SILGAN HOLDINGS INC - Quarter Report: 2022 March (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 March 31, 2022
OR
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | ||||||||||
For the transition period from ________________ to ________________
Commission file number 000-22117
SILGAN HOLDINGS INC.
(Exact name of Registrant as specified in its charter)
| Delaware | 06-1269834 | ||||||||||
| (State or other jurisdiction | (I.R.S. Employer | ||||||||||
| of incorporation or organization) | Identification No.) | ||||||||||
| 4 Landmark Square | |||||||||||
| Stamford, | Connecticut | 06901 | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
(203) 975-7110
(Registrant's telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||||||
| Common Stock, par value $0.01 per share | SLGN | Nasdaq Global Select Market | ||||||
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☒ | Accelerated filer | ☐ | |||||||||||||||||
| Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||||||||||||||||
| Emerging growth company | ☐ | |||||||||||||||||||
If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of April 30, 2022, the number of shares outstanding of the Registrant’s common stock was 110,800,407.
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| SILGAN HOLDINGS INC. | |||||
| TABLE OF CONTENTS | |||||
| Page No. | |||||
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Part I. Financial Information
Item 1. Financial Statements
SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
| March 31, 2022 | March 31, 2021 | Dec. 31, 2021 | |||||||||||||||
| (unaudited) | (unaudited) | ||||||||||||||||
| Assets | |||||||||||||||||
| Current assets: | |||||||||||||||||
| Cash and cash equivalents | $ | 259,564 | $ | 190,131 | $ | 631,439 | |||||||||||
| Trade accounts receivable, net | 852,876 | 738,088 | 711,332 | ||||||||||||||
| Inventories | 1,018,685 | 788,637 | 798,837 | ||||||||||||||
| Prepaid expenses and other current assets | 150,646 | 102,382 | 154,241 | ||||||||||||||
| Total current assets | 2,281,771 | 1,819,238 | 2,295,849 | ||||||||||||||
| Property, plant and equipment, net | 1,979,681 | 1,811,593 | 1,993,877 | ||||||||||||||
| Goodwill | 2,024,340 | 1,701,040 | 2,038,408 | ||||||||||||||
| Other intangible assets, net | 817,450 | 613,220 | 830,772 | ||||||||||||||
| Other assets, net | 607,168 | 496,381 | 611,940 | ||||||||||||||
| $ | 7,710,410 | $ | 6,441,472 | $ | 7,770,846 | ||||||||||||
| Liabilities and Stockholders’ Equity | |||||||||||||||||
| Current liabilities: | |||||||||||||||||
| Revolving loans and current portion of long-term debt | $ | 539,134 | $ | 195,122 | $ | 20,251 | |||||||||||
| Trade accounts payable | 850,532 | 629,494 | 1,133,318 | ||||||||||||||
| Accrued payroll and related costs | 109,096 | 105,745 | 109,279 | ||||||||||||||
| Accrued liabilities | 218,194 | 224,747 | 245,674 | ||||||||||||||
| Total current liabilities | 1,716,956 | 1,155,108 | 1,508,522 | ||||||||||||||
| Long-term debt | 3,445,633 | 3,163,292 | 3,772,926 | ||||||||||||||
| Deferred income taxes | 433,843 | 357,587 | 435,252 | ||||||||||||||
| Other liabilities | 475,739 | 489,129 | 491,450 | ||||||||||||||
| Stockholders’ equity: | |||||||||||||||||
| Common stock | 1,751 | 1,751 | 1,751 | ||||||||||||||
| Paid-in capital | 328,201 | 309,635 | 325,448 | ||||||||||||||
| Retained earnings | 2,758,697 | 2,452,996 | 2,691,745 | ||||||||||||||
| Accumulated other comprehensive loss | (244,642) | (291,806) | (259,828) | ||||||||||||||
| Treasury stock | (1,205,768) | (1,196,220) | (1,196,420) | ||||||||||||||
| Total stockholders’ equity | 1,638,239 | 1,276,356 | 1,562,696 | ||||||||||||||
| $ | 7,710,410 | $ | 6,441,472 | $ | 7,770,846 | ||||||||||||
See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the three months ended March 31, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| 2022 | 2021 | ||||||||||
| Net sales | $ | 1,441,886 | $ | 1,238,110 | |||||||
| Cost of goods sold | 1,208,433 | 1,016,644 | |||||||||
| Gross profit | 233,453 | 221,466 | |||||||||
