UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
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ý☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 20172019
or
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¨☐ | 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.INC.
(Exact name of Registrant as specified in its charter)
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| Delaware | | | 06-1269834 |
(State or other jurisdiction of incorporation or organization) | | | (I.R.S. Employer Identification No.) |
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| 4 Landmark Square | | |
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| Stamford, | Connecticut | | | 06901 |
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Registrant’s telephone number, including area code (203) (203) 975-7110
Securities registered pursuant to Section 12(b) of the Act:
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| 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 |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yesý No o
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes oNoý
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. Yesý No o
Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, 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). Yesý No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý
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 the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Large accelerated filerý | ☒
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Non-accelerated filero | ☐
| | (Do not check if a smaller reporting company) | | Smaller reporting companyo | ☐ |
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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. o
Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o☐ No ý
The aggregate market value of the Registrant’s Common Stock held by non-affiliates, computed by reference to the price at which the Registrant’s Common Stock was last sold as of June 30, 2017,2019, the last business day of the Registrant’s most recently completed second fiscal quarter, was approximately $2.347$2.38 billion. Common Stock of the Registrant held by executive officers and directors of the Registrant has been excluded from this computation in that such persons may be deemed to be affiliates. This determination of affiliate status is not a conclusive determination for other purposes.
As of February 1, 2018,2020, the number of shares outstanding of the Registrant’s Common Stock, par value $0.01 per share, was 110,385,344.110,780,464.
Documents Incorporated by Reference:
Portions of the Registrant’s Proxy Statement, to be filed with the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Annual Report on Form 10-K, for its Annual Meeting of Stockholders to be held in 20182020 are incorporated by reference in Part III of this Annual Report on Form 10-K.
TABLE OF CONTENTS
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PART I
ITEM 1. BUSINESS.
GENERAL
We are a leading manufacturer of rigid packaging for consumer goods products. We had consolidated net sales of approximately $4.1$4.5 billion in 2017.2019. Our products are used for a wide variety of end markets and we operate 100 manufacturing plants in North America, Europe, Asia and South America. Our products include:
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, personal care, home 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, and in North America we are the largest manufacturer of metal food containers with a unit volume market share in the United States in 20172019 of approximately sixty percent.slightly more than half of the market. Our leadership in these markets is driven by our high levels of quality, service and technological support, our low cost producer position, our strong long-term customer relationships and our proximity to customers through our widespread geographic presence. We have 4543 metal container manufacturing facilities located in the United States, Europe and Asia, serving over 50 countries throughout the world. Additionally, we believe that we have the most comprehensive equipment capabilities in the industry. For 2017,2019, our metal container business had net sales of $2.28$2.47 billion (approximately 55.755.1 percent of our consolidated net sales) and income from operations of $230.2$160.0 million (approximately 57.641.8 percent of our consolidated income from operations excluding corporate expense).
We are also a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. Our leadership position in closures is a result of our ability to provide customers with high levels of quality, service and technological support. Our closures business provides customers with an extensive variety of proprietary metal and plastic closures and innovative dispensing system solutions that ensure closure quality and safety, as well as state-of-the-art capping/sealing equipment and detection systems to complement our closures product offering. We have 3334 closure manufacturing facilities located in North America, Europe, Asia and South America, from which we serve over 70100 countries throughout the world. In addition, we license our technology to fourfive other manufacturers for various international markets we do not serve directly. For 2017,2019, our closures business had net sales of $1.25$1.41 billion (approximately 30.531.3 percent of our consolidated net sales) and income from operations of $142.0$173.5 million (approximately 35.545.4 percent of our consolidated income from operations excluding corporate expense).
Additionally, we are 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 success in the plastic packaging market is largely due to our demonstrated ability to provide our customers with high levels of quality, service and technological support, along with our value-added design-focused products and our extensive geographic presence with 2223 manufacturing facilities in the United States and Canada. We produce plastic containers from a full range of resin materials and offer a comprehensive array of molding and decorating capabilities. For 2017,2019, our plastic container business had net sales of $565.1$611.1 million (approximately 13.813.6 percent of our consolidated net sales) and income from operations of $27.8$48.9 million (approximately 6.912.8 percent of our consolidated income from operations excluding corporate expense).
Our customer base includes some of the world’s best-known branded consumer products companies. Our philosophy has been to develop long-term customer relationships by acting in partnership with our customers by providing reliable quality, service and technological support and utilizing our low cost producer position. The strength of our customer relationships is evidenced by our large number of multi-year supply arrangements, our high retention of customers’ business and our continued recognition from customers, as demonstrated by the many quality and service awards we have received. We estimate that in 20182020 approximately 90 percent of our projected metal container sales and a majority of our projected closures and plastic container sales will be under multi-year customer supply arrangements.
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 believe that we will accomplish this goal because of
our leading market positions and management expertise in acquiring, financing, integrating and efficiently operating consumer goods packaging businesses.
OUR HISTORY
We are a Delaware corporation. We were founded in 1987 by our Non-Executive Co-Chairmen of the Board, R. Philip Silver and D. Greg Horrigan.Horrigan, two of the members of our Board of Directors and our former Co-Chairmen of the Board. Since our inception, we have acquired thirty-fivethirty-six businesses. As a result of the benefits of acquisitions and organic growth, we have become a leading manufacturer of metal containers in North America and Europe, with net sales of $2.28$2.47 billion in 2017,2019, and have increased our overall share of the metal food container market in the United States from approximately ten percent in 1987 to approximately sixty percentslightly more than half of the market in 2017.2019. Through acquisitions, we have become a leading worldwide manufacturer of closures for food, beverage, health care, garden, personal care, home and beauty products, with net sales of $1.25$1.41 billion in 2017.2019, a sevenfold increase since our acquisition of the White Cap closures operations in the United States in 2003. We have also grown our market position in the plastic container business since 1987, with net sales increasing sixfoldsevenfold to $565.1$611.1 million in 2017.2019. The following chart shows our acquisitions since our inception:
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| Acquired Business | | Year | | Products |
| Nestlé Food Company’s metal container manufacturing division | | 1987 | | Metal food containers |
| Monsanto Company’s plastic container business | | 1987 | | Plastic containers |
| Fort Madison Can Company of The Dial Corporation | | 1988 | | Metal food containers |
| Seaboard Carton Division of Nestlé Food Company | | 1988 | | Paperboard containers |
| Aim Packaging, Inc. | | 1989 | | Plastic containers |
| Fortune Plastics Inc. | | 1989 | | Plastic containers |
| Express Plastic Containers Limited | | 1989 | | Plastic containers |
| Amoco Container Company | | 1989 | | Plastic containers |
| Del Monte Corporation’s U.S. can manufacturing operations | | 1993 | | Metal food containers |
| Food Metal and Specialty business of American National Can Company | | 1995 | | Metal food containers and metal closures |
| Finger Lakes Packaging Company, Inc., a subsidiary of Birds Eye Foods, Inc. | | 1996 | | Metal food containers |
| Alcoa Inc.’s North American aluminum roll-on closures business | | 1997 | | Aluminum roll-on closures |
| Rexam PLC’s North American plastic container business | | 1997 | | Plastic containers and closures |
| Winn Packaging Co. | | 1998 | | Plastic containers |
| Campbell Soup Company’s steel container manufacturing business | | 1998 | | Metal food containers |
| Clearplass Containers, Inc. | | 1998 | | Plastic containers |
| RXI Holdings, Inc. | | 2000 | | Plastic containers and plastic closures, caps, sifters and fitments |
| Thatcher Tubes LLC | | 2003 | | Plastic tubes |
| Amcor White Cap, LLC | | 2003 | | Metal, composite and plastic vacuum closures |
| Pacific Coast Producers’ can manufacturing operations | | 2003 | | Metal food containers |
| Amcor White Cap (Europe, Asia and South America) | | 2006 - 2008 | | Metal, composite and plastic vacuum closures |
| Cousins-Currie Limited | | 2006 | | Plastic containers |
Grup Vemsa 1857, S.L.’s metal vacuum closures operations in Spain and China | | 2008 | | Metal vacuum closures |
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| Acquired Business | | Year | | Products |
| Grup Vemsa 1857, S.L.’s metal vacuum closures operations in Spain and China | | 2008 | | Metal vacuum closures |
| IPEC Global, Inc. and its subsidiaries | | 2010 | | Plastic closures |
| Vogel & Noot Holding AG’s metal container operations | | 2011 | | Metal containers |
| DGS S.A.’s twist-off metal closures operations | | 2011 | | Metal vacuum closures |
| Nestlé Purina PetCare’s metal container manufacturing operations | | 2011 | | Metal containers |
Öntaş Öner Teneke Ambalaj Sanayi ve Ticaret A.S. | | 2012 | | Metal containers and metal vacuum closures |
| Rexam High Barrier Food Containers, Inc., Rexam PLC’s plastic food container operations | | 2012 | | Plastic food containers |
| Amcor Packaging (Australia) Pty Ltd's metal vacuum closures operations in Australia | | 2013 | | Metal vacuum closures |
| Portola Packaging, Inc. and its subsidiaries | | 2013 | | Plastic closures |
| Tecnocap S.p.A.'s and Tecnocap LLC's metal vacuum closures operations in the U.S. | | 2013 | | Metal vacuum closures |
| Van Can Company's metal container manufacturing assets | | 2014 | | Metal containers |
| Injected Plastics Co.'s plastic closures operations | | 2015 | | Plastic closures |
| WestRock Company’s specialty closures and dispensing systems business | | 2017 | | Specialty closures and dispensing systems |
| Cobra Plastics, Inc. | | 2020 | | Plastic and specialty closures |
On April 6, 2017,January 27, 2020, we acquiredmade a binding offer, or the specialty closuresOffer, to Twist Beauty Packaging S.A.S., or Albéa, on behalf of itself and certain of its subsidiaries, or the Sellers, to purchase all the outstanding securities of certain subsidiaries of the Sellers engaged in the dispensing systems operationsbusiness and certain assets related to the Sellers’ dispensing business in China, or collectively the Albéa Dispensing Business, for an aggregate purchase price of WestRock Company, now operating$900 million in cash, subject to certain adjustments, including for working capital and other current assets and current liabilities and net indebtedness. In conjunction with the Offer, we obtained a commitment for $900 million of incremental delayed draw term loans, or the Committed Financing, under our senior secured credit facility. We expect to fund the name Silganpurchase price for this proposed acquisition from a combination of borrowings under our senior secured credit facility, including the Committed Financing, and cash on hand.
The Albéa Dispensing Systems, or SDS. SDSBusiness is a leading global supplier of highly engineered triggers, pumps, sprayers and foam dispensing closure solutions for health care, garden,to major branded consumer goods product companies in the beauty and personal care home, beauty and food products.markets. It operates a global network of thirteen facilities10 plants across North andAmerica, Europe, South America Europe and Asia. SDS represents For the fiscal year ended 2018, the Albéa strategically importantDispensing Business generated sales of approximately $383 million. As a result of this proposed acquisition, we expect to realize certain operational cost synergies, estimated to be approximately $20 million on an annual basis, within 18 months of closing related to procurement savings, reductions in general and administrative expenses and manufacturing efficiencies.
In the Offer, we undertake to (1) execute a securities and assets purchase agreement, or the SPA, in the form attached to the Offer upon receipt of a notice to exercise the option contained in the Offer, or the Option, by Albéa and (2) consummate the acquisition subject to the terms and conditions set forth in the SPA. The Offer will remain open for us, providing us with an opportunity to expand our closures franchise. SDS is included in our Closures segment asacceptance by the Sellers until the earlier of the two following dates: (1) seven business days after the completion of certain consultation and notification processes with applicable works’ councils and trade unions and (2) July 27, 2020. As set forth in the Offer, we have an exclusivity period extending from January 27, 2020 to the earlier of (1) the execution of the SPA or (2) October 27, 2020. Our and the Sellers’ obligations to complete the acquisition date.are subject to certain conditions, including antitrust clearances under the laws of various jurisdictions.
The form of SPA attached to the Offer provides that either we or the Sellers have the right to terminate the SPA in the event that the applicable antitrust clearances have not been obtained by October 27, 2020, or the Outside Date; provided, however, that we and the Sellers have the right to unilaterally postpone the Outside Date by up to
three months after the Outside Date, or the Postponed Outside Date, in the event that applicable antitrust clearances have not yet been obtained by the Outside Date. The form of SPA further provides that if the applicable antitrust clearances have not been obtained by the Outside Date or the Postponed Outside Date, as the case may be, then we are required to pay a break fee of $25 million to the Sellers. In addition, if the parties have not yet entered into the SPA, the Sellers may terminate the Offer if (1) the applicable antitrust clearances required under the SPA are no longer capable of being obtained on or before the Outside Date or the Postponed Outside Date, as the case may be, or (2) we do not execute the SPA even though the Option has been exercised by the Sellers. In the case of either of the foregoing, then we are required to pay a termination fee of $25 million to the Sellers. Alternatively, if the Sellers have not executed the SPA after the consultation and notification processes with applicable works’ councils and trade unions have been completed, then the Sellers are required to pay $25 million to us for estimated costs and expenses and time incurred in connection with the Offer and the proposed acquisition.
On February 4, 2020, we acquired Cobra Plastics, Inc., or Cobra Plastics, a manufacturer of injection molded plastic closures for a wide variety of consumer products, with a particular focus on the aerosol overcap market. Cobra Plastics had sales of approximately $30 million for the year ended December 31, 2018 and currently operates from two manufacturing facilities located in close proximity to one another in Macedonia, Ohio.
OUR STRATEGY
We intend to enhance our position as a leading manufacturer of consumer goods packaging products by continuing to aggressively pursue a strategy designed to achieve future growth and increase shareholder value by focusing on the following key elements:
SUPPLY “BEST VALUE” PACKAGING PRODUCTS WITH HIGH LEVELSOF QUALITY, SERVICEAND TECHNOLOGICAL SUPPORT
Since our inception, we have been, and intend to continue to be, devoted to consistently supplying our products with the combination of quality, price and service that our customers consider to be “best value.” In our metal container business, we focus on providing high quality and high levels of service and utilizing our low cost producer position. We have made and are continuing to make significant capital investments to offer our customers value-added features such as our family of Quick Top® easy-open ends for our metal food containers, shaped metal food containers and alternative color offerings for metal food containers. In addition, we have made and continue to make investments for our Can Vision 2020SM program, which investments are intended to enhance the competitive advantages of metal packaging for food, and includedincluding a new manufacturing facility in the United States that was completed in 2016. We have also initiated construction2016 to better optimize the logistical footprint of our metal containers business. Additionally, in 2017 of2018 we commercialized a smaller, near-site manufacturing facility in the United States to support growth of ourcertain customers. In our closures business, we emphasize high levels of quality, service and technological support. We believe our closures business is the premier innovative closures and dispensing systems solutions provider to the food, beverage, health care, garden, personal care, home and beauty industries. We offer customers an extensive variety of metal and plastic closures for food and beverage products, as well as proprietary equipment solutions such as cap feeders, cappers and detection systems, to ensure high quality package safety. We also manufacture throughout the world a wide range of highly engineered dispensing systems for health care, garden, personal care, home, beauty and food products. In our plastic container business, we provide high levels of quality and service and focus on value-added, custom designed plastic containers to meet changing product and packaging demands of our customers. We believe that we are one of the few plastic packaging businesses that can custom design, manufacture and decorate a wide variety of plastic containers,
providing the customer with the ability to satisfy more of its plastic packaging needs through one supplier. We will continue to supply customized products that can be delivered quickly to our customers with superior levels of design, development and technological support. We have made strategic investments to enhance the competitive position of our plastic container business, including the construction of two new plastic container manufacturing facilities in the United States that were completed in 2016, one of which is a near-site facility to a major customer and the other of which is to meet the growing needs of our customers and allow us to further reduce costs of our plastic container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a new thermoformed plastic container manufacturing facility in the United States in support of continued growth.
MAINTAIN LOW COST PRODUCER POSITION
We will continue pursuing opportunities to strengthen our low cost position in our business by:
maintaining a flat, efficient organizational structure, resulting in low selling, general and administrative expenses as a percentage of consolidated net sales;
achieving and maintaining economies of scale;
prudently investing in new technologies to increase manufacturing and production efficiency;
rationalizing our existing plant structure; and
serving our customers from our strategically located plants.
Through our metal container facilities, we believe that we provide the most comprehensive manufacturing capabilities in the industry. Through our closures business, we manufacture an extensive variety of metal and plastic closures and highly engineered dispensing systems for the food, beverage, health care, garden, personal care, home and beauty industries throughout the world utilizing state-of-the-art technology and equipment, and we also provide our customers for our closures with state-of-the-art capping/sealing equipment and detection systems. Through our plastic container facilities, we have the capacity to manufacture customized products across the entire spectrum of resin materials, decorating techniques and molding processes required by our customers. We intend to leverage our manufacturing, design and engineering capabilities to continue to create cost-effective manufacturing systems that will drive our improvements in product quality, operating efficiency and customer support.
In 2015,2016, we initiatedcompleted optimization plans in each of our businesses which plans were designed to reducethat reduced manufacturing and logistical costs and provideprovided productivity improvements and manufacturing efficiencies, thereby resulting in a lower cost manufacturing network for our businesses and strengthening the competitive position of each of our businesses in their respective markets. TheIn conjunction with these optimization plans, includedwe completed the construction of a new metal food container manufacturing facility and two new plastic container manufacturing facilities in the United States, the relocation of various equipment lines to facilities where we can better serve our customers and the rationalization of several existing manufacturing facilities. The three new manufacturing facilities are strategically located to meet the unique needs of our customers. Each of our businesses completed the execution of its optimization plan by the end of 2016, including commercializing the new metal food container manufacturing facility and the two new plastic container manufacturing facilities.
In 2017,2018, we initiated construction ofcommercialized a new metal container manufacturing facility and a new thermoformed plastic container manufacturing facility, in each case to support continued growth.growth in key markets. In 2019, we initiated a multi-year footprint optimization plan in our metal container business in the U.S. to reduce capacity and continue to drive cost reductions, which includes the likely shutdown of six metal container manufacturing facilities over a three year period. As part of this plan, we shut down two metal container manufacturing facilities in the fourth quarter of 2019.
MAINTAINAN OPTIMAL CAPITAL STRUCTURETO SUPPORT GROWTHAND INCREASE SHAREHOLDER VALUE
Our financial strategy is to use reasonable leverage to support our growth and increase shareholder returns. Our stable and predictable cash flow, generated largely as a result of our long-term customer relationships and generally recession resistant business, supports our financial strategy. We intend to continue using reasonable leverage, supported by our stable cash flows, to make value enhancing acquisitions. In determining reasonable leverage, we evaluate our cost of capital and manage our level of debt to maintain an optimal cost of capital based on current market conditions. 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. In 2015 and 2016, we used cash on hand and revolving loan borrowings under our then existing senior secured credit facility, or our 2014 Credit Facility, to fund repurchases of our common stock for an aggregate of $447.4 million, comprised of $170.1 million in 2015 (which included $161.8 million of our common stock purchased pursuant to a "modified Dutch auction" tender offer that was completed in March 2015) and $277.3 million in 2016 (which included $269.4 million of our common stock purchased pursuant to a "modified Dutch auction" tender offer that was completed in November 2016). In February 2017, we issued $300 million of our 4¾%
Senior Notes due 2025, or the 4¾% Notes, and €650 million of our 3¼% Senior Notes due 2025, or the 3¼% Notes. We used the net proceeds from the 4¾% Notes to prepay a portion of our outstanding U.S. dollar term loans and repay a portion of our outstanding revolving loans under our then existing senior secured credit facility, or our 2014 Credit Facility. We used the net proceeds from the 3¼% Notes to prepay all outstanding Euro term loans and repay all remaining outstanding revolving loans under our 2014 Credit Facility, to repay certain foreign bank revolving and term loans of certain of our non-U.S. subsidiaries and to redeem $220 million of our outstanding 5% Senior Notes due 2020, or the 5% Notes. In March 2017, we completed an amendment and restatement of our 2014 Credit Facility and entered into an amended and restated senior secured credit facility, or our Credit Agreement, which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. In May 2018, we entered into an amendment to our amended and restated senior secured credit facility, as so amended, our Credit Agreement, which further extended maturity dates, lowered the margin on borrowings thereunder and provides additional flexibility with regard to strategic initiatives. Our Credit Agreement provides us with revolving loans, consisting of a multicurrency revolving loan facility of approximately $1.19 billion and a Canadian revolving loan facility of Cdn $15.0 million. Additionally, our Credit Agreement provided us with term loans, consisting of (i) U.S. $800 million of term loans designated U.S. A term loans which were used to fund a portion of the purchase price for SDS, and (ii) Cdn $45.5 million of term loans designated Canadian A term loans. In April 2017, we funded the purchase price for the specialty closures and dispensing systems operations of WestRock Company, now operating under the name Silgan Dispensing Systems, or SDS, with the $800 million of U.S. A term loans and revolving loan borrowings under our Credit Agreement. In April 2018, we redeemed all of our remaining outstanding 5% Notes ($280.0 million
aggregate principal amount) with revolving loan borrowings under our Credit Agreement and cash on hand. In August 2019, we redeemed all $300 million aggregate principal amount of our outstanding 5½% Senior Notes due 2022, or the 5½% Notes, with revolving loan borrowings under our Credit Agreement and cash on hand. In November 2019, we issued $400 million aggregate principal amount of our 4⅛% Senior Notes due 2028, or the 4⅛% Notes, and used the net proceeds therefrom to repay outstanding revolving loans under our Credit Agreement, including revolving loans used to redeem the 5½% Notes. You should also read Notes 23, 9 and 819 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
EXPAND THROUGH ACQUISITIONSAND INTERNAL GROWTH
We intend to continue to increase our market share in our current business lines and related business lines through acquisitions and internal growth. We use a disciplined approach to make acquisitions and investments that generate attractive cash returns. As a result, we expect to continue to expand and diversify our customer base, geographic presence and product lines. This strategy has enabled us to increase our net sales and income from operations over the last ten years.
We are a leading manufacturer of metal containers in North America and Europe, primarily as a result of our acquisitions but also as a result of growth with existing customers. During the past 30 years, the metal food container market in North America has experienced significant consolidation primarily due to the desire by food processors to reduce costs and focus resources on their core operations rather than self-manufacture their metal food containers. Our acquisitions of the metal food container manufacturing operations of Nestlé Food Company, or Nestlé, The Dial Corporation, or Dial, Del Monte Corporation, or Del Monte, Birds Eye Foods, Inc., or Birds Eye, Campbell Soup Company, or Campbell, Pacific Coast Producers, or Pacific Coast, and Nestlé Purina PetCare's steel container self-manufacturing assets, or Purina Steel Can, reflect this trend. We estimate that approximately sevennine percent of the market for metal food containers in the United States is still served by self-manufacturers.
While we have expanded our metal container business and increased our market share of metal containers primarily through acquisitions and growth with existing customers, we have also made over the last several years, and are continuing to make, significant capital investments in our metal container business to enhance our business and offer our customers value-added features, such as our family of Quick Top® easy-open ends for metal food containers, shaped metal food containers and alternative color offerings for metal food containers. In 2017,2019, approximately 70 percent of our metal food containers sold had an easy-open end. In addition, we have made and continue to make investments for our Can Vision 2020SM program, which investments are intended to enhance the competitive advantages of metal packaging for food. In 2016, we completed the construction of a new metal food container manufacturing facility in Burlington, Iowa to better optimize the logistical footprint of our metal container operations in North America, allowing us to further reduce costs of our metal container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a smaller, near-site manufacturing facility in the United StatesBreinigsville, Pennsylvania to support growth of ourcertain customers.
With our acquisitions of our closures operations in North America, Europe, Asia and South America, we established ourselves as a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. In 2017, we broadened our closures portfolio to include dispensing systems with our acquisition of SDS. In 2013, we expandedSince 2003, following our acquisition of the geographic scope, product offerings and scaleWhite Cap closures operations in the United States, net sales of our plastic closures operations with the acquisitionbusiness have increased sevenfold to $1.41 billion in 2019 as a result of Portola Packaging, Inc.acquisitions and its subsidiaries, or Portola.internal growth. We may pursue further consolidation opportunities in the closures markets in which we operate, including in dispensing systems, or in adjacent closures markets.markets, such as our proposed acquisition of the Albéa Dispensing Business and our acquisition of Cobra Plastics. Additionally, we expect to continue to generate internal growth in our closures business, particularly in plastic closures and dispensing systems. In making investments to pursue internal growth, we use a disciplined approach to generate attractive cash returns.
We have grown our market position for our plastic container business since 1987, with net sales increasing sixfoldsevenfold to $565.1$611.1 million in 2017.2019. We achieved this improvement primarily through strategic acquisitions as well as
through internal growth. As part of the acquisition of Portola in 2013, we acquired three plastic container manufacturing facilities in Canada, further expanding the geographic scope and product offerings of our plastic container business. In 2016, we completed construction of two new plastic container manufacturing facilities, including a near-site facility to a major customer and another facility to meet the growing needs of our customers and allow us to further reduce costs of our plastic container business. These new facilities are located in North East, Pennsylvania and Hazelwood, Missouri. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a new thermoformed plastic container manufacturing facility in the United StatesFort Smith, Arkansas in support of continued growth. The plastic containers segment of the consumer goods packaging industry continues to be highly fragmented, and we intend to pursue further consolidation opportunities in this market. We also expect to continue to generate internal growth in our
plastic container business. As with acquisitions, we use a disciplined approach to pursue internal growth to generate attractive cash returns. Through a combination of these efforts, we intend to continue to expand our customer base in the markets that we serve, such as the personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical markets.
ENHANCE PROFITABILITY THROUGH PRODUCTIVITY IMPROVEMENTSAND COST REDUCTIONS
We intend to continue to enhance profitability through investment of capital for productivity improvements, manufacturing efficiencies, manufacturing cost reductions, and the optimization of our manufacturing facilities footprints. The additional sales and production capacity provided through acquisitions and investments have enabled us to rationalize plant operations and decrease overhead costs through plant closings and downsizings. From 2013,2015, we have closed threesix metal container manufacturing facilities, two closureclosures manufacturing facilities and fourthree plastic container manufacturing facilities in connection with our continuing efforts to streamline our plant operations, reduce operating costs and better match supply with geographic demand.
We expect that most future acquisitions will continue to enable us to realize manufacturing efficiencies as a result of optimizing production scheduling and other benefits from economies of scale and the elimination of redundant selling and administrative functions. In addition to the benefits realized through the integration of acquired businesses, we have improved and expect to continue to improve the operating performance of our plant facilities by investing capital for productivity improvements, manufacturing efficiencies and manufacturing cost reductions. While we have made some of these investments in certain of our plants, more opportunities still exist throughout our system. We will continue to use a disciplined approach to identify these opportunities to generate attractive cash returns.
In 2015,2016, we initiatedcompleted optimization plans in each of our businesses that were designed to reducereduced manufacturing and logistical costs and provideprovided productivity improvements and manufacturing efficiencies, thereby resulting in a lower cost manufacturing network for our businesses and strengthening the competitive position of each of our businesses in their respective markets. TheIn conjunction with these optimization plans, includedwe completed the construction of a new metal food container manufacturing facility and two new plastic container manufacturing facilities, the relocation of various equipment lines to facilities where we can better serve our customers and the rationalization of several existing manufacturing facilities. The three new manufacturing facilities are strategically located to meet the unique needs of our customers. Each of our businesses completed the execution of its optimization plan by the end of 2016, including commercializing the new metal container manufacturing facility and the two new plastic container manufacturing facilities.
In 2017,2018, we initiated construction ofcommercialized a new metal container manufacturing facility and a new thermoformed plastic container manufacturing facility, in each case to support continued growth.growth in key markets. In 2019, we initiated a multi-year footprint optimization plan in our metal container business in the U.S. to reduce capacity and continue to drive cost reductions, which includes the likely shutdown of six metal container manufacturing facilities over a three year period. As part of this plan, we shut down two metal container manufacturing facilities in the fourth quarter of 2019.
BUSINESS SEGMENTS
We are a holding company that conducts our business through various operating subsidiaries. We operate three businesses, our metal container business, our closures business and our plastic container business.
METAL CONTAINERS—55.7 55.1 PERCENTOFOURCONSOLIDATEDNETSALESIN 2017 2019
We are a leading manufacturer of metal containers in North America and Europe, and in North America we are the largest manufacturer of metal food containers with a unit volume market share in the United States in 20172019 of approximately sixty percent.slightly more than half of the market. Our metal container business is engaged in the manufacture and sale of steel and aluminum containers that are used primarily by processors and packagers for food products, such as pet food, vegetables, soup, vegetables, fruit,proteins (e.g., meat, chicken and seafood), tomato based products, seafood, coffee, adult nutritional drinks, pet foodfruit and other miscellaneous food products, as well as general line metal containers primarily for chemicals. We have 4543 metal container manufacturing facilities located in the United States, Europe and Asia, serving over 50 countries
throughout the world. For 2017,2019, our metal container business had net sales of $2.28$2.47 billion (approximately 55.755.1 percent of our consolidated net sales) and income from operations of $230.2$160.0 million (approximately 57.641.8 percent of our consolidated income from operations excluding corporate expense). We estimate that approximately 90 percent of our projected metal container sales in 20182020 will be pursuant to multi-year customer supply arrangements.
Although metal containers face competition from plastic, paper, glass and composite containers, we believe metal containers are superior to plastic, paper and composite containers in applications where the contents are prepared at high temperatures, or packaged in larger consumer or institutional quantities, or where the long-term
storage of the product is desirable while maintaining the product’s quality. We also believe that metal containers are generally more desirable than glass containers because metal containers are more durable and less costly to transport. Additionally, whileIn addition, metal containers are one of the most recycled packages in the world and are infinitely recyclable. While the market for metal food containers in the United States has experienced little or no growth over the last ten years, we have increased our market share of metal food containers in the United States primarily through acquisitions such as our acquisition in 2013 of the manufacturing assets of Van Can Company, or Van Can, and growth with existing customers, and have enhanced our business by focusing on providing customers with high quality, high levels of service and value-added features such as our family of Quick Top® easy-open ends, shaped metal food containers and alternative color offerings for metal food containers. In addition, we have made and continue to make investments for our Can Vision 2020SM program, which investments are intended to enhance the competitive advantages of metal packaging for food. In 2016, we completed the commercializationconstruction of a new metal food container manufacturing facility in the United States to better optimize the logistical footprint of our metal container business in North America, allowing us to further reduce costs of our metal container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a smaller, near-site manufacturing facility in the United States to support growth of ourcertain customers.
CLOSURES—30.5 31.3 PERCENTOFOURCONSOLIDATEDNETSALESIN 2017 2019
We are a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. Our closures business provides customers with an extensive variety of proprietary metal and plastic closures and innovative dispensing system solutions that ensure closure quality and safety, as well as state-of-the-art capping/sealing equipment and detection systems to complement our closures product offering. We have 3334 closure manufacturing facilities located in North America, Europe, Asia and South America, from which we serve over 70100 countries throughout the world. In addition, we license our technology to fourfive other manufacturers for various markets we do not serve directly. For 2017,2019, our closures business had net sales of $1.25$1.41 billion (approximately 30.531.3 percent of our consolidated net sales) and income from operations of $142.0$173.5 million (approximately 35.545.4 percent of our consolidated income from operations excluding corporate expense). Since 2003, following our acquisition of the White Cap closures operations in the United States, we have grown our closures business through acquisitions and internal growth, with net sales increasing sevenfold.
We manufacture metal and plastic closures for food and beverage products, such as juice drinks, ready-to-drink teas, sports drinks, dairy products, ketchup,tomato sauce, salsa, pickles, tomato sauce,baby food, juice drinks, ketchup, preserves, soup, cooking sauces, gravies, fruits, vegetables preserves, baby food and infant formula products. With our acquisition in 2017 of SDS, we broadened our closures portfolio to manufacture dispensing systems for health care, garden, personal care, home, beauty and food products, such as health care nasal spray and topical applications, lawn and garden products, hard surface cleaning products, professional cleaning products, air and fabric care products, perfume and fragrance products, skin care formulations,products, lotions, cosmetics, soaps, hair care products and other bath and body products and condiments. We provide customers of our closures business with custom formulations of sealing/lining materials, designed either to minimize removal torques and enhance openability of our closures or to maintain sealability of our closures, in each case to meet the unique needs of our customers while also meeting applicable regulatory requirements. We offer our customers an extensive range of decorating options for our closures for product differentiation. We also provide customers with sealing/capping equipment and detection systems to complement our closures product offering. As a result of our extensive range of closures, our geographic presence and our focus on providing high levels of quality, service and technological support, we believe that we are uniquely positioned to serve food, beverage, health care, garden, personal care, home and beauty product companies for their closure needs.
PLASTIC CONTAINERS—13.8 13.6 PERCENTOFOURCONSOLIDATEDNETSALESIN 2017 2019
We produce plastic containers from a full range of resin materials and offer a comprehensive array of molding and decorating capabilities. We are one of the leading manufacturers of custom designed high density polyethylene, or HDPE, and polyethylene terephthalate, or PET, containers in North America for the markets that we serve. Through our acquisition of the plastic food container operations of Rexam PLC, now operating under the name Silgan Plastic Food Containers, or PFC, weWe are also a leading manufacturer in North America of plastic
thermoformed barrier and non-barrier bowls and trays for shelf-stable food products. We operate 2223 plastic container manufacturing facilities in the United States and Canada. For 2017,2019, our plastic container business had net sales of $565.1$611.1 million (approximately 13.813.6 percent of our consolidated net sales) and income from operations of $27.8$48.9 million (approximately 6.912.8 percent of our consolidated income from operations excluding corporate expense). Since 1987, we have improved our market position for our plastic container business, with net sales increasing sixfold.sevenfold.
We manufacture custom designed and stock plastic containers for personal care and health care products, including containers for mouthwash, shampoos, conditioners, hand creams, lotions, liquid soap, respiratory and
gastrointestinal products, cosmetics and toiletries; food and beverage products, including peanut butter, salad dressings, condiments, dairy products powdered drink mixes and liquor; household and industrial chemical products, including containers for scouring cleaners, cleaning agents and lawn, garden and agricultural products;products, scouring cleaners and cleaning agents; and pharmaceutical products, including containers for tablets and antacids. We also manufacture plastic closures, caps, sifters and fitments for food and household products, including salad dressings, peanut butter, spices, liquid margarine, powdered drink mixes and arts and crafts supplies. In addition, we manufacture plastic thermoformed barrier and non-barrier bowls and trays for food products, such as soups and other ready-to-eat meals and pet food, as well as thermoformed plastic tubs for food, household and personal care products, including soft fabric wipes. We also manufacture plastic closures, caps, sifters and fitments for food and household products, including soft fabric wipes.salad dressings, condiments, peanut butter, spices, liquid margarine, powdered drink mixes and arts and crafts supplies.
Our leading position in the plastic container market is largely driven by our rapid response to our customers’ design, development and technology support needs and our value-added, diverse product line. This product line is the result of our ability to produce plastic containers from a full range of resin materials using a broad array of manufacturing, molding and decorating capabilities. We also strive to remain current with and, to some extent, anticipate innovations in resin composition and applications and changes in the technology for the manufacturing of plastic containers. We benefit from our large scale and nationwide presence, as significant consolidation is occurring in many of our customers’ markets. Through these capabilities, we are well-positioned to serve our customers, who demand customized solutions as they continue to seek innovative means to differentiate their products in the marketplace using packaging. In 2016, we completed the commercializationconstruction of two new plastic container manufacturing facilities in the United States, including a near-site facility to a major customer and another facility to meet the growing needs of our customers and allow us to further reduce costs of our plastic container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a new thermoformed plastic container manufacturing facility in the United States in support of continued growth.
MANUFACTURINGAND PRODUCTION
As is the practice in the industry, most of our customers provide us with quarterly or annualperiodic estimates of products and quantities pursuant to which periodic commitments are given. These estimates enable us to effectively manage production and control working capital requirements. We schedule our production to meet customers’ requirements. Because the production time for our products is short, the backlog of customer orders in relation to our sales is not material.
As of February 1, 2018,4, 2020, we operated a total of 100 manufacturing facilities in 2119 different countries throughout the world that serve the needs of our customers.
METAL CONTAINER BUSINESS
The manufacturing operations of our metal container business include cutting, coating, lithographing, fabricating, assembling and packaging finished cans. We use three basic processes to produce cans. The traditional three-piece method requires three pieces of flat metal to form a cylindrical body with a welded
side seam, a bottom and a top. High integrity of the side seam is assured by the use of sophisticated electronic weld monitors and organic coatings that are thermally cured by induction and convection processes. The other two methods of producing cans start by forming a shallow cup that is then formed into the desired height using either the draw and iron process or the draw and redraw process. Using the draw and redraw process, we manufacture steel and aluminum two-piece cans, the height of which generally does not exceed the diameter. For cans the height of which is greater than the diameter, we manufacture steel two-piece cans by using a drawing and ironing process. Quality and stackability of these cans are comparable to that of the shallow two-piece cans described above. We manufacture can bodies and ends from thin, high-strength aluminum alloys and steels by utilizing proprietary tool and die designs and selected can making equipment. We also manufacture our Quick Top® easy-open ends from both steel and aluminum alloys in a sophisticated precision progressive die process. We regularly review our Quick Top® easy-open end designs for improvements for optimum consumer preference through consumer studies and feedback.
CLOSURES BUSINESS
The manufacturing operations for metal closures include cutting, coating, lithographing, fabricating and lining. We manufacture twist-off, lug style and press-on, twist-off steel closures and aluminum roll-on closures for glass, metal and plastic containers, ranging in size from 18 to 110 millimeters in diameter. We employ state-of-the-art multi-die presses to manufacture metal closures, offering a low-cost, high quality means of production. We also provide customers of our closures business with custom formulations of sealing/lining materials, designed to minimize torque removal and enhance the openability of our closures while meeting applicable regulatory requirements.
We utilize two basic processes to produce plastic closures and dispensing systems. In the compression molded process, pellets of plastic resin are heated, extruded and then compressed to form a plastic closure shell. The plastic closure shell can include a molded linerless seal or a custom formulated, compression molded sealing system. The plastic closure shell can then be slit and printed depending on its end use. In the injection molded process, pellets of plastic resin are heated and injected into a mold, forming either a plastic closure shell or other dispensing systems component, such as a trigger, decorative shroud, actuator, valve or overcap. The plastic closure shell can include a molded linerless seal or a custom formulated sealing system. The plastic closure shell can then be slit and printed depending on its end use. In the case of a dispensing system, the dispensing system components are assembled into the dispensing system and can be printed depending on the end use of the dispensing system.
PLASTIC CONTAINER BUSINESS
We utilize two basic processes to produce plastic containers. In the extrusion blowmolding process, pellets of plastic resin are heated and extruded into a tube of plastic. A two-piece metal mold is then closed around the plastic tube and high pressure air is blown into it causing a bottle to form in the mold’s shape. In the injection and injection stretch blowmolding processes, pellets of plastic resin are heated and injected into a mold, forming a plastic preform. The plastic preform is then blown into a bottle-shaped metal mold, creating a plastic bottle.
Our plastic thermoformed bowls, trays and tubs are manufactured by melting pellets of plastic resin into an extruded plastic sheet. The plastic sheet is then formed in a mold to make the plastic bowl, tray or tub.
We have state-of-the-art decorating equipment, including several of the largest sophisticated decorating facilities in the United States. Our decorating methods for plastic containers are in-mold labeling, which applies a plastic film label to the bottle during the blowing process, and post-mold decoration. Post-mold decoration includes:
silk screen decoration which enables the applications of images in multiple colors to the bottle;
pressure sensitive decoration which uses a plastic film or paper label with an adhesive;
heat transfer decoration which uses a plastic coated label applied by heat; and
shrink sleeve labeling.
RAW MATERIALS
Based upon our existing arrangements with suppliers and our current and anticipated requirements, we believe that we have made adequate provisions for acquiring our raw materials.materials for the foreseeable future. As a result of significant consolidation of suppliers, we are, however, dependent upon a limited number of suppliers for our steel, aluminum, coatings and compound raw materials. Increases in the prices of raw materials have generally been passed along to our customers in accordance with our multi-year customer supply arrangements and through general price increases.
METAL CONTAINER BUSINESS
We use tinplated and chromium plated steel, aluminum, copper wire, organic coatings, lining compound and inks in the manufacture and decoration of our metal container products. Although there has been significant consolidation of suppliers, we believe that we have made adequate provisions to purchase sufficient quantities of these raw materials for the foreseeable future.
Our metal container supply agreements with our customers provide for the pass through of changes in our metal costs. For our metal container customers without long-term agreements, we have also generally increased prices to pass through increases in our metal costs. Although no assurances can be given, we expect to be able to purchase sufficient quantities of metal to timely meet all of our customers’ requirements in 2018.
Our material requirements are supplied through agreements and purchase orders with suppliers with whom we have long-term relationships. If our suppliers fail to deliver under their arrangements, we would be forced to purchase raw materials on the open market, and no assurances can be given that we would be able to purchase such raw materials or, if we are so able, that we would be able to purchase such raw materials at comparable prices or terms. Although there has been significant consolidation of suppliers, we believe that we have made adequate provisions to purchase sufficient quantities of these raw materials to meet our customers' requirements for the foreseeable future.
Our metal container supply agreements with our customers provide for the pass through of changes in our metal costs. For our metal container customers without long-term agreements, we have also generally increased prices to pass through increases in our metal costs.
CLOSURES BUSINESS
We use tinplated and chromium plated steel, aluminum, organic coatings, low-metallic inks and pulpboard, plastic and organic lining materials in the manufacture of metal closures.
We use resins in pellet form, such as homopolymer polypropylene, copolymer polypropylene and HDPE, thermoplastic elastomer lining materials,
processing additives and colorants in the manufacture of plastic closures and dispensing systems. Although no assurances can be given, we believe we have made adequate provisions to purchase sufficient quantities of these raw materials to meet our customers' requirements for the foreseeable future, despite the significant consolidation of suppliers.
Our closures supply agreements with our customers generally provide for the pass through of changes in our metal and resin costs, subject in many cases with respect to resin to a lag in the timing of such pass through. For our closures customers without long-term agreements, our closures business has also generally passed through changes in our metal and resin costs. Although no assurances can be given, we believe we have made adequate provisions to purchase sufficient quantities of these raw materials for the foreseeable future, despite the significant consolidation of suppliers.
PLASTIC CONTAINER BUSINESS
The raw materials we use in our plastic container business are primarily resins in pellet form such as virgin HDPE, virgin PET, recycled HDPE, recycled PET, polypropylene and, to a lesser extent, polystyrene, low density polyethylene, polyethylene terephthalate glycol, polyvinyl chloride, polycarbonate and medium density polyethylene. Our resin requirements are acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The price that we pay for resin raw materials is not fixed and is subject to market pricing, which has fluctuated significantly in the past few years. Our plastic container supply agreements with our customers provide for the pass through of changes in our resin costs, subject in many cases to a lag in the timing of such pass through. For our plastic container customers without long-term agreements, our plastic container business has also generally passed through changes in our resin costs.
We believe that we have made adequate provisions to purchase sufficient quantities of resins to meet our customers' requirements for the foreseeable future, absent unforeseen events such as significant hurricanes.
SALESAND MARKETING
Our philosophy has been to develop long-term customer relationships by acting in partnership with our customers, providing reliable quality and service. We market our products primarily by a direct sales force, including manufacturer's representatives, and for our plastic container business, in part, through a network of distributors. Because of the high cost of transporting empty containers, our metal container business generally sells to customers within a 300 mile radius of its manufacturing plants.
Approximately 12 percent, 11 percent 13 percent and 1211 percent of our consolidated net sales were to Nestlé in 2017, 20162019, 2018 and 2015,2017, respectively. No other customer accounted for more than 10 percent of our total consolidated net sales during those years.
You should also read “Risk Factors—We face competition from many companies and we may lose sales or experience lower margins on sales as a result of such competition” included elsewhere in this Annual Report.
