Annual Statements Open main menu
  1. Annual Statements
  2. » Companies
  3. » SILGAN HOLDINGS INC
  4. » Quarter Report: 2020 September (Form 10-Q)

SILGAN HOLDINGS INC - Quarter Report: 2020 September (Form 10-Q)



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, 2020
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)
Delaware06-1269834
(State or other jurisdiction(I.R.S. Employer
of incorporation or organization)Identification No.)
  
4 Landmark Square 
Stamford,Connecticut06901
(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 classTrading Symbol(s)Name of each exchange on which registered
Common Stock, par value $0.01 per shareSLGNNasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒   No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files).  Yes ☒   No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company.  See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☒
           Accelerated filer☐
Non-accelerated filer☐
           Smaller reporting company☐
           Emerging growth company☐

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☒

As of October 31, 2020, the number of shares outstanding of the Registrant’s common stock was 110,587,054.
-1-


SILGAN HOLDINGS INC.
 
TABLE OF CONTENTS
  
 Page No.
  
  
  
  
 
  
  
  
  
  
 
  
 
 
  

-2-


Part I. Financial Information
Item 1. Financial Statements

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)

Sept. 30, 2020Sept. 30, 2019Dec. 31, 2019
 (unaudited)(unaudited) 
Assets   
Current assets:   
Cash and cash equivalents$193,759 $117,389 $203,824 
Trade accounts receivable, net865,436 751,404 504,986 
Inventories678,181 703,206 633,005 
Prepaid expenses and other current assets84,715 61,310 64,993 
Total current assets1,822,091 1,633,309 1,406,808 
Property, plant and equipment, net1,785,787 1,522,541 1,570,331 
Goodwill1,702,463 1,128,151 1,142,223 
Other intangible assets, net633,256 358,046 354,615 
Other assets, net508,982 431,970 457,082 
 $6,452,579 $5,074,017 $4,931,059 
Liabilities and Stockholders’ Equity   
Current liabilities:   
Revolving loans and current portion of long-term debt$284,465 $841,430 $29,813 
Trade accounts payable592,881 550,557 727,053 
Accrued payroll and related costs119,369 69,191 66,866 
Accrued liabilities245,626 156,599 194,797 
Total current liabilities1,242,341 1,617,777 1,018,529 
Long-term debt3,163,305 1,809,955 2,214,608 
Deferred income taxes371,966 274,107 254,836 
Other liabilities456,104 403,648 419,764 
Stockholders’ equity:   
Common stock1,751 1,751 1,751 
Paid-in capital301,463 285,061 289,422 
Retained earnings2,348,728 2,118,860 2,141,302 
Accumulated other comprehensive loss(272,352)(287,923)(259,742)
Treasury stock(1,160,727)(1,149,219)(1,149,411)
Total stockholders’ equity1,218,863 968,530 1,023,322 
 $6,452,579 $5,074,017 $4,931,059 

See accompanying notes.
-3-

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three and nine months ended September 30, 2020 and 2019
(Dollars and shares in thousands, except per share amounts)
(Unaudited)


Three Months EndedNine Months Ended
 Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
   
Net sales$1,488,499 $1,321,342 $3,695,353 $3,441,635 
Cost of goods sold1,230,148 1,113,727 3,027,809 2,884,510 
Gross profit258,351 207,615 667,544 557,125 
Selling, general and administrative expenses91,525 76,065 282,011 233,816 
Rationalization charges2,505 3,195 7,247 48,594 
Other pension and postretirement income(9,712)(4,340)(29,122)(13,320)
Income before interest and income taxes174,033 132,695 407,408 288,035 
Interest and other debt expense before loss on
early extinguishment of debt		27,725 26,767 77,051 82,272 
Loss on early extinguishment of debt
— 1,676 1,481 1,676 
Interest and other debt expense27,725 28,443 78,532 83,948 
Income before income taxes146,308 104,252 328,876 204,087 
Provision for income taxes33,457 22,978 80,253 45,117 
Net income$112,851 $81,274 $248,623 $158,970 
Earnings per share:
Basic net income per share$1.02 $0.73 $2.24 $1.43 
Diluted net income per share$1.01 $0.73 $2.23 $1.43 
Weighted average number of shares:
Basic110,921 111,058 110,895 110,985 
Effect of dilutive securities691 463 565 554 
Diluted111,612 111,521 111,460 111,539 
See accompanying notes.

-4-

 SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three and nine months ended September 30, 2020 and 2019
(Dollars in thousands)
(Unaudited)


Three Months EndedNine Months Ended
 Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
Net income$112,851 $81,274 $248,623 $158,970 
  Other comprehensive income (loss), net of tax:
  Changes in net prior service credit and actuarial losses1,807 2,625 4,555 7,745 
  Change in fair value of derivatives681 (159)(1,670)(2,647)
  Foreign currency translation22,520 (25,016)(15,495)(24,213)
Other comprehensive income (loss)25,008 (22,550)(12,610)(19,115)
Comprehensive income $137,859 $58,724 $236,013 $139,855 
 
See accompanying notes.
-5-

 SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the nine months ended September 30, 2020 and 2019
(Dollars in thousands)
(Unaudited)



 20202019
Cash flows provided by (used in) operating activities:  
Net income$248,623 $158,970 
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:		  
Depreciation and amortization163,454 156,780 
Rationalization charges7,247 48,594 
Stock compensation expense13,880 12,669 
Loss on early extinguishment of debt1,481 1,676 
Other changes that provided (used) cash, net of effects from acquisitions:  
Trade accounts receivable, net(311,008)(250,783)
Inventories2,435 (75,414)
Trade accounts payable(73,814)(63,609)
Accrued liabilities57,187 (10,475)
Other, net8,981 19,181 
Net cash provided by (used in) operating activities118,466 (2,411)
Cash flows provided by (used in) investing activities:  
Purchase of businesses, net of cash acquired(940,875)— 
Capital expenditures(165,163)(166,848)
Other, net999 509 
Net cash used in investing activities(1,105,039)(166,339)
Cash flows provided by (used in) financing activities:  
Borrowings under revolving loans993,406 1,139,329 
Repayments under revolving loans(748,539)(464,759)
Proceeds from issuance of long-term debt1,639,661 — 
Repayments of long-term debt(766,170)(308,161)
Changes in outstanding checks - principally vendors(79,006)(83,670)
Dividends paid on common stock(40,432)(38,615)
Debt issuance costs(10,265)— 
Repurchase of common stock(13,155)(27,364)
Net cash provided by financing activities975,500 216,760 
Effect of exchange rate changes on cash and cash equivalents1,008 (3,440)
Cash and cash equivalents:  
Net (decrease) increase (10,065)44,570 
Balance at beginning of year203,824 72,819 
Balance at end of period$193,759 $117,389 
Interest paid, net$70,948 $97,630 
Income taxes paid, net91,378 31,067 