| Selling, general and administrative expenses | 100,011 | 97,379 | |||||||||
| Rationalization charges | 1,379 | 10,357 | |||||||||
| Other pension and postretirement income | (11,329) | (12,819) | |||||||||
| Income before interest and income taxes | 143,392 | 126,549 | |||||||||
| Interest and other debt expense before loss on early extinguishment of debt | 29,349 | 26,423 | |||||||||
Loss on early extinguishment of debt | 1,481 | 883 | |||||||||
| Interest and other debt expense | 30,830 | 27,306 | |||||||||
| Income before income taxes | 112,562 | 99,243 | |||||||||
| Provision for income taxes | 27,687 | 25,962 | |||||||||
| Net income | $ | 84,875 | $ | 73,281 | |||||||
Earnings per share: | |||||||||||
| Basic net income per share | $ | 0.77 | $ | 0.66 | |||||||
| Diluted net income per share | $ | 0.76 | $ | 0.66 | |||||||
| Weighted average number of shares: | |||||||||||
| Basic | 110,600 | 110,206 | |||||||||
| Effect of dilutive securities | 793 | 824 | |||||||||
| Diluted | 111,393 | 111,030 | |||||||||
See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the three months ended March 31, 2022 and 2021
(Dollars in thousands)
(Unaudited)
| 2022 | 2021 | ||||||||||
| Net income | $ | 84,875 | $ | 73,281 | |||||||
| Other comprehensive income (loss), net of tax: | |||||||||||
| Changes in net prior service credit and actuarial losses | 499 | 1,878 | |||||||||
| Change in fair value of derivatives | 2,337 | 641 | |||||||||
| Foreign currency translation | 12,350 | (33,372) | |||||||||
| Other comprehensive income (loss) | 15,186 | (30,853) | |||||||||
| Comprehensive income | $ | 100,061 | $ | 42,428 | |||||||
See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the three months ended March 31, 2022 and 2021
(Dollars in thousands)
(Unaudited)
| 2022 | 2021 | ||||||||||
| Cash flows provided by (used in) operating activities: | |||||||||||
| Net income | $ | 84,875 | $ | 73,281 | |||||||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |||||||||||
| Depreciation and amortization | 69,067 | 60,872 | |||||||||
| Rationalization charges | 1,379 | 10,357 | |||||||||
| Stock compensation expense | 4,879 | 5,010 | |||||||||
| Loss on early extinguishment of debt | 1,481 | 883 | |||||||||
| Other changes that provided (used) cash, net of effects from acquisitions: | |||||||||||
| Trade accounts receivable, net | (141,113) | (103,549) | |||||||||
| Inventories | (222,137) | (118,132) | |||||||||
| Trade accounts payable | (29,881) | (59,825) | |||||||||
| Accrued liabilities | (23,291) | (32,062) | |||||||||
| Other, net | (12,660) | (8,983) | |||||||||
| Net cash used in operating activities | (267,401) | (172,148) | |||||||||
| Cash flows provided by (used in) investing activities: | |||||||||||
| Purchase of businesses, net of cash acquired | (1,333) | — | |||||||||
| Capital expenditures | (68,491) | (68,764) | |||||||||
| Other, net | (203) | 402 | |||||||||
| Net cash used in investing activities | (70,027) | (68,362) | |||||||||
| Cash flows provided by (used in) financing activities: | |||||||||||
| Borrowings under revolving loans | 544,624 | 170,457 | |||||||||
| Repayments under revolving loans | (24,408) | (31,310) | |||||||||
| Proceeds from issuance of long-term debt | — | 499,725 | |||||||||
| Repayments of long-term debt | (300,000) | (500,000) | |||||||||
| Changes in outstanding checks - principally vendors | (225,863) | (84,216) | |||||||||
| Dividends paid on common stock | (18,722) | (16,055) | |||||||||
| Debt issuance costs | — | (4,633) | |||||||||
| Repurchase of common stock | (11,474) | (8,275) | |||||||||
| Net cash (used in) provided by financing activities | (35,843) | 25,693 | |||||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,396 | (4,533) | |||||||||
| Cash and cash equivalents: | |||||||||||
| Net decrease | (371,875) | (219,350) | |||||||||
| Balance at beginning of year | 631,439 | 409,481 | |||||||||
| Balance at end of period | $ | 259,564 | $ | 190,131 | |||||||
| Interest paid, net | $ | 33,116 | $ | 31,655 | |||||||
| Income taxes paid, net | 6,718 | 15,297 | |||||||||
See accompanying notes.