METAL CONTAINER BUSINESS
We are a leading manufacturer of metal containers in North America and Europe, and in North America we are the largest manufacturer of metal food containers with a unit volume market share in the United States in 20172019 of approximately sixty percent.slightly more than half of the market. We have 4543 metal container manufacturing facilities located in the United States, Europe and Asia, serving over 50 countries throughout the world. Our largest customers for these products include Bonduelle Group, Campbell, Chicken of the Sea, Conagra Brands, Inc., Crider Foods, Inc.,Del Monte, General Mills, Inc., Hill's Pet Nutrition, Inc., Hormel Foods Corporation, The Kraft Heinz Company, Mars, Incorporated, Nestlé, Pacific Coast Pinnacle Foods Group LLC and Stanislaus Food Products Company.
We have entered into multi-year supply arrangements with most of our customers for our metal container business. We estimate that approximately 90 percent of our projected metal container sales in 20182020 will be pursuant to multi-year customer supply arrangements. Historically, we have been successful in continuing these multi-year customer supply arrangements. In Europe, our metal container business has had long-term relationships with many of its customers, although, as is common practice, many supply arrangements are negotiated on a year-by-year basis.
Since our inception in 1987, we have supplied Nestlé with substantially all of its U.S. metal food container requirements purchased from third party manufacturers.requirements. Our net sales of metal food containers to Nestlé in 20172019 were $416.9$500.4 million. We have aalso supply agreementNestlé with Nestlé for a substantial portion of the metal foodclosures in North America and Europe and plastic containers we supply Nestlé, which agreement runs through December 2019.in North America. In September 2011, we acquired Purina Steel Can from Nestlé and consolidated such assets into our existing metal container facilities in the United States. In connection with this acquisition,2018, we entered into a long-term supply agreementagreements with Nestlé that runsrun through December 20212025 for the steelsupply of all of Nestlé’s North American metal
food container volume previously manufactured by Purina Steel Can. In additionrequirements for pet food and other food products and to thesesupport growth initiatives of Nestlé. These long-term supply agreements other metal food containers that we sell toreplaced previous supply agreements with Nestlé are supplied pursuant to a shorter-term supply agreement.. Each of these long-term supply agreements provide for certain prices and specify that those prices will be increased or decreased based upon costprice change formulas.
Our metal container business’ sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of 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 those regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual income from operations during that quarter. You should also read “Risk Factors—The seasonality of the fruit and vegetable packing industry causes us to incur short-term debt” included elsewhere in this Annual Report.
CLOSURES BUSINESS
We are a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. We have 3334 closure manufacturing facilities located in North America, Europe, Asia and South America, from which we serve over 70100 countries throughout the world.
Our largest customers of our closures business include Campbell, The Coca-Cola Company, Colgate-Palmolive Company, Dean Foods Company, Hipp GmbH & Co VertriebKG, Johnson & Johnson, MillerCoors LLC (an affiliated entity ofThe Kraft Heinz Company, Mizkan Holdings Co., Ltd., Molson Coors Brewing Company)Company, Mt. Olive Pickle Company, Inc., The Mizkan Group Corporation, Nestlé, PepsiCo Inc., The Procter & Gamble Company, Puig S.L., S. C. Johnson & Son, Inc., The Scotts Company LLC, Spectrum Brands Holdings, Inc. and its affiliated entities, including United Industries Corporation, TreeHouse Foods, Inc. and Unilever, N.V. We have multi-year supply arrangements with many of our customers in the United States. Outside of the United States, the closures business has had long-term relationships with most of its customers. While we have multi-year supply arrangements with some of our closures customers outside of the United States, as is common practice, many supply arrangements with customers outside of the United States are negotiated on a year-by-year basis.
In addition, we license our technology to fourfive other manufacturers who supply products in India, Israel, South Korea, Malaysia, Maldives, South Africa, Sri Lanka, Taiwan and Thailand.
PLASTIC CONTAINER BUSINESS
We are one of the leading manufacturers of custom designed and stock plastic containers sold in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets. We are also a leading manufacturer in North America of plastic thermoformed barrier and non-barrier bowls and trays for shelf-stable food products and pet food products. We market our plastic containers in most areas of North America through a direct sales force and a large network of distributors. We also market certain stock plastic containers through an on-line shopping catalog.
Our largest customers for our plastic container business include Bayer AG, Berlin Packaging LLC, Campbell, Conagra Brands, Inc., General Mills, Inc., Henkel AG & Co. KGaA, Johnson & Johnson, The Kraft Heinz Company, Mars, Incorporated, McCormick & Company, Inc., Nice-Pak Products, Inc., Perrigo Company plc, The Procter & Gamble Company, The Scotts Company LLC, TreeHouse Foods Inc., TricorBraun, Inc. and Vi-Jon Laboratories, Inc.
We have arrangements to sell some of our plastic containers to distributors, who in turn resell those products primarily to regional customers. Plastic containers sold to distributors are generally manufactured by using generic and custom molds with decoration added to meet the end users’ requirements. The distributors’ warehouses and their sales personnel enable us to market and inventory a wide range of such products to a variety of customers.
We have multi-year supply arrangements with the majority of our customers for our plastic container business. In addition, many of our supply arrangements with our customers are for custom plastic containers made from proprietary molds.
COMPETITION
The packaging industry is highly competitive. We compete in this industry with manufacturers of similar and other types of packaging, as well as fillers, food processors and packers who manufacture containers for their own
use and for sale to others. We attempt to compete effectively through the quality of our products, competitive pricing and our ability to meet customer requirements for delivery, performance and technical assistance.
METAL CONTAINER BUSINESS
Of the commercial metal container manufacturers, Ardagh Group, Ball Corporation andMetalpack, LLC, Crown Holdings, Inc. and Trivium Packaging (a business combination that includes Ardagh Group's Food & Specialty Metal Packaging operations) are our most significant competitors. Our competitors also include other regional suppliers. As an alternative to purchasing containers from commercial can manufacturers, customers have the ability to invest in equipment to self-manufacture their containers.
Because of the high cost of transporting empty containers, our metal container business generally sells to customers within a 300 mile radius of its manufacturing plants. Strategically located existing plants give us an advantage over competitors from other areas, but we could be potentially disadvantaged by the relocation of a major customer.
Although metal containers face competition from plastic, paper, glass and composite containers, we believe that metal containers are superior to plastic, composite and paper containers in applications, where the contents are prepared at high temperatures or packaged in larger consumer or institutional quantities or where long-term storage of the product is desirable while maintaining the product’s quality. We also believe that metal containers are more desirable generally than glass containers because metal containers are more durable and less costly to transport. In addition, metal containers are one of the most recycled packages in the world and are infinitely recyclable.
CLOSURES BUSINESS
Our closures business competes primarily with Albéa Beauty Holdings S.A., AptarGroup, Inc., Bericap Group,Holding GmbH, Berry Global Group, Inc., Closures Systems International, Inc. (part of Rank Group Limited), Crown Holdings, Inc., Global Closure Systems, Groupe Massilly, Guala Dispensing Mexico, S.A. de C.V. and Tecnocap S.p.A. With our ability to manufacture an extensive range of metal and plastic closures and dispensing systems that ensure closure quality and safety, as well as state-of-the-art capping/sealing equipment and detection systems to complement our closures product offering, and our geographic presence, we believe we are uniquely positioned to serve food, beverage, health care, garden, personal care, home and beauty product companies for their closure needs.
PLASTIC CONTAINER BUSINESS
Our plastic container business competes with a number of large national producers of plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products. These competitors include Alpha Packaging, Inc., Alpla-Werke Alwin Lehner GmbH & Co. KG, Amcor Limited, Berry Global Group, Inc., CCL Industries Inc., Cebal Americas, Consolidated Container Company LLC, Graham Packaging Company (part of Rank Group Limited) and Plastipak Holdings, Inc. In addition to our rapid response to our customers’ design, development and technology support needs and our value-added, diverse product line, we strive to remain current with and, to some extent, anticipate innovations in resin composition and applications and changes in the technology for the manufacturing of plastic containers and closures.
EMPLOYEES
As of December 31, 2017,2019, we employed approximately 3,1003,200 salaried and 9,3009,900 hourly employees on a full-time basis. Approximately 3336 percent of our hourly plant employees in the United States and Canada as of that date
were represented by a variety of unions, and most of our hourly employees in Europe, Asia, South America and Central America were represented by a variety of unions or other labor organizations. In addition, as of December 31, 2017,2019, Campbell provided us with approximately 115120 hourly employees on a full-time basis at one of the facilities that we lease from Campbell.
Our labor contracts expire at various times between 20182020 and 2020.2024. As of December 31, 2017,2019, contracts covering approximately 1115 percent of our hourly employees in the United States and Canada will expire during 2018.2020. We expect no significant changes in our relations with these unions.
ENVIRONMENTALAND OTHER REGULATIONS
We are subject to federal, foreign, state and local environmental laws and regulations. In general, these laws and regulations limit the discharge of pollutants into the environment and establish standards for the treatment, storage, and disposal of solid and hazardous waste. We believe that we are either in compliance in all material respects with all presently applicable environmental laws and regulations or are operating in accordance with appropriate variances, schedules under compliance orders or similar arrangements.
In addition to costs associated with regulatory compliance, we may be held liable for alleged environmental damage associated with the past disposal of hazardous substances. Those that generate hazardous substances that are disposed of at sites at which environmental problems are alleged to exist, as well as the owners of those sites and other classes of persons, are subject to claims for clean up and natural resource damages under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, or CERCLA, regardless of fault or the legality of the original disposal. CERCLA and many similar state and foreign statutes may hold a responsible party liable for the entire cleanup cost at a particular site even though that party may not have caused the entire problem. Other state statutes may impose proportionate rather than joint and several liability. The federal Environmental Protection Agency or a state or foreign agency may also issue orders requiring responsible parties to undertake removal or remedial actions at sites.
We are also subject to the Occupational Safety and Health Act and other federal, foreign, state and local laws regulating noise exposure levels and other safety and health concerns in the production areas of our plants.
While management does not believe that any of the regulatory matters described above, individually or in the aggregate, will have a material effect on our capital expenditures, earnings, financial position or competitive position, we cannot assure you that a material environmental or other regulatory claim will not arise in the future.
RESEARCHAND PRODUCT DEVELOPMENT
Our research, product development and product engineering efforts relating to our metal container business are conducted at our research facilities in Oconomowoc, Wisconsin. Our research, product development and product engineering efforts relating to our closures business are conducted at our research facilities in Downers Grove, Illinois, Grandview, Missouri, Hannover, Germany and Waalwijk, Netherlands. Our research, product development and product engineering efforts with respect to our plastic container business are performed by our manufacturing and engineering personnel located at our Norcross, Georgia research facility and at our plastic container manufacturing facilities. In addition to research, product development and product engineering, these sites also provide technical support to our customers. The amounts we have spent on research and development during the last three fiscal years are not material.
We rely on a combination of patents, trade secrets, unpatented know-how, technological innovation, trademarks and other intellectual property rights, nondisclosure agreements and other protective measures to protect our intellectual property. We do not believe that any individual item of our intellectual property portfolio is material to our business. We employ various methods, including confidentiality agreements and nondisclosure agreements, with third parties, employees and consultants to protect our trade secrets and know-how. However, others could obtain knowledge of our trade secrets and know-how through independent development or other means.
FINANCIALAVAILABLE INFORMATIONABOUT SEGMENTSAND GEOGRAPHIC AREAS
Financial and other information by segment and relating to geographic areas for the fiscal years ended December 31, 2017, December 31, 2016 and December 31, 2015 is set forth in Note 16 to our Consolidated Financial Statements for the year ended December 31, 2017 included elsewhere in this Annual Report.
For the year ended December 31, 2017, our foreign operations for all our businesses generated $979.3 million of net sales, which represents approximately 24 percent of our consolidated net sales worldwide. For a discussion of risks attendant to our foreign operations, see “Risk Factors—Global economic conditions, disruptions in the credit markets and the instability of the Euro could adversely affect our business, financial condition or results of operations,” “Risk Factors—Our international operations are subject to various risks that may adversely affect our financial results” and “Risk Factors—We are subject to the effects of fluctuations in foreign currency exchange rates” included elsewhere in this Annual Report, as well as “Quantitative and Qualitative Disclosures about Market Risk—Foreign Currency Exchange Rate Risk” included elsewhere in this Annual Report.
AVAILABLE INFORMATION
We file annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, proxy statements and other information with the Securities and Exchange Commission, or the SEC. You may read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. You may obtain information on the operation of the SEC’s Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a website that contains annual, quarterly and current reports, proxy statements and other information that issuers (including the Company) file electronically with the SEC. The Internet address of the SEC’s website is http://www.sec.gov.
We maintain a website, the Internet address of which is http://www.silganholdings.com. Information contained on our website is not part of this Annual Report. We make available free of charge on or through our website our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K (and any amendments to those reports) and Forms 3, 4 and 5 filed on behalf of our directors and executive officers as soon as reasonably practicable after such documents are electronically filed with, or furnished to, the SEC.
ITEM 1A. RISK FACTORS.
The following are certain risk factors that could materially and adversely affect our business, financial condition or results of operations. Additional risks and uncertainties not currently known to us or that we currently view as immaterial may also materially and adversely affect our business, financial condition or results of operations.
OURINDEBTEDNESSCOULDADVERSELYAFFECTOURCASHFLOW.
At December 31, 2017,2019, we had $2,564.3$2,258.9 million of total consolidated indebtedness. We incurred much of this indebtedness as a result of financing acquisitions and refinancing our previously outstanding debt. In addition, at December 31, 2017,2019, after taking into account outstanding letters of credit of $18.2$15.4 million, we had up to $1.17 billion and Cdn $15.0 million of revolving loans that we may borrow under our Credit Agreement. We also have available to us under our Credit Agreement an uncommitted multicurrency incremental loan facility in an amount of up to an additional $1.25 billion (which amount may be increased as provided under our Credit Agreement), and we may incur additional indebtedness as permitted by our Credit Agreement and our other instruments governing our indebtedness. In conjunction with the Offer to purchase the Albéa Dispensing Business, we obtained the Committed Financing, and we expect to fund the purchase price for the proposed acquisition of the Albéa Dispensing Business from a combination of borrowings under our Credit Agreement, including the Committed Financing, and cash on hand. Additionally, on February 26, 2020 we issued (i) an additional $200 million aggregate principal amount of the 4⅛% Notes and (ii) €500 million aggregate principal amount of the 2¼% Notes due 2028, or the 2¼% Notes, in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended. We used the net proceeds from such issuances to prepay most of our outstanding U.S. A term loans under our Credit Agreement.
A significant portion of our cash flow must be used to service our indebtedness and is therefore not available to be used in our business. In 2017,2019, we repaid $24.9$41.1 million in mandatory principal excluding indebtedness refinanced, and paid $97.6$108.8 million in interest on our indebtedness. Our ability to generate cash flow is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. In addition, a significant portion of our indebtedness bears interest at floating rates, and therefore a substantial increase in interest rates could adversely impact our results of operations. Based on the average outstanding amount of our variable rate indebtedness in 2017,2019, a one percentage point change in the interest rates for our variable rate indebtedness would have impacted our 20172019 interest expense by an aggregate amount of approximately $11.6$13.1 million, after taking into account the average outstanding notional amount of our interest rate swap agreements during 2017.2019.
Our indebtedness could have important consequences. For example, it could:
increase our vulnerability to general adverse economic and industry conditions;
require us to dedicate a significant portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, acquisitions and capital expenditures, and for other general corporate purposes;
limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;
restrict us from making strategic acquisitions or exploiting business opportunities; and
limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds.
DESPITEOURCURRENTLEVELSOFINDEBTEDNESS, WEMAYINCURADDITIONALDEBTINTHEFUTURE, WHICHCOULDINCREASETHERISKSASSOCIATEDWITHOURLEVERAGE.
We are continually evaluating and pursuing acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under our Credit Agreement, to finance any such acquisitions and to fund any resulting increased operating needs.needs, including for the pending proposed acquisition of the Albéa Dispensing Business. In 2017, for example, we funded the purchase price for our acquisition of SDS through term loan and revolving loan borrowings under our Credit Agreement in the aggregate amount of $1,023.8 million. If new debt is added to our current debt levels, the related risks we now face could increase. We will have to effect any new financing in compliance with the agreements governing our then existing indebtedness. The indentures governing the 5% Notes, the 5½% Notes and the 4¾% Notes and the 3¼% Notes, the 4⅛% Notes and the 2¼% Notes do not prohibit us from incurring additional indebtedness.
THETERMSOFOURDEBTINSTRUMENTSRESTRICTTHEMANNERINWHICHWECONDUCTOURBUSINESSANDMAYLIMITOURABILITYTOIMPLEMENTELEMENTSOFOURGROWTHSTRATEGY.
Our Credit Agreement contains numerous covenants, including financial and operating covenants, some of which are quite restrictive. These covenants affect, and in many respects limit, among other things, our ability to:
incur additional indebtedness;
create liens;
consolidate, merge or sell assets;
make certain advances, investments and loans;
enter into certain transactions with affiliates; and
engage in any business other than the packaging business and certain related businesses.
The indentures governing the 5% Notes, the 5½% Notes and the 4¾% Notes and the 3¼% Notes, the 4⅛% Notes and the 2¼% Notes contain certain covenants that also restrict our ability to create liens, issue guarantees, engage in sale and leaseback transactions and consolidate, merge or sell assets. These covenants could restrict us in the pursuit of our growth strategy.
WEFACECOMPETITIONFROMMANYCOMPANIESANDWEMAYLOSESALESOREXPERIENCELOWERMARGINSONSALESASARESULTOFSUCHCOMPETITION.
The manufacture and sale of metal and plastic containers and closures is highly competitive. We compete with other manufacturers of metal and plastic containers and closures and manufacturers of alternative packaging products, as well as packaged goods companies who manufacture containers and closures for their own use and for sale to others. We compete primarily on the basis of price, quality and service. To the extent that any of our competitors is able to offer better prices, quality and/or services, we could lose customers and our sales and margins may decline.
In 2019, approximately 90 percent of our metal container sales and a majority of our closures and plastic container sales were pursuant to multi-year supply arrangements. Although no assurances can be given, we have been successful historically in continuing these multi-year customer supply arrangements. Additionally, in general, many of these arrangements provide that during the term the customer may receive competitive proposals for all or up to a portion of the products we furnish to the customer. We have the right to retain the business subject to the terms and conditions of the competitive proposal. If we match a competitive proposal, it may result in reduced sales prices for the products that are the subject of the proposal. If we choose not to match a competitive proposal, we may lose the sales that were the subject of the proposal.
The loss of any major customer, a significant reduction in the purchasing levels of any major customer or a significant adverse change in the terms of our supply agreement with any major customer could adversely affect our results of operations.
DEMANDFOROURPRODUCTSCOULDBEAFFECTEDBYCHANGESINLAWSANDREGULATIONSAPPLICABLETOFOODANDBEVERAGESANDCHANGESINCONSUMERPREFERENCES.
We manufacture and sell metal and plastic rigid packaging for consumer goods products. Many of our products are used to package food and beverages, and therefore they come into direct contact with these products. Accordingly, such products must comply with various laws and regulations for food and beverages applicable to our customers. Changes in such laws and regulations could negatively impact our customers’ demand for our products as they comply with such changes and/or require us to make changes to our products. Such changes to our products could include modifications relating to the inclusion of bisphenol A in the coatings and compounds that we use, possibly resulting in the incurrence by us of additional costs. Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health-related and environmental concerns and perceptions.
OURFINANCIALRESULTSCOULDBEADVERSELYAFFECTEDIFWEARENOTABLETOOBTAINSUFFICIENTQUANTITIESOFRAWMATERIALSORMAINTAINOURABILITYTOPASSRAWMATERIALPRICEINCREASESTHROUGHTOOURCUSTOMERS.
We purchase steel, aluminum, plastic resins and other raw materials from various suppliers. Sufficient quantities of these raw materials may not be available in the future, whether due to reductions in capacity because of, among other things, significant consolidation of suppliers, increased demand in excess of available supply, unforeseen events such as significant hurricanes, government imposed quotas or other reasons. In addition, such materials are subject to price fluctuations due to a number of factors, including increases in demand for the same raw materials, the availability of other substitute materials, tariffs and general economic conditions that are beyond our control.
Over the last few years, there has been significant consolidation of suppliers of steel worldwide. In addition, tariffs, quotas and court cases have negatively impacted the ability and desire of steel suppliers to competitively supply steel outside of their countries. More recently, the United States began imposing new tariffs on steel supply into the United States from certain foreign countries starting in June 2018, which has increased the cost of steel imported into the United States as well as ultimately steel manufactured in the United States. Additionally, exemptions from tariffs granted by the United States have been inconsistent and unpredictable. In Europe, recently enacted quotas on foreign steel supply has negatively impacted the ability of foreign steel suppliers to supply steel into Europe. Additional tariffs and/or quotas or other limitations on steel supply could further negatively impact the ability and desire of steel suppliers to competitively supply steel outside of their countries. Our metal container and metal closures supply agreements with our customers provide for the pass through of changes in our metal costs. For our customers without long-term agreements, we also generally increase prices to pass through increases in our metal costs. However, the impact of tariffs and quotas creates volatility in the applicable markets and therefore creates challenges for us and our customers in passing through costs related to such tariffs and quotas.
Our resin requirements are primarily acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The prices that we pay for resins are not fixed and are subject to market pricing, which has fluctuated significantly in the past few years. Our plastic container, plastic closures and dispensing systems supply agreements with our customers generally provide for the pass through of changes in resin costs, subject in many cases to a lag in the timing of such pass through. For customers without long-term agreements, we also generally pass through changes in resin costs.
Although no assurances can be given, we expect to be able to purchase sufficient quantities of raw materials to timely meet all of our customers’ requirements in 2020. Additionally, although no assurances can be given, we generally have been able to pass raw material cost increases through to our customers. The loss of our ability to pass those cost increases through to our customers or the inability of our suppliers to meet our raw material requirements, however, could have a materially adverse impact on our business, financial condition or results of operations.
GLOBALECONOMICCONDITIONS, DISRUPTIONSINCREDITMARKETSANDIN MARKETS GENERALLY AND THECREDITMARKETSANDINSTABILITYOFTHEINSTABILITYOFTHE EUROCOULDADVERSELYAFFECTOURBUSINESS, FINANCIALCONDITIONORRESULTSOFOPERATIONS.
In the past, the global financial markets have experienced substantial disruption, including, among other things, volatility in securities prices, diminished liquidity and credit availability, rating downgrades of certain investments and declining valuations of others. Additionally, the global economy experienced a recession, and economic uncertainty has generally continued in European markets and in China. If such economic conditions, disruption of global financial markets and tightening of credit in the financial markets were to occur again, then, among other risks we face, our business, financial condition, results of operations and ability to obtain additional financing in the future, including on terms satisfactory to us, could be adversely affected.
Economic conditions and disruptions in the credit markets could also harm the liquidity or financial position of our customers or suppliers, which could in turn cause such parties to fail to meet their contractual or other obligations to us or reduce our customers’ purchases from us, any of which could negatively affect our business, financial condition or results of operations. Additionally, under such circumstances, the creditworthiness of the counterparties to our interest rate and commodity pricing transactions could deteriorate, thereby increasing the risk that such counterparties fail to meet their contractual obligations to us.
Global markets are also susceptible to disruptions and resulting negative impacts from other occurrences and events, such as pandemics and contagious diseases like the recent outbreak of coronavirus, which could negatively affect global markets and the global economy. Such occurrences and events could cause or require us, our suppliers or our customers to temporarily suspend operations in affected regions, otherwise disrupt or affect our,
our suppliers’ or our customers’ operations or businesses, disrupt supply chains, commerce and travel, or cause an economic downturn or otherwise negatively impact consumer behavior and demand. Any such occurrences, events or disruptions could have a material adverse impact on our business, financial condition or results of operations.
There has been concern regarding the overall stability of the Euro and the future of the Euro as a single currency given the diverse economic and political circumstances in individual Eurozone countries. Potential developments and market perceptions related to the Euro could adversely affect the value of our Euro-denominated assets, reduce the amount of our translated amounts of U.S. dollar revenue and income, from operations, negatively impact our indebtedness in any such Eurozone country (including our ability to refinance such indebtedness) and otherwise negatively affect our business, financial condition or results of operations. For example, in June 2016, the United Kingdom voted to leave the European Union (commonly referred to as Brexit). and in January of 2020 the United Kingdom left the European Union. The implementation and effects of Brexit have been marked by political unpredictability and lack of clarity around the future economic relationship between the United Kingdom and the European Union. Although our revenue and income related to the United Kingdom is less than one percent of our overall revenue and income, Brexit could potentially disrupt and create uncertainty surrounding our business related to the United Kingdom, including our relationships with existing and future customers, suppliers and employees.employees both during any applicable transition period and after. We cannot predict the short-term or long-term economic, financial, trade and legal implications that the ultimate withdrawal of the United Kingdom from the European Union would have and how such withdrawal would affect our business globally and in the region. In addition, Brexit may lead other European Union member countries to consider referendums regarding their European Union membership.
WEFACECOMPETITIONFROMMANYCOMPANIESANDWEMAYLOSESALESOREXPERIENCELOWERMARGINSONSALESASARESULTOFSUCHCOMPETITION.
The manufacture and sale of metal and plastic containers and closures is highly competitive. We compete with other manufacturers of metal and plastic containers and closures and manufacturers of alternative packaging products, as well as packaged goods companies who manufacture containers and closures for their own use and for sale to others. We compete primarily on the basis of price, quality and service. To the extent that any of our competitors is able to offer better prices, quality and/or services, we could lose customers and our sales and margins may decline.
In 2017, approximately 90 percent of our metal container sales and a majority of our closures and plastic container sales were pursuant to multi-year supply arrangements. Although no assurances can be given, we have been successful historically in continuing these multi-year customer supply arrangements. Additionally, in general, many of these arrangements provide that during the term the customer may receive competitive proposals for all or up to a portion of the products we furnish to the customer. We have the right to retain the business subject to the terms and conditions of the competitive proposal. If we match a competitive proposal, it may result in reduced sales prices for the products that are the subject of the proposal. If we choose not to match a competitive proposal, we may lose the sales that were the subject of the proposal.
In addition, the loss of any major customer, a significant reduction in the purchasing levels of any major customer or a significant adverse change in the terms of our supply agreement with any major customer could adversely affect our results of operations.
DEMANDFOROURPRODUCTSCOULDBEAFFECTEDBYCHANGESINLAWSANDREGULATIONSAPPLICABLETOFOODANDBEVERAGESANDCHANGESINCONSUMERPREFERENCES.
We manufacture and sell metal and plastic rigid packaging for consumer goods products. Many of our products are used to package food and beverages, and therefore they come into direct contact with these products. Accordingly, such products must comply with various laws and regulations for food and beverages applicable to our customers. Changes in such laws and regulations could negatively impact our customers’ demand for our products as they comply with such changes and/or require us to make changes to our products. Such changes to our products could include modifications relating to the inclusion of bisphenol A in the coatings and compounds that we use, possibly resulting in the incurrence by us of additional costs. Additionally, because our products are used to package consumer goods, we are subject to a variety of risks that could influence consumer behavior and negatively impact demand for our products, including changes in consumer preferences driven by various health-related concerns and perceptions.
OURFINANCIALRESULTSCOULDBEADVERSELYAFFECTEDIFWEARENOTABLETOOBTAINSUFFICIENTQUANTITIESOFRAWMATERIALSORMAINTAINSUBSTANTIALLYLOWERTHANNORMALCROPYIELDMAYREDUCEDEMANDFOROURABILITYTOPASSRAWMATERIALPRICEINCREASESTHROUGHTOOURCUSTOMERSMETALCONTAINERSANDCLOSURESFORFOODPRODUCTS.
We purchase steel, aluminum, plastic resins and other raw materials from various suppliers. Sufficient quantities of these raw materials may not be available in the future, whether due to reductions in capacity because of, among other things, significant consolidation of suppliers, increased demand in excess of available supply, unforeseen events such as significant hurricanes or other reasons. In addition, such materials are subject to price fluctuations due to a number of factors, including increases in demand for the same raw materials, the availability of other substitute materials and general economic conditions that are beyond our control.
Over the last few years, there has been significant consolidation of suppliers of steel. In addition, tariffs and court cases in the United States have negatively impacted the ability and desire of certain foreign steel suppliers to competitively supply steel in the United States. Additionally, new proposed tariffs and potential limits on steel supply into the United States from certain foreign countries could further negatively impact the ability and desire of certain foreign steel suppliers to competitively supply steel in the United States. Our metal container and metal closures supply agreements with our customers provide for the pass through of changes in our metal costs. For our customers without long-term agreements, we also generally increase prices to pass through increases in our metal costs.
Our resin requirements are primarily acquired through multi-year arrangements for specific quantities of resins with several major suppliers of resins. The prices that we pay for resins are not fixed and are subject to market pricing, which has fluctuated significantly in the past few years. Our plastic container, plastic closures and dispensing systems supply agreements with our customers provide for the pass through of changes in resin prices, subject in many cases to a lag in the timing of such pass through. For customers without long-term agreements, we also generally pass through changes in resin prices.
Although no assurances can be given, we expect to be able to purchase sufficient quantities of raw materials to timely meet all of our customers’ requirements in 2018. Additionally, although no assurances can be given, we generally have been able to pass raw material price increases through to our customers. The loss of our ability to pass those price increases through to our customers or the inability of our suppliers to meet our raw material requirements, however, could have a materially adverse impact on our business, financial condition or results of operations.
A SUBSTANTIALLYLOWERTHANNORMALCROPYIELDMAYREDUCEDEMANDFOROURMETALCONTAINERSANDCLOSURESFORFOODPRODUCTS.
Our metal container business’ sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States and, to a lesser extent, in a variety of national growing regions in Europe. Our closures business is also dependent, in part, upon the vegetable and fruit harvests. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions, and our results of operations could be impacted accordingly. Our sales, income from operations and net income could be materially adversely affected in a year in which crop yields are substantially lower than normal. For example, the results of our metal container business in 2019 were negatively impacted by poor harvests in Europe.
THESEASONALITYOFTHEFRUITANDVEGETABLEPACKINGINDUSTRYCAUSESUSTOINCURSHORT-TERMDEBT.
We sell metal containers and closures used to package fruits and vegetables, which is a seasonal process. As a result, we have historically generated a disproportionate amount of our annual income from operations in our third quarter. Additionally, as is common in the packaging industry, we must access working capital to build inventory ahead of the fruit and vegetable packing process. We also provide extended payment terms to some of our customers due to the seasonality of the fruit and vegetable packing process and, accordingly, carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, we may incur short-term indebtedness to finance our working capital requirements.
THECOSTOFPRODUCINGOURPRODUCTSMAYBEADVERSELYAFFECTEDBYINCREASESTOTHEPRICEOFENERGYVARIOUS FACTORS.
The cost of producing our products is affected by many factors, some of which can be volatile and some of which may be challenging. For example, the cost of producing our products is sensitive to our energy costs, such as natural gas and electricity. We have, from time to time, entered into contracts to hedge a portion of our natural gas costs. Energy prices, in particular oil and natural gas prices, have been volatile in recent years, with a corresponding effect on our production costs.
Many countries, including most recently the United States, have imposed tariffs on imported products from certain other countries, including products and components supplied cross border within a company. Although we engage in limited cross border supply within our businesses, tariffs or quotas imposed on any cross border supplies within our businesses would increase the cost of our products and could adversely impact our results of operations. Additionally, local suppliers tend to increase prices for their products due to the protection offered by tariffs. Any such increases would increase the cost of our products and could adversely impact our results of operations.
WEMAYNOTBEABLETOPURSUEOURGROWTHSTRATEGYBYACQUISITION.
Historically, we have grown predominantly through acquisitions. Our future growth will depend in large part on additional acquisitions of consumer goods packaging businesses. We may not be able to locate or acquire other suitable acquisition candidates consistent with our strategy, and we may not be able to fund future acquisitions because of limitations under our indebtedness or otherwise, including due to the limited availability of funds if the financial markets are impaired.
FUTUREACQUISITIONSMAYCREATERISKSANDUNCERTAINTIESTHATCOULDADVERSELYAFFECTOUROPERATINGRESULTSANDDIVERTOURMANAGEMENT’SATTENTION.
In pursuing our strategy of growth through acquisitions, including for the pending proposed acquisition of Albéa's dispensing business we will face risks commonly encountered with an acquisition strategy. These risks include:
failing to identify material problems and liabilities in our due diligence review of acquisition targets;
failing to obtain sufficient indemnification rights to fully offset possible liabilities associated with acquired businesses;
failing to assimilate the operations and personnel of the acquired businesses;
difficulties in identifying or retaining employees for the acquired businesses;
disrupting our ongoing business;
diluting our limited management resources;
operating in new geographic regions; and
impairing relationships with employees and customers of the acquired business as a result of changes in ownership and management.
Through our experience integrating our acquisitions, we have learned that, depending upon the size of the acquisition, it can take us up to two to three years to completely integrate an acquired business into our operations and systems and realize the full benefit of the integration. During the early part of this integration period, the operating results of an acquired business may decrease from results attained prior to the acquisition due to costs, delays or other challenges that arise when integrating the acquired business. In addition, we may not be able to
achieve potential synergies or maintain the levels of revenue, earnings or operating efficiency that each business had achieved or might achieve separately. Moreover, indebtedness incurred to fund acquisitions could adversely affect our liquidity and financial stability.
THE PROPOSED ACQUISITION OF THE ALBÉA DISPENSING BUSINESS IS SUBJECT TO THE SELLERS' EXERCISE OF THE OPTION CONTAINED IN THE OFFER AND CERTAIN CONDITIONS, INCLUDING ANTITRUST CLEARANCES, AS WELL AS OTHER UNCERTAINTIES, AND THERE CAN BE NO ASSURANCES AS TO WHETHER AND WHEN IT MAY BE COMPLETED. A DELAY OR FAILURE TO CONSUMMATE THE PROPOSED ACQUISITION COULD NEGATIVELY IMPACT OUR FUTURE RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
On January 27, 2020, we made the Offer to Albéa, on behalf of itself and the Sellers, to purchase the Albéa Dispensing Business. We and the Sellers have not yet entered into a definitive purchase agreement for the proposed acquisition of the Albéa Dispensing Business, pending certain consultation and notification processes with applicable works’ councils and trade unions and the Sellers’ exercise of the option contained in the Offer. Accordingly, we cannot assure you that the Sellers will exercise the option contained in the Offer and the parties will enter into the SPA.
In addition, the consummation of the proposed acquisition of the Albéa Dispensing Business is subject to the satisfaction of certain conditions, including the receipt of applicable antitrust clearances, which clearances, if not obtained by a certain date, would require us to pay a break fee of $25 million to the Sellers. We cannot predict with certainty whether or when any of the required conditions for the proposed acquisition of the Albéa Dispensing Business will be satisfied, whether the satisfaction of any such conditions will result in a materially adverse impact on us or to the Albéa Dispensing Business or if this proposed acquisition will be consummated at all. If this proposed acquisition is not completed, if there is a significant delay in completing it or if the satisfaction of any such conditions results in a materially adverse impact, such failure, delay or impact could adversely affect our future results of operations and financial condition.
WE MAY BE UNABLE TO ACHIEVE, OR MAY BE DELAYED IN ACHIEVING, ADEQUATE RETURNS FROM OUR EFFORTS TO OPTIMIZE OUR OPERATIONS, WHICH COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION.
We continually strive to improve our operating performance and further enhance our franchise positions in our businesses through the investment of capital for productivity improvements, manufacturing efficiencies, manufacturing cost reductions and the rationalization of our manufacturing facilities footprints. For example, in 2019 we initiated a multi-year footprint optimization plan in our metal container business in the U.S. to reduce capacity and continue to drive cost reductions, which includes the likely shutdown of six manufacturing facilities over a three year period. Our operations include complex manufacturing systems as well as intricate scheduling and numerous geographic and logistical complexities associated with our facilities and our customers’ facilities. Accordingly, our efforts to achieve productivity improvements, manufacturing efficiencies and manufacturing cost reductions and to rationalize our manufacturing facilities footprints are subject to a number of risks and uncertainties that could impact our ability to achieve adequate returns from our efforts as planned. These risks and uncertainties include, among others, completing any such efforts on time and as planned and retaining customers impacted thereby.
IFWEAREUNABLETORETAINKEYMANAGEMENT, WEMAYBEADVERSELYAFFECTED.
We believe that our future success depends, in large part, on our experienced management team. Losing the services of key members of our current management team could make it difficult for us to manage our business and meet our objectives.
PROLONGEDWORKSTOPPAGESATOURFACILITIESWITHUNIONIZEDLABORCOULDJEOPARDIZEOURFINANCIALCONDITION.
As of December 31, 2017,2019, we employed approximately 9,3009,900 hourly employees on a full-time basis. Approximately 3336 percent of our hourly plant employees in the United States and Canada as of that date were represented by a variety of unions, and most of our hourly employees in Europe, Asia, South America and Central America were represented by a variety of unions or other labor organizations. Our labor contracts expire at various times between 20182020 and 2020.2024. We cannot assure you that, upon expiration of existing collective bargaining agreements, new agreements will be reached without union action or that any such new agreements will be on terms no less favorable to us than current agreements. Disputes with the unions representing our employees could result in strikes or other labor protests that could disrupt our operations and divert the attention of management from operating our business. If we were to experience aA strike or work stoppage it could bemake it difficult for us to find a sufficient number of people with the necessary skills to replace those employees. Prolonged work stoppages at our facilities could have a material adverse effect on our business, financial condition or results of operations.
WEARESUBJECTTOCOSTSANDLIABILITIESRELATEDTOENVIRONMENTALANDHEALTHANDSAFETYLAWSANDREGULATIONS AND RISKS RELATED TO LEGAL PROCEEDINGS.
We continually review our compliance with environmental and other laws, such as the Occupational Safety and Health Act and other laws regulating noise exposure levels and other safety and health concerns in the production areas of our plants in the United States and environmental protection, health and safety laws and regulations abroad. We may incur liabilities for noncompliance, or substantial expenditures to achieve compliance, with environmental and other laws or changes thereto in the future or as a result of the application of additional laws and regulations to our business, including those limiting greenhouse gas emissions, and those requiring compliance with the European Commission’s registration, evaluation and authorization of chemicals (REACH) procedures.procedures, and those imposing changes that would have the effect of increasing the cost of producing or would otherwise adversely affect the demand for plastic products. In addition, stricter regulations, or stricter interpretations of existing laws or regulations, may impose new liabilities on us, and we may become obligated in the future to incur costs associated with the investigation and/or remediation of contamination at our facilities or other locations. Additionally, many of our products come into contact with the food and beverages that they package, and therefore we may be subject to risks and liabilities related to health and safety matters in connection with our products. Changes in or additional health and safety laws and regulations in connection with our products may also impose new requirements and costs on us. Such requirements, liabilities and costs could have a material adverse effect on our capital expenditures, results of operations, financial condition or competitive position.
We are involved in various legal proceedings, contract disputes and claims arising in the ordinary course of our business. Additionally, 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,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 is ongoing.should effectively close out the investigation in Germany. Although we are not able to predict the outcome of such
proceedings, investigations, disputes and claims, any payments in respect thereof, including pursuant to any settlements, will reduce our available cash flows and could adversely impact our results of operations.
OURINTERNATIONALOPERATIONSARESUBJECTTOVARIOUSRISKSTHATMAYADVERSELYAFFECTOURFINANCIALRESULTS.
Our international operations generated approximately $979.3$1,071.1 million, or approximately 24 percent, of our consolidated net sales in 2017.2019. As of February 1, 2018,4, 2020, we have a total of 4441 manufacturing facilities in a total of 2018 countries outside of the United States, including Canada, Mexico and countries located in Europe, Asia and South America, serving customers in approximately 90100 countries worldwide. Our business strategy may include continued expansion of international activities.activities, including with the pending proposed acquisition of the Albéa Dispensing Business. Accordingly, the risks associated with operating in foreign countries, including Canada, Mexico and countries located in Europe, Asia and South America, may have a negative impact on our liquidity and net income. For example, the current economic uncertainty in Europe and China and the geopolitical disruptions in Russia and the Middle East and related adverse economic conditions and the current trade uncertainty throughout the world may have an adverse effect on our results of operations and financial condition. Additionally, we shut down our closures manufacturing facility in Venezuela in the fourth quarter of 2014 because our operations in Venezuela were unable to import raw materials on a regular basis due to the ongoing unstable political environment and an increasingly restrictive monetary policy, and in 2016 we ceased operations at our metal container manufacturing facility in the Ukraine because of the geopolitical environment.
Risks associated with operating in foreign countries include, but are not limited to:
political, social and economic instability;
inconsistent product regulation or policy changes by foreign agencies or governments;
war, civil disturbance or acts of terrorism;
trade disputes:
compliance with and changes in applicable foreign laws;
loss or non-renewal of treaties or similar agreements with foreign tax authorities;
difficulties in enforcement of contractual obligations and intellectual property rights;
high social benefits for labor;
national and regional labor strikes;
imposition of limitations on conversions of foreign currencies into U.S. dollars or payment of dividends and other payments by non-U.S. subsidiaries;
foreign exchange rate risks;
difficulties in expatriating cash generated or held by non-U.S. subsidiaries;
uncertainties arising from local business practices and cultural considerations;
changes in tax laws, or the interpretation thereof, affecting foreign tax credits or tax deductions relating to our non-U.S. earnings or operations;
hyperinflation, currency devaluation or defaults in certain foreign countries;
duties, taxes or government royalties, including the imposition or increase of withholding and other taxes on remittances and other payments by non-U.S. subsidiaries;
customs, import/export and other trade compliance regulations;regulations or policies;
non-tariff barriers and higher duty rates;
difficulty in collecting international accounts receivable and potentially longer payment cycles;
application of the Foreign Corrupt Practices Act and similar laws;
increased costs in maintaining international manufacturing and marketing efforts; and
taking of property by nationalization or expropriation without fair compensation.
WEARESUBJECTTOTHEEFFECTSOFFLUCTUATIONSINFOREIGNCURRENCYEXCHANGERATES.
Our reporting currency is the U.S. dollar. As a result of our international operations, a portion of our consolidated net sales, and some of our costs, assets and liabilities, are denominated in currencies other than the
U.S. dollar. As a result, we must translate local currency financial results into U.S. dollars based on average exchange rates prevailing during a reporting period for the preparation of our consolidated financial statements. Consequently, changes in exchange rates may unpredictably and adversely affect our consolidated operating results. For example, during times of a strengthening U.S. dollar, our reported international revenue and earnings will be reduced because the local currency will translate into fewer U.S. dollars. Conversely, a weakening U.S. dollar will effectively increase the dollar-equivalent of our expenses denominated in foreign currencies. Although we may use currency exchange rate protection agreements from time to time to reduce our exposure to currency exchange rate fluctuations in some cases, these hedges may not eliminate or reduce the effect of currency fluctuations.
IFTHEINVESTMENTSINOURPENSIONBENEFITPLANSDONOTPERFORMASEXPECTED, WEMAYHAVETOCONTRIBUTEADDITIONALAMOUNTSTOTHESEPLANS, WHICHWOULDOTHERWISEBEAVAILABLETOCOVEROPERATINGANDOTHEREXPENSES.
We maintain noncontributory, defined benefit pension plans covering a substantial number of our employees, which we fund based on certain actuarial assumptions. The plans’ assets consist primarily of common stocks and fixed income securities. If the investments of the plans do not perform at expected levels, then we willmay have to contribute additional funds to ensure that the plans will be able to pay out benefits as scheduled. Such an increase in funding couldwould result in a decrease in our available cash flow. In addition, any such investment performance significantly below our expected levels could adversely impact our results of operations. For example, the significant market declines in investment values at the end of 2018 as compared to our assumed rate of return for the plans for the year had a non-cash unfavorable impact of approximately $20 million on our results of operations in 2019.
WE PARTICIPATE IN MULTIEMPLOYER PENSION PLANS UNDER WHICH, IN THE EVENT OF CERTAIN CIRCUMSTANCES, WE COULD INCUR ADDITIONAL LIABILITIES WHICH MAY BE MATERIAL AND MAY NEGATIVELY AFFECT OUR FINANCIAL RESULTS,RESULTS.