See accompanying notes.
-6-

SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three and nine months ended September 30, 2020 and 2019
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
 


Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
Common stock - shares outstanding
Balance at beginning of period
110,886 111,176 110,780 110,430 
Net issuance of treasury stock for vested restricted stock units
— — 365 746 
Repurchases of common stock
— (408)(259)(408)
Balance at end of period
110,886 110,768 110,886 110,768 
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
296,639 280,636 289,422 276,062 
Stock compensation expense
4,824 4,425 13,880 12,669 
Net issuance of treasury stock for vested restricted stock units
— — (1,839)(3,670)
Balance at end of period
301,463 285,061 301,463 285,061 
Retained earnings
Balance at beginning of period
2,249,391 2,049,995 2,141,302 1,997,785 
Net income
112,851 81,274 248,623 158,970 
Dividends declared on common stock
(13,514)(12,409)(40,532)(37,302)
Adoption of accounting standards updates related to credit losses in 2020 and leases in 2019 — — (665)(593)
Balance at end of period
2,348,728 2,118,860 2,348,728 2,118,860 
Accumulated other comprehensive loss
Balance at beginning of period
(297,360)(265,373)(259,742)(268,808)
Other comprehensive income (loss)25,008 (22,550)(12,610)(19,115)
Balance at end of period
(272,352)(287,923)(272,352)(287,923)
Treasury stock
Balance at beginning of period
(1,160,727)(1,137,107)(1,149,411)(1,125,525)
Net issuance of treasury stock for vested restricted stock units
— — (4,382)(11,582)
Repurchases of common stock
— (12,112)(6,934)(12,112)
Balance at end of period
(1,160,727)(1,149,219)(1,160,727)(1,149,219)
Total stockholders' equity$1,218,863 $968,530 $1,218,863 $968,530 
Dividends declared on common stock per share$0.12 $0.11 $0.36 $0.33 

See accompanying notes.
-7-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 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, 2019 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, 2019.

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 2020 assessment performed during the third quarter.

Recently Adopted Accounting Pronouncements. In June 2016, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, that amends the guidance on the accounting for credit losses on financial instruments. This new standard introduces an approach, based on expected losses, to estimate credit losses on certain types of financial instruments. The new approach to estimating credit losses (referred to as the current expected credit losses model) applies to most financial assets measured at amortized cost and certain other instruments, including trade and other receivables. We adopted this new standard on January 1, 2020 using the transition method, which allowed us to recognize the effects of applying this standard as a cumulative effect to retained earnings as of January 1, 2020. As a result of the adoption of this standard, we reduced retained earnings by $0.7 million. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.

Note 2.               Revenue

The following tables present our revenues disaggregated by reportable business segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenues by business segment were as follows:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
(Dollars in thousands)
Metal containers$856,660 $822,262 $1,962,370 $1,904,941 
Closures475,105 353,436 1,242,725 1,072,979 
Plastic containers156,734 145,644 490,258 463,715 
$1,488,499 $1,321,342 $3,695,353 $3,441,635 







-8-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
Revenues by geography were as follows:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
(Dollars in thousands)
North America$1,143,562 $1,078,187 $2,858,561 $2,747,518 
Europe and other344,937 243,155 836,792 694,117 
$1,488,499 $1,321,342 $3,695,353 $3,441,635 

Our contracts generally include standard commercial payment terms generally acceptable in each region. We do not provide financing with extended payment terms beyond generally standard commercial payment terms for the applicable industry. We have no significant obligations for refunds, warranties or similar obligations. Trade accounts receivable, net are shown separately on our Condensed Consolidated Balance Sheet. Contract assets are the result of the timing of revenue recognition, billings and cash collections. Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $80.2 million, $73.4 million, and $71.1 million as of September 30, 2020 and 2019 and December 31, 2019, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheet.


Note 3.               Acquisitions

Cobra Plastics Acquisition

On February 4, 2020 we acquired Cobra Plastics, Inc., or Cobra Plastics, a manufacturer and seller of injection molded plastic closures for a wide variety of consumer products, with a particular focus on the aerosol overcap market. The purchase price for this acquisition of $39.8 million, net of cash acquired, was primarily funded with revolving loan borrowings under our amended and restated senior secured credit facility, or the Credit Agreement. For this acquisition, we applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date, and we recognized goodwill of $18.4 million and a customer relationship intangible asset of $11.5 million. Cobra Plastics' results of operations were included in our closures business since the acquisition date and were not significant since such date.

Albéa Dispensing Business Acquisition

On June 1, 2020, we acquired the dispensing operations of the Albéa Group, or the Albéa Dispensing Business, a leading global supplier of highly engineered pumps, sprayers and foam dispensing solutions to major branded consumer goods product companies in the beauty and personal care markets. It operates a global network of ten manufacturing facilities across North America, Europe, South America and Asia. This acquisition is strategically important for us, as it expands our closures franchise and, in particular, our dispensing systems operations. The Albéa Dispensing Business is included in our closures business as of the acquisition date.

We acquired the Albéa Dispensing Business for a purchase price in cash of $901.0 million, net of cash acquired. The purchase price is subject to adjustment for working capital, other current assets and current liabilities and net indebtedness. We incurred acquisition related costs for the Albéa Dispensing Business totaling $0.7 million and $19.0 million for the three and nine months ended September 30, 2020, 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 with term and revolving loan borrowings under the Credit Agreement, including a delayed draw term loan of $900 million. See Note 8 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 9). 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
-9-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
such valuations. In connection with this acquisition, we recorded a charge of $3.5 million related to the write-up of acquired inventory of the Albéa Dispensing Business as a result of purchase accounting.