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SILGAN HOLDINGS INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended March 31, 2022 and 2021
(Dollars and shares in thousands, except per share amounts)
(Unaudited)
| 2022 | 2021 | ||||||||||
| Common stock - shares outstanding | |||||||||||
Balance at beginning of period | 110,410 | 110,057 | |||||||||
| Net issuance of treasury stock for vested restricted stock units | 390 | 329 | |||||||||
Balance at end of period | 110,800 | 110,386 | |||||||||
| Common stock - par value | |||||||||||
Balance at beginning and end of period | $ | 1,751 | $ | 1,751 | |||||||
| Paid-in capital | |||||||||||
Balance at beginning of period | 325,448 | 306,363 | |||||||||
Stock compensation expense | 4,879 | 5,010 | |||||||||
| Net issuance of treasury stock for vested restricted stock units | (2,126) | (1,738) | |||||||||
Balance at end of period | 328,201 | 309,635 | |||||||||
| Retained earnings | |||||||||||
Balance at beginning of period | 2,691,745 | 2,395,395 | |||||||||
Net income | 84,875 | 73,281 | |||||||||
Dividends declared on common stock | (17,923) | (15,680) | |||||||||
Balance at end of period | 2,758,697 | 2,452,996 | |||||||||
| Accumulated other comprehensive loss | |||||||||||
Balance at beginning of period | (259,828) | (260,953) | |||||||||
| Other comprehensive income (loss) | 15,186 | (30,853) | |||||||||
Balance at end of period | (244,642) | (291,806) | |||||||||
| Treasury stock | |||||||||||
Balance at beginning of period | (1,196,420) | (1,189,683) | |||||||||
| Net issuance of treasury stock for vested restricted stock units | (9,348) | (6,537) | |||||||||
Balance at end of period | (1,205,768) | (1,196,220) | |||||||||
| Total stockholders' equity | $ | 1,638,239 | $ | 1,276,356 | |||||||
| Dividends declared on common stock per share | $ | 0.16 | $ | 0.14 | |||||||
See accompanying notes.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 1. Significant Accounting Policies
Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year.
The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.
You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.
Note 2. Revenue
The following tables present our revenues disaggregated by reportable segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenues by segment for the three months ended March 31 were as follows:
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Dispensing and Specialty Closures | $ | 597,927 | $ | 509,352 | |||||||
| Metal Containers | 650,726 | 554,081 | |||||||||
| Custom Containers | 193,233 | 174,677 | |||||||||
| $ | 1,441,886 | $ | 1,238,110 | ||||||||
Revenues by geography for the three months ended March 31 were as follows:
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| North America | $ | 1,086,224 | $ | 898,402 | |||||||
| Europe and other | 355,662 | 339,708 | |||||||||
| $ | 1,441,886 | $ | 1,238,110 | ||||||||
Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $99.1 million, $86.4 million, and $78.2 million as of March 31, 2022 and 2021 and December 31, 2021, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 3. Rationalization Charges
We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Rationalization charges by segment for the three months ended March 31 were as follows:
| 2022 | 2021 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||
| Dispensing and Specialty Closures | $ | — | $ | 5,231 | ||||||||||
| Metal Containers | 1,274 | 5,021 | ||||||||||||
| Custom Containers | 105 | 105 | ||||||||||||
| $ | 1,379 | $ | 10,357 | |||||||||||
Activity in reserves for our rationalization plans were as follows:
| Employee Severance and Benefits | Plant Exit Costs | Non-Cash Asset Write-Down | Total | |||||||||||||||||||||||
| (Dollars in thousands) | ||||||||||||||||||||||||||
Balance at December 31, 2021 | $ | 41,090 | $ | 157 | $ | — | $ | 41,247 | ||||||||||||||||||
| Charged to expense | 621 | 733 | 25 | 1,379 | ||||||||||||||||||||||
| Utilized and currency translation | (1,839) | (702) | (25) | (2,566) | ||||||||||||||||||||||
Balance at March 31, 2022 | $ | 39,872 | $ | 188 | $ | — | $ | 40,060 | ||||||||||||||||||
Non-cash asset write-downs were the result of comparing the carrying value of certain production related assets to their fair value using estimated future discounted cash flows, a Level 3 fair value measurement (see Note 7 for information regarding a Level 3 fair value measurement).
Rationalization reserves as of March 31, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $4.8 million and other liabilities of $35.3 million. Excluding the impact of our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $0.6 million and $2.2 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.0 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 4. Accumulated Other Comprehensive Loss
Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity. Amounts included in accumulated other comprehensive loss, net of tax, were as follows:
| Unrecognized Net Defined Benefit Plan Costs | Change in Fair Value of Derivatives | Foreign Currency Translation | Total | ||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||
Balance at December 31, 2021 | $ | (119,474) | $ | (2,327) | $ | (138,027) | $ | (259,828) | |||||||||||||||
| Other comprehensive income before reclassifications | — | 2,018 | 12,350 | 14,368 | |||||||||||||||||||
Amounts reclassified from accumulated other comprehensive loss | 499 | 319 | — | 818 | |||||||||||||||||||
| Other comprehensive income | 499 | 2,337 | 12,350 | 15,186 | |||||||||||||||||||
Balance at March 31, 2022 | $ | (118,975) | $ | 10 | $ | (125,677) | $ | (244,642) | |||||||||||||||
The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three months ended March 31, 2022 were net (losses) of $(0.7) million, excluding an income tax benefit of $0.2 million. These net (losses) consisted of amortization of net actuarial (losses) of $(1.1) million and amortization of net prior service credit of $0.4 million. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 9 for further information.
