|
9
|
|
|
$
|
52
|
|
|
$
|
79
|
|
|
$
|
188
|
|
|
Interest cost
|
168
|
|
|
230
|
|
|
520
|
|
|
737
|
|
|
Amortization of prior service credit
|
(857
|
)
|
|
(816
|
)
|
|
(2,564
|
)
|
|
(2,516
|
)
|
|
Amortization of actuarial gains
|
(172
|
)
|
|
(187
|
)
|
|
(447
|
)
|
|
(475
|
)
|
|
Net periodic benefit credit
|
$
|
(852
|
)
|
|
$
|
(721
|
)
|
|
$
|
(2,412
|
)
|
|
$
|
(2,066
|
)
|
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 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. We have been accepted into the Compliance Assurance Program for the 2016 and 2017 tax years which provides for the review by the Internal Revenue Service, or IRS, of tax matters relating to our tax return prior to filing. We do not expect a material change to our unrecognized tax benefits within the next twelve months.
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. We did not repurchase any shares of our common stock under this authorization during the nine months ended September 30, 2017. At September 30, 2017, we had approximately
$129.4
million remaining under this authorization for the repurchase of our common stock.
During the first nine months of 2017, we issued
408,680
treasury shares which had an average cost of
$3.15
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
138,080
shares of our common stock at an average cost of
$30.24
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, 2017,
64.7
million shares of our common stock were held in treasury.
Note 13. 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 2017,
592,922
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
$17.8 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, 2017 and 2016 and for the
three and nine months then ended is unaudited)
Note 14. Business Segment Information
Reportable business segment information for the three and nine months ended September 30 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metal
Containers
|
|
Closures
(1)
|
|
Plastic
Containers
|
|
Corporate
|
|
Total
|
|
|
(Dollars in thousands)
|
|
Three Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
772,382
|
|
|
$
|
357,343
|
|
|
$
|
137,205
|
|
|
$
|
—
|
|
|
$
|
1,266,930
|
|
|
Depreciation and amortization
(2)
|
19,250
|
|
|
17,457
|
|
|
8,636
|
|
|
22
|
|
|
45,365
|
|
|
Rationalization charges
|
326
|
|
|
134
|
|
|
101
|
|
|
—
|
|
|
561
|
|
|
Segment income from operations
(3)
|
92,222
|
|
|
45,322
|
|
|
6,444
|
|
|
(5,422
|
)
|
|
138,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
797,370
|
|
|
$
|
211,955
|
|
|
$
|
130,318
|
|
|
$
|
—
|
|
|
$
|
1,139,643
|
|
|
Depreciation and amortization
(2)
|
18,432
|
|
|
9,757
|
|
|
8,006
|
|
|
27
|
|
|
36,222
|
|
|
Rationalization charges
|
4,280
|
|
|
64
|
|
|
3,477
|
|
|
—
|
|
|
7,821
|
|
|
Segment income from operations
|
98,007
|
|
|
28,401
|
|
|
800
|
|
|
(4,801
|
)
|
|
122,407
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,768,333
|
|
|
$
|
904,112
|
|
|
$
|
421,705
|
|
|
$
|
—
|
|
|
$
|
3,094,150
|
|
|
Depreciation and amortization
(2)
|
57,172
|
|
|
43,638
|
|
|
25,644
|
|
|
68
|
|
|
126,522
|
|
|
Rationalization charges
|
3,288
|
|
|
535
|
|
|
662
|
|
|
—
|
|
|
4,485
|
|
|
Segment income from operations
(3)
|
185,525
|
|
|
102,947
|
|
|
19,944
|
|
|
(37,856
|
)
|
|
270,560
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net sales
|
$
|
1,780,429
|
|
|
$
|
614,558
|
|
|
$
|
412,036
|
|
|
$
|
—
|
|
|
$
|
2,807,023
|
|
|
Depreciation and amortization
(2)
|
54,379
|
|
|
28,873
|
|
|
23,847
|
|
|
82
|
|
|
107,181
|
|
|
Rationalization charges
|
8,333
|
|
|
482
|
|
|
5,114
|
|
|
—
|
|
|
13,929
|
|
|
Segment income from operations
|
181,496
|
|
|
78,220
|
|
|
1,868
|
|
|
(14,082
|
)
|
|
247,502
|
|
_____________
|
|
|
|
(1)
|
Our Closures segment includes SDS as of the acquisition date of April 6, 2017.
|
|
|
|
|
(2)
|
Depreciation and amortization excludes amortization of debt issuance costs of
$1.0 million
for each of the three months ended September 30, 2017 and 2016 and
$3.2 million
and
$3.1 million
for the nine months ended September 30, 2017 and 2016, respectively.
|
|
|
|
|
(3)
|
Income from operations for Corporate includes costs attributed to announced acquisitions of
$0.8 million
and
$23.8 million
for the three and nine months ended September 30, 2017, respectively. Income from operations for Metal Containers includes a
$3.0 million
charge for the nine months ended September 30, 2017 related to the resolution of a past non-commercial legal dispute.
|
SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2017 and 2016 and for the
three and nine months then ended is unaudited)
Total segment income from operations is reconciled to income before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Nine Months Ended
|
|
|
|
Sept. 30,
2017
|
|
Sept. 30,
2016
|
|
Sept. 30,
2017
|
|
Sept. 30,
2016
|
|
|
|
(Dollars in thousands)
|
|
Total segment income from operations
|
|
$
|
138,566
|
|
|
$
|
122,407
|
|
|
$
|
270,560
|
|
|
$
|
247,502
|
|
|
Interest and other debt expense
|
|
30,583
|
|
|
17,318
|
|
|
87,259
|
|
|
50,657
|
|
|
Income before income taxes
|
|
$
|
107,983
|
|
|
$
|
105,089
|
|
|
$
|
183,301
|
|
|
$
|
196,845
|
|
Sales and income from operations of our metal container business and part of our closures business are dependent, in part, upon fruit and vegetable harvests. 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 income from operations during that quarter.
Item 2.