The allocated fair value of assets acquired and liabilities assumed are summarized as follows (in thousands)
Trade accounts receivable$42,742 
Inventories41,102 
Property, plant and equipment192,723 
Other intangible assets285,000 
Other assets33,478 
Trade accounts payable and accrued liabilities(62,930)
Deferred income tax liabilities(101,795)
Debt and other liabilities(31,843)
Total identifiable net assets398,477 
Goodwill502,570 
Cash paid at closing, net of cash acquired$901,047 



Goodwill of $502.6 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 majority of the goodwill is not expected to be deductible for income tax purposes. Other intangible assets consist of customer relationships of $257.0 million with an estimated remaining life of 24 years and technology know-how of $28.0 million with an estimated remaining life of 8 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 three and nine months ended September 30, 2020 included the results for the Albéa Dispensing Business since the acquisition date. Net sales from the Albéa Dispensing Business operations of $81.3 million and $111.2 million were included in our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2020, respectively.


Note 4.               Rationalization Charges

We continually evaluate cost reduction opportunities across each of our businesses, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Rationalization charges by business segment were as follows:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
 (Dollars in thousands)
Metal containers$1,639 $3,035 $4,755 $42,280 
Closures787 72 2,229 5,979 
Plastic containers79 88 263 335 
 $2,505 $3,195 $7,247 $48,594 


-10-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
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, 2019$42,815 $898 $— $43,713 
Charged to expense4,138 2,005 1,104 7,247 
Utilized and currency translation(5,410)(2,251)(1,104)(8,765)
Balance at September 30, 2020$41,543 $652 $— $42,195 

Rationalization reserves as of September 30, 2020 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $4.8 million and other liabilities of $37.4 million. Exclusive of the footprint optimization plan for our metal container business and our resulting withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $2.1 million and $3.9 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1 million per year and be recognized annually for the next twenty years, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually for the next twenty years, beginning in 2020.


Note 5.               Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity.  Amounts included in accumulated other comprehensive loss, net of tax, were as follows:
 
Unrecognized Net
Defined Benefit
Plan Costs		Change in Fair
Value of
Derivatives		Foreign
Currency
Translation		Total
 (Dollars in thousands)
Balance at December 31, 2019$(139,102)$(3,182)$(117,458)$(259,742)
Other comprehensive loss before reclassifications
(872)(3,176)(15,495)(19,543)
Amounts reclassified from accumulated other
    comprehensive loss
5,427 1,506 — 6,933 
 Other comprehensive loss4,555 (1,670)(15,495)(12,610)
Balance at September 30, 2020$(134,547)$(4,852)$(132,953)$(272,352)
 
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, 2020, were net (losses) of $(2.4) million and $(7.3) million, respectively, excluding income tax benefits of $0.6 million and $1.9 million, respectively. For the three and nine months ended September 30, 2020 these net (losses) consisted of amortization of net actuarial (losses) of $(2.9) million and $(8.6) million and amortization of net prior service credit of $0.4 million and $1.3 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 11 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, 2020 were not significant.



-11-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2020, 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 $42.4 million and $19.4 million, respectively, (ii) foreign currency (losses) related to intra-entity foreign currency transactions that are of a long-term investment nature of $(0.4) million and $(3.3) million, respectively, and (iii) foreign currency (losses) related to our net investment hedges of $(25.2) million and $(41.4) million, respectively, excluding income tax benefits of $6.0 million and $9.8 million, respectively. See Note 9 for further discussion.


Note 6.               Inventories

Inventories consisted of the following: 
Sept. 30, 2020Sept. 30, 2019Dec. 31, 2019
 (Dollars in thousands)
Raw materials$294,896 $275,015 $286,953 
Work-in-process154,157 127,590 134,417 
Finished goods370,406 413,864 355,337 
Other15,217 12,620 12,793 
 834,676 829,089 789,500 
Adjustment to value inventory
at cost on the LIFO method		(156,495)(125,883)(156,495)
 $678,181 $703,206 $633,005 


Note 7.               Goodwill and Other Intangibles

Changes in the carrying amount of goodwill were as follows:

Metal
Containers		ClosuresPlastic
Containers		Total
(Dollars in thousands)
Balance at December 31, 2019$113,463 $801,776 $226,984 $1,142,223 
Acquisitions— 520,946 — 520,946 
Currency translation2,217 37,511 (434)39,294 
Balance at September 30, 2020$115,680 $1,360,233 $226,550 $1,702,463 
In connection with our acquisitions of Cobra Plastics and the Albéa Dispensing Business as discussed in Note 3, we recognized goodwill of $521.0 million.












-12-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
The components of other intangible assets, net were as follows:

Sept. 30, 2020Dec. 31, 2019
Gross AmountAccumulated AmortizationGross AmountAccumulated Amortization
(Dollars in thousands)
Definite-lived intangibles:
Customer relationships$696,003 $(136,583)$422,042 $(116,575)
Other70,766 (29,070)39,447 (22,439)
766,769 (165,653)461,489 (139,014)
Indefinite-lived intangibles:
Trade names32,140 — 32,140 — 
$798,909 $(165,653)$493,629 $(139,014)
In connection with our acquisitions of Cobra Plastics and the Albéa Dispensing Business as discussed in Note 3, we recognized intangible assets for customer relationships of $268.5 million and technology know-how of $28.0 million.

Amortization expense was $10.4 million and $25.4 million for the three and nine months ended September 30, 2020, respectively, and $6.7 million and $20.4 million for the three and nine months ended September 30, 2019, respectively. Amortization expense is expected to be $35.9 million, $40.7 million, $39.9 million, $39.9 million and $38.3 million for the years ended December 31, 2020 through 2024, respectively.


Note 8.               Long-Term Debt

Long-term debt consisted of the following: 
Sept. 30, 2020Sept. 30, 2019Dec. 31, 2019
 (Dollars in thousands)
Bank debt   
Bank revolving loans$246,000 $766,000 $— 
U.S. term loans900,000 800,000 760,000 
Canadian term loans— 15,943 4,703 
Other foreign bank revolving and term loans39,825 37,062 31,127 
Total bank debt1,185,825 1,619,005 795,830 
4¾% Senior Notes
300,000 300,000 300,000 
3¼% Senior Notes
762,223 708,630 729,755 
4⅛% Senior Notes600,000 — 400,000 
2¼% Senior Notes586,325 — — 
Finance leases35,035 33,440 33,288 
Total debt - principal3,469,408 2,661,075 2,258,873 
Less unamortized debt issuance costs and debt discount21,638 9,690 14,452 
Total debt3,447,770 2,651,385 2,244,421 
Less current portion284,465 841,430 29,813 
 $3,163,305 $1,809,955 $2,214,608 

-13-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
At September 30, 2020, the current portion of long-term debt consisted of $246.0 million of bank revolving loans under the Credit Agreement, $36.6 million of other foreign bank revolving and term loans and $1.9 million of finance leases.