The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three months ended March 31, 2022 were not significant.
Other comprehensive loss before reclassifications related to foreign currency translation for the three months ended March 31, 2022 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 $3.0 million, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $0.8 million, and (iii) foreign currency gains related to our net investment hedges of $11.3 million, excluding an income tax (provision) of $(2.7) million. See Note 7 for further discussion.
Note 5. Inventories
Inventories consisted of the following:
| March 31, 2022 | March 31, 2021 | Dec. 31, 2021 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Raw materials | $ | 295,713 | $ | 263,580 | $ | 394,102 | |||||||||||
| Work-in-process | 263,878 | 167,137 | 157,406 | ||||||||||||||
| Finished goods | 607,087 | 452,553 | 394,378 | ||||||||||||||
| Other | 14,787 | 14,955 | 15,731 | ||||||||||||||
| 1,181,465 | 898,225 | 961,617 | |||||||||||||||
| Adjustment to value inventory at cost on the LIFO method | (162,780) | (109,588) | (162,780) | ||||||||||||||
| $ | 1,018,685 | $ | 788,637 | $ | 798,837 | ||||||||||||
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 6. Long-Term Debt
Long-term debt consisted of the following:
| March 31, 2022 | March 31, 2021 | Dec. 31, 2021 | |||||||||||||||
| (Dollars in thousands) | |||||||||||||||||
| Bank debt | |||||||||||||||||
| Bank revolving loans | $ | 508,000 | $ | 137,000 | $ | — | |||||||||||
| U.S. term loans | 1,000,000 | 400,000 | 1,000,000 | ||||||||||||||
| Other foreign bank revolving and term loans | 50,014 | 60,030 | 38,862 | ||||||||||||||
| Total bank debt | 1,558,014 | 597,030 | 1,038,862 | ||||||||||||||
4¾% Senior Notes | — | 300,000 | 300,000 | ||||||||||||||
3¼% Senior Notes | 723,190 | 763,945 | 739,180 | ||||||||||||||
| 4⅛% Senior Notes | 600,000 | 600,000 | 600,000 | ||||||||||||||
| 2¼% Senior Notes | 556,300 | 587,650 | 568,600 | ||||||||||||||
| 1.4% Senior Secured Notes | 500,000 | 500,000 | 500,000 | ||||||||||||||
| Finance leases | 67,714 | 33,936 | 68,730 | ||||||||||||||
| Total debt - principal | 4,005,218 | 3,382,561 | 3,815,372 | ||||||||||||||
| Less unamortized debt issuance costs and debt discount | 20,451 | 24,147 | 22,195 | ||||||||||||||
| Total debt | 3,984,767 | 3,358,414 | 3,793,177 | ||||||||||||||
| Less current portion | 539,134 | 195,122 | 20,251 | ||||||||||||||
| $ | 3,445,633 | $ | 3,163,292 | $ | 3,772,926 | ||||||||||||
At March 31, 2022, the current portion of long-term debt consisted of $508.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $28.4 million of other foreign bank revolving and term loans and $2.7 million of finance leases.
On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of our outstanding 4¾% Senior Notes due 2025, or the 4¾% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 7. Financial Instruments
The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at March 31, 2022:
| Carrying Amount | Fair Value | ||||||||||
| (Dollars in thousands) | |||||||||||
| Assets: | |||||||||||
| Cash and cash equivalents | $ | 259,564 | $ | 259,564 | |||||||
| Liabilities: | |||||||||||
| Bank debt | $ | 1,558,014 | $ | 1,558,014 | |||||||
| 3¼% Senior Notes | 723,190 | 721,671 | |||||||||
| 4⅛% Senior Notes | 599,229 | 575,280 | |||||||||
| 2¼% Senior Notes | 556,300 | 507,624 | |||||||||
| 1.4% Senior Secured Notes | 499,784 | 456,550 | |||||||||
Fair Value Measurements
GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
Financial Instruments Measured at Fair Value
The financial assets and liabilities that were measured on a recurring basis at March 31, 2022 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.
Financial Instruments Not Measured at Fair Value
Our bank debt, 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were estimated based on quoted market prices, a Level 1 input.
Derivative Instruments and Hedging Activities
Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.
We also utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss.
Interest Rate Swap Agreements
We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three months ended March 31, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at March 31, 2022 was not significant.
Natural Gas Swap Agreements
We have entered into natural gas swap agreements to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income and was not significant for the three months ended March 31, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at March 31, 2022 was not significant.