We participateIn 2019, we participated in four multiemployer pension plans which provide defined benefits to certain of our union employees. We withdrew from participating in the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, at the end of 2019, and accordingly we now participate in three multiemployer pension plans. We expect to incur cash expenditures for the withdrawal liability related to such withdrawal from the Central States Pension Plan of approximately $3.1 million annually for the next twenty years, beginning in 2020. Because of the nature of multiemployer pension plans, there are risks associated with participating in such plans that differ from single-employer pension plans. Amounts contributed by an employer to a multiemployer pension plan are not segregated into a separate account and are not restricted to provide benefits only to employees of that contributing employer. In the event that another participating employer to a multiemployer pension plan in which we participate no longer contributes to such plan, the unfunded obligations of such plan may be borne by the remaining participating employers, including us. In such event, our required contributions to such plan could increase, which could negatively affect our financial condition and results of operations. In the event that we withdraw from participation in a multiemployer pension plan in which we participate or otherwise cease to make contributions to such a plan or in the event of the termination of such a plan, we potentially could be required under applicable law to make additional contributionswithdrawal liability payments to such plan in respect of the unfunded accruedvested benefits of such plan, which unfunded accruedvested benefits could be significant. Such additional contributionswithdrawal liability payments could be material and could negatively affect our financial condition and results of operations. As further discussed in Note 1112 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report, two of the multiemployer pension plans in which we still participate have a funded status of less than 65 percent. For further information with respect to our withdrawal from the Central States Pension Plan, please see Notes 4 and 12 to our Consolidated Financial Statements for the year ended December 31, 2019 included elsewhere in this Annual Report.
IFWEWEREREQUIREDTOWRITE-DOWNALLORPARTOFOURGOODWILLORTRADENAMES, OURNETINCOMEANDNETWORTHCOULDBEMATERIALLYADVERSELYAFFECTED.
As a result of our acquisitions, we have $1.2$1.1 billion of goodwill and $32.1 million of indefinite-lived trade names recorded on our consolidated balance sheet at December 31, 2017.2019. We are required to periodically determine if our goodwill and trade names have become impaired, in which case we would write-down the impaired portion. If we were required to write-down all or part of our goodwill or trade names, our net income and net worth could be materially adversely affected.
INCREASED INFORMATION TECHNOLOGY SECURITY THREATS AND MORE SOPHISTICATED AND TARGETED COMPUTER CRIME COULD POSE A RISK TO OUR SYSTEMS, NETWORKS, PRODUCTS, SOLUTIONS AND SERVICES.
IncreasedIn order to conduct our business, we rely on information technology systems, networks and services, some of which are managed, hosted and provided by third-party service providers. Although we have not experienced any material breaches or material losses related to cyberattacks to date, increased global security threats and more sophisticated and targeted computer crime pose a risk to the security of our systems and networks and those of our third-party service providers and the confidentiality, availability and integrity of our data. Depending on their nature and scope, such threats could potentially lead to the compromise of confidential information, including, but not limited to, confidential information relating to our employees, improper use of our systems and networks, manipulation and destruction of data, defective products, production downtimes and operational disruptions, which in turn could adversely affect our reputation, competitiveness and results of operations. A cyberattack or other disruption may also result in a financial loss, including potential fines for failure to safeguard data.
We have taken steps and incurred costs to further strengthen the security of our computer systems and continue to assess, maintain and enhance the ongoing effectiveness of our information security systems. While we attempt to mitigate these risks by employing a number of measures, including development and implementation of cybersecurity policies and procedures, employee training, comprehensive monitoring of our networks and systems and maintenance of backup and protective systems, our systems, networks, products, solutions and services remain potentially vulnerable to advanced persistent threats. Depending on their natureThe techniques used by criminals to obtain unauthorized access to sensitive data change frequently and scope,often are not recognizable until launched against a target. Accordingly, we may be unable to anticipate these techniques or implement adequate preventative measures. It is therefore possible that in the future we may suffer a criminal attack where unauthorized parties gain access to personal information in our possession, and we may not be able to identify any such threats could potentially leadincident in a timely manner.
In addition, the interpretation and application of data protection laws, including federal, state and international laws, relating to the compromisecollection, use, retention, disclosure, security and transfer of confidential information, improper usepersonally identifiable data in the United States (including but not limited to the California Consumer Privacy Act), Europe (including but not limited to the European Union's General Data Protection Regulation) and elsewhere, are uncertain and evolving.
As a result of potential cyberattack threats and existing and new data protection requirements, we have incurred and expect to continue to incur ongoing operating costs as part of our systemsefforts to protect and networks, manipulationsafeguard our sensitive data and destruction of data, defective products, production downtimespersonal information. These efforts also may divert management and
operational disruptions, which employee attention from other business and growth initiatives. A breach in turninformation privacy could adversely affectresult in legal or reputational risks and could have a materially adverse impact on our reputation, competitivenessbusiness, financial condition and results of operations.
OURPRINCIPALSTOCKHOLDERSHAVESUBSTANTIALINFLUENCEOVERUSANDTHEIREXERCISEOFTHATINFLUENCECOULDBEADVERSETOYOURINTERESTS.
As of December 31, 2017,2019, Messrs. Silver and Horrigan beneficially owned an aggregate of 33,175,66831,250,552 shares of our common stock, or approximately 3028 percent of our outstanding common stock, which excludes certain shares of our common stock owned by affiliates and related family transferees of Messrs. Silver and Horrigan that are not deemed to be beneficially owned by Messrs. Silver or Horrigan. Accordingly, if they act together, they will be able to exercise substantial influence over all matters submitted to the stockholders for a vote, including the election of directors. In addition, we and Messrs. Silver and Horrigan have entered into an amended and restated principal stockholders agreement, or the Stockholders Agreement, that provides for certain director nomination rights. Under the Stockholders Agreement, the Group (as defined in the Stockholders Agreement and generally including Messrs. Silver and Horrigan and their affiliates and related family transferees and estates) has the right to nominate for election all of our directors until the Group holds less than one-half of the number of shares of our common stock held by it in the aggregate on February 14, 1997. At least one of the Group’s nominees must be either Mr. Silver or Mr. Horrigan during the three-year period covering the staggered terms of our three classes of directors. On February 14, 1997, the Group held 57,224,720 shares of our common stock in the aggregate (as adjusted for our two-for-one stock splits in 2005, 2010 and 2017). Additionally, the Group has the right to nominate for election either Mr. Silver or Mr. Horrigan as a member of our Board of Directors when the Group no longer holds at least one-half of the number of shares of our common stock held by it in the aggregate on February 14, 1997 but beneficially owns at least 5 percent of our common stock. The Stockholders Agreement continues until the death or disability of both of Messrs. Silver and Horrigan. The provisions of the Stockholders Agreement could have the effect of delaying, deferring or preventing a change of control of Silgan Holdings Inc. and preventing our stockholders from receiving a premium for their shares of our common stock in any proposed acquisition of Silgan Holdings Inc.
ANTI-TAKEOVERPROVISIONSINOURAMENDEDANDRESTATEDCERTIFICATEOFINCORPORATIONANDOURAMENDEDANDRESTATEDBY-LAWSCOULDHAVETHEEFFECTOFDISCOURAGING, DELAYINGORPREVENTINGAMERGERORACQUISITION. ANYOFTHESEEFFECTSCOULDADVERSELYAFFECTTHEMARKETPRICEOFOURCOMMONSTOCK.
Provisions of our amended and restated certificate of incorporation and our amended and restated by-laws may have the effect of delaying or preventing transactions involving a change of control of Silgan Holdings Inc., including transactions in which stockholders might otherwise receive a substantial premium for their shares over then current market prices, and may limit the ability of stockholders to approve transactions that they may deem to be in their best interests.
In particular, our amended and restated certificate of incorporation provides that:
the Board of Directors is authorized to issue one or more classes of preferred stock having such designations, rights and preferences as may be determined by the Board;
the Board of Directors is divided into three classes, and each year approximately one-third of the directors are elected for a term of three years;
the Board of Directors is fixed at seven members;members, subject to the ability of the Board of Directors to increase the size of the Board of Directors to up to nine members for a period of time; and
action taken by the holders of common stock must be taken at a meeting and may not be taken by consent in writing.
Additionally, our amended and restated by-laws provide that a special meeting of the stockholders may only be called by either of our Co-ChairmenChairman of the Board on theirhis own initiative or at the request of a majority of the Board of Directors, and may not be called by the holders of common stock.
UPONTHEOCCURRENCEOFCERTAINCHANGEOFCONTROLEVENTS, WEMAYNOTBEABLETOSATISFYALLOFOUROBLIGATIONSUNDEROUR CREDIT AGREEMENTANDINDENTURES.
Under our Credit Agreement, the occurrence of a change of control (as defined in our Credit Agreement) constitutes an event of default, permitting, among other things, the acceleration of amounts owed thereunder. Additionally, upon the occurrence of a change of control repurchase event as defined in the indentures governing the 5%4¾% Notes and the 5½3¼% Notes, the 4⅛% Notes and the 2¼% Notes, we must make an offer to repurchase the 5%4¾% Notes, the 3¼% Notes, the 4⅛% Notes and the 5½2¼% Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of purchase. In addition, upon the occurrence of a change of control repurchase event as defined in the indenture governing the 4¾% Notes and the
3¼% Notes, we must make an offer to repurchase the 4¾% Notes and the 3¼% Notes at a repurchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of repurchase. We may not have sufficient funds or be able to obtain sufficient financing to meet such obligations under our Credit Agreement and such indentures.In addition, even if we were able to finance such obligations, such financing may be on terms that are unfavorable to us or less favorable to us than the terms of our existing indebtedness.
IF WE FAIL TO CONTINUE TO MAINTAIN EFFECTIVE INTERNAL CONTROL OVER FINANCIAL REPORTING TO A REASONABLE ASSURANCE LEVEL, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS AND MAY BE REQUIRED TO RESTATE PREVIOUSLY PUBLISHED FINANCIAL INFORMATION, WHICH COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR OPERATIONS, INVESTOR CONFIDENCE IN OUR BUSINESS AND THE TRADING PRICES OF OUR SECURITIES.
Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We also need to adapt our internal control over financial reporting as our business grows and changes. As we grow our business and acquire other businesses, our internal controls could become increasingly complex, requiring more time and resources. As further discussed in Item 9A, “Controls and Procedures,” included elsewhere in this Annual Report, management concluded that we maintained effective internal control over financial reporting as of December 31, 2019. There is no assurance that, in the future, material weaknesses will not be identified that would cause management to change its conclusion as to the effectiveness of our internal controls. If we fail to maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our financial condition, and we may be required to restate previously published financial information, which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2. PROPERTIES.
Our principal executive offices are located at 4 Landmark Square, Suite 400, Stamford, Connecticut 06901. The administrative headquarters and principal places of business for our metal container business are located at 21600 Oxnard Street, Woodland Hills, California 91367 and Landskrongasse 5/1, 1010 Vienna, Austria; the administrative headquarters and principal places of business for our closures business are located at 1140 31stStreet, Downers Grove, Illinois 60515, 501 South 5th Street, Richmond, Virginia 23219 and North 88, Riesstrasse 16, 80992 Munich, Germany; and the administrative headquarters and principal place of business for our plastic container business is located at 14515 N. Outer Forty, Chesterfield, Missouri 63017. We lease all of these offices.
We own and lease properties for use in the ordinary course of business. TheOur properties consist primarily of 45 operating43 manufacturing facilities for the metal container business, 33 operating34 manufacturing facilities for the closures business and 22 operating23 manufacturing facilities for the plastic container business. We own 5755 of these facilities and lease 43.45. The leases expire at various times through 2030.2040. Some of these leases providecontain renewal options as well as various purchase options.
Below is a listWe lease our principal executive offices and the administrative headquarters and principal places of our operating facilities, including attached warehouses, as of February 1, 2018business for our metal container business:
|
| | | | |
Location | Approximate Building Area
(square feet)
|
Antioch, CA | 144,500 |
| | (leased) |
Modesto, CA | 37,800 |
| | (leased) |
Modesto, CA | 128,000 |
| | (leased) |
Modesto, CA | 150,000 |
| | (leased) |
Riverbank, CA | 167,000 |
| | |
Sacramento, CA | 217,600 |
| | (leased) |
Hoopeston, IL | 323,600 |
| | |
Rochelle, IL | 295,900 |
| | (75,000 leased) |
Hammond, IN | 158,000 |
| | (leased) |
Burlington, IA | 414,400 |
| | |
Ft. Dodge, IA | 232,400 |
| | (leased) |
Ft. Madison, IA | 150,700 |
| | (56,000 leased) |
Savage, MN | 160,000 |
| | |
Mt. Vernon, MO | 100,000 |
| | |
St. Joseph, MO | 206,500 |
| | |
Edison, NJ | 265,500 |
| | |
Lyons, NY | 149,700 |
| | |
Maxton, NC | 225,700 |
| | (leased) |
Napoleon, OH | 302,100 |
| | (leased) |
Lancaster, SC | 58,100 |
| | |
Trenton, TN | 96,300 |
| | (leased) |
Paris, TX | 266,300 |
| | (leased) |
Toppenish, WA | 217,700 |
| | |
Menomonee Falls, WI | 116,000 |
| | |
Menomonie, WI | 129,400 |
| | (leased) |
Oconomowoc, WI | 114,600 |
| | |
Plover, WI | 86,800 |
| | (leased) |
Waupun, WI | 212,000 |
| | |
Las Piedras, Puerto Rico | 26,800 |
| | (leased) |
Mitterdorf im Murtzal, Austria | 192,000 |
| | |
Grodno, Belarus | 72,000 |
| | (leased) |
Leipzig, Germany | 190,000 |
| | |
Meissen, Germany | 139,000 |
| | |
Agios Ionnis Renti, Greece | 309,000 |
| | |
Skydra, Greece | 200,000 |
| | |
Wadi al Rayan, Jordan | 215,000 |
| | |
|
| | | | |
Location | Approximate Building Area
(square feet)
|
Bitola, Macedonia | 120,000 |
| | |
Malomice, Poland | 87,000 |
| | |
Szprotawa, Poland | 82,000 |
| | |
Tczew, Poland | 116,000 |
| | |
Enem, Adjigeva, Russia | 99,000 |
| | |
Stupino, Russia | 148,000 |
| | |
Nove-Mesto nad Vahom, Slovakia | 379,000 |
| | (119,000 leased) |
Ljubljana-Zalog, Slovenia | 145,000 |
| | |
Izmir, Turkey | 170,000 |
| | |
| | | |
| | | |
Below is a list of our operating facilities, including attached warehouses, as of February 1, 2018 forbusiness, our closures business:
|
| | | | |
Location | Approximate Building Area
(square feet)
|
Tolleson, AZ | 115,000 |
| | (leased) |
Athens, GA | 222,200 |
| | (leased) |
Champaign, IL | 254,600 |
| | (leased) |
Waukegan, IL | 74,200 |
| | (leased) |
Evansville, IN | 186,000 |
| | |
Richmond, IN | 462,700 |
| | |
Winfield, KS | 158,300 |
| | |
Grandview, MO | 479,800 |
| | (leased) |
Washington Courthouse, OH | 15,800 |
| | |
New Castle, PA | 126,500 |
| | |
West Hazleton, PA | 151,500 |
| | (leased) |
Slatersville, RI | 144,000 |
| | (leased) |
Kingsport, TN | 100,000 |
| | |
Pocos de Caldas, Brazil | 39,800 |
| | |
Valinhos, Brazil | 129,400 |
| | |
Shanghai, China | 49,400 |
| | |
Wuxi, China | 240,100 |
| | |
Louny, Czech Republic | 56,800 |
| | (leased) |
Hannover, Germany | 549,000 |
| | (leased) |
Hemer, Germany | 169,000 |
| | |
Battipaglia, Italy | 156,500 |
| | |
Milan, Italy | 93,300 |
| | |
Vicenza, Italy | 88,800 |
| | (leased) |
Guadalajara, Mexico | 80,000 |
| | (leased) |
San Luis Potosi, Mexico | 182,700 |
| | |
Tecate, Mexico | 22,800 |
| | (leased) |
Tijuana, Mexico | 48,600 |
| | (leased) |
Santa Rosa City, Philippines | 87,800 |
| | (leased) |
Niepolomice, Poland | 170,100 |
| | |
Niepolomice, Poland | 78,700 |
| | |
Barcelona, Spain | 132,500 |
| | |
Torello, Spain | 71,900 |
| | (leased) |
Doncaster, United Kingdom | 80,000 |
| | (leased) |
Below is a list of our operating facilities, including attached warehouses, as of February 1, 2018 forbusiness and our plastic container business:business.
|
| | | | |
Location | Approximate Building Area
(square feet)
|
Deep River, CT | 146,000 |
| | |
Monroe, GA | 117,000 |
| | |
Flora, IL | 56,400 |
| | |
Ligonier, IN | 469,000 |
| | (276,000 leased) |
Seymour, IN | 406,000 |
| | |
Franklin, KY | 122,000 |
| | (leased) |
Hazelwood, MO | 335,300 |
| | (leased) |
Union, MO | 195,000 |
| | |
Penn Yan, NY | 103,000 |
| | |
Ottawa, OH | 447,000 |
| | (180,000 leased) |
Langhorne, PA | 172,600 |
| | (leased) |
North East, PA | 135,000 |
| | (leased) |
Houston, TX | 335,200 |
| | |
Triadelphia, WV | 168,400 |
| | |
Edmonton, Alberta | 55,600 |
| | (leased) |
Delta, British Columbia | 43,000 |
| | (leased) |
Scarborough, Ontario | 117,000 |
| | |
Woodbridge, Ontario | 147,500 |
| | (leased) |
Woodbridge, Ontario | 97,600 |
| | (leased) |
Lachine, Quebec | 113,300 |
| | (leased) |
Lachine, Quebec | 79,400 |
| | (leased) |
Montreal, Quebec | 43,500 |
| | (leased) |
We lease our research facilities in Oconomowoc, Wisconsin, Downers Grove, Illinois, Grandview, Missouri, Hannover, Germany, Waalwijk, Netherlands and Norcross, Georgia. We also own and lease other warehouse facilities that are detached from our manufacturing facilities. Additionally, we may sublease other facilities that we previously operated.
We believe that our plants, warehouses and other facilities are in good operating condition, adequately maintained, and suitable to meet our present needs and future plans. We believe that we have sufficient capacity to satisfy the demand for our products in the foreseeable future. To the extent that we need additional capacity, we believe that we can convert certain facilities to continuous operation or make the appropriate capital expenditures to increase capacity.
ITEM 3. LEGAL PROCEEDINGS.
We are a party to routine 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.
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,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 is ongoing.should effectively close out the investigation in Germany. Given the continued early stage of the investigation, we cannot reasonably assess what actions may result from the investigationthese investigations or estimate what costs we may incur as a result of the investigation.thereof.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Our common stock is quoted on the Nasdaq Global Select Market System under the symbol SLGN. As of January 31, 2018,2020, we had 3940 holders of record of our common stock.
On May 3, 2017, our Board of Directors declared a two-for-one stock split of our issued common stock, which was effected in the form of a stock dividend. Our stockholders of record at the close of business on May 15, 2017 were issued one additional share of our common stock for each share of our common stock owned by them on that date. Such additional shares were issued on May 26, 2017.
We began paying quarterly cash dividends on our common stock in 2004, and have increased the amount of the quarterly cash dividend payable on our common stock each year since then. In February 2017, our Board of Directors increased the amount of our quarterly cash dividend payable on our common stock from $0.085 per share to $0.09 per share (which amounts have been retroactively adjusted for the two-for-one stock split that occurred on May 26, 2017). The payment of future dividends is at the discretion of our Board of Directors and will be dependent upon our consolidated results of operations and financial condition, federal tax policies and other factors deemed relevant by our Board of Directors.
The table below sets forth the high and low closing sales prices of our common stock as reported by the Nasdaq Global Select Market System for the periods indicated below and the cash dividends paid per share of our common stock in the periods indicated below. Closing sales prices and cash dividends per share have been retroactively adjusted for the two-for-one stock split of our common stock that occurred on May 26, 2017.
|
| | | | | |
| Closing Sales Prices | | Cash Dividends Per Share |
| High | | Low | |
| 2017 | | | | | |
| First Quarter | $30.61 | | $25.76 | | $0.09 |
| Second Quarter | 32.47 | | 28.80 | | 0.09 |
| Third Quarter | 32.15 | | 28.64 | | 0.09 |
| Fourth Quarter | 29.66 | | 28.24 | | 0.09 |
| Closing Sales Prices | | Cash Dividends Per Share |
| High | | Low | |
| 2016 | | | | | |
| First Quarter | $27.16 | | $24.82 | | $0.085 |
| Second Quarter | 27.00 | | 24.32 | | 0.085 |
| Third Quarter | 26.34 | | 23.83 | | 0.085 |
| Fourth Quarter | 25.85 | | 23.84 | | 0.085 |
ISSUER PURCHASESOF EQUITY SECURITIES
On October 17, 2016, our Board of Directors authorized the repurchase by us of up to an additionalaggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021, of which we repurchased approximately $170.6$187.5 million of our common stock. We did not repurchase any of our equity securities in the fourth quarter of 2017.2019. Accordingly, at December 31, 2017,2019, we had approximately $129.4$112.5 million remaining for the repurchase of our common stock under the October 17, 2016 authorization of our Board of Directors.this authorization.
ITEM 6. SELECTED FINANCIAL DATA.
In the table that follows, we provide you with selected financial data of Silgan Holdings Inc. We have derived this data from our consolidated financial statements for the five years ended December 31, 2017.2019. Our consolidated financial statements for the five years ended December 31, 20172019 have been audited by Ernst & Young LLP, our independent registered public accounting firm.
You should read this selected financial data along with the consolidated financial statements and accompanying notes included elsewhere in this Annual Report, as well as the section of this Annual Report titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Selected Financial Data
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017(a) | | 2016 | | 2015 | | 2014(a) | | 2013(a) | 2019 | | 2018(a) | | 2017(a) | | 2016 | | 2015 |
| | (Dollars in millions, except per share data) | (Dollars in millions, except per share data) |
| Operating Data: | | | | | | | | | | | | | | | | | | |
| Net sales | $ | 4,089.9 |
| | $ | 3,612.9 |
| | $ | 3,764.0 |
| | $ | 3,911.8 |
| | $ | 3,708.5 |
| $ | 4,489.9 |
| | $ | 4,448.9 |
| | $ | 4,089.9 |
| | $ | 3,612.9 |
| | $ | 3,764.0 |
|
Cost of goods sold | 3,428.8 |
| | 3,079.4 |
| | 3,209.9 |
| | 3,312.0 |
| | 3,161.3 |
| 3,776.2 |
| | 3,759.1 |
| | 3,455.4 |
| | 3,101.1 |
| | 3,233.6 |
|
| Gross profit | 661.1 |
| | 533.5 |
| | 554.1 |
| | 599.8 |
| | 547.2 |
| 713.7 |
| | 689.8 |
| | 634.5 |
| | 511.8 |
| | 530.4 |
|
Selling, general and administrative expenses (b) | 298.3 |
| | 214.7 |
| | 219.9 |
| | 224.4 |
| | 211.0 |
| |
Selling, general and administrative expenses (b) (c) | | 315.7 |
| | 308.4 |
| | 305.1 |
| | 219.9 |
| | 226.4 |
|
| Rationalization charges | 5.8 |
| | 19.1 |
| | 14.4 |
| | 14.5 |
| | 12.0 |
| 56.3 |
| | 6.3 |
| | 5.8 |
| | 19.1 |
| | 14.4 |
|
| Income from operations | 357.0 |
| | 299.7 |
| | 319.8 |
| | 360.9 |
| | 324.2 |
| |
Other pension and post retirement income (b) | | (17.8 | ) | | (37.0 | ) | | (33.4 | ) | | (26.9 | ) | | (30.2 | ) |
Income before interest and income taxes | | 359.5 |
| | 412.1 |
| | 357.0 |
| | 299.7 |
| | 319.8 |
|
| Interest and other debt expense before loss on early extinguishment of debt | 110.2 |
| | 67.8 |
| | 66.9 |
| | 74.8 |
| | 67.4 |
| 105.7 |
| | 116.3 |
| | 110.2 |
| | 67.8 |
| | 66.9 |
|
| Loss on early extinguishment of debt | 7.1 |
| | — |
| | — |
| | 1.5 |
| | 2.1 |
| 1.7 |
| | 2.5 |
| | 7.1 |
| | — |
| | — |
|
| Interest and other debt expense | 117.3 |
| | 67.8 |
| | 66.9 |
| | 76.3 |
| | 69.5 |
| 107.4 |
| | 118.8 |
| | 117.3 |
| | 67.8 |
| | 66.9 |
|
| Income before income taxes | 239.7 |
| | 231.9 |
| | 252.9 |
| | 284.6 |
| | 254.7 |
| 252.1 |
| | 293.3 |
| | 239.7 |
| | 231.9 |
| | 252.9 |
|
| (Benefit) provision for income taxes (c) | (30.0 | ) | | 78.5 |
| | 80.5 |
| | 102.2 |
| | 69.3 |
| |
| Provision (benefit) for income taxes (d) | | 58.3 |
| | 69.3 |
| | (30.0 | ) | | 78.5 |
| | 80.5 |
|
| Net income | $ | 269.7 |
| | $ | 153.4 |
| | $ | 172.4 |
| | $ | 182.4 |
| | $ | 185.4 |
| $ | 193.8 |
| | $ | 224.0 |
| | $ | 269.7 |
| | $ | 153.4 |
| | $ | 172.4 |
|
Per Share Data: (d) | | | | | | | | | | |
Per Share Data: (e) | | | | | | | | | | |
| Basic net income per share | $ | 2.44 |
| | $ | 1.28 |
| | $ | 1.41 |
| | $ | 1.44 |
| | $ | 1.44 |
| $ | 1.75 |
| | $ | 2.03 |
| | $ | 2.44 |
| | $ | 1.28 |
| | $ | 1.41 |
|
| Diluted net income per share | $ | 2.42 |
| | $ | 1.27 |
| | $ | 1.41 |
| | $ | 1.43 |
| | $ | 1.43 |
| $ | 1.74 |
| | $ | 2.01 |
| | $ | 2.42 |
| | $ | 1.27 |
| | $ | 1.41 |
|
| Dividends per share | $ | 0.36 |
| | $ | 0.34 |
| | $ | 0.32 |
| | $ | 0.30 |
| | $ | 0.28 |
| $ | 0.44 |
| | $ | 0.40 |
| | $ | 0.36 |
| | $ | 0.34 |
| | $ | 0.32 |
|
| Selected Segment Data: | | | | | | | | | | | | | | | | | | |
| Net sales: | | | | | | | | | | | | | | | | | | |
| Metal containers | $ | 2,278.1 |
| | $ | 2,271.9 |
| | $ | 2,365.3 |
| | $ | 2,369.7 |
| | $ | 2,341.4 |
| $ | 2,473.2 |
| | $ | 2,378.0 |
| | $ | 2,278.1 |
| | $ | 2,271.9 |
| | $ | 2,365.3 |
|
| Closures | 1,246.7 |
| | 797.1 |
| | 805.0 |
| | 882.9 |
| | 720.1 |
| 1,405.6 |
| | 1,456.8 |
| | 1,246.7 |
| | 797.1 |
| | 805.0 |
|
| Plastic containers | 565.1 |
| | 543.9 |
| | 593.7 |
| | 659.2 |
| | 647.0 |
| 611.1 |
| | 614.1 |
| | 565.1 |
| | 543.9 |
| | 593.7 |
|
| Income from operations: | | | | | | | | | | |
| Metal containers (e) | 230.2 |
| | 214.7 |
| | 236.4 |
| | 248.7 |
| | 236.3 |
| |
| Closures (f) | 142.0 |
| | 99.8 |
| | 91.8 |
| | 75.6 |
| | 63.0 |
| |
| Plastic containers (g) | 27.8 |
| | 5.2 |
| | 7.8 |
| | 51.5 |
| | 38.6 |
| |
| Segment income: | | | | | | | | | | |
| Metal containers (f) | | 160.0 |
| | 198.8 |
| | 230.2 |
| | 214.7 |
| | 236.4 |
|
| Closures (g) | | 173.5 |
| | 189.9 |
| | 142.0 |
| | 99.8 |
| | 91.8 |
|
| Plastic containers (h) | | 48.9 |
| | 42.6 |
| | 27.8 |
| | 5.2 |
| | 7.8 |
|
Selected Financial Data
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017(a) | | 2016 | | 2015 | | 2014(a) | | 2013(a) | 2019 | | 2018(a) | | 2017(a) | | 2016 | | 2015 |
| | (Dollars in millions, except per share data) | (Dollars in millions, except per share data) |
| Other Data: | | | | | | | | | | | | | | | | | | |
| Capital expenditures | $ | 174.4 |
| | $ | 191.9 |
| | $ | 237.3 |
| | $ | 140.5 |
| | $ | 103.1 |
| $ | 230.9 |
| | $ | 191.0 |
| | $ | 174.4 |
| | $ | 191.9 |
| | $ | 237.3 |
|
Depreciation and amortization (h)(i) | 174.1 |
| | 143.1 |
| | 142.2 |
| | 148.1 |
| | 167.6 |
| 206.5 |
| | 191.7 |
| | 174.1 |
| | 143.1 |
| | 142.2 |
|
Net cash provided by operating activities (i)(j) | 389.8 |
| | 394.6 |
| | 335.7 |
| | 348.2 |
| | 351.2 |
| 507.3 |
| | 506.5 |
| | 389.8 |
| | 394.6 |
| | 335.7 |
|
| Net cash used in investing activities | (1,197.7 | ) | | (180.3 | ) | | (237.1 | ) | | (156.9 | ) | | (376.4 | ) | (230.1 | ) | | (189.9 | ) | | (1,197.7 | ) | | (180.3 | ) | | (237.1 | ) |
| Net cash provided by (used in) financing activities (i) | 836.8 |
| | (289.5 | ) | | (221.3 | ) | | (129.2 | ) | | (279.9 | ) | |
| Net cash (used in) provided by financing activities | | (145.5 | ) | | (293.6 | ) | | 836.8 |
| | (289.5 | ) | | (221.3 | ) |
Balance Sheet Data (at end of period): | | | | | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 53.5 |
| | $ | 24.7 |
| | $ | 99.9 |
| | $ | 222.6 |
| | $ | 160.5 |
| $ | 203.8 |
| | $ | 72.8 |
| | $ | 53.5 |
| | $ | 24.7 |
| | $ | 99.9 |
|
| Goodwill | 1,171.5 |
| | 604.7 |
| | 612.8 |
| | 630.3 |
| | 651.0 |
| 1,142.2 |
| | 1,148.3 |
| | 1,171.5 |
| | 604.7 |
| | 612.8 |
|
| Total assets (j) (k) | 4,645.4 |
| | 3,149.4 |
| | 3,192.7 |
| | 3,274.1 |
| | 3,282.5 |
| |
| Total assets (k) | | 4,931.1 |
| | 4,579.3 |
| | 4,645.4 |
| | 3,149.4 |
| | 3,192.7 |
|
Total debt (j) | 2,547.3 |
| | 1,561.6 |
| | 1,513.5 |
| | 1,584.1 |
| | 1,686.4 |
| 2,244.4 |
| | 2,304.6 |
| | 2,547.3 |
| | 1,561.6 |
| | 1,513.5 |
|
| Stockholders’ equity | 766.1 |
| | 469.4 |
| | 639.2 |
| | 710.0 |
| | 713.8 |
| 1,023.3 |
| | 881.3 |
| | 766.1 |
| | 469.4 |
| | 639.2 |
|
Notes to Selected Financial Data
| |
| (a) | In April 2017, we acquired SDS, the specialty closures and dispensing systems operations of WestRock Company. In September 2014, we acquired the metal container assets of Van Can. In October 2013, we acquired Portola. |
| |
| (b) | In 2018, we retrospectively adopted new accounting guidance regarding certain classifications related to other components of net periodic benefit costs. As a result, cost of goods sold was increased by $26.6 million, $21.7 million and $23.7 million in 2017, 2016 and 2015, respectively; selling, general and administrative expenses were increased by $6.8 million, $5.2 million and $6.5 million in 2017, 2016 and 2015, respectively; and we reported other pension and postretirement income of $33.4 million, $26.9 million and $30.2 million in 2017, 2016 and 2015, respectively. |
| |
| (c) | Selling, general and administrative expenses include costs attributed to announced acquisitions of $1.8 million, $24.7 million and $1.4 million in 2019, 2017 and $1.5 million in 2017, 2016, and 2013, respectively. |
| |
(c)(d) | The effective tax rate for 2017 was favorably impacted by the benefit from effective tax rate adjustments totaling $110.9 million primarily related to the revaluation of net deferred tax liabilities to reflect lower future cash tax obligations as a result of the reduction in the U.S. corporate income tax rate under the recently enacted legislation commonly referred to as the Tax Cuts and Jobs Act.Act enacted in December 2017. |
| |
(d)(e) | Per share amounts have been retroactively adjusted for the two-for-one stock split of our common stock that occurred on May 26, 2017. |
| |
(e)(f) | Income from operationsSegment income of the metal container business includes rationalization charges (credits) of $49.4 million, $5.3 million, $3.3 million and $12.1 million $(0.4) millionin 2019, 2018, 2017 and $2.5 million in 2017, 2016, 2014 and 2013, respectively. Income from operationsSegment income of the metal container business also includes a $3.0 million charge related to the resolution of a past non-commercial legal dispute in 2017. |
| |
(f)(g) | Income from operationsSegment income of the closures business includes rationalization charges of $6.5 million, $0.2 million, $1.0 million, $0.6 million and $1.7 million $12.2 million and $5.6 million in 2019, 2018, 2017, 2016 and 2015, 2014 and 2013, respectively, and loss from operations in Venezuela of $3.1 million and $2.9 million in 2014 and 2013, respectively. The loss from operations in Venezuela in 2013 included a charge of $3.0 million for the remeasurement of net assets due to a currency devaluation. |
| |
(g)(h) | Income from operationsSegment income of the plastic container business includes rationalization charges of $0.4 million, $0.8 million, $1.5 million, $6.4 million and $12.7 million $2.7 million and $3.9 million in 2019, 2018, 2017, 2016 2015, 2014 and 2013,2015, respectively. |
| |
(h)(i) | Depreciation and amortization excludes amortization of debt discount and issuance costs. In 2014, we increased the estimated useful lives of certain production equipment by an average of approximately 5 years to a maximum depreciable life of 20 years. |
| |
(i)(j) | In 2016, we retrospectively adopted new accounting guidance regarding certain classifications on the statement of cash flows related to excess tax benefits and shares repurchased from employees for tax withholding purposes. As a result, net cash provided by operating activities was increased by $0.3 million $3.2 million and $0.5 million in 2015 2014 and 2013, respectively, and net cash (used in) provided by (used in) financing activities was decreased by $0.3 million $3.2 million and $0.5 million in 2015, 2014 and 2013, respectively. |
| |
(j) | In 2015, we retrospectively adopted new accounting guidance regarding the classification of certain debt issuance costs. As a result, each of total assets and total debt were decreased by $14.9 million and $17.4 million in 2014 and 2013, respectively.2015. |
| |
| (k) | In 2015,2019, we retrospectively adopted new accounting guidance regardingrequiring us to recognize assets and liabilities on the classification of deferred taxes.balance sheet for the rights and obligations created by long-term leases. As a result, each of total assets and total liabilities were decreasedincreased by $14.9$186.8 million and $21.1$195.2 million in 2014 and 2013,2019, respectively. |
ITEM 7. MANAGEMENT’S DISCUSSIONAND ANALYSISOF FINANCIAL CONDITIONAND RESULTSOF OPERATIONS.
The following discussion and analysis is intended to assist you in understanding our consolidated financial condition and results of operations for the three-year period ended December 31, 2017.2019. Our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report contain detailed information that you should refer to in conjunction with the following discussion and analysis.
GENERAL
We are a leading manufacturer of rigid packaging 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, personal care, home 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, the largest manufacturer of metal food containers in North America with a unit volume market share in the United States for the year ended December 31, 20172019 of approximately sixty percent,slightly more than half of the market, a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products, 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, 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.
SALES GROWTH
We have increased net sales and market share in our metal container, closures and plastic container businesses through both acquisitions and internal growth. As a result, we have expanded and diversified our customer base, geographic presence and product lines.
We are a leading manufacturer of metal containers in North America and Europe, primarily as a result of our acquisitions but also as a result of growth with existing customers. During the past 30 years, the metal food container market has experienced significant consolidation primarily due to the desire by food processors to reduce costs and focus resources on their core operations rather than self-manufacture their metal food containers. Our acquisitions of the metal food container manufacturing operations of Nestlé, Dial, Del Monte, Birds Eye, Campbell, Pacific Coast and Purina Steel Can reflect this trend. We estimate that approximately sevennine percent of the market for metal food containers in the United States is still served by self-manufacturers. In addition, the metal food container market in North America has been relatively flat during this period, despite losing market share as a result of more dining out, fresh produce and competing materials. However, we increased our share of the market for metal food containers in the United States primarily through acquisitions and growth with existing customers, and we have enhanced our business by focusing on providing customers with high levels of quality and service and value-added features such as our Quick Top® easy-open ends, shaped metal food containers and alternative color offerings for metal food containers. We anticipate that the market will be relatively flat in the future, but will continue to increase in areas of consumer convenience products such as single-serve sizes and easy-open ends. In 2017,2019, approximately 70 percent of our metal food containers sold had an easy-open end. We expectanticipate that the market for metal food containers will be relatively flat in the future, but will continue to increase for certain markets such as pet food. We have further enhanceenhanced our metal container business through our Can Vision 2020SM program,optimization measures, which is intended to further the competitive advantages of metal packaging for food and included a new manufacturing facility in the United States. In 2016, weStates that was completed the commercialization of thisin 2016. This new metal food container manufacturing facility in the United Statesallowed us to better optimize the logistical footprint of our metal container business in North America allowing usand to further reduce costs of our metal container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a smaller, near-site manufacturing facility in the United States to support growth of ourcertain customers.
With our acquisitions of our closures operations in North America, Europe, Asia and South America, we established ourselves as a leading worldwide manufacturer of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. In 2017, we broadened our closures portfolio to include dispensing systems with our acquisition of SDS. In 2013, we expandedSince 2003, following our acquisition of the geographic scope, product offerings and scaleWhite Cap closures operations in the United States, net sales of our plastic closures operations with the acquisitionbusiness have increased sevenfold to $1.41 billion in 2019 as a result of Portola.acquisitions and internal growth. We may pursue further consolidation opportunities in the closures markets in which we operate, including in dispensing systems, or in
in adjacent closures markets.markets, such as our proposed acquisition of the Albéa Dispensing Business. Additionally, we expect to continue to generate internal growth in our closures business, particularly in plastic closures and dispensing systems.
We have improved the market position of our plastic container business since 1987, with net sales increasing sixfoldsevenfold to $565.1$611.1 million in 2017.2019. We achieved this improved market position primarily through strategic acquisitions as well as through internal growth. As part of the acquisition of Portola in 2013, we acquired three plastic container manufacturing facilities in Canada, further expanding the geographic scope and product offerings of our plastic container business. In 2016, we completed commercializationthe construction of two new plastic container manufacturing facilities in the United States, including a near-site facility to a major customer and another facility to meet the growing needs of our customers and allow us to further reduce costs of our plastic container business. We have also initiated constructionAdditionally, in 2017 of2018 we commercialized a new thermoformed plastic container manufacturing facility in the United States in support of continued growth. The plastic container market of the consumer goods packaging industry continues to be highly fragmented, with growth rates in excess of population expansion due to substitution of plastic for other materials. We have focused on the segment of this market where custom design and decoration allows customers to differentiate their products such as in personal care. We intend to pursue further acquisition opportunities in markets where we believe that we can successfully apply our acquisition and value-added operating expertise and strategy.
OPERATING PERFORMANCE
We operate in a competitive industry where it is necessary to realize cost reduction opportunities to offset continued competitive pricing pressure. We have improved the operating performance of our plant facilities through the investment of capital for productivity improvements, manufacturing efficiencies, manufacturing cost reductions and the optimization of our manufacturing facilities footprints. Our acquisitions and investments have enabled us to rationalize plant operations and decrease overhead costs through plant closings and downsizings and to realize manufacturing efficiencies as a result of optimizing production scheduling. From 2013,2015, we have closed threesix metal container manufacturing facilities, two closureclosures manufacturing facilities and fourthree plastic container manufacturing facilities in connection with our continuing efforts to streamline our plant operations, reduce operating costs and better match supply with geographic demand. In 2019, we initiated a multi-year footprint optimization plan in our metal container business in the U.S. to reduce capacity and continue to drive cost reductions, which includes the likely shutdown of six metal container manufacturing facilities over a three year period. As part of this plan, we shut down two metal container manufacturing facilities in the fourth quarter of 2019.
We have also invested substantial capital in the past several years for new market opportunities and value-added products such as Quick Top® easy-open ends for metal food containers, shaped metal food containers and alternative color offerings for metal food containers. In addition, we have begunmade and continue to make investments for our Can Vision 2020SM program which are intended to enhance the competitive advantages of metal packaging for food. In 2015,2016, we initiatedcompleted optimization plans in each of our businesses that were designed to reducereduced manufacturing and logistical costs and provideprovided productivity improvements and manufacturing efficiencies, thereby resulting in a lower cost manufacturing network for our businesses and strengthening the competitive position of each of our businesses in their respective markets. TheIn conjunction with these optimization plans, includedwe completed the construction of a new metal food container manufacturing facility and two new plastic container manufacturing facilities, the relocation of various equipment lines to facilities where we can better serve our customers and the rationalization of several existing manufacturing facilities. The three new manufacturing facilities are strategically located to meet the unique needs of our customers. In addition to optimizing freight and logistical costs, these three new facilities allowed us to further reduce costs and rationalize our manufacturing footprint. Each of our businesses completed the execution of its optimization plan by the end of 2016, including commercializing the new metal container manufacturing facility and the two new plastic container manufacturing facilities. In 2017,Additionally, in 2018 we initiated construction ofcommercialized a new metal container manufacturing facility and a new thermoformed plastic container manufacturing facility, in each case to support continued growth.growth in key markets.
Historically, we have been successful in renewing our multi-year supply arrangements with our customers. We estimate that in 20182020 approximately 90 percent of our projected metal container sales and a majority of our projected closures and plastic containers sales will be under multi-year arrangements.
Many of our multi-year customer supply arrangements generally provide for the pass through of changes in raw material, labor and other manufacturing costs, thereby significantly reducing the exposure of our results of operations to the volatility of these costs. Our metal container and metal closure supply agreements with our customers provide for the pass through of changes in our metal costs. For our metal container and metal closure customers without long-term contracts, we have also generally increasedchanged prices to pass through increaseschanges in our metal costs. Our plastic closure, dispensing systems and plastic container supply agreements with our customers provide for the pass through of changes in our resin costs, subject in many cases to a lag in the timing of such pass
through. For our plastic closure, dispensing systems and plastic container customers without long-term contracts, we have also generally passed through changes in our resin costs.
Our metal container business’ sales and income from operations are dependent, in part, upon the vegetable and fruit harvests in the midwest and western regions of the United States and, to a lesser extent, in a variety of national growing regions in Europe. Our closures business is also dependent, in part, upon vegetable and fruit harvests. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual income from operations during that quarter. Additionally, as is common in the packaging industry, we provide extended payment terms to some of our customers in our metal container business due to the seasonality of the vegetable and fruit packing process.