On February 26, 2020, we issued (i) an additional $200 million aggregate principal amount of our 4⅛% Senior Notes due 2028, or the 4⅛% Notes, at 99.5 percent of their principal amount, plus accrued and unpaid interest from November 12, 2019, and €500 million aggregate principal amount of our 2¼% Senior Notes due 2028, or the 2¼% Notes, at 100 percent of their principal amount. We used the net proceeds from these issuances and revolving loan borrowings under the Credit Agreement to prepay all of our outstanding U.S. term loans under the Credit Agreement at that time. As a result of this prepayment, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2020 for the write-off of unamortized debt issuance costs.

2¼% SENIOR NOTES

The 2¼% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with our existing and future unsecured unsubordinated indebtedness, including our 4¾% Senior Notes due 2025, or the 4¾% Notes, our 3¼% Senior Notes due 2025, or the 3¼% Notes, and the 4⅛% Notes, and ahead of our existing and future subordinated debt, if any. The 2¼% Notes are effectively subordinated to Silgan’s secured debt to the extent of the assets securing such debt and structurally subordinated to all obligations of subsidiaries of Silgan.

The 2¼% Notes will mature on June 1, 2028. Interest on the 2¼% Notes will be payable semi-annually in cash on January 15 and July 15 of each year, beginning on July 15, 2020. The 2¼% 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, and Elavon Financial Services DAC, as registrar and transfer agent, which indenture contains covenants that are generally less restrictive than those in the Credit Agreement and substantially similar to the covenants in the indenture for the 4¾% Notes and the 3¼% Notes and the indenture for the 4⅛% Notes.
The 2¼% Notes are redeemable, at our option, in whole or in part, at any time after March 1, 2023, initially at 101.125 percent of their principal amount, plus accrued and unpaid interest to the redemption date, declining ratably to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date, on or after March 1, 2025.
In addition, prior to March 1, 2023, we may redeem up to 35 percent of the aggregate principal amount of the 2¼% Notes with the proceeds of certain equity offerings at a redemption price of 102.25 percent of their principal amount, plus accrued and unpaid interest to the date of redemption. We may also redeem the 2¼% Notes, in whole or in part, prior to March 1, 2023 at a redemption price equal to 100 percent of their principal amount plus a make-whole premium as provided in the indenture for the 2¼% Notes, together with accrued and unpaid interest to the date of redemption. We will be required to make an offer to repurchase the 2¼% Notes at a repurchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest to the date of repurchase, upon the occurrence of a change of control repurchase event as provided in the indenture for the 2¼% Notes.
Incremental U.S. Term Loans
On April 17, 2020, we and certain of our subsidiaries entered into an Incremental Term Loan Commitment Agreement, or the Incremental Term Loan Commitment Agreement, with the lenders thereunder and Wells Fargo Bank, National Association, as Administrative Agent and a lender. The Incremental Term Loan Commitment Agreement was entered into pursuant to the Credit Agreement and provided for the lenders thereunder to lend to us, on a delayed draw basis, $900 million of Incremental U.S. Term Loans, or the Incremental U.S. Term Loans, to fund the purchase price for the acquisition of the Albéa Dispensing Business. On June 1, 2020, we borrowed $900 million of Incremental U.S. Term Loans under the Incremental Term Loan Commitment Agreement to fund the purchase price for the acquisition of the Albéa Dispensing Business.

The Incremental U.S. Term Loans mature on May 30, 2024 and are repayable in installments of $90 million on each of December 31, 2021, 2022 and 2023, with the remaining outstanding principal balance to be repaid on May 30, 2024.

The Incremental U.S. Term Loans initially have an Applicable Margin (as defined in the Credit Agreement) of 1.75 percent per annum in the case of Eurodollar Rate Loans (as defined in the Credit Agreement) and 0.75 percent per annum in the case of Base Rate Loans (as defined in the Credit Agreement), in both cases until the delivery of our financial statements for the fiscal quarter ending June 30, 2020. The Applicable Margin will vary between 1.25 percent to 1.75 percent per annum for Eurodollar
-14-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
Rate Loans and between 0.25 percent to 0.75 percent per annum for Base Rate Loans, in both cases based on our Total Net Leverage Ratio (as defined in the Credit Agreement).

The Incremental U.S. Term Loans are guaranteed by the US Guarantors (as defined in the Credit Agreement) and secured on a pari passu basis by the same collateral that secures our outstanding loans under the Credit Agreement.


Note 9.               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, 2020:

Carrying
Amount		Fair
Value
 (Dollars in thousands)
Assets:  
Cash and cash equivalents$193,759 $193,759 
Liabilities:  
Bank debt$1,185,825 $1,185,825 
4¾% Senior Notes300,000 305,250 
3¼% Senior Notes762,223 772,589 
4⅛% Senior Notes599,062 613,500 
2¼% Senior Notes586,325 573,133 
Derivative instruments (accrued and other liabilities)6,588 6,588 

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, 2020 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.

Financial Instruments Not Measured at Fair Value

Our bank debt, 4¾% Senior Notes, 3¼% Senior Notes, 4⅛% Senior Notes and 2¼% Senior Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 4¾% Senior
-15-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
Notes, 3¼% Senior Notes, 4⅛% Senior Notes and 2¼% Senior Notes were estimated based on quoted market prices, a Level 1 input.

Derivative Instruments and Hedging Activities

Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values.  Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge.  Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

We utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk.  Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk.

Interest Rate Swap Agreements

We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations.  These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three and nine month periods ended September 30, 2020. 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, 2020 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 month periods ended September 30, 2020. 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, 2020 was not significant.

Foreign Currency Exchange Rate Risk

In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros and Canadian dollars. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations. We have designated the 3¼% Senior Notes and the 2¼% Senior Notes, which are Euro denominated, as net investment hedges. Foreign currency losses related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2020 were $(25.2) million and $(41.4) million, respectively.


Note 10.               Commitments and Contingencies

A competition authority in Germany commenced an antitrust investigation in 2015 involving the industry association for metal packaging in Germany and its members, including our metal container and closures subsidiaries in Germany. At the end of April 2018, the European Commission commenced an antitrust investigation involving the metal packaging industry in Europe including our metal container and closures subsidiaries, which should effectively close out the investigation in Germany. Given
-16-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)
the current stage of the investigation, we cannot reasonably assess what actions may result from these investigations or estimate what costs we may incur as a result thereof.

We are a party to other legal proceedings, contract disputes and claims arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.