Foreign Currency Exchange Rate Risk
In an effort to minimize our foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations, including net investment hedges related to the 3¼% Senior Notes which are Euro denominated. Foreign currency gains related to our net investment hedges included in accumulated other comprehensive loss for the three months ended March 31, 2022 were $11.3 million.
Note 8. Commitments and Contingencies
A competition authority in Germany commenced an antitrust investigation in 2015 involving the industry association for metal packaging in Germany and its members, including our metal closures and metal container subsidiaries in Germany. At the end of April 2018, the European Commission commenced an antitrust investigation involving the metal packaging industry in Europe including our metal closures and metal container subsidiaries, which should effectively close out the investigation in Germany. Given the current stage of the investigation, we cannot reasonably assess what actions may result from these investigations or estimate what costs we may incur as a result thereof.
We are a party to other legal proceedings, contract disputes and claims arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 9. Retirement Benefits
The components of the net periodic pension benefit credit for the three months ended March 31 were as follows:
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Service cost | $ | 3,300 | $ | 3,788 | |||||||
| Interest cost | 5,159 | 4,354 | |||||||||
| Expected return on plan assets | (17,314) | (19,848) | |||||||||
| Amortization of prior service cost | 55 | 58 | |||||||||
| Amortization of actuarial losses | 1,155 | 3,026 | |||||||||
| Net periodic benefit credit | $ | (7,645) | $ | (8,622) | |||||||
The components of the net periodic other postretirement benefit credit for the three months ended March 31 were as follows:
| 2022 | 2021 | ||||||||||
| (Dollars in thousands) | |||||||||||
| Service cost | $ | 25 | $ | 28 | |||||||
| Interest cost | 109 | 95 | |||||||||
| Amortization of prior service credit | (416) | (456) | |||||||||
| Amortization of actuarial gains | (77) | (48) | |||||||||
| Net periodic benefit credit | $ | (359) | $ | (381) | |||||||
Note 10. Income Taxes
Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 2020 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2021 and 2022 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.
Note 11. Treasury Stock
On March 4, 2022, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2026. We did not repurchase any shares of our common stock pursuant to this authorization during the three months ended March 31, 2022.
During the first three months of 2022, we issued 667,004 treasury shares which had an average cost of $3.19 per share for restricted stock units that vested during the period. In accordance with the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, we repurchased 276,826 shares of our common stock at an average cost of $41.45 to satisfy minimum employee withholding tax requirements resulting from the vesting of such restricted stock units.
We account for treasury shares using the first-in, first-out (FIFO) cost method. As of March 31, 2022, 64,312,089 shares of our common stock were held in treasury.
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SILGAN HOLDINGS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Information at March 31, 2022 and 2021 and for the
three months then ended is unaudited)
Note 12. Stock-Based Compensation
We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first three months of 2022, 409,900 restricted stock units were granted to certain of our officers and other key employees. The fair value of these restricted stock units at the grant date was $17.0 million, which is being amortized ratably over the respective vesting period from the grant date.
Note 13. Segment Information
Reportable segment information for the three months ended March 31 was as follows:
| Dispensing and Specialty Closures | Metal Containers | Custom Containers | Corporate | Total | |||||||||||||||||||||||||
| (Dollars in thousands) | |||||||||||||||||||||||||||||
| Three Months Ended March 31, 2022 | |||||||||||||||||||||||||||||
| Net sales | $ | 597,927 | $ | 650,726 | $ | 193,233 | $ | — | $ | 1,441,886 | |||||||||||||||||||
Depreciation and amortization(1) | 36,619 | 21,064 | 9,883 | 42 | 67,608 | ||||||||||||||||||||||||
| Rationalization charges | — | 1,274 | 105 | — | 1,379 | ||||||||||||||||||||||||
| Segment income | 87,313 | 38,009 | 24,694 | (6,624) | 143,392 | ||||||||||||||||||||||||
| Three Months Ended March 31, 2021 | |||||||||||||||||||||||||||||
| Net sales | $ | 509,352 | $ | 554,081 | $ | 174,677 | $ | — | $ | 1,238,110 | |||||||||||||||||||
Depreciation and amortization(1) | 28,890 | 21,249 | 9,373 | 39 | 59,551 | ||||||||||||||||||||||||
| Rationalization charges | 5,231 | 5,021 | 105 | — | 10,357 | ||||||||||||||||||||||||
| Segment income | 65,645 | 45,614 | 24,486 | (9,196) | 126,549 | ||||||||||||||||||||||||
_____________
(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.5 million and $1.3 million for the three months ended March 31, 2022 and 2021, respectively.