USEOF CAPITAL
Historically, we have used leverage to support our growth and increase shareholder returns. Our stable and predictable cash flow, generated largely as a result of our long-term customer relationships and generally recession resistant business, supports our financial strategy. We intend to continue using reasonable leverage, supported by our stable cash flows, to make value enhancing acquisitions. In determining reasonable leverage, we evaluate our cost of capital and manage our level of debt to maintain an optimal cost of capital based on current market conditions. 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. In 2015 and 2016, we used cash on hand and revolving loan borrowings under our 2014 Credit Facility to fund repurchases of our common stock for an aggregate of $447.4 million, comprised of $170.1 million in 2015 (which included $161.8 million of our common stock purchased pursuant to a "modified Dutch auction" tender offer that was completed in March 2015) and $277.3 million in 2016 (which included $269.4 million of our common stock purchased pursuant to a "modified Dutch auction" tender offer that was completed in November 2016). In February 2017, we issued $300 million of the 4¾% Notes and €650 million of the 3¼% Notes. We used the net proceeds from the 4¾% Notes to prepay a portion of our outstanding U.S. dollar term loans and repay a portion of our outstanding revolving loans under our 2014 Credit Facility. We used the net proceeds from the 3¼% Notes to prepay all outstanding Euro term loans and repay all remaining outstanding revolving loans under our 2014 Credit Facility, to repay certain foreign bank revolving and term loans of certain of our non-U.S. subsidiaries and to redeem $220 million of our outstanding 5% Notes. In March 2017, we completed an amendment and restatement ofrefinanced our 2014 Credit Facility and entered into our Credit Agreement, which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. In May 2018, we entered into an amendment to our Credit Agreement which further extended maturity dates, lowered the margin on borrowings thereunder and provides additional flexibility with regard to our strategic initiatives. Our Credit Agreement provides us with revolving loans, consisting of a multicurrency revolving loan facility of approximately $1.19 billion and a Canadian revolving loan facility of Cdn $15.0 million. Additionally, our Credit Agreement provided us with term loans, consisting of (i) U.S. $800 million of term loans designated U.S. A term loans, which were used to fund a portion of the purchase price for SDS, and (ii) Cdn $45.5 million of term loans designated Canadian A term loans. In April 2017, we funded the purchase price for SDS with term and revolving loan borrowings under our Credit Agreement in the aggregate amount of $1,023.8 million.In April 2018, we redeemed all of our remaining outstanding 5% Notes ($280.0 million aggregate principal amount) with revolving loan borrowings under our Credit Agreement and cash on hand. In August 2019, we redeemed all $300 million aggregate principal amount of our outstanding 5½% Notes with revolving loan borrowings under our Credit Agreement and cash on hand. In November 2019, we issued $400 million aggregate principal amount of our 4⅛% Notes, and used the net proceeds therefrom to repay outstanding revolving loans under our Credit Agreement, including revolving loans used to redeem the 5½% Notes. You should also read Notes 23, 9 and 819 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
To the extent we utilize debt for acquisitions or other permitted purposes in future periods, our interest expense may increase. Further, since the revolving loan and term loan borrowings under our Credit Agreement bear interest at floating rates, our interest expense is sensitive to changes in prevailing rates of interest and, accordingly, our interest expense may vary from period to period. AtAfter taking into account interest rate swap agreements that we entered into to mitigate the effect of interest rate fluctuations, at December 31, 20172019, we had $896.4$692.6 million of indebtedness, or approximately 3531 percent of our total outstanding indebtedness, which bore interest at floating rates. Over the course of the year, we also borrow revolving loans under our revolving loan facilities which bear interest at floating rates to fund our seasonal working capital needs. Accordingly, during 20172019 our average outstanding variable rate debt, after taking into account the average outstanding notional amount of our interest rate swap agreements, was approximately 4250 percent of our total outstanding indebtedness. You should also read Note 10 to our Consolidated Financial Statements for the year ended December 31, 2019 included elsewhere in this Annual Report for information regarding our interest rate swap agreements.
In light of our strategy to use leverage to support our growth and optimize shareholder returns, we have incurred and will continue to incur significant interest expense. For 2017, 20162019, 2018 and 2015,2017, our aggregate interest and other debt expense before loss on early extinguishment of debt as a percentage of our income from operationsbefore interest and income taxes was 29.4 percent, 28.2 percent and 30.9 percent, 22.6 percent and 20.9 percent, respectively.
RESULTSOF OPERATIONS
The following table sets forth certain income statement data expressed as a percentage of net sales for each of the periods presented. You should read this table in conjunction with our Consolidated Financial Statements for the year ended December 31, 20172019 and the accompanying notes included elsewhere in this Annual Report.
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Operating Data: | | | | | | | | | | |
| Net sales: | | | | | | | | | | |
| Metal containers | 55.7 | % | | 62.9 | % | | 62.8 | % | 55.1 | % | | 53.5 | % | | 55.7 | % |
| Closures | 30.5 |
| | 22.1 |
| | 21.4 |
| 31.3 |
| | 32.7 |
| | 30.5 |
|
| Plastic containers | 13.8 |
| | 15.0 |
| | 15.8 |
| 13.6 |
| | 13.8 |
| | 13.8 |
|
| Consolidated | 100.0 |
| | 100.0 |
| | 100.0 |
| 100.0 |
| | 100.0 |
| | 100.0 |
|
| Cost of goods sold | 83.8 |
| | 85.2 |
| | 85.3 |
| 84.1 |
| | 84.5 |
| | 84.5 |
|
| Gross profit | 16.2 |
| | 14.8 |
| | 14.7 |
| 15.9 |
| | 15.5 |
| | 15.5 |
|
| Selling, general and administrative expenses | 7.3 |
| | 6.0 |
| | 5.8 |
| 7.0 |
| | 6.9 |
| | 7.5 |
|
| Rationalization charges | 0.2 |
| | 0.5 |
| | 0.4 |
| 1.3 |
| | 0.1 |
| | 0.1 |
|
| Income from operations | 8.7 |
| | 8.3 |
| | 8.5 |
| |
| Other pension and postretirement income | | (0.4 | ) | | (0.8 | ) | | (0.8 | ) |
| Income before interest and income taxes | | 8.0 |
| | 9.3 |
| | 8.7 |
|
| Interest and other debt expense | 2.8 |
| | 1.9 |
| | 1.8 |
| 2.4 |
| | 2.7 |
| | 2.8 |
|
| Income before income taxes | 5.9 |
| | 6.4 |
| | 6.7 |
| 5.6 |
| | 6.6 |
| | 5.9 |
|
| (Benefit) provision for income taxes | (0.7 | ) | | 2.2 |
| | 2.1 |
| |
| Provision (benefit) for income taxes | | 1.3 |
| | 1.6 |
| | (0.7 | ) |
| Net income | 6.6 | % | | 4.2 | % | | 4.6 | % | 4.3 | % | | 5.0 | % | | 6.6 | % |
Summary results for our business segments for the years ended December 31, 2017, 20162019, 2018 and 20152017 are provided below.
| | | | Year Ended December 31, | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| | (Dollars in millions) | (Dollars in millions) |
| Net sales: | | | | | | | | | | |
| Metal containers | $ | 2,278.1 |
| | $ | 2,271.9 |
| | $ | 2,365.3 |
| $ | 2,473.2 |
| | $ | 2,378.0 |
| | $ | 2,278.1 |
|
| Closures | 1,246.7 |
| | 797.1 |
| | 805.0 |
| 1,405.6 |
| | 1,456.8 |
| | 1,246.7 |
|
| Plastic containers | 565.1 |
| | 543.9 |
| | 593.7 |
| 611.1 |
| | 614.1 |
| | 565.1 |
|
| Consolidated | $ | 4,089.9 |
| | $ | 3,612.9 |
| | $ | 3,764.0 |
| $ | 4,489.9 |
| | $ | 4,448.9 |
| | $ | 4,089.9 |
|
| Income from operations: | | | | | | |
| Segment income: | | | | | | |
Metal containers(1) | $ | 230.2 |
| | $ | 214.7 |
| | $ | 236.4 |
| $ | 160.0 |
| | $ | 198.8 |
| | $ | 230.2 |
|
Closures(2) | 142.0 |
| | 99.8 |
| | 91.8 |
| 173.5 |
| | 189.9 |
| | 142.0 |
|
Plastic containers(3) | 27.8 |
| | 5.2 |
| | 7.8 |
| 48.9 |
| | 42.6 |
| | 27.8 |
|
Corporate(4) | (43.0 | ) | | (20.0 | ) | | (16.2 | ) | (22.9 | ) | | (19.2 | ) | | (43.0 | ) |
| Consolidated | $ | 357.0 |
| | $ | 299.7 |
| | $ | 319.8 |
| $ | 359.5 |
| | $ | 412.1 |
| | $ | 357.0 |
|
______________________
| |
| (1) | Includes rationalization charges of $49.4 million, $5.3 million and $3.3 million in 2019, 2018 and $12.1 million in 2017, and 2016, respectively. |
| |
| (2) | Includes rationalization charges of $6.5 million, $0.2 million and $1.0 million $0.6 millionin 2019, 2018 and $1.7 million in 2017, 2016 and 2015, respectively. |
| |
| (3) | Includes rationalization charges of $0.4 million, $0.8 million and $1.5 million $6.4 millionin 2019, 2018 and $12.7 million in 2017, 2016 and 2015, respectively. |
| |
| (4) | Includes costs attributed to announced acquisitions of $1.8 million and $24.7 million in 2019 and $1.4 million in 2017, and 2016, respectively. |
YEAR ENDED DECEMBER 31, 2019 COMPAREDWITH YEAR ENDED DECEMBER 31, 2018
YEAR ENDED DECEMBER 31, 2017 COMPAREDWITH YEAR ENDED DECEMBER 31, 2016
Overview. Consolidated net sales were $4.09$4.49 billion in 2017,2019, representing a 13.2an 0.9 percent increase as compared to 20162018 primarily as a result of the acquisition of SDS in April 2017, the pass through of higher raw material and other manufacturing costs in the metal container business and higher volumes in the plastic container business, partially offset by the impact of unfavorable foreign currency translation, lower unit volumes and a less favorable mix of products sold in the metal container and closures businesses and the pass through of lower raw material costs in the plastic container and closures businesses. Income before interest and income taxes for 2019 decreased by $52.6 million, or 12.8 percent, as compared to 2018 primarily as a result of $50.0 million of higher rationalization charges incurred principally in connection with the announced footprint optimization plan for the metal container business and the resulting withdrawal from the Central States Pension Plan, lower pension income, lower unit volumes and a less favorable mix of products sold in the metal container and closures businesses, the impact of unfavorable foreign currency translation and costs attributed to announced acquisitions. These decreases were partially offset by production efficiencies, lower manufacturing costs, higher volumes in the plastic container business, the favorable impact from the lagged pass through to customers of lower resin costs in the closures business as compared to an unfavorable impact from higher resin costs in the prior year and the prior year unfavorable impact of costs associated with the start-up of a new manufacturing facility in the plastic container business. Rationalization charges were $56.3 million and $6.3 million for the years ended 2019 and 2018, respectively. Results for 2019 and 2018 also included other pension and post retirement income of $17.8 million and $37.0 million, respectively, and a loss on early extinguishment of debt of $1.7 million and $2.5 million, respectively. Net income in 2019 was $193.8 million as compared to $224.0 million in 2018.
Net Sales. The $41.0 million increase in consolidated net sales in 2019 as compared to 2018 was due to higher net sales in the metal container business, partially offset by a decrease in net sales in the closures and plastic container businesses.
Net sales for the metal container business increased $95.2 million, or 4.0 percent, in 2019 as compared to 2018. This increase was primarily a result of the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately one percent, the impact of unfavorable foreign currency translation of approximately $16 million and a less favorable mix of products sold. The decrease in unit volumes was primarily due to the unfavorable impact in the current year period of the fourth quarter 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019 and lower volumes with fruit and vegetable pack customers, partially offset by continued growth in pet food volumes as well as higher volumes for soup.
Net sales for the closures business in 2019 decreased $51.2 million, or 3.5 percent, as compared to 2018. This decrease was primarily the result of the impact of unfavorable foreign currency translation of approximately $34 million, the pass through of net lower raw material costs, a less favorable mix of products sold and lower unit volumes of approximately one percent. The decrease in unit volumes was principally the result of weakness in food markets largely due to lower fruit and vegetable pack yields and the unfavorable impact in the current year period of the fourth quarter 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019, partially offset by higher dispensing systems unit volumes.
Net sales for the plastic container business in 2019 decreased $3.0 million, or 0.5 percent, as compared to 2018. This decrease was principally due to the pass through of lower raw material costs and the impact of unfavorable foreign currency translation of approximately $3 million, partially offset by higher volumes of approximately two percent.
Gross Profit. Gross profit margin increased 0.4 percentage points to 15.9 percent in 2019 as compared to 15.5 percent in 2018 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 0.1 percentage points to 7.0 percent for 2019 as compared to 6.9 percent in 2018. Selling, general and administrative expenses increased $7.3 million in 2019 as compared to 2018 primarily due to inflation in compensation and other costs and $1.8 million of costs attributed to announced acquisitions.
Income before Interest and Income Taxes. Income before interest and income taxes for 2019 decreased by $52.6 million as compared to 2018, and margin decreased to 8.0 percent from 9.3 percent over the same periods. The decrease in segment income was primarily the result of higher rationalization charges, lower segment income in the closures business and costs in 2019 attributed to announced acquisitions, partially offset by higher segment
income in the plastic container business. Segment income in 2019 and 2018 included rationalization charges of $56.3 million and $6.3 million, respectively.
Segment income of the metal container business for 2019 decreased $38.8 million as compared to 2018, and segment income margin decreased to 6.5 percent from 8.4 percent over the same periods. The decrease in segment income and segment income margin was primarily attributable to $44.1 million of higher rationalization charges, lower pension income, lower unit volumes and a less favorable mix of products sold. These decreases were partially offset by production efficiencies in the U.S. due in part to the favorable impact from increased production levels during the current year. Rationalization charges in 2019 of $49.4 million were incurred primarily in connection with the previously announced footprint optimization plan and the resulting withdrawal from the Central States Pension Plan. Rationalization charges were $5.3 million in 2018.
Segment income of the closures business for 2019 decreased $16.4 million as compared to 2018, and segment income margin decreased to 12.3 percent from 13.0 percent over the same periods. The decrease in segment income was primarily due to an increase in rationalization charges of $6.3 million principally related to the previously announced shutdown of a metal closures manufacturing facility in Spain, lower pension income, the impact of unfavorable foreign currency translation, a less favorable mix of products sold and lower unit volumes, partially offset by lower manufacturing costs and the favorable impact from the lagged pass through to customers of lower resin costs in the current year as compared to an unfavorable impact from higher resin costs in the prior year.
Segment income of the plastic container business for 2019 increased $6.3 million as compared to 2018, and segment income margin increased to 8.0 percent from 6.9 percent over the same periods. The increase in segment income was primarily attributable to higher volumes, lower manufacturing costs, the prior year unfavorable impact of costs associated with the start-up of the new manufacturing facility in Fort Smith, Arkansas and a more favorable mix of products sold, partially offset by lower pension income.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for 2019 was $105.7 million, a decrease of $10.6 million as compared to $116.3 million for 2018 due primarily to lower average outstanding borrowings as a result of the repayment of debt at the end of 2018, lower weighted average interest rates due in part to the redemption on August 1, 2019 of all outstanding 5½% Notes and the impact of favorable foreign currency translation. Loss on early extinguishment of debt of $1.7 million in 2019 was a result of the redemption of all outstanding 5½% Notes in August 2019. Loss on early extinguishment of debt of $2.5 million in 2018 was the result of the redemption of all remaining outstanding 5% Notes in April 2018 and the amendment to our Credit Agreement in May 2018.
Provision for Income Taxes. The effective tax rates for 2019 and 2018 were 23.1 percent and 23.6 percent.
YEAR ENDED DECEMBER 31, 2018 COMPAREDWITH YEAR ENDED DECEMBER 31, 2017
Overview. Consolidated net sales were $4.45 billion in 2018, representing an 8.8 percent increase as compared to 2017 primarily as a result of the pass through of higher raw material and other manufacturing costs in each of our businesses, the inclusion of a full year of SDS, the impact from favorable foreign currency translation and higher volumes in the plastic container business, partially offset by lower unit volumes in the metal container business and legacy closures operationsoperations. Income before interest and a less favorable mix of products sold in the plastic container business. Income from operationsincome taxes for 20172018 increased by $57.3$55.1 million, or 19.115.4 percent, as compared to 20162017 primarily as a result of the inclusion in the prior year of acquisition related costs of $24.7 million related to SDS, the benefit from the acquisitioninclusion of a full year of operations of SDS, the unfavorable impact in the prior year of the write-up of inventory of SDS for purchase accounting, lower manufacturing costs in each of our businesses, lower rationalization charges, the favorable impact in the metal container business from an increase in inventories in 2017 as compared to a decrease in inventories in 2016 and higher volumes in the plastic container business. These increases were partially offset by higher costs attributed to announced acquisitions, lower unit volumes inbusiness, the metal container business and legacy closures operations, higher depreciation expense, the unfavorablefavorable impact in the metal container business from the contractual pass through to customers in the metal container business of indexed inflation on non-metal costs in the current year as compared to the unfavorable impact in the prior year from the contractual pass through of indexed deflation and fromon non-metal costs, a charge of $3.0 million in the prior year related to the resolution of a past non-commercial legal dispute the unfavorable impact from the lagged pass through of changes in resin costs in the plasticmetal container business and foreign currency transaction losses in 2017 as comparedthe prior year. These increases were partially offset by the unfavorable overhead absorption in the metal container business due to foreign currency transaction gainsthe reduction of finished goods inventory, lower volumes in 2016.the metal container business and the legacy closures operations, higher freight expense and costs associated with the start-up of two new manufacturing facilities. Rationalization charges were $5.8$6.3 million and $19.1$5.8 million for the years ended 20172018 and 2016,2017, respectively. Results for 20172018 and 2016 also included costs attributed to announced acquisitions of $24.7 million and $1.4 million, respectively. Results for 2017 also included a loss on early extinguishment of debt of $2.5 million and $7.1 million, andrespectively. Results for 2017 also included the benefit from effective tax rate adjustments totaling $110.9 million primarily related to the revaluation of net deferred tax liabilities to reflect lower future cash tax obligations as a result of the reduction in the U.S. corporate income tax rate under the recently enacted legislation commonly referred to as the Tax Cuts and Jobs Act
enacted in December 2017, or the 2017 Tax Act. Net income in 20172018 was $269.7$224.0 million as compared to $153.4$269.7 million in 2016.2017.
Net Sales. The $477.0$359.0 million increase in consolidated net sales in 20172018 as compared to 20162017 was due to the acquisition of SDS and higher net sales across all businesses.
Net sales for the metal container business increased $6.2$99.9 million, or 0.34.4 percent, in 20172018 as compared to 2016.2017. This increase was primarily a result of the pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $6$12 million, partially offset by lower unit volumes of approximately four percent. The decrease in unit volumes was principally the result of a seasonal customer reducing inventory levels, a customer plant shutdown in the fruit market, the competitive loss of a smaller, lower margin customer and a less favorable fruit and vegetable pack in Europe, partially offset by higher pet food volumes and an incremental buy ahead by customers in 2018 as compared to 2017 in anticipation of significant steel inflation in 2019.
Net sales for the closures business in 2018 increased $210.1 million, or 16.9 percent, as compared to 2017. This increase was primarily the result of the inclusion of a full year of SDS, the pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $18 million, partially offset by lower unit volumes of approximately two percent principally attributablein the legacy closures operations primarily due to lower soup volumes and a less favorable fruit and tomatovegetable pack on the west coast of the United States.
Net sales for the closures business in 2017 increased $449.6 million, or 56.4 percent, as compared to 2016. This increase was primarily the result of the inclusion of net sales of $445.6 million from the SDS operations, the pass through of higher raw material costs and the impact of favorable foreign currency translation of approximately $6 million, partially offset by lower unit volumes of approximately three percent in the legacy closures operations as compared to record volumes in the prior year period principallyEurope as a result of a decline in single-serve beverages due to cooler weather conditions in our major markets.conditions.
Net sales for the plastic container business in 20172018 increased $21.2$49.0 million, or 3.98.7 percent, as compared to 2016.2017. This increase was primarilyprincipally due to the pass through of higher raw material costs and higher volumes of approximately two percent and the impact of favorable foreign currency translation of approximately $2 million, partially offset by a less favorable mix of products sold.four percent.
Gross Profit. Gross profit margin increased 1.4 percentage points to 16.2remained constant at 15.5 percent in 2018 and 2017, as compared to 14.8 percent in 2016 for the reasons discussed below in "Income from Operations.before Interest and Income Taxes."
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales increased 1.3decreased 0.6 percentage points to 7.36.9 percent for 20172018 as compared to 6.07.5 percent in 2016.2017. Selling, general and administrative expenses increased $83.6$3.2 million in 20172018 as compared to 20162017. The increase in selling, general and administrative expenses was primarily due to the inclusion of thea full year of SDS, operations which generally incurincurs such expenses at a higher percentage of its net sales, acquisition related costsand increases in certain other expenses, largely offset by the inclusion in the prior year of $24.7 million of costs attributed to the acquisition of SDS and a $3.0 million charge related to the resolution of a past non-commercial legal dispute.
Income from Operationsbefore Interest and Income Taxes. Income from operationsbefore interest and income taxes for 20172018 increased by $57.3$55.1 million as compared to 2016,2017, and operating margin increased to 8.79.3 percent from 8.38.7 percent over the same periods. The increase in segment income from operations was principally due to higher segment income from operations in the closures business due toand plastic container businesses as well as the inclusion in the prior year of acquisition related costs of SDS and higher$24.7 million, partially offset by a decrease in segment income from operations in the metal container business. Segment income in 2018 and plastic container businesses. Income from
operations in 2017 and 2016 included rationalization charges of $6.3 million and $5.8 million, and $19.1 million, respectively, and costs attributed to announced acquisitions of $24.7 million and $1.4 million, respectively.
Income from operationsSegment income of the metal container business for 2017 increased $15.52018 decreased $31.4 million as compared to 2016,2017, and operatingsegment income margin increaseddecreased to 10.18.4 percent from 9.510.1 percent over the same periods. The increasedecrease in segment income from operations was primarily attributable to the unfavorable overhead absorption of approximately $18 million due to the reduction of finished goods inventory by approximately $65 million in 2018, lower manufacturing costs, lowerunit volumes, higher freight expense and higher rationalization charges, and the favorable impact from an increase in inventories in 2017 as compared to a decrease in inventories in 2016, partially offset by the impact of lower unit volumes, the unfavorablefavorable impact from the contractual pass through to customers of indexed deflation, an increaseinflation on non-metal costs in depreciation expense,2018 as compared to the unfavorable impact in the prior year from the contractual pass through of indexed deflation on non-metal costs, lower manufacturing costs and a $3.0 million charge in the prior year related to the resolution of a past non-commercial legal dispute and foreign currency transaction losses in 2017 as compared to foreign currency transaction gains in 2016.dispute. Rationalization charges were $5.3 million and $3.3 million in 2018 and $12.1 million in 2017, and 2016, respectively.
Income from operationsSegment income of the closures business for 20172018 increased $42.2$47.9 million as compared to 2016, while operating2017, and segment income margin decreasedincreased to 11.413.0 percent from 12.511.4 percent over the same periods. The increase in segment income from operations was primarily due to the inclusion of $47.3 milliona full year of income from operations from the SDS operations, and lower manufacturing costs, partially offset by the impact from a decrease in unit volumes in the legacy closures operations. The decrease in operating margin was primarily due to the unfavorable impact fromin the prior year of a charge of $11.9 million for the write-up of inventory of SDS for purchase accounting.accounting, lower manufacturing costs and foreign currency transaction losses in the prior year, partially offset by the volume impact from a less favorable fruit and vegetable pack in Europe.
Income from operations
Segment income of the plastic container business for 20172018 increased $22.6$14.8 million as compared to 2016,2017, and operatingsegment income margin increased to 4.96.9 percent from 1.04.9 percent over the same periods. The increase in segment income from operations was primarily attributable to lower manufacturing costs, higher volumes and lower rationalization charges,manufacturing costs, partially offset by higher depreciation expense andcosts associated with the unfavorable impact formstart-up of the lagged pass through to customers of higher resin costs. Rationalization charges were $1.5 million and $6.4 millionnew manufacturing facility in 2017 and 2016, respectively.Fort Smith, Arkansas.
Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for 20172018 was $110.3$116.3 million, an increase of $42.5$6.0 million as compared to $67.8$110.3 million for 20162017 due primarily to higher weighted average outstanding borrowings principallylargely as a result of additional borrowings for the acquisition of SDS and higher weighted average interest rates, includingrates. Loss on early extinguishment of debt of $2.5 million in 2018 was the impact from increasing long-term fixed rate debt through the issuance in February 2017result of the 4¾%redemption of all remaining outstanding 5% Notes in April 2018 and the 3¼% Notes.amendment to our Credit Agreement in May 2018. Loss on early extinguishment of debt of $7.1 million in the 2017 was a result of the prepayment of outstanding U.S. term loans and Euro term loans under our 2014 Credit Facility and the partial redemption of the 5% Notes in April 2017.
Provision for Income Taxes. The effective tax rate for 20172018 was a negative 12.5provision of 23.6 percent as compared to a provision of 33.9negative 12.5 percent for 2016.2017. The effective tax rate for 2017 was favorably impacted by the benefit from the effective tax rate adjustments totaling $110.9 million, primarily related to the revaluation of net deferred tax liabilities to reflect lower future cash tax obligations as a result of the reduction in the U.S. corporate income tax rate under the 2017 Tax Act. The effective tax rate in 2017, exclusive of these effective tax rate adjustments, would have been a provision of 33.8 percent.
YEAR ENDED DECEMBER 31, 2016 COMPAREDWITH YEAR ENDED DECEMBER 31, 2015
Overview. Consolidated net sales were $3.61 billion in 2016, representing a 4.0 percent decrease as compared to 2015 primarily due to the pass through of lower raw material and other manufacturing costs in the metal container and closures businesses, a less favorable mix of products sold in the metal container business and lower unit volumes, the pass through of lower raw material costs and the impact from unfavorable foreign currency translation in the plastic container business, partially offset by higher unit volumes in the closures business. Income from operations for 2016 decreased by $20.1 million, or 6.3 percent, as compared to 2015 primarily as a result of higher start-up costs associated with the three new manufacturing facilities; the unfavorable impact in the metal container business from the contractual pass through to customers of indexed deflation, a reduction in inventories in 2016 as compared to an increase in inventories in 2015 and a less favorable mix of products sold; higher rationalization charges; the unfavorable impact from the lagged pass through of changes in resin costs in the closures and plastic container businesses as compared to the prior year period; lower unit volumes in the plastic container business; and foreign currency transaction gains in the prior year period in the plastic container business. These decreases were partially offset by improved manufacturing performance in each of the businesses and higher unit volumes in the closures business. Results for 2016 and 2015 included rationalization charges of $19.1 million and $14.4 million, respectively. Results for 2016 also included costs attributed to announced acquisitions of $1.4 million. Net income in 2016 was $153.4 million as compared to $172.4 million in 2015.
Net Sales. The $151.1 million decrease in consolidated net sales in 2016 as compared to 2015 was due to lower net sales across all of our businesses.
Net sales for the metal container business decreased $93.4 million, or 3.9 percent, in 2016 as compared to 2015. This decrease was primarily a result of the pass through of lower raw material and other manufacturing costs and a shift in sales mix to smaller sizes.
Net sales for the closures business in 2016 decreased $7.9 million, or 1.0 percent, as compared to 2015. This decrease was primarily the result of the pass through of lower raw material costs, partially offset by higher unit volumes of approximately three percent. The increase in unit volumes was primarily due to strong demand from U.S. beverage markets.
Net sales for the plastic container business in 2016 decreased $49.8 million, or 8.4 percent, as compared to 2015. This decrease was primarily due to lower unit volumes of approximately three percent primarily as a result of the continued rebalancing of the customer portfolio in conjunction with the footprint optimization program, the pass through of lower raw material costs and the impact of unfavorable foreign currency translation of approximately $4.0 million.
Gross Profit. Gross profit margin increased 0.1 percentage points to 14.8 percent in 2016 as compared to 14.7 percent in 2015 for the reasons discussed below in "Income from Operations."
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales increased 0.2 percentage points to 6.0 percent for 2016 as compared to 5.8 percent in 2015. Selling, general and administrative expenses decreased $5.2 million in 2016 as compared to 2015 due primarily to ongoing cost control efforts, partially offset by costs attributed to announced acquisitions of $1.4 million.
Income from Operations. Income from operations for 2016 decreased by $20.1 million as compared to 2015, and operating margin decreased to 8.3 percent from 8.5 percent over the same periods. The decrease in income from operations was principally due to lower income from operations in the metal and plastic container businesses, partially offset by higher income from operations in the closures business. Income from operations in 2016 and 2015 included rationalization charges of $19.1 million and $14.4 million, respectively. Income from operations in 2016 also included costs attributed to announced acquisitions of $1.4 million.
Income from operations of the metal container business for 2016 decreased $21.7 million as compared to 2015, and operating margin decreased to 9.5 percent from 10.0 percent over the same periods. The decrease in income from operations was primarily due to higher rationalization charges, the unfavorable impact from the contractual pass through to customers of indexed deflation, the unfavorable impact from a reduction in inventories in the current year as compared to an increase in inventories in the prior year, start-up costs for the new manufacturing facility and a less favorable mix of products sold, partially offset by better operating performance. Rationalization charges were $12.1 million in 2016, primarily related to the shutdown of the LaPorte, Indiana manufacturing facility.
Income from operations of the closures business for 2016 increased $8.0 million as compared to 2015, and operating margin increased to 12.5 percent from 11.4 percent over the same periods. The increase in income from operations was primarily due to higher unit volumes, improved manufacturing efficiencies and lower rationalization charges, partially offset by the unfavorable impact from the lagged pass through of changes in resin costs as compared to the favorable impact from resin in 2015. Rationalization charges were $0.6 million and $1.7 million in 2016 and 2015, respectively.
Income from operations of the plastic container business for 2016 decreased $2.6 million as compared to 2015, and operating margin decreased to 1.0 percent from 1.3 percent over the same periods. The decrease in income from operations was primarily attributable to start-up costs for the new manufacturing facilities, lower unit volumes, the favorable impact in the prior year from the lagged pass through of decreases in resin costs and foreign currency transaction gains in the prior year, partially offset by lower rationalization charges and better operating performance later in the year. Rationalization charges of $6.4 million and $12.7 million in 2016 and 2015, respectively, were primarily related to the shutdown of the Woodstock, Illinois and Cape Girardeau, Missouri manufacturing facilities.
Interest and Other Debt Expense. Interest and other debt expense for 2016 was $67.8 million, an increase of $0.9 million as compared to $66.9 million for 2015 due primarily to higher weighted average interest rates.
Provision for Income Taxes. The effective tax rate for 2016 was 33.9 percent as compared to 31.8 percent for 2015. The effective tax rate for 2015 was favorably impacted primarily by higher income in more favorable tax jurisdictions and the ability to fully recognize benefits in 2015 from the legislative extension of certain U.S. tax provisions.
CAPITAL RESOURCESAND 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 primarily 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 and the funding of our seasonal working capital needs.
On November 12, 2019, we issued $400 million aggregate principal amount of our 4⅛% Notes, and used the net proceeds therefrom to repay outstanding revolving loans under our Credit Agreement, including revolving loans used to redeem the 5½% Notes.
On August 1, 2019, we redeemed all $300 million aggregate principal amount of our outstanding 5½% Notes at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest up to the redemption date. We funded this redemption with revolving loan borrowings under our Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.7 million in 2019 for the write-off of unamortized debt issuance costs.
On April 16, 2018, we redeemed all of our remaining outstanding 5% Notes ($280.0 million aggregate principal amount) at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest up to the redemption date. We funded this redemption with revolving loan borrowings under our 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 $1.4 million in 2018 for the write-off of unamortized debt issuance costs.
On March 24, 2017, we refinanced our 2014 Credit Facility and entered into our Credit Agreement, which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. On May 30, 2018, we amended our Credit Agreement to further extend maturity dates, lower the margin on borrowings thereunder and provide additional flexibility with regard to our strategic initiatives. Our Credit Agreement provides us with revolving loans, consisting of a multicurrency revolving loan facility of approximately $1.19 billion and a Canadian revolving loan facility of Cdn $15.0 million. Additionally, our Credit Agreement provided us with term loans, consisting of (i) U.S. $800 million of term loans designated U.S. A term loans, which were used to fund a portion of the purchase price for SDS and (ii) Cdn $45.5 million of term loans designated Canadian A term loans. On April 6, 2017, we funded the purchase price for SDS with term and revolving loan borrowings under our Credit Agreement totaling $1,023.8 million. As a result of entering into our Credit Agreement in 2017, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.6 million in 2017. As a result of the 2018 amendment to our Credit Agreement, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.1 million in 2018.
On February 13, 2017, we issued $300 million aggregate principal amount of the 4¾% Notes and €650 million aggregate principal amount of the 3¼% Notes. We used the net proceeds from the sale of the 4¾% Notes to
prepay $212.3 million of our outstanding U.S. term loans and repay a portion of our outstanding revolving loans under our 2014 Credit Facility. We used the net proceeds from the sale of the 3¼% Notes to prepay €187.0 million of Euro term loans under our 2014 Credit Facility, to repay the remaining outstanding revolving loans under our 2014 Credit Facility, to repay approximately €34.0 million of certain other foreign bank revolving and term loans of certain of our non U.S. subsidiaries and to redeem $220.0 million aggregate principal amount of the 5% Notes at a redemption price of 101.25 percent of their principal amount plus accrued and unpaid interest up to the redemption date. During the first quarter of 2017, we also prepaid $98.0 million of our outstanding U.S. term loans and Cdn $14.0 million of our outstanding Canadian term loans under our 2014 Credit Facility. As a result of the aggregate prepayments of our outstanding term loans under our 2014 Credit Facility and the partial redemption of the 5% Notes, we recorded a pre-tax charge for the loss on early extinguishment of debt of $6.5 million in 2017.
On March 24, 2017, we completed an amendment and restatement of our 2014 Credit Facility and entered into our Credit Agreement which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. Our Credit Agreement provides us with revolving loans, consisting of a multicurrency revolving loan facility of approximately $1.19 billion and a Canadian revolving loan facility of Cdn $15.0 million. Additionally, our Credit Agreement provided us with term loans, consisting of (i) U.S. $800 million of term loans designated U.S. A term loans, which were used to fund a portion of the purchase price for SDS, and (ii) Cdn $45.5 million of term loans designated Canadian A term loans. On April 6, 2017, we funded the purchase price for SDS with term and revolving loan borrowings under our Credit Agreement totaling $1,023.8 million. As a result of entering into our Credit Agreement, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.6 million in 2017.
You should also read Note 8Notes 9 and 19 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report with regard to our debt.
In 2019, we used cash provided by operating activities of $507.3 million and proceeds of $400.0 million from the issuance of the 4⅛% Notes to fund repayments of long-term debt of $359.4 million, net capital expenditures and other investing activities of $230.1 million, net repayments of revolving loans of $98.2 million, dividends paid on our common stock of $50.8 million, repurchases of our common stock of $27.6 million, decreases in outstanding checks of $4.7 million and debt issuance costs of $4.8 million and to increase cash and cash equivalents (including the negative effect of exchange rate changes of $0.7 million) by $131.0 million.
In 2018, we used cash provided by operating activities of $506.5 million and net borrowings of revolving loans of $52.3 million to fund repayments of long-term debt of $286.2 million, net capital expenditures and other investing activities of $189.9 million, dividends paid on our common stock of $44.5 million, repurchases of our common stock of $7.8 million, decreases in outstanding checks of $4.1 million and debt issuance costs of $3.3 million and to increase cash and cash equivalents (including the negative effect of exchange rate changes of $3.7 million) by $19.3 million.
In 2017, we used aggregate debt proceeds of $1,789.2 million primarily from the issuance of the 4¾% Notes and the 3¼% Notes and term loan borrowings under our Credit Agreement, cash provided by operating activities of $389.8 million and increases in outstanding checks of $8.8 million to fund the acquisition of SDS for $1,023.8 million, the repayment of long-term debt of $755.0 million, net capital expenditures and other investing activities of $173.8 million, the net repayment of revolving loans of $144.8 million, dividends paid on our common stock of $40.5 million, debt issuance costs of $17.0 million and repurchases of our common stock of $4.1 million and to increase cash and cash equivalents by $28.8 million.
In 2016, we used cash provided by operating activities of $394.6 million, net borrowings of revolving loans of $122.3 million and cash and cash equivalents of $75.2 million to fund repurchases of our common stock of $280.7 million, net capital expenditures of $180.3 million, the repayment of long-term debt of $67.4 million (including $64.6 million of scheduled amortization payments under our Credit Agreement and the repayment of $2.8 million of foreign bank term loans), dividends paid on our common stock of $40.9 million and decreases in outstanding checks of $22.8 million.
In 2015, we used cash provided by operating activities of $335.7 million, cash and cash equivalents of $122.6 million, increases in outstanding checks of $19.0 million, proceeds from the issuance of long-term debt of $7.5 million and net borrowings of revolving loans of $2.3 million to fund net capital expenditures of $236.4 million (including for the construction of the three new manufacturing facilities), repurchases of our common stock of $173.0 million, dividends paid on our common stock of $39.7 million, the repayment of long-term debt of $37.3
million (including $33.0 million of scheduled amortization payments under our Credit Agreement and the repayment of $4.3 million of foreign bank term loans) and the purchase of a business for $0.7 million.
At December 31, 2017,2019, we had $2,564.3$2,258.9 million of total consolidated indebtedness and cash and cash equivalents on hand of $53.5$203.8 million. In addition, at December 31, 2017,2019, we had outstanding letters of credit of $18.2$15.4 million and no outstanding revolving loan borrowings under our Credit Agreement.
Under our Credit Agreement, we have available to us $1.19 billion of revolving loans under a multicurrency revolving loan facility and Cdn $15.0 million under a Canadian revolving loan facility. Revolving loans under our Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions, capital expenditures, dividends, stock repurchases and refinancing of other debt. Revolving loans may be borrowed, repaid and reborrowed under the revolving loan facilities from time to time until March 24, 2022.2023. At December 31, 2017,2019, after taking into account outstanding letters of credit of $18.2$15.4 million, borrowings available under the revolving loan facilities of our Credit Agreement were $1.17 billion and Cdn $15.0 million. Under our Credit Agreement, we also have available to us an uncommitted multicurrency incremental loan facility in an amount of up to an additional $1.25 billion (which amount may be increased as provided in our Credit Agreement), and we may incur additional indebtedness as permitted by our Credit Agreement and our other instruments governing our indebtedness. In conjunction with the Offer to purchase the Albéa Dispensing Business, we obtained the Committed Financing, and we expect to fund the purchase price for the proposed acquisition of the Albéa Dispensing Business from a combination of borrowings under our Credit Agreement, including the Committed Financing, and cash on hand. You should also read Note 8Notes 9 and 19 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
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 (ii) €500 million aggregate principal amount of the 2¼% Notes at 100 percent of their principal amount. We used the net
proceeds from the sale of the additional 4⅛% Notes and the 2¼% Notes to prepay most of our outstanding U.S. A term loans under our Credit Agreement.
Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the packaging 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 and were generally funded with revolving loans under our senior secured credit facility, other foreign bank loans and cash on hand. For 2018,2019, we expect to fund our seasonal working capital requirements with cash on hand, revolving loans under our Credit Agreement and foreign bank loans. We may use the available portion of revolving loans under our 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 refinancing and repayments of other debt.
We have entered into various supply chain financing arrangements with financial intermediaries pursuant to which (i) we sell receivables of certain customers without recourse to such financial intermediaries and pursuant to such arrangements accelerate payment in respect of such receivables sooner than provided in the applicable supply agreements with such customers and (ii) we have effectively extended our payment terms on certain of our payables. For 2017,2019, as a result of such supply chain financing arrangements, we reduced our days sales outstanding by approximately twonine days and extended our days purchases payable outstanding by approximately seventeentwenty-three days, effectively reducing our net working capital and our financing requirements for our working capital. If such supply chain financing arrangements ended, our net working capital would likely increase, and it would be necessary for us to finance such net working capital increase using cash on hand or revolving loans under our Credit Agreement or other indebtedness.
On December 22, 2017, the 2017 Tax Act was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35 percent to 21 percent for tax years beginning after December 31, 2017, the transition of U.S. international taxation from a worldwide to a territorial tax system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. As a result of the 2017 Tax Act, we revalued our net deferred tax liabilities at the lower corporate tax rate under the 2017 Tax Act and estimated, based on our understanding of the 2017 Tax Act, a significant reduction in our net deferred tax liabilities, effectively lowering our future cash tax obligations for deferred taxes. Accordingly, we recorded an income tax benefit of $110.9 million in the fourth quarter of 2017 primarily related to the revaluation of our net deferred tax liabilities to reflect lower future cash tax obligations as a result of the reduction in the federal corporate tax rate under the 2017 Tax Act.
On October 17, 2016, our Board of Directors authorized the repurchase by us of up to an additionalaggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021. Pursuant to this authorization, together withwe repurchased an aggregate of 407,540 shares of our common stock in 2019 at an average price per share of $29.70, for a total purchase price of $12.1 million. In 2018 we repurchased a total of 188,300 shares of our common stock at an average price per share of $25.31, for a total purchase price of $4.8 million. In 2016, pursuant to this authorization and the remaining amount from a prior authorization, in 2014, after giving effect to the two-for-one stock split that occurred on May 26, 2017, we repurchased a total of 294,930 shares of our common stock in 2016 at an average price per share of $24.40, for a total purchase price of $7.2 million and 278,842 shares of our common stock in 2015 at an average price per share $27.36, for a total purchase price of $7.6 million. In
addition, we completed a "modified Dutch auction" tender offer on November 22, 2016 pursuant to which, after giving effect to the two-for-one stock split that occurred on May 26, 2017, we purchased 10,617,810 shares of our common stock from our stockholders at a price of $25.38 per share for a total purchase price of $269.4 million. We also completed a "modified Dutch auction" tender offer on March 17, 2015 pursuant to which, after giving effect to the two-for-one stock split that occurred on May 26, 2017, we purchased 5,532,708 shares of our common stock from our stockholders at a price of $29.25 per share for a total purchase price of $161.8 million. Accordingly, at December 31, 2017,2019, we had approximately $129.4$112.5 million remaining for the repurchase of our common stock under the October 17, 2016 authorization of our Board of Directors.Directors authorization.
In addition to our operating cash needs and excluding any impact from acquisitions, (including the proposed acquisition of the Albéa Dispensing Business), we believe our cash requirements over the next few years will consist primarily of:
capital expenditures of approximately $200 million in 2018,2020, and thereafter annual capital expenditures of approximately $175 million to $200 million which may increase as a result of specific growth or specific cost savings projects;
principal payments of bank term loans and revolving loans under our Credit Agreement and other outstanding debt agreements and obligations of $108.8 million in 2018, $86.5 million in 2019, $361.5$27.9 million in 2020, $83.6$3.3 million in 2021, $383.6$13.5 million in 2022, $459.92024, and $2,180.9 million in 2023thereafter, which amounts do not give effect to the issuance by us on February 26, 2020 of the additional 4⅛% Notes and $1,080.4 million in 2025;the 2¼% Notes and the use of the net proceeds therefrom, except that the maturities of the U.S. A term loans under our Credit Agreement which were
prepaid with such net proceeds were extended for the purposes of this paragraph to 2028 to match the maturities of the additional 4⅛% Notes and the 2¼% Notes;
cash payments for quarterly dividends on our common stock as approved by our Board of Directors;
annual payments to satisfy employee withholding tax requirements resulting from certain restricted stock units becoming vested, which payments are dependent upon the price of our common stock at the time of vesting and the number of restricted stock units that vest, none of which is estimable at this time (payments in 20172019 were not significant);
our interest requirements, including interest on revolving loans (the principal amount of which will vary depending upon seasonal requirements) and term loans under our Credit Agreement, which bear fluctuating rates of interest, the 5% Notes, the 5½4¾% Notes, the 4¾3¼% Notes, the 4⅛% Notes and the 3¼2¼% Notes;
payments of approximately $50$75 million to $70$95 million for federal, state and foreign tax liabilities in 2018,2020, which may increase annually thereafter; and
payments for pension benefit plan contributions, which are not expected to be significant based on the fact that our domestic pension plans were more than 100 percent funded at December 31, 2017.2019.