Note 11.               Retirement Benefits

The components of the net periodic pension benefit credit were as follows:

Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
 (Dollars in thousands)
Service cost$2,983 $2,871 $9,958 $9,383 
Interest cost5,816 7,149 17,236 21,241 
Expected return on plan assets(18,104)(15,200)(54,091)(45,425)
Amortization of prior service cost 43 46 154 86 
Amortization of actuarial losses2,993 4,084 8,862 12,324 
Net periodic benefit credit $(6,269)$(1,050)$(17,881)$(2,391)
 

The components of the net periodic other postretirement benefit credit were as follows:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
(Dollars in thousands)
Service cost$18 $16 $66 $60 
Interest cost142 200 425 569 
Amortization of prior service credit(487)(586)(1,454)(1,749)
Amortization of actuarial gains(115)(33)(254)(366)
Net periodic benefit credit$(442)$(403)$(1,217)$(1,486)



-17-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)

Note 12.               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 2018 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2019 and 2020 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.


Note 13.               Treasury Stock

On October 17, 2016, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021. During the nine months ended September 30, 2020, we repurchased an aggregate of 259,461 shares of our common stock at an average price per share of $26.71, for a total purchase price of $6.9 million. At September 30, 2020, we had approximately $105.6 million remaining under this authorization for the repurchase of our common stock.

During the first nine months of 2020, we issued 582,151 treasury shares which had an average cost of $3.16 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 217,325 shares of our common stock at an average cost of $28.63 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, 2020, 64,226,667 shares of our common stock were held in treasury.


Note 14.             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 2020, 453,622 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 $13.6 million, which is being amortized ratably over the respective vesting period from the grant date.


-18-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)

Note 15.             Business Segment Information

Reportable business segment information was as follows:

Metal
Containers		ClosuresPlastic
Containers		CorporateTotal
 (Dollars in thousands)
Three Months Ended September 30, 2020     
Net sales$856,660 $475,105 $156,734 $— $1,488,499 
Depreciation and amortization(1)
21,008 27,777 9,207 39 58,031 
Rationalization charges1,639 787 79 — 2,505 
Segment income 94,497 64,161 21,887 (6,512)174,033 
Three Months Ended September 30, 2019     
Net sales$822,262 $353,436 $145,644 $— $1,321,342 
Depreciation and amortization(1)
21,477 20,847 9,512 39 51,875 
Rationalization charges3,035 72 88 — 3,195 
Segment income 81,128 44,784 11,425 (4,642)132,695 
Nine Months Ended September 30, 2020     
Net sales$1,962,370 $1,242,725 $490,258 $— $3,695,353 
Depreciation and amortization(1)
62,034 69,927 28,046 120 160,127 
Rationalization charges4,755 2,229 263 — 7,247 
Segment income 213,757 167,971 66,918 (41,238)407,408 
Nine Months Ended September 30, 2019     
Net sales$1,904,941 $1,072,979 $463,715 $— $3,441,635 
Depreciation and amortization(1)
64,021 62,345 27,665 120 154,151 
Rationalization charges42,280 5,979 335 — 48,594 
Segment income 134,053 131,896 36,902 (14,816)288,035 

_____________

(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.2 million and $3.3 million for the three and nine months ended September 30, 2020, respectively, and amortization of debt issuance costs of $0.8 million and $2.6 million for the three and nine months ended September 30, 2019, respectively.


Total segment income is reconciled to income before income taxes as follows:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
 (Dollars in thousands)
Total segment income $174,033 $132,695 $407,408 $288,035 
Interest and other debt expense27,725 28,443 78,532 83,948 
Income before income taxes$146,308 $104,252 $328,876 $204,087 
-19-

SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at September 30, 2020 and 2019 and for the
three and nine months then ended is unaudited)

Sales and segment income 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 segment income during that quarter.

-20-

Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that are not historical facts are “forward-looking statements” made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and Securities Exchange Act of 1934, as amended.  Such forward-looking statements are made based upon management’s expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 and in our other filings with the Securities and Exchange Commission.  As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
 

General

We are a leading manufacturer of sustainable rigid packaging solutions for consumer goods products.  We currently produce steel and aluminum containers for human and pet food and general line products; metal and plastic closures and dispensing systems for food, beverage, health care, garden, home, personal care and beauty products; and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products.  We are a leading manufacturer of metal containers in North America and Europe, a leading worldwide manufacturer of metal and plastic closures and dispensing systems and a leading manufacturer of plastic containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets.

Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns.  We have grown our net sales and income from operations largely through acquisitions but also through internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market.  If acquisition opportunities are not identified over a longer period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes.








-21-



RESULTS OF OPERATIONS

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented:
Three Months EndedNine Months Ended
Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
Net sales
Metal containers57.6 %62.2 %53.1 %55.3 %
Closures31.9 26.8 33.6 31.2 
Plastic containers10.5 11.0 13.3 13.5 
Consolidated100.0 100.0 100.0 100.0 
Cost of goods sold82.6 84.3 81.9 83.8 
Gross profit17.4 15.7 18.1 16.2 
Selling, general and administrative expenses6.2 5.8 7.7 6.8 
Rationalization charges0.2 0.2 0.2 1.4 
Other pension and postretirement income(0.7)(0.3)(0.8)(0.4)
Income before interest and income taxes11.7 10.0 11.0 8.4 
Interest and other debt expense1.9 2.1 2.1 2.5 
Income before income taxes9.8 7.9 8.9 5.9 
Provision for income taxes2.2 1.7 2.2 1.3 
Net income7.6 %6.2 %6.7 %4.6 %

Summary unaudited results of operations for the periods presented are provided below.
Three Months EndedNine Months Ended
 Sept. 30, 2020Sept. 30, 2019Sept. 30, 2020Sept. 30, 2019
(dollars in millions)
Net sales  
Metal containers$856.7 $822.3 $1,962.4 $1,904.9 
Closures475.1 353.4 1,242.7 1,073.0 
Plastic containers156.7 145.6 490.3 463.7 
Consolidated$1,488.5 $1,321.3 $3,695.4 $3,441.6 
Segment income
Metal containers (1)
$94.5 $81.1 $213.8 $134.1 
Closures (2)
64.2 44.8 168.0 131.9 
Plastic containers (3)
21.9 11.4 66.9 36.9 
Corporate (4)
(6.6)(4.6)(41.3)(14.9)
Consolidated$174.0 $132.7 $407.4 $288.0 
 