Total segment income is reconciled to income before income taxes for the three months ended March 31 as follows:
| 2022 | 2021 | |||||||||||||
| (Dollars in thousands) | ||||||||||||||
| Total segment income | $ | 143,392 | $ | 126,549 | ||||||||||
| Interest and other debt expense | 30,830 | 27,306 | ||||||||||||
| Income before income taxes | $ | 112,562 | $ | 99,243 | ||||||||||
Sales and segment income of our metal containers segment and of part of our dispensing and specialty closures segment are dependent, in part, upon the vegetable and fruit harvests in the United States and, to a lesser extent, in a variety of national growing regions in Europe. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual segment income during that quarter.
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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, 2021 and in our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
General
We are a leading manufacturer of sustainable rigid packaging solutions for consumer goods products. We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care, fragrance and beauty products; steel and aluminum containers for human and pet food and general line products; and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products. We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom 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.
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RESULTS OF OPERATIONS
The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the three months ended March 31:
| 2022 | 2021 | ||||||||||
| Net sales | |||||||||||
| Dispensing and Specialty Closures | 41.5 | % | 41.1 | % | |||||||
| Metal Containers | 45.1 | 44.8 | |||||||||
| Custom Containers | 13.4 | 14.1 | |||||||||
| Consolidated | 100.0 | 100.0 | |||||||||
| Cost of goods sold | 83.8 | 82.1 | |||||||||
| Gross profit | 16.2 | 17.9 | |||||||||
| Selling, general and administrative expenses | 7.0 | 7.9 | |||||||||
| Rationalization charges | 0.1 | 0.8 | |||||||||
| Other pension and postretirement income | (0.8) | (1.0) | |||||||||
| Income before interest and income taxes | 9.9 | 10.2 | |||||||||
| Interest and other debt expense | 2.1 | 2.2 | |||||||||
| Income before income taxes | 7.8 | 8.0 | |||||||||
| Provision for income taxes | 1.9 | 2.1 | |||||||||
| Net income | 5.9 | % | 5.9 | % | |||||||
Summary unaudited results of operations for the three months ended March 31 are provided below.
| 2022 | 2021 | ||||||||||
| (dollars in millions) | |||||||||||
| Net sales | |||||||||||
| Dispensing and Specialty Closures | $ | 597.9 | $ | 509.3 | |||||||
| Metal Containers | 650.7 | 554.1 | |||||||||
| Custom Containers | 193.3 | 174.7 | |||||||||
| Consolidated | $ | 1,441.9 | $ | 1,238.1 | |||||||
| Segment income | |||||||||||
Dispensing and Specialty Closures (1) | $ | 87.3 | $ | 65.7 | |||||||
Metal Containers (2) | 38.0 | 45.6 | |||||||||
Custom Containers (3) | 24.7 | 24.5 | |||||||||
| Corporate | (6.6) | (9.2) | |||||||||
| Consolidated | $ | 143.4 | $ | 126.6 | |||||||
(1) Includes rationalization charges of $5.2 million for the three months ended March 31, 2021.
(2) Includes rationalization charges of $1.3 million and $5.0 million for the three months ended March 31, 2022 and 2021, respectively.
(3) Includes rationalization charges of $0.1 million for each of the three months ended March 31, 2022 and 2021.
Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021
Overview. Consolidated net sales were $1.44 billion in the first quarter of 2022, a 16.5 percent increase as compared to the first quarter of 2021 primarily due to higher average selling prices due to the pass through of higher raw material and other inflationary costs across all segments, higher unit volumes in the dispensing and specialty closures segment including from acquisitions, and a more favorable mix of products sold in the custom containers segment, partially offset by lower unit volumes and a higher percentage of smaller cans sold in the metal containers segment, lower volumes in the custom containers segment and the impact from unfavorable foreign currency translation. Income before interest and income taxes for the first quarter of 2022 was $143.4 million, a $16.8 million increase as compared to the same period in 2021 primarily due to the
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favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs in both the dispensing and specialty closures and custom containers segments, strong manufacturing performance and operating efficiencies, higher unit volumes in the dispensing and specialty closures segment and lower rationalization charges, partially offset by inflation in manufacturing costs, lower volumes in the metal containers and custom containers segments, the mix impact of more smaller cans sold in the metal containers segment and the impact of unfavorable foreign currency translation. Results for the first quarters of 2022 and 2021 included rationalization charges of $1.4 million and $10.3 million, respectively. Results for the first quarters of 2022 and 2021 also included a loss on early extinguishment of debt of $1.5 million and $0.9 million, respectively. Net income for the first quarter of 2022 was $84.9 million as compared to $73.3 million for the same period in 2021. Net income per diluted share for the first quarter of 2022 was $0.76 as compared to $0.66 for the same period in 2021.
Net Sales. The $203.8 million increase in consolidated net sales in the first quarter of 2022 as compared to the first quarter of 2021 was the result of higher net sales across all the segments.