We believe that cash generated from operations and funds from borrowings available under our Credit Agreement will be sufficient to meet our expected operating needs, planned capital expenditures, debt service requirements (both principal and interest), tax obligations, pension benefit plan contributions, share repurchases required under our Amended and Restated 2004 Stock Incentive Plan 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 our Credit Agreement, to finance any such acquisition.acquisition, including the proposed acquisition of the Albéa Dispensing Business.
Our Credit Agreement contains restrictive covenants that, among other things, limit our ability to incur debt, sell assets and engage in certain transactions. The indentures governing the 5% Notes, the 5½% Notes, the 4¾% Notes and the 3¼% Notes, the 4⅛% Notes and the 2¼% Notes contain certain covenants that restrict our ability to create liens, engage in sale and leaseback transactions, issue guarantees and consolidate, merge or sell assets. We do not expect these limitations to have a material effect on our business or our results of operations. 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 20182020 with all of these covenants.
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 $3.6 million, $10.0 million and $6.6 million in 2017, 2016 and 2015, respectively. Additional cash spending under our rationalization plans of approximately $3.7 million is expected through 2023. You should also read Note 3 to our Consolidated Financial Statements for the year ended December 31, 2017 included elsewhere in this Annual Report.
CONTRACTUAL OBLIGATIONS
Our contractual cash obligations at December 31, 20172019 are provided below :and do not give effect to the issuance by us on February 26, 2020 of the additional 4⅛% Notes and the 2¼% Notes and the use of the net proceeds therefrom:
|
| | | | | | | | | | | | | | | | | | | |
| Payment due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | (Dollars in millions) |
| Long-term debt obligations | $ | 2,564.3 |
| | $ | 108.8 |
| | $ | 448.0 |
| | $ | 467.2 |
| | $ | 1,540.3 |
|
| Interest on fixed rate debt | 384.9 |
| | 70.4 |
| | 130.0 |
| | 97.1 |
| | 87.4 |
|
Interest on variable rate debt(1) | 136.1 |
| | 33.9 |
| | 55.2 |
| | 43.1 |
| | 3.9 |
|
| Operating lease obligations | 189.2 |
| | 42.5 |
| | 58.8 |
| | 40.1 |
| | 47.8 |
|
Purchase obligations(2) | 24.0 |
| | 24.0 |
| | — |
| | — |
| | — |
|
Other postretirement benefit obligations(3) | 14.8 |
| | 2.1 |
| | 3.4 |
| | 2.9 |
| | 6.4 |
|
Total(4) | $ | 3,313.3 |
| | $ | 281.7 |
| | $ | 695.4 |
| | $ | 650.4 |
| | $ | 1,685.8 |
|
|
| | | | | | | | | | | | | | | | | | | |
| Payment due by period |
| | Total | | Less than 1 year | | 1-3 years | | 3-5 years | | More than 5 years |
| | (Dollars in millions) |
Long-term debt obligations(1) | $ | 2,225.6 |
| | $ | 27.9 |
| | $ | 3.3 |
| | $ | 13.5 |
| | $ | 2,180.9 |
|
Interest on fixed rate debt(1) | 331.3 |
| | 54.6 |
| | 109.0 |
| | 108.9 |
| | 58.8 |
|
Interest on variable rate debt(1)(2) | 209.3 |
| | 28.8 |
| | 54.9 |
| | 47.4 |
| | 78.2 |
|
Operating lease obligations(3) | 241.2 |
| | 46.3 |
| | 72.2 |
| | 47.8 |
| | 74.9 |
|
Finance lease obligations(3) | 38.9 |
| | 3.3 |
| | 6.1 |
| | 29.5 |
| | — |
|
Purchase obligations(4) | 34.0 |
| | 34.0 |
| | — |
| | — |
| | — |
|
Other postretirement benefit obligations(5) | 14.3 |
| | 1.8 |
| | 3.2 |
| | 2.9 |
| | 6.4 |
|
Total(6) | $ | 3,094.6 |
| | $ | 196.7 |
| | $ | 248.7 |
| | $ | 250.0 |
| | $ | 2,399.2 |
|
______________________
| |
| (1) | These amounts do not give effect to the issuance by us on February 26, 2020 of the additional 4⅛% Notes and the 2¼% Notes and the use of the net proceeds therefrom, except that the maturities of the U.S. A term loans under our Credit Agreement which were prepaid with such net proceeds were extended for purposes of the table above to match the maturities of the additional 4⅛% Notes and the 2¼% Notes. See "-Capital Resources and Liquidity." |
| |
| (2) | These amounts represent expected cash payments of interest on our variable rate long-term debt under our Credit Agreement, after taking into consideration our interest rate swap agreements, at prevailing interest rates and foreign currency exchange rates at December 31, 2017.2019. |
| |
(2)(3) | Operating and finance lease obligations include imputed interest. |
| |
| (4) | Purchase obligations represent commitments for capital expenditures of $24.0$34.0 million. Obligations that are cancelable without penalty are excluded. |
| |
(3)(5) | Other postretirement benefit obligations have been actuarially determined through the year 2027.2029. |
| |
(4)(6) | Based on current legislation and the current funded status of our domestic pension benefit plans, there are no significant minimum required contributions to our pension benefit plans in 2018.2020. |
At December 31, 2017,2019, we also had outstanding letters of credit of $18.2$15.4 million that were issued under our Credit Agreement.
You should also read Notes 8, 9, 10, 11, 12 and 1119 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
EFFECTOF INFLATIONAND INTEREST RATE FLUCTUATIONS
Historically, inflation has not had a material effect on us, other than to increase our cost of borrowing. In general, we have been able to increase the sales prices of our products to reflect any increases in the prices of raw materials (subject to contractual lag periods) and to significantly reduce the exposure of our results of operations to increases in other costs, such as labor and other manufacturing costs.
Because we have indebtedness which bears interest at floating rates, our financial results will be sensitive to changes in prevailing market rates of interest. As of December 31, 2017,2019, we had $2,564.3$2,258.9 million of indebtedness outstanding, of which $896.4$792.6 million bore interest at floating rates. Historically, we have entered into interest rate swap agreements to mitigate the effect of interest rate fluctuations. We currently have no outstandingDuring 2018, we entered into two U.S. dollar interest rate swap agreements, because our outstanding variable rate debt as a percentage of our outstanding total debt is historically low.each for $50.0 million notional principal amount, that are effective in 2019 and mature in 2023. Depending upon future market conditions and our level of outstanding variable rate debt, we may
enter into additional interest rate swap or hedge agreements (with counterparties that, in our judgment, have sufficient creditworthiness) to hedge our exposure against interest rate volatility.
RATIONALIZATION CHARGES
In June 2019, we announced a footprint optimization plan for our metal container business, which included the closing of our metal container manufacturing facilities in Mt. Vernon, Missouri and Waupun, Wisconsin in the fourth quarter of 2019. These plant closings, in conjunction with the prior ratification of a new labor agreement at our Menomonee Falls, Wisconsin metal container manufacturing facility that provided for the withdrawal for that facility from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, will result in our complete withdrawal from the Central States Pension Plan. We estimate net rationalization charges for this plan of $3.7 million for the plant closings and $60.6 million for the withdrawal from the Central States Pension Plan. We recorded total rationalization charges for this plan of $46.2 million for the year ended December 31, 2019 largely to recognize the present value of the estimated withdrawal liability related to the Central States Pension Plan. Remaining expenses and cash expenditures for the plant closings are not expected to be significant. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1 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. Although the annual payments for such withdrawal liability will be somewhat higher than our annual funding requirements to the Central States Pension Plan prior to our withdrawal, such increase will not be significant.
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 $8.7 million, $2.2 million and $3.6 million in 2019, 2018 and 2017, respectively. Exclusive of the footprint optimization plan for our metal container business and withdrawal from the Central States Pension Plan as discussed above, additional cash spending under our rationalization plans of approximately $4.1 million is expected through 2023. You should also read Note 4 to our Consolidated Financial Statements for the year ended December 31, 2019 included elsewhere in this Annual Report.
CRITICAL ACCOUNTING POLICIES
U.S. generally accepted accounting principles require estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes. Some of these estimates and assumptions require difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. We believe that our accounting policies for pension expense and obligations, rationalization charges, income taxes and acquisition reserves and testing goodwill and other intangible assets with indefinite lives for impairment reflect the more significant judgments and estimates in our consolidated financial statements. You should also read our Consolidated Financial Statements for the year ended December 31, 20172019 and the accompanying notes included elsewhere in this Annual Report.
Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for non-callable high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension benefit plans. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense, while an increase in the discount rate decreases the present value of benefit obligations and decreases pension expense. A 25 basis point change in the discount rate would have a countervailing impact on our annual pension expense by approximately $2.3$2.4 million. For 2017,2019, we decreased our domestic discount rate to 3.4 percent from 4.4 percent to 3.84.5 percent to reflect market interest rate conditions. We consider the current and expected asset allocations of our pension benefit plans, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term rate of return on plan assets. A 25 basis point change in the expected long-term rate of return on plan assets would have a countervailing impact on our annual pension expense by approximately $2.1$2.2 million. Our expected long-term rate of return on plan assets will remain at 8.5 percent in 2018.2020.
Historically, we have maintained a strategy of acquiring businesses and enhancing profitability through productivity and cost reduction opportunities. Acquisitions require us to estimate the fair value of the assets acquired and liabilities assumed in the transactions. These estimates of fair value are based on market participant perspectives when available and our business plans for the acquired entities, which include eliminating operating redundancies, facility closings and rationalizations and assumptions as to the ultimate resolution of liabilities assumed. We also continually evaluate the operating performance of our existing facilities and our business requirements and, when deemed appropriate, we exit or rationalize existing operating facilities. Establishing reserves for acquisition plans and facility rationalizations requires the use of estimates. Although we believe that these estimates accurately reflect the costs of these plans, actual costs incurred may differ from these estimates.
Goodwill and other intangible assets with indefinite lives are reviewed for impairment each year and more frequently if circumstances indicate a possible impairment. Our tests for goodwill impairment require us to make certain assumptions regardingto determine the expected earnings and cash flowsfair value of our reporting units. These assumptions are based onIn 2019, we calculated the fair value of our internal forecasts.reporting units using the market approach, which required us to estimate future expected earnings before interest, income taxes, depreciation and amortization, or EBITDA, and estimate EBITDA market multiples using publicly available information for each of our reporting units. Developing these assumptions requires the use of significant judgment and estimates. Actual results may differ from these forecasts. If an impairment were to be identified, it could result in additional expense recorded in our consolidated statements of income. In January 2017, the Financial Accounting Standards Board, or the FASB, issued an accounting standards update, or ASU, that provides guidance to simplify the test for goodwill impairment. This guidance eliminates the requirement to assign the fair value of a reporting unit to each of its assets and liabilities to quantify a goodwill impairment charge. Under this amended guidance, the goodwill impairment charge to be recognized will be determined based on comparing the carrying value of the reporting unit to its fair value. As permitted, we have adopted this amendment early in conjunction with our annual assessment of goodwill as of July 1, 2017 and have applied it prospectively. The adoption of this amendment did not have any effect on our financial position, results of operations or cash flows.
On December 22, 2017, the 2017 Tax Act was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35 percent to 21 percent for tax years beginning after December 31, 2017, the transition of U.S international taxation from a worldwide to a territorial tax system and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. We have estimated our provision for income taxes for 2017 in accordance with the 2017 Tax Act and guidance available as ofat the date of this Annual Reporttime and recorded $110.9 million as an additional income tax benefit in the fourth quarter of 2017. This provisional amount iswas primarily related to the
remeasurement of net deferred tax liabilities to reflect lower future cash tax obligations as a result of the reduction in the federal corporate tax rate under the 2017 Tax Act.
On December 22, 2017, Staff Accounting Bulletin No. 118, or SAB 118, was issued by the staff of the SEC to address the application of U.S. generally accepted accounting principles in situations when a registrant does not have the necessary information available, prepared or analyzed (including computations) in reasonable detail to complete the accounting for certain income tax effects of the 2017 Tax Act. In accordance with SAB 118, we havehad determined that the $110.9 million deferred tax benefit recorded in the fourth quarter of 2017 primarily in connection with the remeasurement of net deferred tax liabilities and the computation of no tax expense to be recorded in connection with the transition tax on the mandatory deemed repatriation of cumulative foreign earnings were provisional amounts and a reasonable estimate at December 31, 2017. Additional work is necessary
As of December 31, 2018, we completed our accounting for all of the enactment date income tax effects of the 2017 Tax Act. During 2018, we recognized insignificant adjustments to complete the analysisprovisional amounts recorded at December 31, 2017 and included these adjustments as a component of ourincome tax expense. The final amount of the income tax benefit from the enactment of the 2017 Tax Act was $111.6 million, which related primarily to the remeasurement of deferred tax assets and liabilities and our historicalliabilities. We did not incur any income tax expense due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. Any subsequent adjustment to these amounts will be recorded to current tax expense in the fiscal quarter of 2018 during which the analysis is completed.
NEW ACCOUNTING PRONOUNCEMENTS
In May 2014,June 2016, the Financial Accounting Standards Board, or the FASB, issued an accounting standards update, or ASU, that amends the guidance on the accounting for revenue recognition.credit losses on financial instruments. This amendment contains principles that will requirenew standard introduces an entityapproach, based on expected losses, to recognize revenueestimate credit losses on certain types of financial instruments. The new approach to depictestimating credit losses (referred to as the transfer of goodscurrent expected credit losses model) applies to most financial assets measured at amortized cost and services to customers at an amount that an entity expects to be entitled to in exchangecertain other instruments, including trade and other receivables. This new standard is effective for those goods or services. We will adopt this amendmentthe Company on January 1, 2018, using the modified retrospective method. The adoption of this amendment will require us to accelerate the recognition of revenue as compared to the current standards for certain customers in cases where we produce products with no alternative use to us and for which we have an enforceable right of payment for production completed to date.2020. We do not expect that this amendmentnew standard will have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued an ASU that amends existing guidance for certain leases by lessees. This amendment will require us to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. In addition, this amendment clarifies the presentation requirements of the effects of leases in the statement of income and statement of cash flows. This amendment will be effective for us on January 1, 2019. Early adoption is permitted. This amendment is required to be adopted using a modified retrospective approach. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.
In August 2016, the FASB issued an ASU that provides guidance for cash flow classification for certain cash receipts and cash payments to address diversity in practice in the manner in which items are classified on the statement of cash flows as either operating, investing or financing activities. This amendment will be effective for us on January 1, 2018. This amendment is required to be adopted using a retrospective approach and is not expected to have a material impact on our statement of cash flows.
In March 2017, the FASB issued an ASU that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment will require an entity to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost (which include interest cost, expected return on plan assets, amortization of prior service cost or credit and actuarial gains and losses) separately. In addition, capitalization of net periodic benefit cost in assets will be limited to the service cost component. We will adopt this amendment on January 1, 2018. This amendment is required to be adopted (i) retrospectively with respect to the disaggregation of the service cost component from the other components of net periodic benefit cost and the separate reporting of the other components of net periodic benefit cost and (ii) prospectively with respect to the capitalization in assets of the service cost component. We do not expect that this amendment will have a material impact on our financial position, results of operations or cash flows.
FORWARD-LOOKING STATEMENTS
The statements we have made in “Risk Factors” and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” and elsewhere in this Annual Report which 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 the Securities Exchange Act of 1934, as amended, or the Exchange Act. These 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. Therefore, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.
The discussion in our “Risk Factors” and our “Management’s Discussion and Analysis of Results of Operations and Financial Condition” sections highlight some of the more important risks identified by our management, but should not be assumed to be the only factors that could affect future performance. Other factors that could cause the actual results of our operations or our financial condition to differ from those expressed or implied in these forward-looking statements include, but are not necessarily limited to, our ability to satisfy our obligations under our contracts; the impact of customer claims;claims and disputes; compliance by our suppliers with the terms of our arrangements with them; changes in consumer preferences for different packaging products; changes in general economic conditions; the idling or loss of one or more of our significant manufacturing facilities; our ability to finance any increase in our net working capital in the event that our supply chain financing arrangements end; the adoption of, or changes in, new accounting standards or interpretations; changes in income tax provisions;rates in any jurisdiction where we conduct business; and other factors described elsewhere in this Annual Report or in our other filings with the SEC.
Except to the extent required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Private Securities Litigation Reform Act of 1995 should not be construed as exhaustive or as any admission regarding the adequacy of our disclosures. Certain risk factors are detailed from time to time in our various public filings. You are advised, however, to consult any further disclosures we make on related subjects in our filings with the SEC.
You can identify forward-looking statements by the fact that they do not relate strictly to historic or current facts. Forward-looking statements use terms such as “anticipates,” “believes,” “continues,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “will,” “should,” “seeks,” “pro forma” or similar expressions in connection with any disclosure of future operating or financial performance. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks described under “Risk Factors,” that may cause our actual results of operations, financial condition, levels of activity, performance or achievements to be materially different from any future results of operations, financial condition, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements.
ITEM 7A. QUANTITATIVEAND 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.
INTEREST RATE RISK
Our interest rate risk management objective is to limit the impact of interest rate changes on our net income and cash flow. To achieve our objective, we regularly evaluate the amount of our variable rate debt as a percentage of our aggregate debt. During 2019, our average outstanding variable rate debt, after taking into account the average outstanding notional amount of our interest rate swap agreements, was 50 percent of our average outstanding total debt. At December 31, 2017,2019, our outstanding variable rate debt, after taking into account interest rate swap agreements, was approximately 3531 percent of our outstanding total debt, and we had no interest rate swap agreements outstanding.debt. Over the course of the year, we also borrow revolving loans under our revolving loan facilities which bear interest at variable rates to fund our seasonal working capital needs. During 2017, our average outstanding variable rate debt, after taking into account the average outstanding notional amount of our interest rate swap agreements, was 42 percent of our average outstanding total debt. Historically,From time to time, we had managedmanage a portion of our exposure to interest rate fluctuations in our variable rate debt through interest rate swap agreements. During 2018, we entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, that became effective in 2019 and mature in 2023. These agreements effectively convertedconvert interest rate exposure from variable rates to fixed rates of interest. We had entered into these agreements with banks under our Credit Agreement, and our obligations under these agreements were guaranteed and secured on a pari passu basis with our obligations under our Credit Agreement. Depending upon future market conditions and our level of outstanding variable rate debt, we may enter
into additional interest rate swap or hedge agreements (with counterparties that, in our judgment, have sufficient creditworthiness) to hedge our exposure against interest rate volatility. You should also read Notes 89, 10 and 919 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
Based on the average outstanding amount of our variable rate indebtedness in 2017,2019, a one percentage point change in the interest rates for our variable rate indebtedness would have impacted our 20172019 interest expense by an aggregate of approximately $11.6$13.1 million, after taking into account the average outstanding notional amount of our interest rate swap agreements during 2017.2019.
FOREIGN CURRENCY EXCHANGE RATE RISK
Currently, we conduct a portion of our manufacturing and sales activity outside the United States, primarily in Europe. In an effort to minimize foreign currency exchange risk, we have financed our acquisitions of our European operations primarily with borrowings denominated in Euros. We also have operations in Canada, Mexico, Asia and South America that are not considered significant to our consolidated financial statements. Where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency risk related to foreign operations. In addition, we are exposed to gains and losses from limited transactions of our operations denominated in a currency other than the functional currency of such operations. We are also exposed to possible losses in the event of a currency devaluation in any of the foreign countries where we have operations. We generally do not utilize external derivative financial instruments to manage our foreign currency risk. You should also read Note 910 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
COMMODITY PRICING RISK
We purchase raw materials for our products such as metal and resins. These raw materials are generally purchased pursuant to contracts or at market prices established with the vendor. In general, we do not engage in hedging activities for these raw materials due to our ability to pass on price changes to our customers.
We also purchase commodities, such as natural gas and electricity, and are subject to risks on the pricing of these commodities. In general, we purchase these commodities pursuant to contracts or at market prices. We manage a portion of our exposure to natural gas price fluctuations through natural gas swap agreements. These agreements effectively convert pricing exposure for natural gas from market pricing to a fixed price. The total fair value of our natural gas swap agreements in effect at December 31, 20172019 and 20162018 and during such years was not significant. You should also read Note 910 to our Consolidated Financial Statements for the year ended December 31, 20172019 included elsewhere in this Annual Report.
ITEM 8. FINANCIAL STATEMENTSAND SUPPLEMENTARY DATA.
We refer you to Item 15, “Exhibits and Financial Statement Schedules,” below for a listing of financial statements and schedules included in this Annual Report, which are incorporated here in this Annual Report by this reference.
ITEM 9. CHANGESINAND DISAGREEMENTSWITH ACCOUNTANTSON ACCOUNTINGAND FINANCIAL DISCLOSURE.
Not applicable.
ITEM 9A. CONTROLSAND PROCEDURES.
DISCLOSURE CONTROLSAND PROCEDURES
As required by Rule 13a-15(e) of 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 Annual 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 SEC’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 Annual Report that have materially affected, or are reasonably likely to materially affect, these internal controls.
On April 6, 2017, we acquired SDS. You should read Note 2 to our Consolidated Financial Statements for the year ended December 31, 2017 included elsewhere in this Annual Report for further information on our acquisition of SDS. We are currently in the process of integrating the internal controls and procedures of SDS into our internal controls over financial reporting. As provided under the Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the SEC, we will include the internal controls and procedures of SDS in our annual assessment of the effectiveness of our internal control over financial reporting for our 2018 fiscal year.
MANAGEMENT’S REPORTON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017, except for the internal controls of SDS, which constituted in the aggregate twelve percent of our total assets, excluding goodwill and other intangible assets, net, as of December 31, 2017 and eleven percent and thirteen percent of our consolidated net sales and income from operations, respectively, for the year then ended.2019. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework (2013 Framework). Based on this assessment and those criteria, management believes that we maintained effective internal control over financial reporting as of December 31, 2017.2019.
The effectiveness of our internal control over financial reporting as of December 31, 20172019 has been audited by Ernst & Young LLP, our independent registered public accounting firm, and Ernst & Young LLP has issued an attestation report on our internal control over financial reporting which is provided below.
REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
REPORTOF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TO THE BOARDOF DIRECTORSAND STOCKHOLDERSOF SILGAN HOLDINGS INC.
OPINIONON INTERNAL CONTROLOVER FINANCIAL REPORTING
We have audited Silgan Holdings Inc.’s internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Silgan Holdings Inc. (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2019, based on the COSO criteria.
As indicated in the accompanying Management’s Report on Internal Control Over Financial Reporting, management's assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of the specialty closures and dispensing systems operations acquired from WestRock Company, which is included in the 2017 consolidated financial statements of the Company and constituted twelve percent of total assets, excluding goodwill and other intangible assets, net, as of December 31, 2017 and eleven percent and thirteen percent of net sales and income from operations, respectively, for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of the specialty closures and dispensing systems operations acquired from WestRock Company.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 20172019 consolidated financial statements of the Company and our report dated March 1, 20182, 2020 expressed an unqualified opinion thereon.
BASIS FOROPINION
The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
DEFINITIONAND LIMITATIONSOF INTERNAL CONTROL OVER FINANCIAL REPORTING
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the consolidated financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Stamford, Connecticut
March 1, 20182, 2020
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERSAND CORPORATE GOVERNANCE.
The information with respect to directors, executive officers and corporate governance required by this Item is incorporated here in this Annual Report by reference to our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report, for our annual meeting of stockholders to be held in 2018.2020.
ITEM 11. EXECUTIVE COMPENSATION.
The information with respect to executive compensation required by this Item is incorporated here in this Annual Report by reference to our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report, for our annual meeting of stockholders to be held in 2018.2020.
ITEM 12. SECURITY OWNERSHIPOF CERTAIN BENEFICIAL OWNERSAND MANAGEMENTAND RELATED STOCKHOLDER MATTERS.
The information with respect to security ownership of certain beneficial owners and management and related stockholder matters required by this Item is incorporated here in this Annual Report by reference to our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report, for our annual meeting of stockholders to be held in 2018.2020.
ITEM 13. CERTAIN RELATIONSHIPSAND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
The information with respect to certain relationships and related transactions, and director independence required by this Item is incorporated here in this Annual Report by reference to our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report, for our annual meeting of stockholders to be held in 2018.2020.
ITEM 14. PRINCIPAL ACCOUNTING FEESAND SERVICES.
The information with respect to principal accountant fees and services required by this Item is incorporated here in this Annual Report by reference to our Proxy Statement, to be filed with the SEC within 120 days after the end of the fiscal year covered by this Annual Report, for our annual meeting of stockholders to be held in 2018.2020.
PART IV
ITEM 15. EXHIBITSAND FINANCIAL STATEMENT SCHEDULES.
FINANCIAL STATEMENTS:
SCHEDULE:
All other financial statement schedules not listed have been omitted because they are not applicable or not required, or because the required information is included in the consolidated financial statements or notes thereto.
EXHIBITS:
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Exhibit Number | | Description |
| 2.1 | |
|
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| 3.1 | | |
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| 3.2 | | |
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| 3.3 | | |
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| 3.4 | | |
| | |
| 3.5 | | |
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3.53.6 | | |
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| 4.1 | | |
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4.2 | | |
| | |
4.3 | | |
| | |
4.4 | | |
| | |
4.5 | | Indenture, dated as of February 13, 2017, with respect to the 4¾% Senior Notes due 2025 and the 3¼% Senior Notes due 2025, by and among Silgan Holdings Inc., U.S. Bank National Association, as trustee, Elavon Financial Services DAC, UK Branch, as paying agent in respect of the 3¼% Senior Notes due 2025, and Elavon Financial Services DAC, as registrar and transfer agent in respect of the 3¼% Senior Notes due 2025 (incorporated by reference to Exhibit 4.1 filed with our Current Report on Form 8-K, dated February 17, 2017, Commission File No. 000-22117). |
| | | |
4.64.2 | |
|
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4.74.3 | |
|
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| 4.4 | | |
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| 4.5 | | |
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|
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Exhibit
Number | | Description |
| 4.6 | | Registration Rights Agreement, dated November 12, 2019, among Silgan Holdings Inc., BofA Securities, Inc., Wells Fargo Securities, LLC, Mizuho Securities USA LLC, HSBC Securities (USA) Inc., J.P. Morgan Securities LLC, SMBC Nikko Securities America, Inc., Rabo Securities USA, Inc., TD Securities (USA) LLC, Capital One Securities, Inc., BMO Capital Markets Corp., CIBC World Markets Corp., UniCredit Capital Markets LLC, PNC Capital Markets LLC, MUFG Securities Americas Inc. and Scotia Capital (USA) Inc. (incorporated by reference to Exhibit 4.3 filed with our Current Report on Form 8-K, dated November 12, 2019, Commission File No. 000-22117)
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| 4.7 | | |
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| 4.8 | | Registration Rights Agreement,Indenture, dated as of February 13, 2017,26, 2020, with respect to the 2¼% Senior Notes due 2028, by and among Silgan Holdings Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch International, Wells Fargo Securities, LLC, Wells Fargo Securities International Limited, Goldman, Sachs & Co., HSBC Securities (USA) Inc., Mizuho Securities USA Inc., Mizuho International PLC, Rabo Securities USA, Inc., Coöperatieve Rabobank U.A., Scotia Capital (USA) Inc., Scotiabank Europe PLC, SMBC Nikko Securities America, Inc., SMBC Nikko Capital Markets Limited, SunTrust Robinson Humphrey, Inc., TD Securities (USA) LLC, MUFG Securities Americas Inc., MUFG Securities EMEA plc, BMO Capital Markets Corp., CIBC World Markets Corp., PNC Capital Markets LLC, RB International Markets (USA) LLCU.S. Bank National Association, as trustee, Elavon Financial Services DAC, UK Branch, as paying agent in respect of the 2¼% Senior Notes due 2028, and Raiffeisen Bank International AGElavon Financial Services DAC, as registrar and transfer agent in respect of the 2¼% Senior Notes due 2028 (incorporated by reference to Exhibit 4.4 filed with our Current Report on Form 8-K, dated February 17, 2017,26, 2020, Commission File No. 000-22117).
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Exhibit
Number
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| 4.9 | |
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| 4.10 | | Registration Rights Agreement, dated February 26, 2020, among Silgan Holdings Inc., BofA Securities, Inc., as representative of the Dollar Initial Purchasers, and Merrill Lynch International, Wells Fargo Securities International Limited, Mizuho International plc, J.P. Morgan Securities plc, SMBC Nikko Capital Markets Limited, Goldman Sachs & Co. LLC, Coöperatieve Rabobank U.A., TD Securities (USA) LLC, BMO Capital Markets Corp., Capital One Securities, Inc., MUFG Securities EMEA plc, UniCredit Bank AG, CIBC World Markets Corp., PNC Capital Markets LLC, DZ Financial Markets LLC and Raiffeisen Bank International AG as Euro Initial Purchasers (incorporated by reference to Exhibit 4.6 filed with our Current Report on Form 8-K, dated February 26, 2020, Commission File No. 000-22117)
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| *4.11 | | |
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| 10.1 | | |
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| 10.2 | | Amended and Restated Credit Agreement, dated as of March 24, 2017, among Silgan Holdings Inc., Silgan Containers LLC, Silgan Plastics LLC, Silgan Containers Manufacturing Corporation, Silgan Plastics Canada Inc., Silgan Holdings B.V., Silgan International Holdings B.V., each other revolving borrower party thereto from time to time, each other incremental term loan borrower party thereto from time to time, various lenders party thereto from time to time, Wells Fargo Bank, National Association, as Administrative Agent, Bank of America, N.A., Goldman Sachs Bank USA, HSBC Bank USA, National Association, Mizuho Bank, Ltd. and Coöperatieve Rabobank U.A., New York Branch, as Co-Syndication Agents, The Bank of Nova Scotia, Sumitomo Mitsui Banking Corporation, The Bank of Tokyo-Mitsubishi UFJ, Ltd., TD Bank, N.A. and CoBank, ACB, as Co-Documentation Agents, and Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, Goldman Sachs Bank USA, HSBC Bank USA, National Association, Mizuho Bank, Ltd. and Coöperatieve Rabobank U.A., New York Branch, as Joint Lead Arrangers and Joint Bookrunners (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K, dated March 30, 2017, Commission File No. 000-22117). |
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| 10.3 | | First Amendment to Amended and Restated Credit Agreement, dated as of May 30, 2018, among Silgan Holdings Inc., Silgan Containers LLC, Silgan Plastics LLC, Silgan Containers Manufacturing Corporation, Silgan Plastics Canada Inc., Silgan Holdings B.V., Silgan International Holdings B.V., the other Guarantors party thereto, the Lenders party thereto and Wells Fargo Bank, National Association, as Administrative Agent (incorporated by reference to Exhibit 10.1 filed with our Current Report on Form 8-K, dated June 5, 2018, Commission File No. 000-22117). |
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+10.310.4 | | |
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Exhibit
Number | | Description |
+10.410.5 | | |
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+10.510.6 | | |
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+10.610.7 | | |
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+10.710.8 | | |
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+10.810.9 | | |
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+10.910.10 | | |
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+10.1010.11 | | |
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| +10.12 | | |
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+10.1110.13 | | |
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+10.1210.14 | | |
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+10.1310.15 | | |
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+10.1410.16 | | |
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Exhibit
Number
| | Description |
| |
+10.1510.17 | | |
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+10.1610.18 | | |
|
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Exhibit
Number | | Description |
+10.1710.19 | | |
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10.1810.20 | | Purchase Agreement dated as of January 23, 2017 by and among Silgan Holdings LLC, Silgan White Cap Holdings Spain, S.L., Silgan Holdings B.V., WestRock MWV, LLC, solely for purposes of Sections 4.19 and 9.2 and Article 11, WestRock Company, and, solely for purposes of Sections 4.8, 4.19 and 9.1 and ARTICLE 11, Silgan Holdings Inc. (incorporated by reference to Exhibit 2.1 filed with our Current Report on Form 8-K, dated January 27, 2017, Commission File No. 000-22117).
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10.1910.21 | | Purchase Agreement dated February 8, 2017November 4, 2019 among Silgan Holdings Inc. and Merrill Lynch, Pierce, Fenner & Smith IncorporatedBofA Securities, Inc., as the representative of the Initial Purchasers named therein (incorporated by reference to Exhibit 10,1 filed with our Current Report on Form 8-K, dated November 4, 2019, Commission File No. 000-22117)
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| 10.22 | | |
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*12 | | |
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| 14 | | |
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| *21 | | |
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| *23 | | |
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| *31.1 | | |
| *31.2 | | |
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| *32.1 | | |
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| *32.2 | | |
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| *101.INS | | Inline XBRL Instance Document.Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. |
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| *101.SCH | | Inline XBRL Taxonomy Extension Schema Document. |
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| *101.CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document. |
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| *101.DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document. |
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| *101.LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document. |
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| *101.PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document. |
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| *104 | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
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___________________
*Filed herewith.
+ Management contract or compensatory plan or arrangement.
ITEM 16. FORM 10-K SUMMARY.
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| | | | | | |
| | | | | SILGAN HOLDINGS INC. |
| | | |
Date: March 1, 20182, 2020 | | By: | | /s/ Anthony J. Allott |
| | | | | | | Anthony J. Allott |
| | | �� | | | | PresidentChairman of the Board and |
| | | | | | Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
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| | | | |
| Signature | | Title | | Date |
| | | |
/s/ R. Philip SilverAnthony J. Allott | | Co-ChairmanChairman of the Board and | | March 1, 20182, 2020 |
(R. Philip Silver)Anthony J. Allott) | | Chief Executive Officer | | |
| | | (Principal Executive Officer) | | |
/s/ D. Greg HorriganLeigh J. Abramson | | Co-Chairman of the BoardDirector | | March 1, 20182, 2020 |
(D. Greg Horrigan)Leigh J. Abramson) | | | | |
| | | |
| /s/ John W. Alden | | Director | | March 1, 20182, 2020 |
| (John W. Alden) | | | | |
| | | |
| /s/ William T. Donovan | | Director | | March 1, 20182, 2020 |
| (William T. Donovan) | | | | |
| | | | |
/s/ William C. JenningsKimberly A. Fields | | Director | | March 1, 20182, 2020 |
(William C. Jennings)Kimberly A. Fields) | | | | |
| | |
| /s/ D. Greg Horrigan | | Director | | March 2, 2020 |
| (D. Greg Horrigan) | | | | |
| | | | |
| /s/ Joseph M. Jordan | | Director | | March 1, 20182, 2020 |
| (Joseph M. Jordan) | | | | |
| | | | | |
/s/ Anthony J. AllottBrad A. Lich | | President andDirector | | March 1, 20182, 2020 |
(Anthony J. Allott)Brad A. Lich) | | Chief Executive Officer and Director | | |
| | | |
| /s/ R. Philip Silver | | Director | | March 2, 2020 |
(Principal Executive Officer)R. Philip Silver) | | | | |
| | | | |
| /s/ Robert B. Lewis | | Executive Vice President and | | March 1, 20182, 2020 |
| (Robert B. Lewis) | | Chief Financial Officer | | |
| | | (Principal Financial and Accounting Officer) | | |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Silgan Holdings Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Silgan Holdings Inc. (the Company) as of December 31, 20172019 and 2016, and2018, the related consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2019, and the related notes and financial statement schedule listed in the Index at Item 15 (collectively referred to as the "consolidated financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20172019 and 2016,2018, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2019, in conformity with U.S. generally accepted accounting principles.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2019, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated March 1, 20182, 2020 expressed an unqualified opinion thereon.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
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| Valuation of Goodwill |
| |
| Description of the Matter | At December 31, 2019, the Company’s goodwill was $1.1 billion. As discussed in Note 1 to the consolidated financial statements, goodwill is tested for impairment each year and more frequently if circumstances indicate a possible impairment. |
| |
| Auditing management’s annual goodwill impairment test was complex and highly judgmental due to the significant estimation required in determining the fair value of the reporting units. In particular, the determination of the fair value of the reporting units using the market approach requires management to make significant assumptions related to forecasts of future earnings before interest, income taxes, depreciation and amortization (EBITDA) and the market multiples that are applied to the EBITDA forecast, which are affected by expectations of future market and economic conditions. |
| |
| How We Addressed the Matter in Our Audit | We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s goodwill impairment review process, including controls over management’s development and review of the significant assumptions described above. |
| To test the estimated fair value of the Company’s reporting units, we performed audit procedures that included, among others, assessing the methodologies and testing the significant assumptions described above and the completeness and accuracy of the underlying data used by the Company in its analysis. For example, we compared the significant assumptions used by management to current industry and economic trends and evaluated whether changes to the Company's business model, customer base or product mix and other relevant factors would affect the significant assumptions. We assessed the historical accuracy of management's estimates and performed sensitivity analyses of the significant assumptions to evaluate the changes in the fair value of the reporting units that would result from changes in the assumptions. In performing our testing, we utilized internal valuation specialists to assist us in evaluating the Company's valuation model and related significant assumptions. In addition, we tested the reconciliation of the fair value of the reporting units to the market capitalization of the Company. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1987.1987
Stamford, Connecticut
March 1, 20182, 2020
SILGAN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
December 31, 20172019 and 20162018
(Dollars in thousands, except share and per share data)
| | | | 2017 | | 2016 | 2019 | | 2018 |
| Assets | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | $ | 53,533 |
| | $ | 24,690 |
| $ | 203,824 |
| | $ | 72,819 |
|
Trade accounts receivable, less allowances of $5,339 and $4,073, respectively | 454,637 |
| | 288,197 |
| |
Trade accounts receivable, less allowances of $5,485 and $5,095, respectively | | 504,986 |
| | 511,332 |
|
| Inventories | 721,290 |
| | 602,963 |
| 633,005 |
| | 634,806 |
|
| Prepaid expenses and other current assets | 62,462 |
| | 46,328 |
| 64,993 |
| | 71,177 |
|
| Total current assets | 1,291,922 |
| | 962,178 |
| 1,406,808 |
| | 1,290,134 |
|
| Property, plant and equipment, net | 1,489,872 |
| | 1,156,952 |
| 1,570,331 |
| | 1,517,510 |
|
| Goodwill | 1,171,454 |
| | 604,714 |
| 1,142,223 |
| | 1,148,302 |
|
| Other intangible assets, net | 417,088 |
| | 180,782 |
| 354,615 |
| | 383,448 |
|
| Other assets, net | 275,113 |
| | 244,764 |
| 457,082 |
| | 239,900 |
|
| | $ | 4,645,449 |
| | $ | 3,149,390 |
| $ | 4,931,059 |
| | $ | 4,579,294 |
|
| Liabilities and Stockholders’ Equity | | | | | | |
| | | | | | | |
| Current liabilities: | | | | | | |
| Revolving loans and current portion of long-term debt | $ | 108,789 |
| | $ | 217,127 |
| $ | 29,813 |
| | $ | 170,214 |
|
| Trade accounts payable | 659,629 |
| | 504,798 |
| 727,053 |
| | 712,739 |
|
| Accrued payroll and related costs | 66,257 |
| | 46,275 |
| 66,866 |
| | 68,773 |
|
| Accrued liabilities | 123,602 |
| | 93,625 |
| 194,797 |
| | 127,342 |
|
| Total current liabilities | 958,277 |
| | 861,825 |
| 1,018,529 |
| | 1,079,068 |
|
| | | | | | | |
| Long-term debt | 2,438,502 |
| | 1,344,456 |
| 2,214,608 |
| | 2,134,400 |
|
| Deferred income taxes | 262,394 |
| | 298,420 |
| 254,836 |
| | 268,036 |
|
| Other liabilities | 220,211 |
| | 175,274 |
| 419,764 |
| | 216,525 |
|
| | | | | | | |
| Commitments and contingencies | | | |
|
| |
|
|
| Stockholders’ equity: | | | | | | |
| Common stock ($0.01 par value per share; 200,000,000 shares authorized, 175,112,496 and 87,566,248 shares issued and 110,385,344 and 55,051,158 shares outstanding, respectively) | 1,751 |
| | 876 |
| |
| Common stock ($0.01 par value per share; 400,000,000 shares authorized, 175,112,496 shares issued and 110,780,464 and 110,429,596 shares outstanding, respectively) | | 1,751 |
| | 1,751 |
|
| Paid-in capital | 262,201 |
| | 249,763 |
| 289,422 |
| | 276,062 |
|
| Retained earnings | 1,809,845 |
| | 1,558,594 |
| 2,141,302 |
| | 1,997,785 |
|
| Accumulated other comprehensive loss | (188,973 | ) | | (223,856 | ) | (259,742 | ) | | (268,808 | ) |
Treasury stock at cost (64,727,152 and 32,505,090 shares, respectively) | (1,118,759 | ) | | (1,115,962 | ) | |
Treasury stock at cost (64,332,032 and 64,682,900 shares, respectively) | | (1,149,411 | ) | | (1,125,525 | ) |
| Total stockholders’ equity | 766,065 |
| | 469,415 |
| 1,023,322 |
| | 881,265 |
|
| | $ | 4,645,449 |
| | $ | 3,149,390 |
| $ | 4,931,059 |
| | $ | 4,579,294 |
|
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31, 2017, 20162019, 2018 and 20152017
(Dollars in thousands, except per share data)
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net sales | $ | 4,089,854 |
| | $ | 3,612,914 |
| | $ | 3,763,971 |
| $ | 4,489,927 |
| | $ | 4,448,875 |
| | $ | 4,089,854 |
|
Cost of goods sold | 3,428,738 |
| | 3,079,378 |
| | 3,209,845 |
| 3,776,183 |
| | 3,759,112 |
| | 3,455,306 |
|
| Gross profit | 661,116 |
| | 533,536 |
| | 554,126 |
| 713,744 |
| | 689,763 |
| | 634,548 |
|
Selling, general and administrative expenses | 298,300 |
| | 214,745 |
| | 219,907 |
| 315,703 |
| | 308,376 |
| | 305,173 |
|
| Rationalization charges | 5,826 |
| | 19,061 |
| | 14,407 |
| 56,351 |
| | 6,253 |
| | 5,826 |
|
| Income from operations | 356,990 |
| | 299,730 |
| | 319,812 |
| |
Other pension and postretirement income (a) | | (17,796 | ) | | (36,966 | ) | | (33,441 | ) |
| Income before interest and income taxes | | 359,486 |
| | 412,100 |
| | 356,990 |
|
Interest and other debt expense before loss on early extinguishment of debt | 110,257 |
| | 67,813 |
| | 66,926 |
| 105,674 |
| | 116,306 |
| | 110,257 |
|
| Loss on early extinguishment of debt | 7,052 |
| | — |
| | — |
| 1,676 |
| | 2,493 |
| | 7,052 |
|
| Interest and other debt expense | 117,309 |
| | 67,813 |
| | 66,926 |
| 107,350 |
| | 118,799 |
| | 117,309 |
|
| Income before income taxes | 239,681 |
| | 231,917 |
| | 252,886 |
| 252,136 |
| | 293,301 |
| | 239,681 |
|
| (Benefit) provision for income taxes | (29,978 | ) | | 78,566 |
| | 80,473 |
| |
| Provision (benefit) for income taxes | | 58,322 |
| | 69,307 |
| | (29,978 | ) |
| Net income | $ | 269,659 |
| | $ | 153,351 |
| | $ | 172,413 |
| $ | 193,814 |
| | $ | 223,994 |
| | $ | 269,659 |
|
| | | | | | | | | | | |
Basic net income per share (a) | $ | 2.44 |
| | $ | 1.28 |
| | $ | 1.41 |
| |
Diluted net income per share (a) | $ | 2.42 |
| | $ | 1.27 |
| | $ | 1.41 |
| |
Dividends per share (a) | $ | 0.36 |
| | $ | 0.34 |
| | $ | 0.32 |
| |
| Basic net income per share | | $ | 1.75 |
| | $ | 2.03 |
| | $ | 2.44 |
|
| Diluted net income per share | | $ | 1.74 |
| | $ | 2.01 |
| | $ | 2.42 |
|
______________________
| |
(a) | Per share amounts for 2016Cost of goods sold, selling, general and 2015administrative expenses and other pension and postretirement income include the impact of the Accounting Standards Update issued by the Financial Accounting Standards Board which amended the presentation of net periodic pension and postretirement benefit costs to report certain components, including interest cost, expected return on the plan assets, amortization of prior service cost or credits and actuarial gains and losses, separately. For 2017 these items have been retroactively adjusted for the two-for-one stock split discussed inreclassified from cost of goods sold and selling, general and administrative expenses to other pension and postretirement income. |
Note 1.