(1) Includes rationalization charges of $1.6 million and $3.0 million for the three months ended September 30, 2020 and 2019, respectively, and $4.7 million and $42.3 million for the nine months ended September 30, 2020 and 2019, respectively.
(2) Includes rationalization charges of $0.8 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $2.2 million and $6.0 million for the nine months ended September 30, 2020 and 2019, respectively. Includes a charge of $3.5 million for the write-up of inventory for purchase accounting as a result of the acquisition of the Albéa Dispensing Business for the nine months ended September 30, 2020.
(3) Includes rationalization charges of $0.1 million for each of the three months ended September 30, 2020 and 2019 and $0.3 million for each of the nine months ended September 30, 2020 and 2019.
(4) Includes costs attributed to announced acquisitions of $0.7 million and $19.0 million for the three and nine months ended September 30, 2020,respectively.
-22-



Three Months Ended September 30, 2020 Compared with Three Months Ended September 30, 2019

Overview.  Consolidated net sales were $1.49 billion in the third quarter of 2020, a 12.7 percent increase as compared to the third quarter of 2019 primarily due to higher volumes across all businesses including the impact from acquisitions, a more favorable mix of products sold in the closures business and the impact of favorable foreign currency translation, partially offset by the pass through of lower raw material costs in all businesses and a less favorable mix of products sold in the metal and plastic container businesses. Income before interest and income taxes for the third quarter of 2020 was $174.0 million, a $41.3 million increase as compared to the same period in 2019, primarily due to higher volumes and strong operating performance across all businesses, higher pension income and a more favorable mix of products sold in the closures business, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold in the metal container business. Results for the third quarters of 2020 and 2019 included rationalization charges of $2.5 million and $3.2 million, respectively. Results for the third quarters of 2020 and 2019 also included other pension and postretirement income of $9.7 million and $4.3 million, respectively. Results for the third quarter of 2020 also included costs attributed to announced acquisitions of $0.7 million, while results for the third quarter of 2019 included a loss on early extinguishment of debt of $1.7 million. Net income for the third quarter of 2020 was $112.9 million as compared to $81.3 million for the same period in 2019.  Net income per diluted share for the third quarter of 2020 was $1.01 as compared to $0.73 for the same period in 2019.

Net Sales.  The $167.2 million increase in consolidated net sales in the third quarter of 2020 as compared to the third quarter of 2019 was the result of higher net sales across all the businesses.

Net sales for the metal container business increased $34.4 million, or 4.2 percent, in the third quarter of 2020 as compared to the same period in 2019.  This increase was primarily the result of higher unit volumes of approximately seventeen percent and the impact of favorable foreign currency translation of approximately $4.0 million, partially offset by the pass through of lower raw material costs and a higher percentage of smaller cans sold. The increase in unit volumes was primarily due to the continued increase in at home food consumption and a shift in the timing of certain fruit and vegetable pack shipments from the first half of the year to the third quarter.

Net sales for the closures business increased $121.7 million, or 34.4 percent, in the third quarter of 2020 as compared to the same period in 2019.  This increase was primarily the result of higher unit volumes of approximately ten percent, a more favorable mix of products sold due primarily to strong unit volume growth in dispensing closures and the impact of favorable foreign currency translation of approximately $2.0 million, partially offset by the pass through of lower raw material costs. The increase in unit volumes was principally the result of the inclusion of the recent acquisitions of the Albéa Dispensing Business and Cobra Plastics and continued strong volumes for certain consumer health, hygiene, personal care and food products. These volume gains were partially offset by weak demand for certain beauty products during the COVID-19 pandemic.

Net sales for the plastic container business increased $11.1 million, or 7.6 percent, in the third quarter of 2020 as compared to the same period in 2019. This increase was principally due to higher volumes of approximately fourteen percent, partially offset by the pass through of lower raw material costs and a less favorable mix of products sold. The increase in volumes was due primarily to higher demand for certain food and consumer health and hygiene products and continued new business awards.

Gross Profit.  Gross profit margin increased 1.7 percentage points to 17.4 percent in the third quarter of 2020 as compared to the same period in 2019 for the reasons discussed below in "Income before Interest and Income Taxes."

Selling, General and Administrative Expenses.  Selling, general and administrative expenses as a percentage of consolidated net sales increased to 6.2 percent in the third quarter of 2020 as compared to 5.8 percent in the same period in 2019. Selling, general and administrative expenses increased $15.4 million to $91.5 million for the third quarter of 2020 as compared to $76.1 million for the same period in 2019. The increase in selling, general and administrative expenses was principally due to the inclusion of selling, general and administrative expenses from the Albéa Dispensing Business and Cobra Plastics which were acquired in 2020 and costs attributed to announced acquisitions of $0.7 million.

Income before Interest and Income Taxes.  Income before interest and income taxes for the third quarter of 2020 increased by $41.3 million as compared to the third quarter of 2019, and margins increased to 11.7 percent from 10.0 percent over the same periods. The increase in income before interest and income taxes was primarily the result of higher income in each of the businesses, partially offset by higher selling, general and administrative expenses. Rationalization charges were $2.5 million and $3.2 million in the third quarters of 2020 and 2019, respectively.

-23-


Segment income of the metal container business for the third quarter of 2020 increased $13.4 million as compared to the same period in 2019, and segment income margin increased to 11.0 percent from 9.9 percent over the same periods. The increase in segment income was due primarily to higher unit volumes and strong operating performance, higher pension income and lower rationalization charges, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold. Rationalization charges were $1.6 million and $3.0 million in the third quarters of 2020 and 2019, respectively.

Segment income of the closures business for the third quarter of 2020 increased $19.4 million as compared to the same period in 2019, and segment income margin increased to 13.5 percent from 12.7 percent over the same periods.  The increase in segment income was primarily due to higher unit volumes including from recent acquisitions, a more favorable mix of products sold, strong operating performance and higher pension income.

Segment income of the plastic container business for the third quarter of 2020 increased $10.5 million as compared to the same period in 2019, and segment income margin increased to 14.0 percent from 7.8 percent over the same periods.  The increase in segment income was primarily attributable to higher volumes, strong operating performance and lower manufacturing costs and higher pension income.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the third quarter of 2020 increased $0.9 million to $27.7 million as compared to $26.8 million in the same period in 2019. This increase was due to higher average outstanding borrowings primarily related to the acquisition of the Albéa Dispensing Business, partially offset by lower weighted average interest rates. Loss on early extinguishment of debt of $1.7 million in the third quarter of 2019 was the result of the redemption of all outstanding 5½% Senior Notes due 2022.