Net sales for the dispensing and specialty closures segment increased $88.6 million, or 17.4 percent, in the first quarter of 2022 as compared to the same period in 2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately eight percent, partially offset by the impact of unfavorable foreign currency translation of approximately $15 million. The increase in unit volumes was principally the result of the inclusion of the recent acquisitions and higher volumes for beauty and fragrance products, partially offset by a decrease in volumes for hygiene and home cleaning products which continued to be impacted by an inventory correction throughout the supply chain, and for metal closures as a result of customer pre-buy activity in late 2021 in advance of significant metal inflation this year.
Net sales for the metal containers segment increased $96.6 million, or 17.4 percent, in the first quarter of 2022 as compared to the same period in 2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately fourteen percent, a higher percentage of smaller cans sold and the impact of unfavorable foreign currency translation of approximately $7 million. The decrease in unit volumes was principally the result of higher customer purchases in late 2021 in advance of significant metal inflation this year and customers’ ongoing supply chain and labor challenges in the current year period.
Net sales for the custom containers segment increased $18.6 million, or 10.6 percent, in the first quarter of 2022 as compared to the same period in 2021. This increase was principally due to higher average selling prices related to the pass through of higher resin costs and a more favorable mix of products sold, partially offset by lower volumes of approximately eight percent. The decline in volumes was primarily due to strong pandemic driven demand in the first quarter of 2021.
Gross Profit. Gross profit margin decreased 1.7 percentage points to 16.2 percent in the first quarter of 2022 as compared to the same period in 2021 for the reasons discussed below in "Income before Interest and Income Taxes."
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.0 percent in the first quarter of 2022 as compared to 7.9 percent in the same period in 2021. Selling, general and administrative expenses increased $2.6 million to $100.0 million for the first quarter of 2022 as compared to $97.4 million for the same period in 2021.
Income before Interest and Income Taxes. Income before interest and income taxes for the first quarter of 2022 increased by $16.8 million as compared to the first quarter of 2021, while margins decreased to 9.9 percent from 10.2 percent over the same periods. The increase in income before interest and income taxes was primarily the result of higher income in the dispensing and specialty closures and custom containers segments, partially offset by lower income in the metal containers segment. Rationalization charges were $1.4 million and $10.3 million in the first quarters of 2022 and 2021, respectively.
Segment income of the dispensing and specialty closures segment for the first quarter of 2022 increased $21.6 million as compared to the same period in 2021, and segment income margin increased to 14.6 percent from 12.9 percent over the same periods. The increase in segment income was primarily due to the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs, higher unit volumes including from recent acquisitions, improved operating efficiencies and lower rationalization charges, partially offset by inflation in manufacturing costs and the impact of unfavorable foreign currency translation. Rationalization charges were $5.2 million in the first quarter of 2021.
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Segment income of the metal containers segment for the first quarter of 2022 decreased $7.6 million as compared to the same period in 2021, and segment income margin decreased to 5.8 percent from 8.2 percent over the same periods. The decrease in segment income was due primarily to lower unit volumes, the mix impact of more smaller cans sold and inflation in manufacturing costs, partially offset by strong manufacturing performance. The decrease in segment income margin was primarily due to to the mathematical consequence of the pass through of inflation in raw material and other manufacturing costs in the first quarter of 2022. Rationalization charges were $1.3 million and $5.0 million in the first quarters of 2022 and 2021, respectively.
Segment income of the custom containers segment for the first quarter of 2022 increased $0.2 million as compared to the same period in 2021, while segment income margin decreased to 12.8 percent from 14.0 percent over the same periods. The increase in segment income was primarily attributable to the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs and strong operational performance, partially offset by lower volumes. The decrease in segment income margin was primarily due to the mathematical consequence of the pass through of higher raw material costs in the first quarter of 2022.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2022 increased $2.9 million to $29.3 million as compared to $26.4 million in the same period in 2021. This increase was primarily due to higher weighted average outstanding borrowings during the quarter as a result of the acquisitions in the third and fourth quarters of 2021. In March 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 4¾% Notes. In conjunction with this prepayment, we recognized a loss on early extinguishment of debt of $1.5 million in the first quarter of 2022.
Provision for Income Taxes. The effective tax rates were 24.6 percent and 26.2 percent for the first quarters of 2022 and 2021, respectively. The effective tax rate for the first quarter of 2021 was unfavorably impacted by higher income in less favorable tax jurisdictions.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility. Our liquidity requirements arise from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment, the funding of our seasonal working capital needs and other general corporate uses.
On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 4¾% Notes at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.
You should also read Note 6 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2022 included elsewhere in this Quarterly Report.
For the three months ended March 31, 2022, we used net borrowings of revolving loans of $520.2 million and cash and cash equivalents of $371.9 million (including the positive effect of exchange rate changes of $1.4 million) to fund the redemption of the 4¾% Notes for $300.0 million, cash used in operations of $267.4 million, decreases in outstanding checks of $225.9 million, net capital expenditures and other investing activities of $70.0 million, dividends paid on our common stock of $18.7 million, and repurchases of our common stock of $11.5 million under our stock-based compensation plan.