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended December 31, 2017, 20162019, 2018 and 20152017
(Dollars in thousands)
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Net income | $ | 269,659 |
| | $ | 153,351 |
| | $ | 172,413 |
| $ | 193,814 |
| | $ | 223,994 |
| | $ | 269,659 |
|
| Other comprehensive income (loss), net of tax: | | | | | | | | | | |
Changes in net prior service credit and net actuarial losses, net of tax benefit (provision) of $3,017, $(1,786) and $(1,960), respectively | (6,293 | ) | | 1,175 |
| | 4,972 |
| |
Change in fair value of derivatives, net of tax benefit (provision) of $355, $(906) and $(129), respectively | (613 | ) | | 1,528 |
| | 210 |
| |
Foreign currency translation, net of tax benefit (provision) of $17,131, $(2,829) and $(9,949), respectively | 63,874 |
| | (17,753 | ) | | (48,364 | ) | |
Changes in net prior service credit and net actuarial losses, net of tax (provision) benefit of $(2,540), $16,248 and $3,017, respectively | | 15,364 |
| | (49,644 | ) | | (6,293 | ) |
Change in fair value of derivatives, net of tax benefit of $683, $283 and $355, respectively | | (2,174 | ) | | (919 | ) | | (613 | ) |
Foreign currency translation, net of tax (provision) benefit of $(1,559), $(3,914) and $17,131, respectively | | (4,124 | ) | | (29,272 | ) | | 63,874 |
|
| Other comprehensive income (loss) | 56,968 |
| | (15,050 | ) | | (43,182 | ) | 9,066 |
| | (79,835 | ) | | 56,968 |
|
| Comprehensive income | $ | 326,627 |
| | $ | 138,301 |
| | $ | 129,231 |
| $ | 202,880 |
| | $ | 144,159 |
| | $ | 326,627 |
|
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the years ended December 31, 2017, 20162019, 2018 and 20152017
(Dollars and shares in thousands)thousands, except per share data)
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Common Stock | | Paid-in Capital | | Retained Earnings | | Accumulated Other Comprehensive Loss | | Treasury Stock | | Total Stockholders’ Equity |
| | Shares Outstanding | | Par Value | |
| Balance at January 1, 2015 | 63,203 |
| | 876 |
| | 225,449 |
| | 1,313,521 |
| | (165,624 | ) | | (664,266 | ) | | 709,956 |
|
| Net income | — |
| | — |
| | — |
| | 172,413 |
| | — |
| | — |
| | 172,413 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (43,182 | ) | | — |
| | (43,182 | ) |
Dividends declared on common stock | — |
| | — |
| | — |
| | (39,741 | ) | | — |
| | — |
| | (39,741 | ) |
| Stock compensation expense | — |
| | — |
| | 12,403 |
| | — |
| | — |
| | — |
| | 12,403 |
|
Net issuance of treasury stock for vested restricted stock units, including tax benefit of $359 | 96 |
| | — |
| | (561 | ) | | — |
| | — |
| | (1,972 | ) | | (2,533 | ) |
| Repurchases of common stock | (2,906 | ) | | — |
| | — |
| | — |
| | — |
| | (170,132 | ) | | (170,132 | ) |
| Balance at December 31, 2015 | 60,393 |
| | 876 |
| | 237,291 |
| | 1,446,193 |
| | (208,806 | ) | | (836,370 | ) | | 639,184 |
|
| Net income | — |
| | — |
| | — |
| | 153,351 |
| | — |
| | — |
| | 153,351 |
|
| Other comprehensive loss | — |
| | — |
| | — |
| | — |
| | (15,050 | ) | | — |
| | (15,050 | ) |
Dividends declared on common stock | — |
| | — |
| | — |
| | (40,877 | ) | | — |
| | — |
| | (40,877 | ) |
| Stock compensation expense | — |
| | — |
| | 13,018 |
| | — |
| | — |
| | — |
| | 13,018 |
|
| Adoption of accounting standards update related to stock compensation accounting | — |
| | — |
| | 598 |
| | (73 | ) | | — |
| | — |
| | 525 |
|
Net issuance of treasury stock for vested restricted stock units | 114 |
| | — |
| | (1,144 | ) | | — |
| | — |
| | (2,286 | ) | | (3,430 | ) |
| Repurchases of common stock | (5,456 | ) | | — |
| | — |
| | — |
| | — |
| | (277,306 | ) | | (277,306 | ) |
| Balance at December 31, 2016 | 55,051 |
| | 876 |
| | 249,763 |
| | 1,558,594 |
| | (223,856 | ) | | (1,115,962 | ) | | 469,415 |
|
| Net income | — |
| | — |
| | — |
| | 269,659 |
| | — |
| | — |
| | 269,659 |
|
| Other comprehensive income | — |
| | — |
| | — |
| | — |
| | 56,968 |
| | — |
| | 56,968 |
|
Dividends declared on common stock | — |
| | — |
| | — |
| | (40,493 | ) | | — |
| | — |
| | (40,493 | ) |
| Stock compensation expense | — |
| | — |
| | 14,639 |
| | — |
| | — |
| | — |
| | 14,639 |
|
Net issuance of treasury stock for vested restricted stock units | 192 |
| | — |
| | (1,326 | ) | | — |
| | — |
| | (2,797 | ) | | (4,123 | ) |
| Two-for-one stock split | 55,142 |
| | 875 |
| | (875 | ) | | — |
| | — |
| | — |
| | — |
|
| Adoption of accounting standards update related to reclassification of certain tax effects | — |
| | — |
| | — |
| | 22,085 |
| | (22,085 | ) | | — |
| | — |
|
| Balance at December 31, 2017 | 110,385 |
| | $ | 1,751 |
| | $ | 262,201 |
| | $ | 1,809,845 |
| | $ | (188,973 | ) | | $ | (1,118,759 | ) | | $ | 766,065 |
|
|
| | | | | | | | | | | | |
| | | 2019 | | 2018 | | 2017 |
| Common stock - shares outstanding | | | | | | |
| Balance at beginning of period | | 110,430 |
| | 110,385 |
| | 55,051 |
|
| Net issuance of treasury stock for vested restricted stock units | | 758 |
| | 233 |
| | 192 |
|
| Two-for-one stock split | | — |
| | — |
| | 55,142 |
|
| Repurchases of common stock | | (408 | ) | | (188 | ) | | — |
|
| Balance at end of period | | 110,780 |
| | 110,430 |
| | 110,385 |
|
| | | | | | | |
| Common stock - par value | | | | | | |
| Balance at beginning of period | | $ | 1,751 |
| | $ | 1,751 |
| | $ | 876 |
|
| Two-for-one stock split | | — |
| | — |
| | 875 |
|
| Balance at end of period | | 1,751 |
| | 1,751 |
| | 1,751 |
|
| Paid-in capital | | | | | | |
| Balance at beginning of period | | 276,062 |
| | 262,201 |
| | 249,763 |
|
| Stock compensation expense | | 17,078 |
| | 14,923 |
| | 14,639 |
|
| Net issuance of treasury stock for vested restricted stock units | | (3,718 | ) | | (1,062 | ) | | (1,326 | ) |
| Two-for-one stock split | | — |
| | — |
| | (875 | ) |
| Balance at end of period | | 289,422 |
| | 276,062 |
| | 262,201 |
|
| Retained earnings | | | | | | |
| Balance at beginning of period | | 1,997,785 |
| | 1,809,845 |
| | 1,558,594 |
|
| Net income | | 193,814 |
| | 223,994 |
| | 269,659 |
|
| Dividends declared on common stock | | (49,704 | ) | | (45,115 | ) | | (40,493 | ) |
| Adoption of accounting standards update related to leases in 2019, revenue recognition in 2018 and reclassification of certain tax effects in 2017 | | (593 | ) | | 9,061 |
| | 22,085 |
|
| Balance at end of period | | 2,141,302 |
| | 1,997,785 |
| | 1,809,845 |
|
| Accumulated other comprehensive loss | | | | | | |
| Balance at beginning of period | | (268,808 | ) | | (188,973 | ) | | (223,856 | ) |
| Other comprehensive income (loss) | | 9,066 |
| | (79,835 | ) | | 56,968 |
|
| Adoption of accounting standards update related to reclassification of certain tax effects | | — |
| | — |
| | (22,085 | ) |
| Balance at end of period | | (259,742 | ) | | (268,808 | ) | | (188,973 | ) |
| Treasury stock | | | | | | |
| Balance at beginning of period | | (1,125,525 | ) | | (1,118,759 | ) | | (1,115,962 | ) |
| Net issuance of treasury stock for vested restricted stock units | | (11,774 | ) | | (1,995 | ) | | (2,797 | ) |
| Repurchases of common stock | | (12,112 | ) | | (4,771 | ) | | — |
|
| Balance at end of period | | (1,149,411 | ) | | (1,125,525 | ) | | (1,118,759 | ) |
| Total stockholders' equity | | $ | 1,023,322 |
| | $ | 881,265 |
| | $ | 766,065 |
|
| | | | | | | |
| Dividends declared on common stock per share | | $ | 0.44 |
| | $ | 0.40 |
| | $ | 0.36 |
|
SILGAN HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 2017, 2016,2019, 2018, and 20152017
(Dollars in thousands)
| | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| Cash flows provided by (used in) operating activities: | | | | | | | | | | |
| Net income | $ | 269,659 |
| | $ | 153,351 |
| | $ | 172,413 |
| $ | 193,814 |
| | $ | 223,994 |
| | $ | 269,659 |
|
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | | | | | | | | | | |
| Depreciation and amortization | 174,062 |
| | 143,058 |
| | 142,192 |
| 206,483 |
| | 191,737 |
| | 174,062 |
|
| Amortization of debt issuance costs | 4,259 |
| | 4,139 |
| | 4,156 |
| 3,463 |
| | 3,774 |
| | 4,259 |
|
| Rationalization charges | 5,826 |
| | 19,061 |
| | 14,407 |
| 56,351 |
| | 6,253 |
| | 5,826 |
|
| Stock compensation expense | 14,639 |
| | 13,018 |
| | 12,077 |
| 17,078 |
| | 14,923 |
| | 14,639 |
|
| Loss on early extinguishment of debt | 7,052 |
| | — |
| | — |
| 1,676 |
| | 2,493 |
| | 7,052 |
|
| Deferred income tax (benefit) provision | (114,969 | ) | | 45,011 |
| | (13,278 | ) | (20,859 | ) | | 23,740 |
| | (114,969 | ) |
Other changes that provided (used) cash, net of effects from acquisitions: | | | | | | |
Other changes that provided (used) cash, net of effects from acquisition: | | | | | | |
| Trade accounts receivable, net | (37,107 | ) | | (10,867 | ) | | 12,287 |
| 3,800 |
| | 516 |
| | (37,107 | ) |
| Inventories | (17,228 | ) | | 19,960 |
| | (97,576 | ) | 53 |
| | 20,366 |
| | (17,228 | ) |
| Trade accounts payable | 84,102 |
| | 52,752 |
| | 43,822 |
| 16,453 |
| | 61,095 |
| | 84,102 |
|
| Accrued liabilities | 4,321 |
| | (20,145 | ) | | 37,640 |
| 13,950 |
| | 3,564 |
| | 4,321 |
|
| Other, net | (4,851 | ) | | (24,787 | ) | | 7,625 |
| 15,093 |
| | (45,935 | ) | | (4,851 | ) |
| Net cash provided by operating activities | 389,765 |
| | 394,551 |
| | 335,765 |
| 507,355 |
| | 506,520 |
| | 389,765 |
|
| Cash flows provided by (used in) investing activities: | | | | | | | | | | |
| Purchases of businesses, net of cash acquired | (1,023,848 | ) | | — |
| | (690 | ) | |
| Purchase of business, net of cash acquired | | — |
| | — |
| | (1,023,848 | ) |
| Capital expenditures | (174,429 | ) | | (191,893 | ) | | (237,302 | ) | (230,944 | ) | | (190,973 | ) | | (174,429 | ) |
| Proceeds from asset sales | 600 |
| | 11,555 |
| | 903 |
| |
| Other, net | | 854 |
| | 1,051 |
| | 600 |
|
| Net cash used in investing activities | (1,197,677 | ) | | (180,338 | ) | | (237,089 | ) | (230,090 | ) | | (189,922 | ) | | (1,197,677 | ) |
| Cash flows provided by (used in) financing activities: | | | | | | | | | | |
| Borrowings under revolving loans | 1,172,079 |
| | 919,482 |
| | 732,091 |
| 1,194,120 |
| | 1,043,370 |
| | 1,172,079 |
|
| Repayments under revolving loans | (1,316,758 | ) | | (797,106 | ) | | (729,843 | ) | (1,292,280 | ) | | (991,006 | ) | | (1,316,758 | ) |
| Changes in outstanding checks – principally vendors | 8,851 |
| | (22,819 | ) | | 18,961 |
| (4,664 | ) | | (4,125 | ) | | 8,851 |
|
| Proceeds from issuance of long-term debt | 1,789,200 |
| | — |
| | 7,538 |
| 400,000 |
| | — |
| | 1,789,200 |
|
| Repayments of long-term debt | (755,037 | ) | | (67,412 | ) | | (37,304 | ) | (359,432 | ) | | (286,200 | ) | | (755,037 | ) |
| Debt issuance costs | (16,964 | ) | | — |
| | — |
| (4,825 | ) | | (3,272 | ) | | (16,964 | ) |
| Dividends paid on common stock | (40,493 | ) | | (40,877 | ) | | (39,741 | ) | (50,840 | ) | | (44,549 | ) | | (40,493 | ) |
| Repurchase of common stock | (4,123 | ) | | (280,736 | ) | | (173,024 | ) | (27,604 | ) | | (7,828 | ) | | (4,123 | ) |
| Net cash provided by (used in) financing activities | 836,755 |
| | (289,468 | ) | | (221,322 | ) | |
| Net cash (used in) provided by financing activities | | (145,525 | ) | | (293,610 | ) | | 836,755 |
|
| | | | | | | |
| Effect of exchange rate changes on cash and cash equivalents | | (735 | ) | | (3,702 | ) | | — |
|
| | | | | | | |
| Cash and cash equivalents: | | | | | | | | | | |
| Net increase (decrease) | 28,843 |
| | (75,255 | ) | | (122,646 | ) | |
| Net increase | | 131,005 |
| | 19,286 |
| | 28,843 |
|
| Balance at beginning of year | 24,690 |
| | 99,945 |
| | 222,591 |
| 72,819 |
| | 53,533 |
| | 24,690 |
|
| Balance at end of year | $ | 53,533 |
| | $ | 24,690 |
| | $ | 99,945 |
| $ | 203,824 |
| | $ | 72,819 |
| | $ | 53,533 |
|
| | | | | | | | | | | |
| Interest paid, net | $ | 97,595 |
| | $ | 65,471 |
| | $ | 63,954 |
| $ | 108,798 |
| | $ | 118,377 |
| | $ | 97,595 |
|
| Income taxes paid, net of refunds | 70,239 |
| | 58,147 |
| | 49,690 |
| 40,650 |
| | 47,172 |
| | 70,239 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 1. SUMMARYOF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business. Silgan Holdings Inc., or Silgan, and its subsidiaries conduct business in three market segments: metal containers, closures and plastic containers. Our metal container business is engaged in the manufacture and sale of steel and aluminum containers for human and pet food and general line products. Our closures business manufactures and sells metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. Our plastic container business manufactures and sells 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. Our metal container business has operating facilities in North America, Europe and Asia. Our closures business has operating facilities in North and South America, Europe and Asia. Our plastic container business is based in North America.
Basis of Presentation. The consolidated financial statements include the accounts of Silgan and our subsidiaries. Newly acquired subsidiaries have been included in the consolidated financial statements from their dates of acquisition. All significant intercompany transactions have been eliminated. The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles, or GAAP, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results may differ from those estimates.
Generally, our subsidiaries that operate outside the United States use their local currency as the functional currency. The principal functional currency for our foreign operations is the Euro. Balance sheet accounts of our foreign subsidiaries are translated at exchange rates in effect at the balance sheet date, while revenue and expense accounts are translated at average rates prevailing during the year. Translation adjustments are reported as a component of accumulated other comprehensive loss. Gains or losses resulting from operating transactions denominated in foreign currencies that are not designated as a hedge are generally included in selling, general and administrative expenses in our Consolidated Statements of Income.
Deferred income taxes as of December 31, 2016 previously included in other liabilities have been presented as a separate line item on the Consolidated Balance Sheet to conform to current period presentation.
Stock Split.On May 3, 2017, our Board of Directors declared a two-for-one2-for-one stock split of our issued common stock. The stock split was effected on May 26, 2017 in the form of a stock dividend. Stockholders of record at the close of business on May 15, 2017 were issued one additional share of common stock for each share of common stock owned on that date. Information pertaining to the number of shares, outstanding, per share amounts and stockstock-based compensation has been retroactively adjusted in the accompanying financial statements and related footnotes to reflect this stock split for allthe applicable periods presented prior to the stock split, except for the Consolidated Balance Sheets and Statements of Stockholders’ Equity.Stockholders' Equity other than as noted therein. Stockholders’ equity reflects the stock split in 2017 by reclassifying from paid-in capital to common stock an amount equal to the par value of the additional shares issued as a result of the stock split.
Cash and Cash Equivalents. Cash equivalents represent short-term, highly liquid investments which are readily convertible to cash and have maturities of three months or less at the time of purchase. As a result of our cash management system, checks issued for payment may create negative book balances. Checks outstanding in excess of related book balances are included in trade accounts payable in our Consolidated Balance Sheets. Changes in outstanding checks are included in financing activities in our Consolidated Statements of Cash Flows to treat them as, in substance, cash advances.
Inventories. Inventories are valued at the lower of cost or market (net realizable value). Cost for domestic inventories for our metal container business and certain portions of our closures business is principally determined on the last-in, first-out basis, or LIFO. Cost for inventories for our plastic container business and certain portions of our closures business is principally determined on the first-in, first-out basis, or FIFO. Cost for foreign inventories for our metal container business and certain portions of our closures business is principally determined on the average cost method.
Property, Plant and Equipment, Net. Property, plant and equipment, net is stated at historical cost less accumulated depreciation. Major renewals and betterments that extend the life of an asset are capitalized and repairs and maintenance expenditures are charged to expense as incurred. Design and development costs for
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
molds, dies and other tools that we do not own and that will be used to produce products that will be sold under
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
long-term supply arrangements are capitalized. Depreciation is computed using the straight-line method over the estimated useful lives of depreciable assets. The principal estimated useful lives are 35 years for buildings and range between 3 years to 20 years for machinery and equipment. Leasehold improvements are amortized over the shorter of the life of the related asset or the life of the lease.
Goodwill and Other Intangible Assets, Net. 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 goodwill and other indefinite-lived intangible assets were not impaired in our annual assessment performed during the third quarter. Definite-lived intangible assets are amortized over their estimated useful lives on a straight-line basis. Customer relationships have a weighted average life of approximately 20 years. Other definite-lived intangible assets consist primarily of a trade name and technology know-how and have a weighted average life of approximately 87 years.
Impairment of Long-Lived Assets. We assess long-lived assets, including intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate the carrying amount of the assets may not be fully recoverable. An impairment exists if the estimate of future undiscounted cash flows generated by the assets is less than the carrying value of the assets. If impairment is determined to exist, any related impairment loss is then measured by comparing the fair value of the assets to their carrying amount.
Hedging Instruments. All derivative financial instruments are recorded in the Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or other comprehensive loss, depending on whether a derivative is designated as part of a qualifying hedge transaction and, if it is, the type of hedge transaction.
We have historically utilizedutilize certain derivative financial instruments to manage a portion of our interest rate exposure and currently utilize certain derivative financial instruments to manage a portion of our natural gas cost exposure.exposures. 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.
Income Taxes. We account for income taxes using the liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment of such change. No provision is made for U.S. income taxes applicable to undistributed earnings of foreign subsidiaries that are indefinitely reinvested.
Revenue Recognition. RevenuesOur revenues are recognized whenprimarily derived from the sale of rigid packaging products to customers. We recognize revenue at the amount we expect to be entitled to in exchange for promised goods are shipped andfor which we have transferred control to customers. If the title and riskconsideration agreed to in a contract includes a variable amount, we estimate the amount of loss passconsideration we expect to be entitled to in exchange for transferring the promised goods to the customer. For those sites where we operate withinGenerally, revenue is recognized at a point in time for standard promised goods at the customer’s facilities,time of shipment when title and risk of loss pass to the customer, upon deliveryand revenue is recognized over time in cases where we produce promised goods with no alternative use to us and for which we have an enforceable right of productpayment for production completed. The production cycle for customer contracts subject to clearly delineated areas withinover time recognition is generally completed in less than one month. Due to the common facility, at which timeshort-term duration of our production cycle, we recognize revenues. Shippinghave elected the practical expedient permitting us to exclude disclosure regarding our performance obligations with respect to outstanding purchase orders. We have elected to treat shipping and handling fees and costs incurred in connection with products sold are recorded in costafter the control of goods sold inhave been transferred to the customer as a fulfillment cost. Sales and similar taxes that are imposed on our Consolidated Statements of Income.sales and collected from customers are excluded from revenues.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
Stock-Based Compensation. We currently have one1 stock-based compensation plan in effect under which we have issued stock options and restricted stock units to our officers, other key employees and outside directors. A restricted stock unit represents the right to receive one1 share of our common stock at a future date. Unvested restricted stock units that have been issued do not have voting rights and may not be disposed of or transferred during the vesting period.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
Recently Adopted Accounting Pronouncements. In January 2017,May 2014, the Financial Accounting Standards Board, or the FASB, issued an accounting standards update, or ASU, that provides guidance to simplify the test for goodwill impairment. This guidance eliminates the requirement to assign the fair value of a reporting unit to each of its assets and liabilities to quantify a goodwill impairment charge. Under this amended guidance, the goodwill impairment charge to be recognized will be determined based on comparing the carrying value of the reporting unit to its fair value. As permitted, we have adopted this amendment early in conjunction with our annual assessment of goodwill as of July 1, 2017 and have applied it prospectively. The adoption of this amendment did not have any effect on our financial position, results of operations or cash flows.
In August 2017, the FASB issued an ASU that (i) amends the hedge accounting recognition and presentation requirements to better portray the economic results of an entity's risk management activities in its financial statements and (ii) simplifies the application of hedge accounting guidance under GAAP. This amendment requires an entity to present the earnings effect of the hedging instrument in the same income line item in which the earnings effect of the hedged item is reported. As permitted, we have adopted this amendment early, effective January 1, 2017, using a modified retrospective approach. The adoption of this amendment did not have any effect on our financial position, results of operations or cash flows.
In February 2018, the FASB issued an ASU that provides for the reclassification of stranded tax effects resulting from the decrease in the federal corporate tax rate and certain other tax effects as a result of the recently enacted legislation in the United States commonly referred to as the Tax Cuts and Jobs Act, or the 2017 Tax Act, from accumulated other comprehensive loss to retained earnings. As permitted, we have adopted this amendment early, effective December 31, 2017. As a result of this amendment, we increased each of accumulated other comprehensive loss and retained earnings by $22.1 million. See Note 4 for further information.
Recently Issued Accounting Pronouncements. In May 2014, the FASB issued an ASU, that amends the guidance for revenue recognition. This amendment contains principles that will require an entity to recognize revenue to depict the transfer of promised goods and services to customers at an amount that an entity expects to be entitled to in exchange for those promised goods or services. We will adoptadopted this amendment on January 1, 2018, using the modified retrospective method.method for all contracts for which performance was not completed as of January 1, 2018. Results for the reporting period beginning January 1, 2018 are presented under the new guidance, while prior period amounts are not adjusted. The adoption of this amendment will requirerequired us to accelerate the recognition of revenue as comparedprior to the current standards forshipment to certain customers in cases where we produce productspromised goods with no alternative use to us and for which we have an enforceable right of payment for production completed to date. We do not expect thatcompleted. As a result of the adoption of this amendment, willwe increased retained earnings by $9.1 million as of January 1, 2018. The adoption of this amendment did not have a material impact on our financial position, results of operations or cash flows. See Note 2 for further information.
In February 2016, the FASB issued an ASU that amends existing guidance for certain leases by lessees. This amendment will require us to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. In addition, this amendment clarifies the presentation requirements of the effects of leases in the statement of income and statement of cash flows. This amendment will be effective for us on January 1, 2019. Early adoption is permitted. This amendment is required to be adopted using a modified retrospective approach. We are currently evaluating the impact of this amendment on our financial position, results of operations and cash flows.
In August 2016, the FASB issued an ASU that provides guidance for cash flow classification for certain cash receipts and cash payments to address diversity in practice in the manner in which items are classified on the statement of cash flows as either operating, investing or financing activities. This amendment will be effective for us on January 1, 2018. This amendment is required to be adopted using a retrospective approach and is not expected to have a material impact on our statement of cash flows.
In March 2017, the FASB issued an ASU that amends the presentation of net periodic pension cost and net periodic postretirement benefit cost. This amendment will requirerequires an entity to disaggregate the service cost component from the other components of net periodic benefit cost, to report the service cost component in the same line item as other compensation costs and to report the other components of net periodic benefit cost (which include interest cost, expected return on plan assets, amortization of prior service cost or credit and actuarial gains and losses) separately. In addition, capitalization of net periodic benefit cost in assets will beis limited to the service cost component. We will adopthave adopted this amendment onas of January 1, 2018. This amendment is required to be adopted (i) retrospectively with respect to the disaggregationAs a result of the service cost component from the other components of net
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
periodic benefit cost and the separateseparately reporting of the other components of net periodic benefit cost, we retrospectively increased cost of goods sold by $26.6 million, increased selling, general and (ii) prospectively with respectadministrative expenses by $6.8 million and reported other pension and postretirement income of $33.4 million in our Consolidated Statements of Income for the year ended December 31, 2017, based on amounts previously included in net periodic benefit costs for retirement benefits as disclosed in Note 12. The adoption of this amendment did not have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued an ASU that amends existing guidance for certain leases by lessees. This amendment required us to recognize assets and liabilities on the capitalization inbalance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. We adopted this amendment on January 1, 2019, using the transition method which allowed us to recognize the effects of applying this amendment as a cumulative effect to retained earnings as of January 1, 2019. We elected certain practical expedients permitted under the transition guidance for this amendment, which did not require us to reassess whether other contracts contain leases and allowed us to carryforward our lease classifications determined under the previous guidance. In addition, we elected to retain our previously determined assumptions concerning options to extend or terminate our leases. As a result of the adoption of this amendment, we recognized additional long-term assets of $160.8 million, additional related lease liabilities of $161.4 million and reduced retained earnings by $0.6 million all on January 1, 2019. The adoption of this amendment did not have a material impact on our results of operations or cash flows. See Note 2 for further information.
Recently Issued Accounting Pronouncements. In June 2016, the serviceFASB issued an 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 component.and certain other instruments, including trade and other receivables. This new standard is effective for the Company on January 1, 2020. We do not expect that this amendmentnew standard will have a material impact on our financial position, results of operations or cash flows.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
NOTE 2. ACQUISITIONREVENUE
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:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Metal containers | $ | 2,473,214 |
| | $ | 2,377,980 |
| | $ | 2,278,054 |
|
| Closures | 1,405,611 |
| | 1,456,799 |
| | 1,246,669 |
|
| Plastic containers | 611,102 |
| | 614,096 |
| | 565,131 |
|
| | $ | 4,489,927 |
| | $ | 4,448,875 |
| | $ | 4,089,854 |
|
Revenues by geography were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| North America | $ | 3,593,961 |
| | $ | 3,516,045 |
| | $ | 3,268,126 |
|
| Europe and other | 895,966 |
| | 932,830 |
| | 821,728 |
|
| | $ | 4,489,927 |
| | $ | 4,448,875 |
| | $ | 4,089,854 |
|
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 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 $71.1 million and $72.5 million as of December 31, 2019 and 2018, respectively. Unbilled receivables are included in trade accounts receivable, net on our Consolidated Balance Sheet.
NOTE 3. ACQUISITION
DISPENSING SYSTEMS ACQUISITION
On April 6, 2017, we acquired the specialty closures and dispensing systems operations of WestRock Company, now operating under the name Silgan Dispensing Systems, or SDS. SDS is a leading global supplier of highly engineered triggers, pumps, sprayers and dispensing closure solutions for health care, garden, personal care, home, beauty and food products. It operates a global network of thirteen facilities across North and South America, Europe and Asia. SDS represents a strategically important acquisition for us, providing us with an opportunity to expand our closures franchise. SDS is included in our Closures segment as of the acquisition date.
For the year ended December 31, 2016, SDS generated net sales of approximately $570 million. We acquired SDS for a purchase price in cash of $1,023.8 million, net of cash acquired. We incurred acquisition related costs for SDS totaling $26.1 million, including $24.7 million and $1.4 million for the years ended December 31, 2017 and 2016, respectively, which are included in selling, general and administrative expenses in our Consolidated Statements of Income. We funded the purchase price for this acquisition through term and revolving loan borrowings under our amended and restated senior secured credit facility. See Note 8 for further information.
The initial purchase price has been allocated toWe applied the acquisition method of accounting and recognized assets acquired and liabilities assumed based on estimatedat 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 valuationvalue as of the assets and liabilities, primarily related to current and deferred income tax balances. Based upon revised estimates of fair value of certain assets and liabilities from our preliminary purchase price allocation presented in our Quarterly Report on Form 10-Q for the period ended June 30, 2017,acquisition date. For this acquisition, we decreasedrecognized goodwill by $12.0 million, primarily related to a decrease in deferred income tax liabilities.
The allocated fair value of assets acquired and liabilities assumed are summarized as follows (in thousands):
|
| | | |
| Trade accounts receivable | $ | 109,565 |
|
| Inventories | 79,758 |
|
| Property, plant and equipment | 255,616 |
|
| Other intangible assets | 245,000 |
|
| Other assets | 40,647 |
|
| Trade accounts payable and accrued liabilities | (86,699 | ) |
| Deferred income tax liabilities | (105,701 | ) |
| Other liabilities | (25,339 | ) |
| Total identifiable net assets | 512,847 |
|
| Goodwill | 511,001 |
|
| Cash paid, net of cash acquired | $ | 1,023,848 |
|
Goodwill of $511.0 million, consists largely of our increased capacity to serve our global customers and achieve operational synergies and has been assigned to our closures segment. An insignificant portion of the goodwill is expected to be deductible for income tax purposes, although additional deductions may be available under the 2017 Tax Act. Additional work is necessary to complete the analysis of the portion of goodwill that is deductible for income tax purposes under the 2017 Tax Act. Othera customer relationship intangible assets consist of customer relationshipsasset of $220.0 million with an estimated remaining life of 22 years and a technology know-how intangible asset of $25.0 million with an estimatedmillion. SDS’s results of operations have been included in our closures segment since the acquisition date.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
remaining life of 7 years. Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives of up to 35 years.
Our consolidated results of operations for the year ended December 31, 2017 included the results for SDS since the acquisition date. Net sales and income from operations from the SDS operations of $445.6 million and $47.3 million, respectively, were included in our Consolidated Statements of Income for the year ended December 31, 2017. For the year ended December 31, 2017, SDS's income from operations included the pre-tax unfavorable impact of an $11.9 million charge related to the inventory write-up for SDS as a result of purchase accounting in connection with the acquisition.
Pro Forma Information
The following unaudited pro forma financial information includes our historical results of operations for the years ended December 31, 2017 and 2016 and gives pro forma effect to the SDS acquisition as if it had been completed as of January 1, 2016. The pro forma results of operations include interest expense related to incremental borrowings used to finance the acquisition and adjustments to depreciation and amortization expense for the valuation of property, plant and equipment and intangible assets. Net income for the year ended December 31, 2017 excludes the unfavorable impact of the initial inventory write-up and acquisition related costs of $11.9 million and $24.7 million before income taxes, respectively. Net income for the year ended December 31, 2016 includes the unfavorable impact of the initial inventory write-up and total acquisition related costs of $11.9 million and $26.1 million before income taxes, respectively. The pro forma results of operations do not give effect to potential synergies or additional costs resulting from the integration of SDS with our existing operations to the extent not recognized in actual results.
The unaudited pro forma financial information for the years ended December 31, 2017 and 2016 is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the SDS acquisition been completed as of the beginning of the periods presented, nor should it be taken as indicative of our future consolidated results of operations or financial condition.
|
| | | | | | | | |
| | | 2017 | | 2016 |
| | (Dollars in thousands, except per share data) |
| Net sales | | $ | 4,243,432 |
| | $ | 4,184,239 |
|
| Net income | | $ | 300,414 |
| | $ | 150,652 |
|
| | | | | |
| Earnings per share: | | | | |
| Basic net income per share | | $ | 2.72 |
| | $ | 1.26 |
|
| Diluted net income per share | | $ | 2.70 |
| | $ | 1.25 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
NOTE 3. 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 for each of the years ended December 31 were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Metal containers | $ | 49,425 |
| | $ | 5,316 |
| | $ | 3,308 |
|
| Closures | 6,562 |
| | 180 |
| | 1,042 |
|
| Plastic containers | 364 |
| | 757 |
| | 1,476 |
|
| | $ | 56,351 |
| | $ | 6,253 |
| | $ | 5,826 |
|
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Metal containers | $ | 3,308 |
| | $ | 12,056 |
| | $ | 41 |
|
| Closures | 1,042 |
| | 568 |
| | 1,684 |
|
| Plastic containers | 1,476 |
| | 6,437 |
| | 12,682 |
|
| | $ | 5,826 |
| | $ | 19,061 |
| | $ | 14,407 |
|
In June 2019, we announced a footprint optimization plan for our metal container business, which included the closing of our metal container manufacturing facilities in Mt. Vernon, Missouri and Waupun, Wisconsin in the fourth quarter of 2019. These plant closings, in conjunction with the prior ratification of a new labor agreement at our Menomonee Falls, Wisconsin metal container manufacturing facility that provided for the withdrawal for that facility from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, will result in our complete withdrawal from the Central States Pension Plan. We estimate net rationalization charges for this plan of $3.5 million for the plant closings and $62.0 million for the withdrawal from the Central States Pension Plan. We recorded total rationalization charges for this plan of $46.2 million for the year ended December 31, 2019 largely to recognize the present value of the estimated withdrawal liability related to the Central States Pension Plan. Remaining expenses and cash expenditures for the plant closings are not expected to be significant. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1 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. Although the annual payments for such withdrawal liability will be somewhat higher than our annual funding requirements to the Central States Pension Plan prior to our withdrawal, such increase will not be significant.
Rationalization charges in 2016 for the metal containeryear ended December 31, 2019 for the closures business segment were primarily related to the announced shutdown in the first quarter of 2019 of the LaPorte, IndianaTorello, Spain metal closures manufacturing facility. Rationalization charges in 2015 for the plastic container business segment were primarily related to the shutdown of the Woodstock, Illinois and Cape Girardeau, Missouri manufacturing facilities.
Activity in reserves for our rationalization plans was as follows:
|
| | | | | | | | | | | | | | | |
| | Employee Severance and Benefits | | Plant Exit Costs | | Non-Cash Asset Write-Down | | Total |
| | (Dollars in thousands) |
| Balance as of January 1, 2017 | $ | 945 |
| | $ | 2,426 |
| | $ | — |
| | $ | 3,371 |
|
| Charged to expense | 1,255 |
| | 1,380 |
| | 3,191 |
| | 5,826 |
|
| Utilized and currency translation | (2,178 | ) | | (1,409 | ) | | (3,191 | ) | | (6,778 | ) |
| Balance at December 31, 2017 | 22 |
| | 2,397 |
| | — |
| | 2,419 |
|
| Charged to expense | 898 |
| | 534 |
| | 4,821 |
| | 6,253 |
|
| Utilized and currency translation | (790 | ) | | (1,449 | ) | | (4,821 | ) | | (7,060 | ) |
| Balance at December 31, 2018 | 130 |
| | 1,482 |
| | — |
| | 1,612 |
|
| Charged to expense | 49,496 |
| | 1,336 |
| | 5,519 |
| | 56,351 |
|
| Utilized and currency translation | (6,811 | ) | | (1,920 | ) | | (5,519 | ) | | (14,250 | ) |
| Balance at December 31, 2019 | $ | 42,815 |
| | $ | 898 |
| | $ | — |
| | $ | 43,713 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
|
| | | | | | | | | | | | | | | | | | | |
| | Employee Severance and Benefits | | Non-Cash Retirement Benefits | | Plant Exit Costs | | Non-Cash Asset Write-Down | | Total |
| | (Dollars in thousands) |
| Balance as of January 1, 2015 | $ | 6,052 |
| | $ | — |
| | $ | 316 |
| | $ | — |
| | $ | 6,368 |
|
| Charged to expense | 3,199 |
| | (522 | ) | | 287 |
| | 11,443 |
| | 14,407 |
|
| Utilized and currency translation | (6,225 | ) | | 522 |
| | (335 | ) | | (11,443 | ) | | (17,481 | ) |
| Balance at December 31, 2015 | 3,026 |
| | — |
| | 268 |
| | — |
| | 3,294 |
|
| Charged to expense | 5,103 |
| | 2,197 |
| | 5,012 |
| | 6,749 |
| | 19,061 |
|
| Utilized and currency translation | (7,184 | ) | | (2,197 | ) | | (2,854 | ) | | (6,749 | ) | | (18,984 | ) |
| Balance at December 31, 2016 | 945 |
| | — |
| | 2,426 |
| | — |
| | 3,371 |
|
| Charged to expense | 1,255 |
| | — |
| | 1,380 |
| | 3,191 |
| | 5,826 |
|
| Utilized and currency translation | (2,178 | ) | | — |
| | (1,409 | ) | | (3,191 | ) | | (6,778 | ) |
| Balance at December 31, 2017 | $ | 22 |
| | $ | — |
| | $ | 2,397 |
| | $ | — |
| | $ | 2,419 |
|
Non-cash retirement benefits in 2016 consisted of special termination benefits of $2.8 million and net curtailment gains of $0.6 million recognized in connection with the shutdown of the LaPorte, Indiana manufacturing facility. See Note 11 for further information. Non-cash asset write-downs were the result of comparing the carrying value of certain production related equipment to their fair value using estimated future discounted cash flows, a Level 3 fair value measurement (as defined in(see Note 9)10 for information regarding a Level 3 fair value measurement).
Rationalization reserves as of December 31, 20172019 and 20162018 were recorded in our Consolidated Balance Sheets as accrued liabilities of $1.2$5.0 million and $1.9$0.6 million, respectively, and as other liabilities of $1.2$38.7 million and $1.5$1.0 million, respectively. RemainingExclusive of the footprint optimization plan for our metal container business and the withdrawal from the Central States Pension Plan discussed above, remaining expenses for our rationalization plans of $1.3$2.2 million are expected primarily in 20182020, and thereafter. Remainingremaining cash expenditures for our rationalization plans of $3.7$4.1 million are expected through 2023.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
NOTE 4. 5. ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is reported in our 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 January 1, 2017 | $ | (83,105 | ) | | $ | 540 |
| | $ | (141,291 | ) | | $ | (223,856 | ) |
Other comprehensive income before reclassifications | (8,486 | ) | | (527 | ) | | 63,874 |
| | 54,861 |
|
Amounts reclassified from accumulated other comprehensive loss | 2,193 |
| | (86 | ) | | — |
| | 2,107 |
|
| Other comprehensive income | (6,293 | ) | | (613 | ) | | 63,874 |
| | 56,968 |
|
| Adoption of accounting standards update related to reclassification of certain tax effects | (15,424 | ) | | (16 | ) | | (6,645 | ) | | (22,085 | ) |
| Balance at December 31, 2017 | (104,822 | ) | | (89 | ) | | (84,062 | ) | | (188,973 | ) |
Other comprehensive loss before reclassifications | (53,797 | ) | | (766 | ) | | (33,679 | ) | | (88,242 | ) |
Amounts reclassified from accumulated other comprehensive loss | 4,153 |
| | (153 | ) | | 4,407 |
| | 8,407 |
|
| Other comprehensive loss | (49,644 | ) | | (919 | ) | | (29,272 | ) | | (79,835 | ) |
| Balance at December 31, 2018 | (154,466 | ) | | (1,008 | ) | | (113,334 | ) | | (268,808 | ) |
Other comprehensive loss before reclassifications | 4,895 |
| | (2,723 | ) | | (4,124 | ) | | (1,952 | ) |
Amounts reclassified from accumulated other comprehensive loss | 10,469 |
| | 549 |
| | — |
| | 11,018 |
|
| Other comprehensive loss | 15,364 |
| | (2,174 | ) | | (4,124 | ) | | 9,066 |
|
| Balance at December 31, 2019 | $ | (139,102 | ) | | $ | (3,182 | ) | | $ | (117,458 | ) | | $ | (259,742 | ) |
|
| | | | | | | | | | | | | | | |
| | Unrecognized Net Defined Benefit Plan Costs | | Change in Fair Value of Derivatives | | Foreign Currency Translation | | Total |
| | (Dollars in thousands) |
| Balance at January 1, 2015 | $ | (89,252 | ) | | $ | (1,198 | ) | | $ | (75,174 | ) | | $ | (165,624 | ) |
Other comprehensive loss before reclassifications | 2,851 |
| | (1,410 | ) | | (48,364 | ) | | (46,923 | ) |
Amounts reclassified from accumulated other comprehensive loss | 2,121 |
| | 1,620 |
| | — |
| | 3,741 |
|
| Other comprehensive loss | 4,972 |
| | 210 |
| | (48,364 | ) | | (43,182 | ) |
| Balance at December 31, 2015 | (84,280 | ) | | (988 | ) | | (123,538 | ) | | (208,806 | ) |
Other comprehensive loss before reclassifications | (1,991 | ) | | 441 |
| | (17,753 | ) | | (19,303 | ) |
Amounts reclassified from accumulated other comprehensive loss | 3,166 |
| | 1,087 |
| | — |
| | 4,253 |
|
| Other comprehensive loss | 1,175 |
| | 1,528 |
| | (17,753 | ) | | (15,050 | ) |
| Balance at December 31, 2016 | (83,105 | ) | | 540 |
| | (141,291 | ) | | (223,856 | ) |
Other comprehensive income before reclassifications | (8,486 | ) | | (527 | ) | | 63,874 |
| | 54,861 |
|
Amounts reclassified from accumulated other comprehensive loss | 2,193 |
| | (86 | ) | | — |
| | 2,107 |
|
| Other comprehensive income | (6,293 | ) | | (613 | ) | | 63,874 |
| | 56,968 |
|
| Adoption of accounting standards update related to reclassification of certain tax effects | (15,424 | ) | | (16 | ) | | (6,645 | ) | | (22,085 | ) |
| Balance at December 31, 2017 | $ | (104,822 | ) | | $ | (89 | ) | | $ | (84,062 | ) | | $ | (188,973 | ) |
The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the years ended December 31, 2017, 20162019, 2018 and 20152017 were net (losses) of $(3.4)$(13.7) million, $(5.0)(5.7) millionand$(3.2)(3.4) million, respectively, excluding an income tax benefit of $1.2$3.2 million, $1.8$1.5 million and $1.1$1.2 million, respectively. These net losses included amortization of net actuarial (losses) of $(6.5)$(15.9) million, $(8.0)$(6.9) million and $(5.2)$(6.5) million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively, and amortization of net prior service credit of $3.1$2.2 million, $3.0$1.2 million and $2.0$3.1 million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively. Amortization of net actuarial losses and net prior service credit is a component of net periodic benefit credit. Amounts expected to be recognized as components of net periodic benefit credit in our Consolidated Statement of Income for the year ended December 31, 2018 are $4.9 million and $1.8 million, net of income taxes, for the net actuarial loss and net prior service credit, respectively, related to our pension and other postretirement benefit plans. See Note 1112 for further discussion.