Provision for Income Taxes. The effective tax rates were 22.9 percent and 22.0 percent for the third quarters of 2020 and 2019, respectively, both of which were favorably impacted by an audit period expiration.


Nine Months Ended September 30, 2020 Compared with Nine Months Ended September, 2019

Overview.  Consolidated net sales were $3.70 billion in the first nine months of 2020, a 7.4 percent increase as compared to the first nine months of 2019 primarily as a result of higher volumes in each of the businesses including the impact from acquisitions and a more favorable mix of products sold in the closures business, partially offset by the pass through of lower raw material costs across all businesses, a less favorable mix of products sold in the metal and plastic container businesses and the impact of unfavorable foreign currency translation. Income before interest and income taxes for the first nine months of 2020 increased by $119.4 million as compared to the same period in 2019 primarily due to higher volumes and strong operating performance in each of the businesses, lower rationalization charges, higher pension income and a more favorable mix of products sold in the closures business. These increases were partially offset by higher selling, general and administrative expenses, the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold in the metal container business, the negative impact from the purchase accounting write-up of acquired inventory of the Albéa Dispensing Business and the unfavorable impact of a charge in the plastic container business for a non-commercial legal dispute relating to prior periods. Results for the first nine months of 2020 and 2019 included rationalization charges of $7.2 million and $48.6 million, respectively. Results for the first nine months of 2020 also included costs attributed to announced acquisitions of $19.0 million. Results for the first nine months of 2020 and 2019 included a loss on early extinguishment of debt of $1.5 million and $1.7 million, respectively. Results for the first nine months of 2020 and 2019 also included other pension and postretirement income of $29.1 million and $13.3 million, respectively. Net income for the first nine months of 2020 was $248.6 million as compared to $159.0 million for the same period in 2019. Net income per diluted share for the first nine months of 2020 was $2.23 as compared to $1.43 for the same period in 2019.

Net Sales.  The $253.8 million increase in consolidated net sales in the first nine months of 2020 as compared to the first nine months of 2019 was the result of higher net sales across all businesses.

Net sales for the metal container business increased $57.5 million, or 3.0 percent, in the first nine months of 2020 as compared to the same period in 2019.  This increase was primarily the result of higher unit volumes of approximately thirteen percent, partially offset by the pass through of lower raw material and other manufacturing costs and a higher percentage of smaller cans sold. The increase in unit volumes was primarily the result of continued higher demand in at home food consumption and lower volumes in the first quarter of 2019 as a result of the 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019.

-24-


Net sales for the closures business increased $169.7 million, or 15.8 percent, in the first nine months of 2020 as compared to the same period in 2019.  This increase was primarily the result of higher unit volumes of approximately six percent and a more favorable mix of products sold, partially offset by the pass through of lower raw material costs and the impact of unfavorable foreign currency translation of approximately $10.0 million. The increase in unit volumes was principally the result of the inclusion of the recent acquisitions of the Albéa Dispensing Business and Cobra Plastics, strong volumes for certain consumer health, hygiene, personal care and food products, and lower volumes in the first quarter of 2019 as a result of the 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019. These volume gains were partially offset by weak demand for certain beauty and beverage products.
Net sales for the plastic container business increased $26.6 million, or 5.7 percent, in the first nine months of 2020 as compared to the same period in 2019. This increase was primarily due to higher volumes of approximately twelve percent, partially offset by the pass through of lower raw material costs, a less favorable mix of products sold and the impact of unfavorable foreign currency translation of approximately $1.0 million. The increase in volumes was due primarily to continued higher demand for certain food and consumer health and hygiene products and continued new business awards.

Gross Profit.  Gross profit margin increased 1.9 percentage points to 18.1 percent in the first nine months of 2020 as compared to the same period in 2019 for the reasons discussed below in "Income before Interest and Income Taxes".

Selling, General and Administrative Expenses.  Selling, general and administrative expenses as a percentage of consolidated net sales increased to 7.7 percent for the first nine months of 2020 as compared to 6.8 percent in the same period in 2019. Selling, general and administrative expenses increased $48.2 million to $282.0 million for the first nine months of 2020 as compared to $233.8 million for the same period in 2019. The increase in selling, general and administrative expenses was principally the result of costs attributed to announced acquisitions of $19.0 million, the inclusion of selling, general and administrative expenses from the Albéa Dispensing Business and Cobra Plastics which were acquired in 2020, one-time plant employee incentive payments in the first quarter of 2020 and a charge of $2.8 million in the plastic container business for a non-commercial legal dispute relating to prior periods.

Income before Interest and Income Taxes.  Income before interest and income taxes for the first nine months of 2020 increased by $119.4 million as compared to the first nine months of 2019, and margins increased to 11.0 percent from 8.4 percent over the same periods. The increase in income before interest and income taxes was primarily due to higher income in each of the businesses, partially offset by higher selling, general and administrative expenses. Rationalization charges were $7.2 million and $48.6 million for the first nine months of 2020 and 2019, respectively.

Segment income of the metal container business for the first nine months of 2020 increased $79.7 million as compared to the same period in 2019, and segment income margin increased to 10.9 percent from 7.0 percent over the same periods. The increase in segment income was primarily attributable to lower rationalization charges, higher unit volumes and strong operating performance and higher pension income, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold. Rationalization charges were $4.7 million and $42.3 million in the first nine months of 2020 and 2019, respectively.

Segment income of the closures business for the first nine months of 2020 increased $36.1 million, as compared to the same period in 2019, and segment income margin increased to 13.5 percent from 12.3 percent over the same periods.  The increase in segment income was primarily due to higher unit volumes including from recent acquisitions, strong operating performance, a more favorable mix of products sold, higher pension income and lower rationalization charges, partially offset by the negative impact from the purchase accounting write-up of inventory of the Albéa Dispensing Business. Rationalization charges were $2.2 million and $6.0 million in the first nine months of 2020 and 2019, respectively.