For the three months ended March 31, 2021, we used proceeds from the issuance of the 1.4% Senior Secured Notes of $499.7 million, net borrowings of revolving loans of $139.2 million and cash and cash equivalents of $219.4 million to fund repayments of long-term debt of $500.0 million, cash used in operations of $172.2 million, decreases in outstanding checks of $84.2 million, net capital expenditures and other investing activities of $68.4 million, dividends paid on our common stock of $16.1 million, repurchases of our common stock of $8.3 million under our stock-based compensation plan, debt issuance costs of $4.6 million and the negative effect of exchange rate changes of $4.5 million.
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At March 31, 2022, we had $508.0 million of revolving loans outstanding under the Credit Agreement. After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at March 31, 2022 was $972.2 million.
Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements. Our peak seasonal working capital requirements have historically averaged approximately $350 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.
We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future. We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.
We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2022 with all of these covenants.
Guaranteed Securities
Each of the 3¼% Senior Notes, the 4⅛% Senior Notes, the 2¼% Senior Notes and the 1.4% Senior Secured Notes were issued by Silgan and are guaranteed by our U.S. subsidiaries that also guarantee our obligations under the Credit Agreement, collectively the Obligor Group.
The following summarized financial information relates to the Obligor Group as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022. Intercompany transactions, equity investments and other intercompany activity within the Obligor Group have been eliminated from the summarized financial information. Investments in subsidiaries of Silgan that are not part of the Obligor Group of $1.5 billion and $1.4 billion as of March 31, 2022 and December 31, 2021, respectively, are not included in noncurrent assets in the table below.
| March 31, 2022 | Dec. 31, 2021 | ||||||||||||||||
| (Dollars in millions) | |||||||||||||||||
| Current assets | $1,412.5 | $1,506.9 | |||||||||||||||
| Noncurrent assets | 4,144.9 | 4,159.9 | |||||||||||||||
| Current liabilities | 1,348.1 | 1,159.2 | |||||||||||||||
| Noncurrent liabilities | 4,050.6 | 4,392.4 | |||||||||||||||
At March 31, 2022 and December 31, 2021, the Obligor Group held current receivables due from other subsidiary companies of $36.9 million and $70.5 million, respectively; long-term notes receivable due from other subsidiary companies of $778.5 million and $782.4 million, respectively; and current payables due to other subsidiary companies of $6.6 million and $7.3 million, respectively.
| Three months ended March 31, 2022 | |||||||||||
| (Dollars in millions) | |||||||||||
| Net sales | $1,046.0 | ||||||||||
| Gross profit | 143.7 | ||||||||||
| Net income | 57.3 | ||||||||||
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For the three months ended March 31, 2022, net income in the table above excludes income from equity method investments of other subsidiary companies of $27.6 million. For the three months ended March 31, 2022, the Obligor Group recorded the following transactions with other subsidiary companies: sales to such other subsidiary companies of $9.6 million; net credits from such other subsidiary companies of $7.3 million; and net interest income from such other subsidiary companies of $4.9 million. For the three months ended March 31, 2022, the Obligor Group received dividends from other subsidiary companies of $0.2 million.
Rationalization Charges
We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Under our rationalization plans, we made cash payments of $2.5 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively. Excluding the impact of our withdrawal from the Central States Pension Plan in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $0.6 million and $2.2 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.0 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.
You should also read Note 3 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2022 included elsewhere in this Quarterly Report.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international operations, in 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, 2021. Since such filing, other than the changes discussed in Notes 6 and 7 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2022 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.
Item 4. CONTROLS AND PROCEDURES
As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.
In 2021, we acquired Gateway Plastics LLC, Unicep Packaging LLC and Easytech Closures S.p.A. We are currently in the process of integrating the internal controls and procedures of these acquired entities into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the Securities and Exchange Commission, we will include the internal controls and procedures of these acquired entities in our annual assessment of the effectiveness of our internal control over financial reporting for our 2022 fiscal year.
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Part II. Other Information
Item 6. Exhibits
| Exhibit Number | Description | |||||||
| *10.1 | ||||||||
| *10.2 | ||||||||
| 22 | ||||||||
| *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.SCH | Inline XBRL Taxonomy Extension Schema Document. | |||||||
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |||||||
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |||||||
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |||||||
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |||||||
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). | |||||||
___________________
*Filed herewith.
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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: May 4, 2022 | /s/ Robert B. Lewis | |||||||
| Robert B. Lewis | ||||||||
| Executive Vice President and | ||||||||
| Chief Financial Officer | ||||||||
| (Principal Financial and | ||||||||
| Accounting Officer) | ||||||||
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