The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the years ended December 31, 2017, 20162019, 2018 and 20152017 were not significant. See Note 910 which includes a discussion of derivative instruments and hedging activities.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
The foreign currency translation component of accumulated other comprehensive loss includes: (i) foreign currency gains (losses) related to translation of year-end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. Dollar; (ii) foreign currency (losses) related to intra-entity foreign currency transactions that are of a long-term investment nature; and (iii) foreign currency (losses) gains related to our net investment hedges, net of tax. Foreign currency (losses) gains (losses) related to translation of year-end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. Dollar for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 were $94.7$(10.3) million, $(20.6)$(47.3) million and $(55.5)$94.7 million, respectively. Foreign currency gains (losses) related to intra-entity foreign currency transactions that are of a long-term investment nature for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 were $(1.8)$1.1 million, $(2.0)$5.3 million and $(9.6)$(1.8) million, respectively. Foreign currency gains (losses) gains related to our net investment hedges for the years ended December 31, 2019, 2018 and 2017 2016 and 2015 were $(46.1)$6.8 million, $7.6$16.6 million and $26.6$(46.1) million, respectively, excluding an income tax (provision) benefit (provision) of $17.1$(1.6) million, $(2.8)$(3.9) million and $(9.9)$17.1 million, respectively. See Note 910 for further discussion.
As of December 31, 2017, we reclassified the stranded tax effects resulting from the decrease in the federal corporate tax rate and certain other tax effects (primarily the decreased federal benefit of state income taxes) as a result of the Tax Cuts and Jobs Act enacted in December 2017, or the 2017 Tax Act. As a result, we increased each of accumulated other comprehensive loss and retained earnings by $22.1 million.
million in 2017.
NOTE 5. 6. INVENTORIES
The components of inventories at December 31 were as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Raw materials | $ | 286,953 |
| | $ | 288,860 |
|
| Work-in-process | 134,417 |
| | 123,574 |
|
| Finished goods | 355,337 |
| | 335,180 |
|
| Other | 12,793 |
| | 13,075 |
|
| | 789,500 |
| | 760,689 |
|
| Adjustment to value inventory at cost on the LIFO method | (156,495 | ) | | (125,883 | ) |
| | $ | 633,005 |
| | $ | 634,806 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Raw materials | $ | 233,410 |
| | $ | 179,451 |
|
| Work-in-process | 124,396 |
| | 121,331 |
|
| Finished goods | 433,937 |
| | 355,072 |
|
| Other | 12,370 |
| | 15,528 |
|
| | 804,113 |
| | 671,382 |
|
| Adjustment to value inventory at cost on the LIFO method | (82,823 | ) | | (68,419 | ) |
| | $ | 721,290 |
| | $ | 602,963 |
|
Inventories include $170.5152.6 million and $95.6169.3 million recorded on the FIFO method at December 31, 20172019 and 2016,2018, respectively, and $151.6112.9 million and $127.9120.9 million recorded on the average cost method at December 31, 20172019 and 2016,2018, respectively.
NOTE 6. 7. PROPERTY, PLANTAND EQUIPMENT, NET
Property, plant and equipment, net at December 31 was as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Land | $ | 77,233 |
| | $ | 73,084 |
|
| Buildings and improvements | 493,035 |
| | 467,067 |
|
| Machinery and equipment | 3,009,591 |
| | 2,912,841 |
|
| Construction in progress | 167,635 |
| | 159,758 |
|
| | 3,747,494 |
| | 3,612,750 |
|
| Accumulated depreciation | (2,177,163 | ) | | (2,095,240 | ) |
| | $ | 1,570,331 |
| | $ | 1,517,510 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Land | $ | 74,268 |
| | $ | 48,468 |
|
| Buildings and improvements | 445,178 |
| | 365,406 |
|
| Machinery and equipment | 2,833,214 |
| | 2,505,459 |
|
| Construction in progress | 135,126 |
| | 118,028 |
|
| | 3,487,786 |
| | 3,037,361 |
|
| Accumulated depreciation | (1,997,914 | ) | | (1,880,409 | ) |
| | $ | 1,489,872 |
| | $ | 1,156,952 |
|
Depreciation expense in 2019, 2018 and 2017 2016was $179.3 million, $164.1 million and 2015 was $150.5 million, $129.8 million and $129.0 million, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 7. 8. GOODWILLAND OTHER INTANGIBLE ASSETS, NET
Changes in the carrying amount of goodwill were as follows:
|
| | | | | | | | | | | | | | | |
| | Metal Containers | | Closures | | Plastic Containers | | Total |
| | (Dollars in thousands) |
| Balance at December 31, 2017 | $ | 116,916 |
| | $ | 826,933 |
| | $ | 227,605 |
| | $ | 1,171,454 |
|
| Currency translation | (2,454 | ) | | (19,307 | ) | | (1,391 | ) | | (23,152 | ) |
| Balance at December 31, 2018 | 114,462 |
| | 807,626 |
| | 226,214 |
| | 1,148,302 |
|
| Currency translation | (999 | ) | | (5,850 | ) | | 770 |
| | (6,079 | ) |
| Balance at December 31, 2019 | $ | 113,463 |
| | $ | 801,776 |
| | $ | 226,984 |
| | $ | 1,142,223 |
|
|
| | | | | | | | | | | | | | | |
| | Metal Containers | | Closures | | Plastic Containers | | Total |
| | (Dollars in thousands) |
| Balance at December 31, 2015 | $ | 111,932 |
| | $ | 274,922 |
| | $ | 225,938 |
| | $ | 612,792 |
|
| Currency translation | (1,620 | ) | | (6,968 | ) | | 510 |
| | (8,078 | ) |
| Balance at December 31, 2016 | 110,312 |
| | 267,954 |
| | 226,448 |
| | 604,714 |
|
| Acquisition | — |
| | 511,001 |
| | — |
| | 511,001 |
|
| Currency translation | 6,604 |
| | 47,978 |
| | 1,157 |
| | 55,739 |
|
| Balance at December 31, 2017 | $ | 116,916 |
| | $ | 826,933 |
| | $ | 227,605 |
| | $ | 1,171,454 |
|
In connection with our acquisition of SDS as discussed in Note 2, we recognized goodwill of $511.0 million.
The components of other intangible assets, net at December 31 were as follows:
|
| | | | | | | | | | | | | | | |
| | 2019 | | 2018 |
| | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| | (Dollars in thousands) |
| Definite-lived intangibles: | | | | | | | |
| Customer relationships | $ | 422,042 |
| | $ | (116,575 | ) | | $ | 423,513 |
| | $ | (94,889 | ) |
| Other | 39,447 |
| | (22,439 | ) | | 40,715 |
| | (18,031 | ) |
| | 461,489 |
| | (139,014 | ) | | 464,228 |
| | (112,920 | ) |
| Indefinite-lived intangibles: | | | | | | | |
| Trade names | 32,140 |
| | — |
| | 32,140 |
| | — |
|
| | $ | 493,629 |
| | $ | (139,014 | ) | | $ | 496,368 |
| | $ | (112,920 | ) |
|
| | | | | | | | | | | | | | | |
| | 2017 | | 2016 |
| | Gross Amount | | Accumulated Amortization | | Gross Amount | | Accumulated Amortization |
| | (Dollars in thousands) |
| Definite-lived intangibles: | | | | | | | |
| Customer relationships | $ | 430,730 |
| | $ | (74,469 | ) | | $ | 195,076 |
| | $ | (53,298 | ) |
| Other | 41,538 |
| | (12,851 | ) | | 14,927 |
| | (8,063 | ) |
| | 472,268 |
| | (87,320 | ) | | 210,003 |
| | (61,361 | ) |
| Indefinite-lived intangibles: | | | | | | | |
| Trade names | 32,140 |
| | — |
| | 32,140 |
| | — |
|
| | $ | 504,408 |
| | $ | (87,320 | ) | | $ | 242,143 |
| | $ | (61,361 | ) |
In connection with our acquisition of SDS as discussed in Note 2, we recognized intangible assets for customer relationships of $220.0 million and technology know-how of $25.0 million.
Amortization expense in 2019, 2018 and 2017 2016was $27.1 million, $27.6 million and 2015 was $23.6 million, $13.2 million and $13.2 million, respectively. Amortization expense is expected to be $27.826.5 million, $27.6$25.0 million, $27.1$24.6 million, $25.6$24.5 million and $25.1$21.7 million for the years ended December 31, 20182020 through 2022,2024, respectively.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 8. 9. LONG-TERM DEBT
Long-term debt at December 31 was as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Bank debt: | | | |
| Bank revolving loans | $ | — |
| | $ | — |
|
| U.S. term loans | 760,000 |
| | 800,000 |
|
| Canadian term loans | 4,703 |
| | 22,103 |
|
| Other foreign bank revolving and term loans | 31,127 |
| | 129,697 |
|
| Total bank debt | 795,830 |
| | 951,800 |
|
| 5½% Senior Notes | — |
| | 300,000 |
|
| 4¾% Senior Notes | 300,000 |
| | 300,000 |
|
| 3¼% Senior Notes | 729,755 |
| | 744,380 |
|
| 4⅛% Senior Notes | 400,000 |
| | — |
|
| Finance leases | 33,288 |
| | 21,543 |
|
| Total debt - principal | 2,258,873 |
| | 2,317,723 |
|
| Less unamortized debt issuance costs | 14,452 |
| | 13,109 |
|
| Total debt | 2,244,421 |
| | 2,304,614 |
|
| Less current portion | 29,813 |
| | 170,214 |
|
| | $ | 2,214,608 |
| | $ | 2,134,400 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Bank debt: | | | |
| Bank revolving loans | $ | — |
| | $ | 99,500 |
|
| U.S. term loans | 800,000 |
| | 310,250 |
|
| Canadian term loans | 27,147 |
| | 44,274 |
|
| Euro term loans | — |
| | 196,668 |
|
| Other foreign bank revolving and term loans | 76,798 |
| | 120,500 |
|
| Total bank debt | 903,945 |
| | 771,192 |
|
| 5% Senior Notes | 280,000 |
| | 500,000 |
|
| 5½% Senior Notes | 300,000 |
| | 300,000 |
|
| 4¾% Senior Notes | 300,000 |
| | — |
|
| 3¼% Senior Notes | 780,325 |
| | — |
|
| Total debt - principal | 2,564,270 |
| | 1,571,192 |
|
| Less unamortized debt issuance costs | 16,979 |
| | 9,609 |
|
| Total debt | 2,547,291 |
| | 1,561,583 |
|
| Less current portion | 108,789 |
| | 217,127 |
|
| | $ | 2,438,502 |
| | $ | 1,344,456 |
|
AGGREGATE ANNUAL MATURITIES
AGGREGATE ANNUAL MATURITIES
The aggregate annual maturities of our debt (non-U.S. dollar debt has been translated into U.S. dollars at exchange rates in effect at the balance sheet date), excluding finance leases, are as follows (dollars in thousands):
| | | 2018 | $ | 108,789 |
| |
| 2019 | 86,509 |
| |
| 2020 | 361,501 |
| $ | 27,877 |
|
| 2021 | 83,620 |
| 3,250 |
|
| 2022 | 383,620 |
| — |
|
| 2023 | | — |
|
| 2024 | | 13,547 |
|
| Thereafter | 1,540,231 |
| 2,180,911 |
|
| | $ | 2,564,270 |
| $ | 2,225,585 |
|
At December 31, 2017,2019, the current portion of our long-term debt consisted of $40.0$27.9 million of term loans under our senior secured credit facility due on December 31, 2018 and $68.8 million ofother foreign bank revolving and term loans.loans and $1.9 million of finance leases. As discussed in Note 19, on February 26, 2020, we issued 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, and used the net proceeds from such issuances to prepay most of our outstanding U.S. A term loans under the Credit Agreement. Accordingly, aggregate annual maturities of such prepaid U.S. A term loans under the Credit Agreement were extended to 2028 for purposes of the table above to match the maturities of the 4⅛% Notes and the 2¼% Notes.
BANK CREDIT AGREEMENT
On March 24, 2017, we completed an amendment and restatement of our previous senior secured credit facility, or the Credit Agreement, which extended the maturity dates of our senior secured credit facility, provides additional borrowing capacity for us and provides us with greater flexibility with regard to our strategic initiatives. On May 30, 2018, we
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
entered into an amendment to our amended and restated senior secured credit facility, as so amended, the Credit Agreement. This amendment further extended the maturity dates of the Credit Agreement, lowered the margin on borrowings thereunder and provides us with additional flexibility with regard to our strategic initiatives.
The Credit Agreement provides us with revolving loans, or the Revolving Loans, consisting of a multicurrency revolving loan facility of approximately $1.19 billion and a Canadian revolving loan facility of Cdn $15.0 million and provided us with Cdn $45.5 million of term loans designated Canadian A term loans. In addition, the Credit Agreement provided us with $800.0 million of term loans designated U.S. A term loans which were borrowed to fund a portion of the purchase price paid in connection with our acquisition of SDS. See Note 23 for further information.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
The Revolving Loans generally may be borrowed, repaid and reborrowed from time to time until March 24, 2022.May 30, 2023. Proceeds from the Revolving Loans may be used for working capital and other general corporate purposes (including acquisitions, capital expenditures, dividends, stock repurchases and repayments of other debt).
The $800.0During 2019, we repaid $40.0 million of U.S. A term loans and the Cdn $45.5$24.0 million of Canadian A term loans under the Credit Agreement. The remaining U.S. A term loans and Canadian A term loans, collectively the Term Loans, mature on March 24, 2023. The Term Loans are payableMay 30, 2024, and require principal payments in annual installments as follows (expressed as a percentage ofprovided in the original principal amount of the applicable Term Loan outstanding on the date that it is borrowed), with the remaining outstanding principal amounts to be repaid on the maturity date of the Term Loans:Credit Agreement.
|
| | |
Date | Percentage |
December 31, 2018 | 5% | |
December 31, 2019 | 10% | |
December 31, 2020 | 10% | |
December 31, 2021 | 10% | |
December 31, 2022 | 10% | |
If, on the date that is 91 days prior to the maturity date of any of the 5% Senior Notes due 2020 and the
5½% Senior Notes due 2022, or collectively the Prior Notes, all of the Prior Notes that mature on such maturity date have not been (a) repaid in full, (b) amended to extend the final maturity date thereof to a date that is more than 90 days after the maturity date of the Revolving Loans or the Terms Loans, as applicable, or (c) refinanced with other senior notes with a final maturity date that is more than 90 days after the maturity date of the Revolving Loans or the Terms Loans, as applicable, then the Revolving Loans and the Term Loans will mature on the date that is 91 days prior to the earliest maturity date of the Prior Notes that remain outstanding.
The Credit Agreement also contains certain mandatory repayment provisions, including requirements to prepay loans with proceeds in excess of certain amounts received from certain assets sales. Generally, mandatory repayments are applied pro rata to each of the Term Loans and applied first to the next two scheduled amortization payments which are due on December 31 of the year of such mandatory repayment and the next succeeding year (or, if no such payment is due on December 31 of such year, to the payment due on December 31 of the immediately succeeding year or of the next succeeding year in which a payment is to be made) and, to the extent in excess thereof, pro rata to the remaining installments of each of the Term Loans. Voluntary prepayments of Term Loans may be applied to any tranche of Term Loans at our discretion and are applied to the scheduled amortization payments in direct order of maturity. Amounts repaid under the Term Loans may not be reborrowed.
The Credit Agreement also provides us with an uncommitted multicurrency incremental loan facility for up to U.S. $1.25 billion (which amount may be increased as provided in the Credit Agreement), which may take the form of one or more incremental term loan facilities and/or increased commitments under the revolving loan facilities, subject to certain limitations. The uncommitted incremental loan facility provides, among other things, that any incremental loan borrowing shall:
be denominated in a single currency, either in U.S. Dollars, Euros, Pounds Sterling or Canadian Dollars;
be in a minimum aggregate amount of at least U.S. $50 million;
have a maturity date no earlier than the maturity date for the Term Loans and a weighted average life to maturity of no less than the weighted average life to maturity of the Term Loans; and
be used by us and certain of our foreign subsidiaries for working capital and other general corporate purposes, including to finance acquisitions and refinance any indebtedness assumed as a part of such acquisitions, to refinance or repurchase debt as permitted and to pay outstanding Revolving Loans.
At December 31, 2017,2019, we had borrowings outstanding under the Credit Agreement of $800.0$760.0 million of U.S. A term loans and Cdn $34.1$6.1 million of Canadian A term loans, totaling U.S. denominated $827.1$764.7 million (with non-U.S. denominated amounts translated at exchange rates in effect at such date), and no Revolving Loans outstanding. At December 31, 2016,2018, we had borrowings outstanding under our previous senior secured credit
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
facilitythe Credit Agreement of $310.3$800.0 million of U.S. A term loans, and Cdn $59.5$30.1 million of Canadian A term loans, and €187.0 million of Euro term loans, totaling U.S. denominated $551.2$822.1 million (with non-U.S. denominated term loans translated at exchange rates in effect at such date), and revolving loan borrowings outstanding of $99.5 million.no Revolving Loans outstanding.
Under the Credit Agreement, the interest rate for U.S. term loans will be either the Eurodollar Rate or the base rate under the Credit Agreement plus a margin and the interest rate for Canadian term loans will be either the CDOR Rate or the Canadian prime rate under the Credit Agreement plus a margin. Outstanding Revolving Loans incur interest at the same rates as the U.S. term loans in the case of U.S. dollar denominated Revolving Loans and
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
as the Canadian term loans in the case of Canadian dollar denominated Revolving Loans. Euro and Pounds Sterling denominated Revolving Loans incur interest at the applicable Euro Rate plus the applicable margin.
At December 31, 2017,2019, the margin for Term Loans and Revolving Loans maintained as Eurodollar Rate, CDOR Rate or Euro Rate loans was 2.001.25 percent and the margin for Term Loans and Revolving Loans maintained as base rate or Canadian prime rate loans was 2.000.25 percent. The interest rate margin on all loans will be reset quarterly based upon our Total Net Leverage Ratio as provided in the Credit Agreement. As of December 31, 2017,2019, the interest rates on U.S. term loans and Canadian term loans were 3.693.05 percent and 3.523.33 percent, respectively.
The Credit Agreement provides for the payment of a commitment fee ranging from 0.20 percent to 0.350.30 percent per annum on the daily average unused portion of commitments available under the revolving loan facilities (0.35(0.25 percent at December 31, 2017)2019). The commitment fee will be reset quarterly based upon our Total Net Leverage Ratio as provided in the Credit Agreement.
We may utilize up to a maximum of $125 million of our multicurrency revolving loan facility under the Credit Agreement for letters of credit as long as the aggregate amount of borrowings of Revolving Loans under the multicurrency revolving loan facility and letters of credit do not exceed the amount of the commitment under such multicurrency revolving loan facility. The Credit Agreement provides for payment to the applicable lenders of a letter of credit fee equal to the applicable margin in effect for Revolving Loans under the multicurrency revolving loan facility, calculated on the stated amount of such letter of credit, and to the issuers of letters of credit of a fronting fee of the greater of (x) $500 per annum and (y) 0.25 percent per annum calculated on the aggregate stated amount of such letters of credit, in each case for their stated duration.
For 2017, 20162019, 2018 and 2015,2017, the weighted average annual interest rate paid on term loans under our senior secured credit facilities was 3.13.6 percent, 1.93.6 percent and 1.73.1 percent, respectively; and the weighted average annual interest rate paid on revolving loans under our senior secured credit facilities was 3.5 percent, 3.5 percent and 3.0 percent, 2.0 percent and 1.7 percent, respectively. Historically,From time to time, we have enteredenter into interest rate swap agreements to convert interest rate exposure from variable rates to fixed rates of interest. For 20162019, 2018 and 2015, the weighted average interest rate paid on term loans under our senior secured credit facilities after consideration of our2017, any interest rate swap agreements was 2.0 percent and 1.9 percent, respectively. For 2017, our interest rate swap agreements werein effect did not significant and did notsignificantly impact our weighted average annual interest rate paid on term loans under our senior secured credit facilities. See Note 910 which includes a discussion of our interest rate swap agreements.
The indebtedness under the Credit Agreement is guaranteed by us and our U.S., Canadian and Dutch subsidiaries. The stock of our U.S., Canadian and Dutch subsidiaries has been pledged as security to the lenders under the Credit Agreement. The Credit Agreement contains certain financial and operating covenants which limit, subject to certain exceptions, among other things, our ability to incur additional indebtedness; create liens; consolidate, merge or sell assets; make certain advances, investments or loans; enter into certain transactions with affiliates; and engage in any business other than the packaging business and certain related businesses. In addition, we are required to meet specified financial covenants consisting of Interest Coverage and Total Net Leverage Ratios, each as defined in the Credit Agreement. We are currently in compliance with all covenants under the Credit Agreement.
Because we sell metal containers and closures used in the fruit and vegetable packing process, we have seasonal sales. As is common in the packaging industry, we must utilize working capital to build inventory and then
carry accounts receivable for some customers beyond 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
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
As a result of the 2018 amendment to the Credit Agreement, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.1 million in 2018. As a result of entering into the Credit Agreement in 2017, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.6 million in 2017.
4⅛% SENIORNOTES OFFERINGS
On November 12, 2019, we issued $400 million aggregate principal amount of the 4⅛% Notes at 100 percent of their principal amount. As discussed in Note 19, on February 26, 2020, we issued an additional
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
$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.
The 4⅛% Notes are general senior unsecured obligations of Silgan and rank equally in right of payment with our existing and future unsecured unsubordinated indebtedness, including our existing 4¾% Senior Notes due 2025 and 3¼% Senior Notes due 2025, and ahead of the Company’s existing and future subordinated debt. In addition, the 4⅛% Notes are effectively subordinated to all of Silgan's secured debt to the extent of the assets securing such debt and structurally subordinated to all obligations of subsidiaries of Silgan.
The 4⅛% Notes will mature on February 1, 2028. Interest on the 4⅛% Notes will be payable semiannually in cash on April 1 and October 1 of each year, beginning on April 1, 2020. The 4⅛% Notes were issued pursuant to an indenture by and between Silgan and U.S. Bank National Association, as trustee, which indenture contains covenants that are generally less restrictive than those in the Credit Agreement and substantially similar to those in the indenture for our 4¾% Senior Notes due 2025 and our 3¼% Senior Notes due 2025.
The 4⅛% Notes are redeemable, at our option, in whole or in part, at any time on or after October 1, 2022 initially at 102.063 percent of their principal amount, plus accrued and unpaid interest to the redemption date, declining ratably annually to 100 percent of their principal amount, plus accrued and unpaid interest to the redemption date, on or after October 1, 2024.
In addition, prior to October 1, 2022, we may redeem the 4⅛% Notes, in whole or in part, at a redemption price equal to 100 percent of their principal amount plus a make-whole premium as provided in the indenture for the 4⅛% Notes, together with accrued and unpaid interest to the redemption date. Additionally, before October 1, 2022, we may redeem up to 35 percent of the aggregate principal amount of outstanding 4⅛% Notes with the proceeds from sales of certain kinds of our capital stock at a redemption price equal to 104.125 percent of their principal amount, plus accrued and unpaid interest to the redemption date. Upon the occurrence of a change of control repurchase event as defined in the indenture for the 4⅛% Notes, Silgan is required to make an offer to repurchase the 4⅛% Notes at a purchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest to the date of repurchase. In addition, in connection with any tender offer for, or any other offer to purchase, the 4⅛% Notes (including a change of control offer), if holders of no less than 90 percent of the aggregate principal amount of the then outstanding 4⅛% Notes validly tender their 4⅛% Notes in such offer, Silgan, or a third party making such offer, is entitled to redeem all remaining 4⅛% Notes at the price offered to each holder (excluding any early tender, incentive or similar fee).
The net proceeds from the sale of the November 2019 issuance of the 4⅛% Notes were approximately $394.7 million after deducting the initial purchasers’ discount and offering expenses. We used the net proceeds from the sale of the 4⅛% Notes to repay outstanding revolving loans under the Credit Agreement, including revolving loans used to redeem our 5½% Senior Notes due 2022.
4¾ % SENIOR NOTES AND 3¼ % SENIOR NOTES
On February 13, 2017, we issued $300 million aggregate principal amount of our 4¾% Senior Notes due 2025, or the 4¾% Notes, and €650 million aggregate principal amount of our 3¼% Senior Notes due 2025, or the 3¼% Notes, at 100 percent of their principal amount.
The 4¾% Notes and the 3¼% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with our existing and future unsecured unsubordinated indebtedness, including the 5% Senior Notes due 2020 and theour 5½% Senior Notes due 2022, and ahead of our existing and future subordinated debt, if any. The 4¾% Notes and the 3¼% 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 4¾% Notes and the 3¼% Notes will mature on March 15, 2025. Interest on the 4¾% Notes and the 3¼% Notes will be payable semi-annually in cash on March 15 and September 15 of each year. The 4¾% Notes and the 3¼% Notes were issued pursuant to an indenture by and among Silgan, U.S. Bank National Association, as trustee, Elavon Financial Services DAC, UK Branch, as paying agent in respect of the 3¼% Notes, and Elavon Financial Services DAC, as registrar and transfer agent in respect of the 3¼% Notes, which indenture contains
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
covenants that are generally less restrictive than those in the Credit Agreement and substantially similar to the those in the indenturesindenture for the 5% Senior Notes due 2020 and the 5½4⅛% Senior Notes due 2022.Notes.
The 4¾% Notes are redeemable, at our option, in whole or in part, at any time after March 15, 2020, initially at 102.375 percent of their principal amount plus accrued and unpaid interest thereon to the redemption date, declining ratably each year to 100 percent of their principal amount, plus accrued and unpaid interest thereon to the redemption date, on or after March 15, 2022.
The 3¼% Notes are redeemable, at our option, in whole or in part, at any time after March 15, 2020, initially at 101.625 percent of their principal amount plus accrued and unpaid interest thereon to the redemption date, declining ratably each year to 100 percent of their principal amount, plus accrued and unpaid interest thereon to the redemption date, on or after March 15, 2022.
In addition, prior to March 15, 2020, we may redeem up to 35 percent of the aggregate principal amount of each of the 4¾% Notes and the 3¼% Notes fromwith the proceeds of certain equity offerings at a redemption price of 104.750 percent of their principal amount in the case of the 4¾% Notes and 103.250 percent of their principal amount in the case of the 3¼% Notes, plus, in each case, accrued and unpaid interest thereon to the date of redemption. We may also redeem each of the 4¾% Notes and the 3¼% Notes, in whole or in part, prior to March 15, 2020 at a redemption price equal to 100 percent of their principal amount plus a make-whole premium as provided in the indenture for the 4¾% Notes and the 3¼% Notes, together with, in each case, accrued and unpaid interest thereon to the date of redemption. Upon the occurrence of a change of control repurchase event as defined in the indenture for the 4¾% Notes and the 3¼% Notes, Silgan is required to make an offer to repurchase the 4¾% Notes and the 3¼% Notes at a repurchase price equal to 101 percent of their principal amount, plus, in each case, accrued and unpaid interest thereon to the date of repurchase.
The net proceeds from the sale of the 4¾% Notes were approximately $296.5 million and the net proceeds from the sale of the 3¼% Notes were approximately €643.4 million, in each case after deducting the initial purchasers' discount and offering expenses. We used the net proceeds from the sale of the 4¾% Notes to prepay $212.3 million of our outstanding U.S. term loans and repay a portion of our outstanding revolving loans under our previous senior secured credit facility. We used a portion of the net proceeds from the sale of the 3¼% Notes to prepay the remaining balance of €187.0 million of Euro term loans under our previous senior secured credit facility, repay all remaining outstanding revolving loans under our previous senior secured credit facility, repay approximately €34.0 million of certain other foreign bank revolving and term loans of certain of our non U.S. subsidiaries and redeem $220.0 million aggregate principal amount of theour 5% Senior Notes due 2020. In addition, we prepaid $98.0 million of our outstanding U.S. term loans and Cdn. $14.0 million of our outstanding Canadian
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
term loans under our previous senior secured credit facility during the first quarter of 2017. As a result of the aggregate prepayments of our outstanding term loans under our previous senior secured credit facility and the partial redemption of theour 5% Senior Notes due 2020, we recorded a pre-tax charge for the loss on early extinguishment of debt of $6.5 million in 2017.
5½ % SENIOR NOTES
In 2013,On August 1, 2019, we issuedredeemed all $300 million aggregate principal amount of our outstanding 5½% Senior Notes due 2022, or the
5½% Notes, at 100 percent of their principal amount. The 5½% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with Silgan’s unsecured unsubordinated indebtedness, including our 5% Senior Notes due 2020, the 4¾% Notes and the 3¼% Notes, and ahead of Silgan’s subordinated debt, if any. The 5½% 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. Interest on the 5½% Notes is payable semi-annually in cash on February 1 and August 1 of each year, and the 5½% Notes mature on February 1, 2022.
The 5½% Notes are redeemable, at the option of Silgan, in whole or in part, at any time after August 1, 2017 initially at 102.75 percent of their principal amount plus accrued and unpaid interest thereon to the redemption date, declining ratably each year to 100 percent of their principal amount, plus accrued and unpaid interest thereon to redemption date, on or after August 1, 2019.
Upon the occurrence of a change of control, as defined in the indenture for the 5½% Notes, Silgan is required to make an offer to repurchase the 5½% Notes, at a purchaseredemption price equal to 101of 100 percent of their principal amount, plus accrued and unpaid interest to the date of purchase.
The indenture for the 5½% Notes contains covenants which are generally less restrictive than thoseredemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and substantially similar to those under the indentures for our 5% Senior Notes due 2020, the 4¾% Notes and the 3¼% Notes.
5% SENIOR NOTES
In 2012, we issued $500 million aggregate principal amount of our 5% Senior Notes due 2020, or the 5% Notes, at 100 percent of their principal amount. The 5% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with Silgan’s unsecured unsubordinated indebtedness, including the 5½% Notes, the 4¾% Notes and the 3¼% Notes, and ahead of Silgan’s subordinated debt, if any. The 5% 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. Interest on the 5% Notes is payable semi-annually in cash on April 1 and October 1hand. As a result of each year, andthis redemption, we recorded a pre-tax charge for the 5% Notes matureloss on April 1, 2020.early extinguishment of debt of $1.7 million in 2019 for the write-off of unamortized debt issuance costs.
The 5% Notes are redeemable, at the option of Silgan, in whole or in part, currently at 101.25 percent of their principal amount plus accrued and unpaid interest thereon to the redemption date if redeemed prior to April 1, 2018 and starting on April 1, 2018 and thereafter at 100 percent of their principal amount plus accrued and unpaid interest thereon to the redemption date.SENIOR NOTES
Upon the occurrence of a change of control, as defined in the indenture for the 5% Notes, Silgan is required to make an offer to repurchase the 5% Notes at a purchase price equal to 101 percent of their principal amount, plus accrued and unpaid interest to the date of purchase.
The indenture for the 5% Notes contains covenants which are generally less restrictive than those under the Credit Agreement and substantially similar to those under the indentures for the 5½% Notes, the 4¾% Notes and the 3¼% Notes.
On April 3, 2017, we utilized a portion of the net proceeds from the sale of the 3¼% Notes to redeem $220.0 million aggregate principal amount of the $500 million aggregate principal amount of our 5% Senior Notes due 2020, or the 5% Notes, at a redemption price of 101.25 percent of their principal amount plus accrued and unpaid interest up to the redemption date. As a result of this partial redemption, we recorded a pre-tax charge for
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
the loss on early extinguishment of debt of $4.4 million in 2017 for the premium paid in connection with this partial redemption and for the write-off of unamortized debt issuance costs.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016On April 16, 2018, we redeemed all remaining outstanding 5% Notes ($280.0 million aggregate principal amount) at a redemption price of 100 percent of their principal amount plus accrued and 2015
OTHER FOREIGN BANK REVOLVING AND TERM LOANS
We have certain other bank revolving and term loans outstanding in foreign countries. At December 31, 2017, these bank revolving loans allowed for total borrowings ofunpaid interest up to $97.2the 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 $1.4 million (translated at exchange rates in effect at2018 for the balance sheet date). These bank revolving and term loans bear interest at rates ranging from 0.9 percent to 17.1 percent. For 2017, 2016 and 2015, the weighted average annual interest rate paid on these loans was 5.0 percent, 3.8 percent and 3.7 percent, respectively.
write-off of unamortized debt issuance costs.
NOTE 9. 10. FINANCIAL INSTRUMENTS
The financial instruments recorded in our Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and derivative instruments. 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 significant financial instruments at December 31:
| | | | 2017 | | 2016 | 2019 | | 2018 |
| | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value | Carrying Amount | | Fair Value | | Carrying Amount | | Fair Value |
| | (Dollars in thousands) | (Dollars in thousands) |
| Assets: | | | | | | | | | | | | | | |
| Cash and cash equivalents | $ | 53,533 |
| | $ | 53,533 |
| | $ | 24,690 |
| | $ | 24,690 |
| $ | 203,824 |
| | $ | 203,824 |
| | $ | 72,819 |
| | $ | 72,819 |
|
| Derivative instruments (other current assets) | 1,150 |
| | 1,150 |
| | 1,094 |
| | 1,094 |
| |
| | | | | | | | | | | | | | | |
| Liabilities: | | | | | | | | | | | | | | |
| Bank debt | $ | 903,945 |
| | $ | 903,945 |
| | $ | 771,192 |
| | $ | 771,192 |
| $ | 795,830 |
| | $ | 795,830 |
| | $ | 951,800 |
| | $ | 951,800 |
|
| 5% Notes | 280,000 |
| | 281,691 |
| | 500,000 |
| | 510,130 |
| |
| 5½% Notes | 300,000 |
| | 308,301 |
| | 300,000 |
| | 312,750 |
| |
| 4¾% Notes | 300,000 |
| | 309,390 |
| | — |
| | — |
| 300,000 |
| | 308,217 |
| | 300,000 |
| | 284,517 |
|
| 3¼% Notes | 780,325 |
| | 813,793 |
| | — |
| | — |
| 729,755 |
| | 748,349 |
| | 744,380 |
| | 746,591 |
|
| Derivative instruments (accrued liabilities) | 115 |
| | 115 |
| | 244 |
| | 244 |
| |
| 4⅛% Notes | | 400,000 |
| | 401,848 |
| | — |
| | — |
|
FAIR VALUE MEASUREMENTS
FINANCIAL INSTRUMENTS MEASUREDAT FAIR VALUE
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.
The financial assets and liabilities that are measured on a recurring basis at December 31, 20172019 and 20162018 consist 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 rates and prices. As such, these derivative instruments are classified within Level 2.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
FINANCIAL INSTRUMENTS NOT MEASUREDAT FAIR VALUE
Our bank debt, 5% Notes, 5½4¾% Notes, 4¾3¼% Notes and 3¼4⅛% Notes were recorded at historical amounts in our Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 5% Notes, 5½4¾% Notes, 4¾3¼% Notes and 3¼4⅛% Notes were estimated based on the quoted market price, a Level 1 input.
DERIVATIVE INSTRUMENTSAND HEDGING ACTIVITIES
Currently, weWe utilize certain derivative financial instruments to manage a portion of our natural gas cost exposure. Historically, we had also utilized certain derivative instrumentsswap agreements to manage a portion of our interest rate exposure. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements.cost exposures. We do not utilize derivative financial instruments for trading or other speculative purposes.
Our interest rate and natural gas swap agreements were qualified andare accounted for as cash flow hedges. Changeshedges and changes in their fair values wereare recorded in accumulated other comprehensive loss, a component of stockholders’stockholder's equity, and reclassified into earnings in future periods when earnings were alsoare affected by the variability of the hedged cash flows.
INTEREST RATE SWAP AGREEMENTS
Historically, weWe 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 interest rate swap agreements effectively convertedconvert interest rate exposure from variable rates to fixed rates of interest. Under these agreements, we will pay a fixed rate of interest of 2.878 percent and receive floating rates of interest based on the three month LIBOR. These agreements were entered into in 2018, became effective on March 29, 2019 and mature on March 24, 2023. The difference between amounts to be paid or received on interest rate swap agreements wasis recorded in interest and other debt expense in our Consolidated Statements of Income, and such difference was not significant for the yearsyear ended December 31, 2017, 2016 and 2015. At December 31, 2017, we had no outstanding interest rate swap agreements.2019. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements at December 31, 20162019 and 2018 was not significant.
NATURAL GAS SWAP AGREEMENTS
We have entered into natural gas swap agreements with a major financial institution to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on natural gas swap agreements is recorded in cost of goods sold in our Consolidated Statements of Income and was not significant for each of the years ended December 31, 2017, 20162019, 2018 and 2015.2017. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at December 31, 20172019 and 20162018 was not significant.
FOREIGN CURRENCY EXCHANGE RATE RISK
We utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk.
In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with 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, including net investment hedges related to the 3¼% Notes which are Euro denominated. Foreign currency gains (losses) gains related to our net investment hedges included in accumulated other comprehensive loss were $(46.1)$6.8 million, $7.6$16.6 million and $26.6$(46.1) million for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively.
CONCENTRATIONOF CREDIT RISK
CONCENTRATIONOF CREDIT RISK
We derive a significant portion of our revenue from multi-year supply agreements with many of our customers. Aggregate revenues from our three3 largest customers (Nestlé Food Company, Campbell Soup Company and Del Monte Corporation) accounted for approximately 23.6 percent, 23.0 percent and 23.7 percent27.2 percent and 26.7 percent of our net sales in 2017, 20162019, 2018 and 2015,2017, respectively. The receivable balances from these customers collectively represented 6.25.6 percent and 12.45.5 percent of our trade accounts receivable at December 31, 20172019 and 2016,2018, respectively. As is
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
common in the packaging industry, we provide extended payment terms to some of our customers due to the seasonality of the vegetable and fruit packing process. Exposure to losses is dependent on each customer’s financial position. We perform ongoing credit evaluations of our customers’ financial condition, and our receivables
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
are generally not collateralized. We maintain an allowance for doubtful accounts which we believe is adequate to cover potential credit losses based on customer credit evaluations, collection history and other information. Accounts receivable are considered past due based on the original due date and write-offs occur only after all reasonable collection efforts are exhausted.
NOTE 10. COMMITMENTSAND CONTINGENCIES
NOTE 11. COMMITMENTSAND CONTINGENCIES
We have a number of noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2030.2040. Certain operating leases have renewal options and rent escalation clauses as well as various purchase options. Minimum future rental
Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments under these leasesarising from the lease. Lease right-of-use assets and lease liabilities are as set forth below for eachrecognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the following years (dollarslease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in thousands):determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.
Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The depreciable life of lease right-of-use assets is generally the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise for such assets. |
| | | |
| 2018 | $ | 42,483 |
|
| 2019 | 31,975 |
|
| 2020 | 26,792 |
|
| 2021 | 22,149 |
|
| 2022 | 17,958 |
|
| Thereafter | 47,850 |
|
| | $ | 189,207 |
|
RentWe recognized total lease expense was $52.0of $71.0 million,, $46.5 $52.2 million and $44.7$52.0 million for the years ended December 31, 2019, 2018 and 2017, 2016respectively, primarily related to operating lease costs paid to lessors from operating cash flows. Lease expense disclosed under previous lease accounting guidance for the years ended December 31, 2018 and 2015, respectively.2017 excluded certain payments for variable lease costs and short-term lease costs. Right-of-use assets obtained in exchange for new operating lease liabilities, a non-cash item, were $52.0 million for the year ended December 31, 2019.
Operating lease right-of-use assets as of December 31, 2019 were recorded in our Consolidated Balance Sheets as other assets, net of $186.8 million. Operating lease liabilities of $195.2 million as of December 31, 2019 were recorded in our Consolidated Balance Sheets as accrued liabilities of $36.5 million and other liabilities of $158.7 million. At December 31, 2019, our operating leases had a weighted average discount rate of 5.6 percent and a weighted average remaining lease term of approximately 7 years.
To a lesser extent, we have certain leases that qualify as finance leases. Finance lease right-of-use assets as of December 31, 2019 were recorded in our Consolidated Balance Sheets as property, plant and equipment, net of $33.8 million. Finance lease liabilities of $33.3 million as of December 31, 2019 were recorded in our Consolidated Balance Sheets as revolving loans and current portion of long term-debt of $1.9 million and long-term debt of $31.4 million.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
The aggregate annual maturities of lease liabilities are as follows (dollars in thousands):
|
| | | | | | | |
| | Operating | | Finance |
| | Leases | | Leases |
| 2020 | $ | 46,291 |
| | $ | 3,342 |
|
| 2021 | 39,937 |
| | 3,155 |
|
| 2022 | 32,306 |
| | 2,897 |
|
| 2023 | 26,876 |
| | 2,856 |
|
| 2024 | 20,941 |
| | 26,629 |
|
| Thereafter | 74,854 |
| | — |
|
| Total lease payments | 241,205 |
| | 38,879 |
|
| Less imputed interest | (45,975 | ) | | (5,591 | ) |
| Total | $ | 195,230 |
| | $ | 33,288 |
|
At December 31, 2019, we did not have any significant operating or finance leases that had not commenced.
At December 31, 2019, we had noncancelable commitments for capital expenditures in 20182020 of $24.034.0 million.
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,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 is ongoing.should effectively close out the investigation in Germany. Given the continued early stage of the investigation, we cannot reasonably assess what actions may result from the investigationthese investigations or estimate what costs we may incur as a result of the investigation.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.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 11. 12. RETIREMENT BENEFITS
We sponsor a number of defined benefit and defined contribution pension plans which cover substantially all U.S. employees, other than union employees covered by multiemployer defined benefit pension plans under collective bargaining agreements. Pension benefits are provided based on either a career average, final pay or years of service formula. With respect to certain hourly employees, pension benefits are provided based on stated amounts for each year of service. Our U.S. salaried pension plans are closed to new employees.
We also sponsor other postretirement benefits plans, including unfunded defined benefit health care and life insurance plans, which provide postretirement benefits to certain employees. The plans are contributory, with retiree contributions adjusted annually, and contain cost sharing features including deductibles and coinsurance. Retiree health care benefits are paid as covered expenses are incurred.