Segment income of the plastic container business for the first nine months of 2020 increased $30.0 million as compared to the same period in 2019, and segment income margin increased to 13.6 percent from 8.0 percent over the same periods.  The increase in segment income was primarily attributable to higher volumes, strong operating performance and lower manufacturing costs and higher pension income, partially offset by the unfavorable impact of a charge of $2.8 million for a non-commercial legal dispute relating to prior periods.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first nine months of 2020 decreased $5.2 million to $77.1 million as compared to $82.3 million in the same period in 2019 primarily due to lower weighted average interest rates, partially offset by higher average outstanding borrowings primarily related to the acquisition of the Albéa Dispensing Business and additional revolving loan borrowings outstanding during the first half of the current year principally to hold cash and cash equivalents to ensure liquidity against potential credit market disruptions as a result of the COVID-19 pandemic. Weighted average interest rates were lower during the first nine months of 2020 due to
-25-


lower variable market rates and the redemption of all outstanding 5½% Senior Notes due 2022 in the third quarter of 2019. During the first nine months of 2020, we recognized a loss on early extinguishment of debt of $1.5 million in conjunction with the prepayment of U.S. term loans under the Credit Agreement. Loss on early extinguishment of debt of $1.7 million in the first nine months of 2019 was the result of the redemption of all outstanding 5½% Senior Notes due 2022.

Provision for Income Taxes. The effective tax rates were 24.4 percent and 22.1 percent for the first nine months of 2020 and 2019, respectively. The effective tax rate for the first nine months of 2020 was unfavorably impacted by increased income in higher tax jurisdictions and certain nondeductible expenses principally related to costs incurred for the acquisition of the Albéa Dispensing Business, partially offset by the favorable impact of an audit period expiration. The effective tax rate for the first nine months of 2019 benefitted from an audit period expiration, the resolution of a prior year tax audit and the timing of certain tax deductions.


CAPITAL RESOURCES AND LIQUIDITY

Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility.  Our liquidity requirements arise from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment, the funding of our seasonal working capital needs and other general corporate uses.

On February 26, 2020, we issued (i) an additional $200 million aggregate principal amount of the 4⅛% Notes at 99.5 percent of their principal amount, plus accrued and unpaid interest from November 12, 2019, and €500 million aggregate principal amount of the 2¼% Notes at 100 percent of their principal amount. We used the net proceeds from these issuances and revolving loan borrowings under the Credit Agreement to prepay all of our outstanding U.S. term loans under the Credit Agreement. As a result of this prepayment, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2020 for the write-off of unamortized debt issuance costs.

On April 17, 2020, we and certain of our subsidiaries entered into the Incremental Term Loan Commitment Agreement pursuant to the Credit Agreement, which provided for the lenders thereunder to lend to us, on a delayed draw basis, $900 million of Incremental U.S. Term Loans to fund the purchase price for the acquisition of the Albéa Dispensing Business. On June 1, 2020, we borrowed the Incremental U.S. Term Loans to fund the purchase price for the acquisition of the Albéa Dispensing Business.

On June 1, 2020, we acquired the Albéa Dispensing Business. This business operates a global network of ten manufacturing facilities across North America, Europe, South America and Asia. We funded the purchase price for this acquisition with the Incremental U.S. Term Loans and revolving loan borrowings under the Credit Agreement.

You should also read Notes 3 and 8 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report.

For the nine months ended September 30, 2020, we used net proceeds from the issuance of the 2¼% Notes and the additional 4⅛% Notes and the Incremental U.S. Term Loans of $1,639.7 million, net borrowings of revolving loans of $244.9 million, cash provided by operations of $118.5 million and cash and cash equivalents of $10.0 million (excluding the positive effect of exchange rate changes of $1.0 million) to fund the purchases of the Albéa Dispensing Business and Cobra Plastics for $940.9 million, repayments of long-term debt of $766.2 million, net capital expenditures and other investing activities of $164.2 million, decreases in outstanding checks of $79.0 million, dividends paid on our common stock of $40.4 million, repurchases of our common stock of $13.1 million and debt issuance costs of $10.3 million.

For the nine months ended September 30, 2019, we used net borrowings of revolving loans of $674.6 million to fund repayments of long-term debt of $308.2 million, decreases in outstanding checks of $83.7 million, cash used in operations of $2.4 million, net capital expenditures and other investing activities of $166.3 million, dividends paid on our common stock of $38.6 million and repurchases of our common stock of $27.4 million and to increase cash and cash equivalents (including the negative effect of exchange rate changes of $3.4 million) by $44.6 million.

At September 30, 2020, we had $246.0 million of revolving loans outstanding under the Credit Agreement.  After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at September 30, 2020 was $927.3 million and Cdn $15.0 million.

-26-


Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales.  As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season.  Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements.  Our peak seasonal working capital requirements have historically averaged approximately $350 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.

We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future.  We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.

We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2020 with all of these covenants.

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. Under our rationalization plans, we made cash payments of $7.7 million and $3.8 million for the nine months ended September 30, 2020 and 2019, respectively. Exclusive of the footprint optimization plan for our metal container business and our resulting withdrawal from the Central States Pension Plan announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $2.1 million and $3.9 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1 million per year and be recognized annually for the next twenty years, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually for the next twenty years, beginning in 2020.
You should also read Note 4 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report.
-27-


Item 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international metal container and closures operations and our Canadian plastic container operations, from foreign currency exchange rates.  In the normal course of business, we also have risk related to commodity price changes for items such as natural gas.  We employ established policies and procedures to manage our exposure to these risks.  Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives.  We do not utilize derivative financial instruments for trading or other speculative purposes.

Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.  Since such filing, other than the changes discussed in Notes 3, 8 and 9 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.

 

Item 4.  CONTROLS AND PROCEDURES
 
As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures.  Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.

On June 1, 2020, we acquired the Albéa Dispensing Business. You should read Note 3 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report for further information on our acquisition of the Albéa Dispensing Business. We are currently in the process of integrating the internal controls and procedures of the Albéa Dispensing Business into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of the Albéa Dispensing Business in our annual assessment of the effectiveness of our internal control over financial reporting for our 2021 fiscal year. 

-28-


Part II.  Other Information

Item 6.  Exhibits


Exhibit NumberDescription
  
31.1
  
31.2
  
32.1
 
32.2
  
101.INS XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
  
101.SCHInline XBRL Taxonomy Extension Schema Document.
  
101.CALInline XBRL Taxonomy Extension Calculation Linkbase Document.
  
101.DEFInline XBRL Taxonomy Extension Definition Linkbase Document.
  
101.LABInline XBRL Taxonomy Extension Label Linkbase Document.
 
101.PREInline XBRL Taxonomy Extension Presentation Linkbase Document.
104Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101).

-29-


SIGNATURES


Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 SILGAN HOLDINGS INC.
   
   
   
Dated: November 6, 2020 /s/ Robert B. Lewis                  
 Robert B. Lewis
 Executive Vice President and
 Chief Financial Officer
 (Principal Financial and
 Accounting Officer)

-30-