The changes in benefit obligations and plan assets as well as the funded status of our retirement plans at December 31 were as follows:
| | | | Pension Benefits | | Other Postretirement Benefits | Pension Benefits | | Other Postretirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 | 2019 | | 2018 | | 2019 | | 2018 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Change in benefit obligation | | | | | | | | | | | | | | |
| Obligation at beginning of year | $ | 726,421 |
| | $ | 685,295 |
| | $ | 21,698 |
| | $ | 28,022 |
| $ | 751,625 |
| | $ | 808,149 |
| | $ | 19,186 |
| | $ | 20,939 |
|
| Service cost | 13,372 |
| | 12,895 |
| | 104 |
| | 222 |
| 12,505 |
| | 14,238 |
| | 80 |
| | 99 |
|
| Interest cost | 25,501 |
| | 25,781 |
| | 692 |
| | 891 |
| 28,316 |
| | 25,316 |
| | 759 |
| | 640 |
|
| Actuarial losses | 54,562 |
| | 34,705 |
| | 630 |
| | 641 |
| |
| Acquisition | 19,225 |
| | — |
| | — |
| | — |
| |
| Special termination benefits | — |
| | 2,837 |
| | — |
| | — |
| |
| Actuarial losses (gains) | | 103,918 |
| | (53,044 | ) | | 3,477 |
| | (2,031 | ) |
| Plan amendments | 147 |
| | 472 |
| | (2 | ) | | (5,636 | ) | 528 |
| | — |
| | — |
| | 1,210 |
|
| Benefits paid | (43,598 | ) | | (33,492 | ) | | (2,325 | ) | | (3,007 | ) | (39,508 | ) | | (38,335 | ) | | (1,888 | ) | | (1,764 | ) |
| Curtailment gain | — |
| | — |
| | — |
| | (305 | ) | |
| Participants’ contributions | — |
| | — |
| | 142 |
| | 870 |
| — |
| | — |
| | 104 |
| | 93 |
|
| Foreign currency exchange rate changes | 12,519 |
| | (2,072 | ) | | — |
| | — |
| (1,875 | ) | | (4,699 | ) | | — |
| | — |
|
| Obligation at end of year | 808,149 |
| | 726,421 |
| | 20,939 |
| | 21,698 |
| 855,509 |
| | 751,625 |
| | 21,718 |
| | 19,186 |
|
| Change in plan assets | | | | | | | | | | | | | | |
| Fair value of plan assets at beginning of year | 759,551 |
| | 704,779 |
| | — |
| | — |
| 732,502 |
| | 825,806 |
| | — |
| | — |
|
| Actual return on plan assets | 108,154 |
| | 87,132 |
| | — |
| | — |
| 174,014 |
| | (57,082 | ) | | — |
| | — |
|
| Employer contributions | 1,699 |
| | 1,132 |
| | 2,183 |
| | 2,137 |
| 2,062 |
| | 2,113 |
| | 1,784 |
| | 1,671 |
|
| Participants’ contributions | — |
| | — |
| | 142 |
| | 870 |
| — |
| | — |
| | 104 |
| | 93 |
|
| Benefits paid | (43,598 | ) | | (33,492 | ) | | (2,325 | ) | | (3,007 | ) | (39,508 | ) | | (38,335 | ) | | (1,888 | ) | | (1,764 | ) |
| Fair value of plan assets at end of year | 825,806 |
| | 759,551 |
| | — |
| | — |
| 869,070 |
| | 732,502 |
| | — |
| | — |
|
| Funded status | $ | 17,657 |
| | $ | 33,130 |
| | $ | (20,939 | ) | | $ | (21,698 | ) | $ | 13,561 |
| | $ | (19,123 | ) | | $ | (21,718 | ) | | $ | (19,186 | ) |
Actuarial losses (gains) related to pension benefits were primarily the result of changes in discount rates used to calculate projected benefit obligations.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2019 | | 2018 | | 2019 | | 2018 |
| | (Dollars in thousands) |
Amounts recognized in the consolidated balance sheets | | | | | | | |
| Non-current assets | $ | 122,552 |
| | $ | 76,443 |
| | $ | — |
| | $ | — |
|
| Current liabilities | (2,225 | ) | | (2,174 | ) | | (1,794 | ) | | (1,924 | ) |
| Non-current liabilities | (106,766 | ) | | (93,392 | ) | | (19,924 | ) | | (17,262 | ) |
| Net amount recognized | $ | 13,561 |
| | $ | (19,123 | ) | | $ | (21,718 | ) | | $ | (19,186 | ) |
Amounts recognized in accumulated other comprehensive loss (income) | | | | | | | |
| Net actuarial loss (gain) | $ | 193,061 |
| | $ | 218,867 |
| | $ | (3,123 | ) | | $ | (7,087 | ) |
| Prior service cost (credit) | 1,179 |
| | 765 |
| | (6,405 | ) | | (8,735 | ) |
| Net amount recognized | $ | 194,240 |
| | $ | 219,632 |
| | $ | (9,528 | ) | | $ | (15,822 | ) |
|
| | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2017 | | 2016 | | 2017 | | 2016 |
| | (Dollars in thousands) |
Amounts recognized in the consolidated balance sheets | | | | | | | |
| Non-current assets | $ | 118,892 |
| | $ | 104,089 |
| | $ | — |
| | $ | — |
|
| Current liabilities | (2,227 | ) | | (1,295 | ) | | (2,083 | ) | | (2,502 | ) |
| Non-current liabilities | (99,008 | ) | | (69,664 | ) | | (18,856 | ) | | (19,196 | ) |
| Net amount recognized | $ | 17,657 |
| | $ | 33,130 |
| | $ | (20,939 | ) | | $ | (21,698 | ) |
Amounts recognized in accumulated other comprehensive loss (income) | | | | | | | |
| Net actuarial loss (gain) | $ | 154,642 |
| | $ | 148,941 |
| | $ | (5,561 | ) | | $ | (6,787 | ) |
| Prior service cost (credit) | 938 |
| | 1,105 |
| | (11,337 | ) | | (14,753 | ) |
| Net amount recognized | $ | 155,580 |
| | $ | 150,046 |
| | $ | (16,898 | ) | | $ | (21,540 | ) |
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | (Dollars in thousands) |
Items to be recognized in 2018 as a component of net periodic cost | | | |
| Net actuarial loss (gain) | $ | 7,169 |
| | $ | (474 | ) |
| Prior service cost (credit) | 173 |
| | (2,602 | ) |
| Net periodic cost (credit) to be recorded in 2018 | $ | 7,342 |
| | $ | (3,076 | ) |
The fair value of plan assets for our domestic pension plans was 116 percent and 112 percent of their projected benefit obligations at December 31, 2019 and 2018, respectively. Pension plans with projected benefit obligations in excess of plan assets at December 31, 20172019 and 20162018 consisted entirely of our international pension benefit plans which are not funded. The projected benefit obligation for our international pension benefit plans was $101.2109.0 million and $71.095.6 million at December 31, 20172019 and 2016,2018, respectively.
The accumulated benefit obligation for all pension benefit plans at December 31, 20172019 and 20162018 was $779.1828.0 million and $697.5728.7 million, respectively. Pension plans with accumulated benefit obligations in excess of plan assets at December 31, 20172019 and 20162018 consisted entirely of our international pension benefit plans which are not funded. The accumulated benefit obligation for our international pension benefit plans was $96.2$103.9 million and $66.2$93.1 million at December 31, 20172019 and 2016,2018, respectively.
The benefits expected to be paid from our pension and other postretirement benefit plans, which reflect future years of service, are as follows (dollars in thousands):
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| 2020 | $ | 42,916 |
| | $ | 1,798 |
|
| 2021 | 42,716 |
| | 1,671 |
|
| 2022 | 43,807 |
| | 1,527 |
|
| 2023 | 44,882 |
| | 1,466 |
|
| 2024 | 45,793 |
| | 1,416 |
|
| 2025-2029 | 237,935 |
| | 6,463 |
|
| | $ | 458,049 |
| | $ | 14,341 |
|
|
| | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| 2018 | $ | 39,502 |
| | $ | 2,083 |
|
| 2019 | 39,285 |
| | 1,870 |
|
| 2020 | 40,842 |
| | 1,545 |
|
| 2021 | 42,365 |
| | 1,484 |
|
| 2022 | 43,434 |
| | 1,427 |
|
| 2023-2027 | 231,373 |
| | 6,373 |
|
| | $ | 436,801 |
| | $ | 14,782 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
Our principal domestic pension and other postretirement benefit plans used the following weighted average actuarial assumptions to determine the benefit obligations at December 31:
|
| | | | | |
| | 2019 | | 2018 |
| Discount rate | 3.4 | % | | 4.5 | % |
| Expected return on plan assets | 8.5 | % | | 8.5 | % |
| Rate of compensation increase | 2.5 | % | | 2.6 | % |
| Health care cost trend rate: | | | |
| Assumed for next year | 6.3 | % | | 6.4 | % |
| Ultimate rate | 4.3 | % | | 4.3 | % |
| Year that the ultimate rate is reached | 2035 |
| | 2035 |
|
|
| | | | | |
| | 2017 | | 2016 |
| Discount rate | 3.8 | % | | 4.4 | % |
| Expected return on plan assets | 8.5 | % | | 8.5 | % |
| Rate of compensation increase | 2.6 | % | | 2.8 | % |
| Health care cost trend rate: | | | |
| Assumed for next year | 6.2 | % | | 6.4 | % |
| Ultimate rate | 4.9 | % | | 4.5 | % |
| Year that the ultimate rate is reached | 2047 |
| | 2047 |
|
Our expected return on plan assets is determined by current and expected asset allocation of plan assets, estimates of future long-term returns on those types of plan assets and historical long-term investment performance.
Our international pension benefit plans used a discount rate of 2.11.5 percent and 1.92.2 percent as of December 31, 20172019 and 2016,2018, respectively, and a rate of compensation increase of 3.3 percent and 3.5 percent to determine the benefit obligation as of each of December 31, 20172019 and 2016, respectively.2018.
The components of the net periodic benefit credit for each of the years ended December 31 were as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2019 | | 2018 | | 2017 | | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Service cost | $ | 12,505 |
| | $ | 14,238 |
| | $ | 13,372 |
| | $ | 80 |
| | $ | 99 |
| | $ | 104 |
|
| Interest cost | 28,316 |
| | 25,316 |
| | 25,501 |
| | 759 |
| | 640 |
| | 692 |
|
| Expected return on plan assets | (60,567 | ) | | (68,575 | ) | | (63,010 | ) | | — |
| | — |
| | — |
|
Amortization of prior service cost (credit) | 115 |
| | 173 |
| | 313 |
| | (2,330 | ) | | (1,392 | ) | | (3,418 | ) |
Amortization of actuarial losses (gains) | 16,399 |
| | 7,378 |
| | 7,077 |
| | (488 | ) | | (506 | ) | | (596 | ) |
| Net periodic benefit credit | $ | (3,232 | ) | | $ | (21,470 | ) | | $ | (16,747 | ) | | $ | (1,979 | ) | | $ | (1,159 | ) | | $ | (3,218 | ) |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits | | Other Postretirement Benefits |
| | 2017 | | 2016 | | 2015 | | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Service cost | $ | 13,372 |
| | $ | 12,895 |
| | $ | 15,562 |
| | $ | 104 |
| | $ | 222 |
| | $ | 444 |
|
| Interest cost | 25,501 |
| | 25,781 |
| | 28,066 |
| | 692 |
| | 891 |
| | 1,281 |
|
| Expected return on plan assets | (63,010 | ) | | (58,504 | ) | | (62,726 | ) | | — |
| | — |
| | — |
|
Amortization of prior service cost (credit) | 313 |
| | 561 |
| | 1,037 |
| | (3,418 | ) | | (3,571 | ) | | (3,057 | ) |
Amortization of actuarial losses (gains) | 7,077 |
| | 8,573 |
| | 5,556 |
| | (596 | ) | | (599 | ) | | (348 | ) |
| Special termination benefits | — |
| | 2,837 |
| | — |
| | — |
| | — |
| | — |
|
| Curtailment loss (gain) | — |
| | 183 |
| | (522 | ) | | — |
| | (823 | ) | | — |
|
| Net periodic benefit credit | $ | (16,747 | ) | | $ | (7,674 | ) | | $ | (13,027 | ) | | $ | (3,218 | ) | | $ | (3,880 | ) | | $ | (1,680 | ) |
In 2016, special termination benefits of $2.8 million and net curtailment gains of $0.6 million were recognized related to the shutdown of the LaPorte, Indiana manufacturing facility.
Our principal domestic pension and other postretirement benefit plans used the following weighted average actuarial assumptions to determine net periodic benefit credit for the years ended December 31:
|
| | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| Discount rate | 4.5 | % | | 3.8 | % | | 4.4 | % |
| Expected return on plan assets | 8.5 | % | | 8.5 | % | | 8.5 | % |
| Rate of compensation increase | 2.6 | % | | 2.6 | % | | 2.8 | % |
| Health care cost trend rate | 6.4 | % | | 6.2 | % | | 6.4 | % |
|
| | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| Discount rate | 4.4 | % | | 4.7 | % | | 4.1 | % |
| Expected return on plan assets | 8.5 | % | | 8.5 | % | | 8.5 | % |
| Rate of compensation increase | 2.8 | % | | 3.1 | % | | 3.0 | % |
| Health care cost trend rate | 6.4 | % | | 6.6 | % | | 6.7 | % |
Our international pension benefit plans used a discount rate of 2.2 percent, 2.1 percent and 1.9 percent, 2.6 percent and 2.0 percent for the years ended December 31, 2017, 20162019, 2018 and 2015,2017, respectively, and used a rate of compensation increase of 3.3 percent 3.5 percent and 3.5 percent to determine net periodic benefit credit for each of the years ended December 31, 2017, 20162019, 2018 and 2015, respectively.2017.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
The assumed health care cost trend rates affect the amounts reported for our health care plans. A one percentage point changeMULTIEMPLOYER PENSION PLANS
In 2019, we participated in the assumed health care cost trend rates would not have a significant impact on our service cost, interest cost or postretirement benefit obligation.
MULTIEMPLOYER PENSION PLANS
We participate in four4 multiemployer pension plans which provide defined benefits to certain of our union employees. The aggregate amount contributed to these plans and charged to pension cost in 2019, 2018 and 2017 2016was $4.8 million, $5.3 million and 2015 was $6.4 million, $6.5 million and $6.7 million, respectively.
The risks of participating in multiemployer plans are different from the risks of single-employer plans in the following respects: (i) assets contributed to a multiemployer plan by one employer may be used to provide benefits to employees of other participating employers; (ii) if a participating employer ceases to contribute to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers; and (iii) if we cease to have an obligation to contribute to the multiemployer plan in which we had been a contributing employer, we may be required to pay to the plan an amount (referred to as a withdrawal liability) based on the underfunded status of the plan and on our historical participation in the plan prior to the cessation of our obligation to contribute.
Based on the latest information available, in 2019 we participateparticipated in twothree multiemployer plans with a funded status less than 65 percent. Further information on these multiemployer plans for the years ended December 31, 2017, 20162019, 2018 and 20152017 is as follows:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Fund | | EIN/Pension Plan Number | | Pension Protection Act Zone Status | | | FIP / RP Status Pending / Implemented | | Contributions | | Surcharge Imposed |
| 2019 | | | 2018 | | | 2019 | | 2018 | | 2017 | |
| | | | | | | | | | | | | (Dollars in thousands) | | |
Central States, Southeast & Southwest Areas Pension Fund (1) | | 36-6044243/001 | | Red | (2) | | Red | (2) | | Implemented | | $ | 1,166 |
| | $ | 1,797 |
| | $ | 1,873 |
| | No |
United Food & Commercial Workers — Local 1 Pension Fund (3) | | 16-6144007/001 | | Red | (2) | | Red | | | Implemented | | 245 |
| | 237 |
| | 232 |
| | No |
IAM National Pension Fund (4) | | 51-6031295/002 | | Red | | | Green | | | Implemented | | 2,667 |
| | 2,587 |
| | 2,722 |
| | Yes |
| All Other | | | | | | | | | | | | 707 |
| | 671 |
| | 1,596 |
| | |
| Total Contributions | | | | | | | | | | | | $ | 4,785 |
| | $ | 5,292 |
| | $ | 6,423 |
| | |
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| Pension Fund | | EIN/Pension Plan Number | | Pension Protection Act Zone Status | | | FIP / RP Status Pending / Implemented | | Contributions | | Surcharge Imposed |
| 2017 | | | 2016 | | | 2017 | | 2016 | | 2015 | |
| | | | | | | | | | | | | (Dollars in thousands) | | |
Central States, Southeast & Southwest Areas Pension Fund (1) | | 36-6044243/001 | | Red | (2) | | Red | (2) | | Implemented | | $ | 1,873 |
| | $ | 1,979 |
| | $ | 1,996 |
| | No |
United Food & Commercial Workers — Local 1 Pension Fund (3) | | 16-6144007/001 | | Red | | | Red | | | Implemented | | 232 |
| | 199 |
| | 169 |
| | No |
| All Other | | | | | | | | | | | | 4,318 |
| | 4,304 |
| | 4,550 |
| | |
| Total Contributions | | | | | | | | | | | | $ | 6,423 |
| | $ | 6,482 |
| | $ | 6,715 |
| | |
______________________
| |
(1) | The applicable collective bargaining agreements related to this pension fund expireexpired at various times in 2019. In 2019, we withdrew completely from this pension fund. See Note 4 for further information. |
| |
(2) | Under the Multiemployer Pension Reform Act of 2014, the status of this pension fund for each of 2017 and 2016 was critical and declining, as defined under such Act. |
| |
(3) | The collective bargaining agreement related to this pension fund expires on MarchDecember 31, 2018.2020. A single company that was making over 80 percent of the contributions for this pension fund filed for Chapter 11 bankruptcy during 2018 and withdrew from this pension fund without paying its withdrawal liability. For 2018 and 2017, the fund actuary for this pension fund projected insolvency for this pension fund in 2025 and 2049, respectively. |
| |
(4) | The applicable collective bargaining agreements related to this pension fund expire at various times through December 31, 2021. Although this pension fund was formally certified in the yellow zone in 2019, the trustees of this pension plan elected voluntarily to place this pension plan in the red zone to take advantage of certain provisions of the Pension Protection Act even though at the end of 2018 this pension plan had a funded status of 89 percent. |
The “EIN/Pension Plan Number” column provides the Employer Identification Number and the three digit plan number assigned to a plan by the Internal Revenue Service. The most recent Pension Protection Act Zone Status available for 20172019 and 20162018 is for plan years that ended in each of those years. The zone status is based on information provided to us and other participating employers by each plan and is certified by the plan’s actuary. A plan in the “red” zone has been determined to be in “critical status,” based on criteria established under the Internal Revenue Code of 1986, as amended (the “Code”), and is generally less than 65 percent funded. The “FIP/RP Status Pending/Implemented” column indicates whether a rehabilitation plan, as required under the Code to be adopted by plans in the “red” zone, is pending or has been implemented as of the end of the 20172019 plan year. The “Surcharge Imposed” column indicates whether our contribution rate for 20172019 included an amount in
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
addition to the contribution rate specified in the applicable collective bargaining agreement, as imposed by a plan in “critical status” in accordance with the requirements of the Code.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
Our contributions to each of these respective plans were less than five percent of total contributions made by all employers to each of these respective plans, as reported by these plans for the year ended December 31, 2016,2018, the most recent plan year available. We do not expect our contributions to these plans for the year ended December 31, 20182020 to be significantly different from our contributions for the year ended December 31, 2017.2019.
DEFINED CONTRIBUTION PLANS
We also sponsor defined contribution plans covering certain employees. Our contributions to these plans are based upon employee contributions and operating profitability. Contributions charged to expense for these plans for the years ended December 31, 2019, 2018 and 2017 2016were $14.4 million, $12.0 million and 2015 were $11.8 million, $9.8 million and $9.5 million, respectively.
PLAN ASSETS
INVESTMENT STRATEGY
Our investment strategy is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the composition of our plan assets is broadly characterized as a 58 percent/42 percent allocation between equity and debt securities. The equity securities allocation utilizes indexed U.S. equity securities (which constitutes approximately 85 percent of equity securities), with a lesser allocation to indexed international equity securities. The debt securities allocation primarily utilizes indexed investment grade U.S. debt securities. We attempt to mitigate investment risk by regularly rebalancing between equity and debt securities as contributions and benefit payments are made.
The weighted average asset allocation for our pension plans at December 31, 20172019 and 20162018 and target allocation for 20172019 was as follows:
|
| | | | | | | | |
| | Target Allocation | | Actual Allocation |
| | 2019 | | 2018 |
| Equity securities—U.S. | 49 | % | | 47 | % | | 47 | % |
| Equity securities—International | 9 | % | | 10 | % | | 10 | % |
| Debt securities | 42 | % | | 42 | % | | 42 | % |
| Cash and cash equivalents | — |
| | 1 | % | | 1 | % |
| | 100 | % | | 100 | % | | 100 | % |
|
| | | | | | | | |
| | Target Allocation | | Actual Allocation |
| | 2017 | | 2016 |
| Equity securities—U.S. | 49 | % | | 47 | % | | 47 | % |
| Equity securities—International | 9 | % | | 10 | % | | 10 | % |
| Debt securities | 42 | % | | 42 | % | | 42 | % |
| Cash and cash equivalents | — |
| | 1 | % | | 1 | % |
| | 100 | % | | 100 | % | | 100 | % |
FAIR VALUE MEASUREMENTS
Our plan assets are primarily invested in commingled funds holding equity and debt securities, which are valued using the Net Asset Value, or NAV, provided by the administrator of the fund. The NAV is based on the value of the underlying assets owned by the fund, minus its liabilities, and then divided by the number of shares outstanding. Commingled funds are classified within Level 2 (as described in Note 9)10) of the fair value hierarchy because the NAV’s are not publicly available. Plan excess cash balances are invested in short term investment funds which include investments in cash, bank notes, corporate notes, government bills and various short-term debt instruments. These typically are commingled funds valued using one dollar for the NAV. These short term funds are also classified within Level 2 of the valuation hierarchy.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
The fair value of our plan assets by asset category consisted of the following at December 31:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Equity securities—U.S. | $ | 414,260 |
| | $ | 350,728 |
|
| Equity securities—International | 86,822 |
| | 73,415 |
|
| Debt securities | 362,020 |
| | 304,128 |
|
| Cash and cash equivalents | 5,968 |
| | 4,231 |
|
| | $ | 869,070 |
| | $ | 732,502 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Equity securities—U.S. | $ | 391,527 |
| | $ | 357,789 |
|
| Equity securities—International | 82,571 |
| | 76,189 |
|
| Debt securities | 347,612 |
| | 321,597 |
|
| Cash and cash equivalents | 4,096 |
| | 3,976 |
|
| | $ | 825,806 |
| | $ | 759,551 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
CONCENTRATIONSOF CREDIT RISK
As of December 31, 2017,2019, approximately 99 percent of our plan assets were under management by a single investment management company in six individual commingled equity and debt index funds. Of these six6 funds, four4 funds held assets individually in excess of ten percent of our total plan assets.
EXPECTED CONTRIBUTIONS
Based on current legislation, there are no significant minimum required contributions to our pension benefit plans in 2018.2020. In addition, based on the current funded status of our domestic pension benefit plans we do not expect to make significant contributions to these plans in 2018.2020. However, this estimate may change based on regulatory changes and actual plan asset returns.
NOTE 13. INCOME TAXES
NOTE 12. INCOME TAXES
Income before income taxes was taxed in the following jurisdictions in each of the years ended December 31: | | | | 2017 | | 2016 | | 2015 | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) | (Dollars in thousands) |
| Domestic | $ | 187,521 |
| | $ | 212,987 |
| | $ | 222,188 |
| $ | 194,822 |
| | $ | 215,354 |
| | $ | 187,521 |
|
| Foreign | 52,160 |
| | 18,930 |
| | 30,698 |
| 57,314 |
| | 77,947 |
| | 52,160 |
|
| Total | $ | 239,681 |
| | $ | 231,917 |
| | $ | 252,886 |
| $ | 252,136 |
| | $ | 293,301 |
| | $ | 239,681 |
|
The components of the provision (benefit) provision for income taxes were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Current: | | | | | |
| Federal | $ | 41,949 |
| | $ | 17,846 |
| | $ | 56,834 |
|
| State | 13,924 |
| | 3,336 |
| | 7,507 |
|
| Foreign | 23,308 |
| | 24,385 |
| | 20,650 |
|
| Current income tax provision | 79,181 |
| | 45,567 |
| | 84,991 |
|
| Deferred: | | | | | |
| Federal | (11,521 | ) | | 25,887 |
| | (118,919 | ) |
| State | (5,013 | ) | | 3,382 |
| | 4,413 |
|
| Foreign | (4,325 | ) | | (5,529 | ) | | (463 | ) |
| Deferred income tax (benefit) provision | (20,859 | ) | | 23,740 |
| | (114,969 | ) |
| | $ | 58,322 |
| | $ | 69,307 |
| | $ | (29,978 | ) |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Current: | | | | | |
| Federal | $ | 56,834 |
| | $ | 27,805 |
| | $ | 77,777 |
|
| State | 7,507 |
| | (577 | ) | | 7,972 |
|
| Foreign | 20,650 |
| | 6,327 |
| | 8,002 |
|
| Current income tax provision | 84,991 |
| | 33,555 |
| | 93,751 |
|
| Deferred: | | | | | |
| Federal | (118,919 | ) | | 42,964 |
| | (10,065 | ) |
| State | 4,413 |
| | 3,445 |
| | (1,932 | ) |
| Foreign | (463 | ) | | (1,398 | ) | | (1,281 | ) |
| Deferred income tax (benefit) provision | (114,969 | ) | | 45,011 |
| | (13,278 | ) |
| | $ | (29,978 | ) | | $ | 78,566 |
| | $ | 80,473 |
|
On December 22, 2017, the 2017 Tax Act was signed into law, making significant changes to the Internal Revenue Code. Changes include, but are not limited to, a federal corporate tax rate decrease from 35 percent to 21 percent effective for tax years beginning after December 31, 2017 and a one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings as of December 31, 2017 as part of the move from a worldwide
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
to a territorial tax system. The 2017 Tax Act also provides for the acceleration of depreciation for certain assets placed into service after September 27, 2017 as well as prospective changes beginning in 2018, including the repeal of the domestic manufacturing deduction, acceleration of tax revenue recognition, capitalization of research and development expenditures, additional limitations on the deductibility of executive compensation and limitations on the deductibility of interest.We recognized the impact of the 2017 Tax Act in our year end income tax provision for 2017 and recorded $110.9 million as an additional income tax benefit in the fourth quarter of 2017. This income tax benefit primarily representsrepresented the provisional amount related to the remeasurement of net deferred tax liabilities based on the rates at which they are expected to be taxed in the future. The provisional estimate also reflectsreflected our computation that we will not incur the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
We recognized the income tax effects of the 2017 Tax Act in our 2017 financial statements in accordance with the Staff Accounting Bulletin No. 118, or SAB 118, issued by the staff of the Securities and Exchange Commission, which provides guidance for the application of GAAP as it pertains to accounting for income taxes, in the reporting period in which the 2017 Tax Act was signed into law. In accordance with SAB 118, we havehad determined that the $110.9 million deferred tax benefit recorded in the fourth quarter of 2017 primarily in connection with the remeasurement of deferred tax assets and liabilities and the computation related to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings were provisional amounts and a reasonable estimate at December 31, 2017. Additional work is necessary
As of December 31, 2018, we completed our accounting for all of the enactment date income tax effects of the 2017 Tax Act. During 2018, we recognized insignificant adjustments to complete the analysisprovisional amounts recorded at December 31, 2017 and included these adjustments as a component of ourincome tax expense. The final amount of the income tax benefit from the enactment of the 2017 Tax Act was $111.6 million, which related primarily to the remeasurement of deferred tax assets and liabilities and our historicalliabilities. We did not incur any income tax expense due to the one-time transition tax on the mandatory deemed repatriation of cumulative foreign earnings. Any subsequent adjustmentAs of January 1, 2018, the 2017 Tax Act imposes a minimum tax on foreign earnings in excess of a return on tangible assets, commonly referred to as the provisional amounts described above will be recordedtax on Global Intangible Low-Taxed Income. We have elected to account for this tax as a component of current income tax expense in the fiscal quarter of 2018 during which the analysis is completed.expense.
The provision (benefit) provision for income taxes varied from income taxes computed at the statutory U.S. federal income tax rate as a result of the following:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
Income taxes computed at the statutory U.S. federal income tax rate | $ | 52,949 |
| | $ | 61,543 |
| | $ | 83,884 |
|
| State income taxes, net of federal tax benefit | 7,133 |
| | 6,326 |
| | 4,529 |
|
| Tax liabilities (no longer required) required | (2,002 | ) | | 1,908 |
| | 1,254 |
|
| Valuation allowance | 1,699 |
| | 240 |
| | 4,636 |
|
| Manufacturing exemption | — |
| | — |
| | (5,143 | ) |
| Tax credit refunds, net | (3,493 | ) | | (3,415 | ) | | (2,797 | ) |
| Foreign earnings taxed at other than 21%, 21% and 35%, respectively | 3,741 |
| | 7,851 |
| | (3,840 | ) |
| Deferred tax rate changes | 92 |
| | (1,947 | ) | | (114,163 | ) |
| Other | (1,797 | ) | | (3,199 | ) | | 1,662 |
|
| | $ | 58,322 |
| | $ | 69,307 |
| | $ | (29,978 | ) |
| | | | | | |
| Effective tax rate | 23.1 | % | | 23.6 | % | | (12.5 | )% |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
Income taxes computed at the statutory U.S. federal income tax rate | $ | 83,884 |
| | $ | 81,171 |
| | $ | 88,512 |
|
| State income taxes, net of federal tax benefit | 4,529 |
| | 4,264 |
| | 4,903 |
|
| Tax liabilities required (no longer required) | 1,254 |
| | (408 | ) | | 2,342 |
|
| Valuation allowance | 4,636 |
| | 474 |
| | 1,441 |
|
| Manufacturing exemption | (5,143 | ) | | (3,613 | ) | | (7,849 | ) |
| Tax credit refunds, net | (2,797 | ) | | (2,676 | ) | | (2,325 | ) |
| Foreign earnings taxed at other than 35% | (3,840 | ) | | (2,334 | ) | | (6,383 | ) |
| Deferred tax rate changes | (114,163 | ) | | (371 | ) | | 163 |
|
| Other | 1,662 |
| | 2,059 |
| | (331 | ) |
| | $ | (29,978 | ) | | $ | 78,566 |
| | $ | 80,473 |
|
| | | | | | |
| Effective tax rate | (12.5 | )% | | 33.9 | % | | 31.8 | % |
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
Deferred income taxes reflect the net tax effect of temporary differences between the financial statement carrying amounts of assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Significant components of our deferred tax assets and liabilities at December 31 were as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Deferred tax assets: | | | |
| Pension and other postretirement liabilities | $ | 22,632 |
| | $ | 18,653 |
|
| Rationalization and other accrued liabilities | 23,038 |
| | 19,343 |
|
| AMT and other credit carryforwards | 3,802 |
| | 3,701 |
|
| Net operating loss carryforwards | 34,792 |
| | 31,679 |
|
| Other intangible assets | 5,251 |
| | 3,964 |
|
| Foreign currency translation | 246 |
| | 234 |
|
| Inventory and related reserves | 26,677 |
| | 6,988 |
|
| Long term operating lease liabilities | 48,889 |
| | — |
|
| Other | 5,265 |
| | 5,971 |
|
| Total deferred tax assets | 170,592 |
| | 90,533 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment | (195,039 | ) | | (185,101 | ) |
| Pension and other postretirement liabilities | (25,016 | ) | | (14,393 | ) |
| Other intangible assets | (112,680 | ) | | (117,168 | ) |
| Operating lease right of use assets | (46,709 | ) | | — |
|
| Other | (6,258 | ) | | (7,275 | ) |
| Total deferred tax liabilities | (385,702 | ) | | (323,937 | ) |
| Valuation allowance | (15,025 | ) | | (13,541 | ) |
| | $ | (230,135 | ) | | $ | (246,945 | ) |
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Deferred tax assets: | | | |
| Pension and other postretirement liabilities | $ | 21,235 |
| | $ | 14,678 |
|
| Rationalization and other accrued liabilities | 17,716 |
| | 22,933 |
|
| Property, plant and equipment | — |
| | 331 |
|
| AMT and other credit carryforwards | 1,910 |
| | 1,449 |
|
| Net operating loss carryforwards | 34,102 |
| | 21,605 |
|
| Other intangible assets | — |
| | 821 |
|
| Foreign currency translation | 10,170 |
| | 426 |
|
| Inventory and related reserves | 9,832 |
| | 16,824 |
|
| Other | 2,093 |
| | 3,482 |
|
| Total deferred tax assets | 97,058 |
| | 82,549 |
|
| Deferred tax liabilities: | | | |
| Property, plant and equipment | (175,486 | ) | | (208,409 | ) |
| Pension and other postretirement liabilities | (23,780 | ) | | (30,414 | ) |
| Other intangible assets | (115,547 | ) | | (81,209 | ) |
| Foreign currency translation | — |
| | (22,156 | ) |
| Other | (3,961 | ) | | (9,292 | ) |
| Total deferred tax liabilities | (318,774 | ) | | (351,480 | ) |
| Valuation allowance | (14,089 | ) | | (8,147 | ) |
| | $ | (235,805 | ) | | $ | (277,078 | ) |
At December 31, 2017,2019, the net deferred tax liability in our Consolidated Balance Sheets was comprised of long-term deferred tax assets of $26.6$24.7 million and long-term deferred tax liabilities of $262.4$254.8 million. At December 31, 2016,2018, the net deferred tax liability in our Consolidated Balance Sheets was comprised of long-term deferred tax assets of $21.3$21.1 million and long-term deferred tax liabilities of $298.4$268.0 million. Long-term deferred tax assets were classified as other assets, net in our Consolidated Balance Sheets. The net decrease in deferred tax liabilities is due to decreases of $110.9 million primarily related to the remeasurement of net deferred tax liabilities as a result of the reduction in the federal corporate tax rate under the 2017 Tax Act and $25.3 million due to normal activity, partially offset by an increase of $94.9 million from the acquisition of SDS.
The valuation allowance in 20172019 includes deferred tax assets of $14.1$15.0 million resulting from state and foreign net operating loss carryforwards, or NOLs. The valuation allowance for deferred tax assets increased in 20172019 by $5.9$1.5 million primarily due to an increase in the valuation allowance related to foreign tax loss carryforwards and state and local tax credits.carryforwards.
At December 31, 2017,2019, we had foreign NOLs of approximately $29.1$29.3 million that are available to offset future taxable income. Of that amount, approximately $8.5$8.8 million will expire from 20182020 to 2028.2030. The remaining portion has no expiration date. At December 31, 2017,2019, we had state tax NOLs of approximately $4.9$5.5 million that are available to offset future taxable income and that will expire from 2024 to 2036.2038.
We recognize accrued interest and penalties related to unrecognized taxes as additional income tax expense. At December 31, 20172019 and 2016,2018, we had $4.3$5.0 million and $3.8$4.9 million, respectively, accrued for potential interest and penalties.
The total amount of unrecognized tax benefits recorded in other liabilities as of December 31, 20172019 and 20162018 were $41.9$41.4 million and $36.1$43.6 million, respectively, excluding associated tax assets and including the federal tax benefit of state taxes, interest and penalties.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 2016 and 2015
Tax assets associated with uncertain tax positions primarily represent our estimate of the potential tax benefits in one tax jurisdiction that could result from the payment of income taxes in another jurisdiction. At December 31, 20172019 and 2016,2018, we had approximately $16.9$17.3 million and $16.7$17.1 million, respectively, in assets associated with uncertain tax positions recorded in other assets, net in our Consolidated Balance Sheets.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits included as other liabilities in our Consolidated Balance Sheets was as follows:
|
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Balance at January 1, | $ | 43,508 |
| | $ | 45,146 |
|
| Decrease based upon tax positions of current year | (488 | ) | | — |
|
| Increase based upon tax positions of a prior year | 604 |
| | 1,022 |
|
| Decrease based upon settlements with taxing authorities | (1,316 | ) | | (1,253 | ) |
| Decrease based upon a lapse in the statute of limitations | (4,025 | ) | | (1,407 | ) |
| Balance at December 31, | $ | 38,283 |
| | $ | 43,508 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Balance at January 1, | $ | 56,721 |
| | $ | 50,337 |
|
| Increase based upon tax positions of current year | 1,183 |
| | 5,955 |
|
| (Decrease) increase based upon tax positions of a prior year | (6,839 | ) | | 217 |
|
| Increase due to acquisitions | — |
| | 1,810 |
|
| Decrease due to changes in tax rates | (3,408 | ) | | — |
|
| Decrease based upon settlements with taxing authorities | (2,191 | ) | | (1,159 | ) |
| Decrease based upon a lapse in the statute of limitations | (320 | ) | | (439 | ) |
| Balance at December 31, | $ | 45,146 |
| | $ | 56,721 |
|
The total amount of unrecognized tax benefits that would impact the effective tax rate, if recognized, at December 31, 20172019 and 20162018 were $26.6$25.5 million and $21.3$28.0 million, respectively.
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 20162018 tax year with no change to our filed tax return. We have been accepted into the Compliance Assurance Program for the 20172019 and 20182020 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing. We are subject to examination by state and local tax authorities generally for the period mandated by statute, with the exception of states where waivers of the statute of limitations have been executed. The state with the earliest open period for a state audit is Nebraska (2006).2013. Our foreign subsidiaries are generally not subject to examination by tax authorities for periods before 2008, and we have contractual indemnities with third parties with respect to open periods that predate our ownership of certain foreign subsidiaries. Subsequent periods may be examined by the relevant tax authorities. We do not expect a material change toIn the next twelve months, it is reasonably possible that our reserve for unrecognized tax benefits withinwill decrease by approximately $5.6 million primarily related to tax attributes acquired from and expenses related to certain acquisitions, as we anticipate the next twelve months.expiration of the applicable statute of limitations with respect to certain tax matters.
As a result of the 2017 Tax Act, we have changed our assertion of indefinite reinvestment of the earnings of certain of our foreign subsidiaries. In connection with this change, we are provisionally estimating that there is no deferred tax to record for any U.S. income tax and foreign taxes on previously unremitted earnings of such foreign subsidiaries. For our foreign subsidiaries where we expect to be indefinitely reinvested, we estimate that the unremitted earnings as of December 31, 20172019 are approximately $46.6$102.2 million. The amount of unrecognized deferred tax liabilities on these indefinitely reinvested earnings is estimated to be approximately $1.8$3.2 million. In our foreign subsidiaries where we expect to continue to be indefinitely reinvested, additional work is necessary to determine the historical foreign earnings and the associated tax cost of repatriation.
As of December 31, 2017, we reclassified the stranded tax effects resulting from the decrease in the federal corporate tax rate and certain other tax effects (primarily the decreased federal benefit of state income taxes) as a result of the 2017 Tax Act. As a result, we increased each of accumulated other comprehensive loss and retained earnings by $22.1 million.million in 2017. See Note 45 for further information.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 13. 14. STOCK-BASED COMPENSATION
The Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, or the Plan, provides for awards of stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards to our officers, other key employees and outside directors.
Shares of our common stock issued under the Plan shall be authorized but unissued shares or treasury shares. The maximum aggregate number of shares of our common stock that may be issued in connection with stock options, stock appreciation rights, restricted stock, restricted stock units and performance awards under the Plan shall not exceed 19,200,000 shares. Each award of stock options or stock appreciation rights under the Plan will reduce the number of shares of our common stock available for future issuance under the Plan by the number of shares of our common stock subject to the award. Each award of restricted stock or restricted stock units under the Plan, in contrast, will reduce the number of shares of our common stock available for future issuance under the Plan by two2 shares for every one restricted share or restricted stock unit awarded. As of December 31, 2017, 5,939,1282019, 4,378,990 shares were available to be awarded under the Plan.
We measure the cost of employee services received in exchange for an award of equity instruments based on the grant date fair value of the award. The cost is recognized over the period during which an employee is required to provide service in exchange for the award, usually the vesting period. Stock-based compensation expense for the years ended December 31, 2017, 20162019, 2018 and 20152017 recorded in selling, general and administrative expenses was $17.1 million, $14.9 million and $14.6 million, $13.0 million and $12.1 million, respectively.
RESTRICTED STOCK UNITS
Restricted stock units issued are generally accounted for as fixed grants and, accordingly, the fair value at the grant date is being amortized ratably over the respective vesting period. The maximum contractual vesting period for restricted stock units outstanding at December 31, 20172019 is sixfive years. Unvested restricted stock units may not be disposed of or transferred during the vesting period. Restricted stock units carry with them the right to receive, upon vesting, dividend equivalents.
The table below summarizes restricted stock unit activity for the year ended December 31, 2017:2019:
|
| | | | | | | |
| | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
| Restricted stock units outstanding at December 31, 2018 | 2,202,224 |
| | $ | 26.16 |
| |
| Granted | 1,086,004 |
| | 28.51 |
| |
| Released | (1,301,777 | ) | | 24.49 |
| |
| Forfeited | (11,876 | ) | | 28.87 |
| |
| Restricted stock units outstanding at December 31, 2019 | 1,974,575 |
| | 28.54 |
| |
|
| | | | | | | |
| | Restricted Stock Units | | Weighted Average Grant Date Fair Value |
| Restricted stock units outstanding at December 31, 2016 | 2,051,986 |
| | $ | 24.12 |
| |
| Granted | 592,922 |
| | 29.94 |
| |
| Released | (421,108 | ) | | 23.24 |
| |
| Forfeited | (38,334 | ) | | 27.57 |
| |
| Restricted stock units outstanding at December 31, 2017 | 2,185,466 |
| | 25.81 |
| |
The weighted average grant date fair value of restricted stock units granted during 20162018 and 20152017 was $25.7728.51 and $28.2429.94, respectively. The fair value of restricted stock units released during the years ended December 31, 2019, 2018 and 2017 2016was $37.2 million, $9.7 million and 2015 was $12.8 million, $9.3 million and $8.3 million, respectively.
As of December 31, 2017,2019, there was approximately $30.038.8 million of total unrecognized compensation expense related to restricted stock units. This cost is expected to be recognized over a weighted average period of 3.02.8 years.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 14. 15. CAPITAL STOCK
CAPITAL STOCK
At December 31, 2017,2019, our authorized capital stock consists of 200,000,000400,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value of $0.01 per share.
TREASURY STOCK
On October 17, 2016, our Board of Directors authorized the repurchase by us of up to an additional aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021. Pursuant to this authorization, together withwe repurchased an aggregate of 407,540 shares of our common stock in 2019 at an average price per share of $29.70, for a total purchase price of $12.1 million. In 2018, we repurchased a total of 188,300 shares of our common stock at an average price per share of $25.31, for a total purchase price of $4.8 million. In 2016, pursuant to this authorization and the remaining amount from a prior authorization, we repurchased a total of 294,930 shares of our common stock in 2016 at an average price per share of $24.40, for a total purchase price of $7.2 million, and we completed a “modified Dutch auction” tender offer in 2016 pursuant to which we purchased 10,617,810 shares of our common stock from our stockholdersmillion. Accordingly, at a price of $25.38 per share, for a total purchase price of $269.4 million, exclusive of $0.7 million of fees and expenses. Certain of our directors and executive officers as well as related family foundations participated in the 2016 "modified Dutch auction" tender offer, and we purchased a total of 3,358,572 shares of our common stock beneficially owned by them at a price of $25.38 per share, for a total purchase price of $85.2 million, in such tender offer. In 2015, we repurchased a total of 278,842 shares of our common stock at an average price per share of $27.36, for a total purchase price of $7.6 million, and we completed a “modified Dutch auction” tender offer pursuant to which we purchased 5,532,708 shares of our common stock from our stockholders at a price of $29.25 per share, for a total purchase price of $161.8 million, exclusive of $0.7 million of fees and expenses. At December 31, 2017,2019, we had approximately $129.4$112.5 million remaining for the repurchase of our common stock under the October 17, 2016 Board of Directors authorization.
In 2017, 20162019, 2018 and 2015,2017, we issued 421,1081,301,777 treasury shares, 363,368339,972 treasury shares and 292,320421,108 treasury shares, respectively, at an average cost of $3.152.86 per share, $3.12 per share and $3.15 per share, for restricted stock units that vested during these years. In 2017, 20162019, 2018 and 2015,2017, we repurchased 138,080543,369 shares, 134,122107,420 shares and 101,682138,080 shares of our common stock, respectively, at an average cost of $28.51 per share, $28.46 per share and $30.24, $25.58 and $28.44 per share, respectively, in accordance with the Plan to satisfy employee withholding tax requirements resulting from certain restricted stock units becoming vested.
We account for treasury shares using the FIFO cost method. As of December 31, 2017, 64,727,1522019, 64,332,032 shares of our common stock were held in treasury.
NOTE 15. 16. EARNINGS PER SHARE
The components of the calculation of earnings per share were as follows:
|
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars and shares in thousands) |
| Net income | $ | 193,814 |
| | $ | 223,994 |
| | $ | 269,659 |
|
| Weighted average number of shares used in: | | | | | |
| Basic earnings per share | 110,939 |
| | 110,603 |
| | 110,353 |
|
| Dilutive common stock equivalents: | | | | | |
| Restricted stock units | 569 |
| | 1,029 |
| | 1,010 |
|
| Diluted earnings per share | 111,508 |
| | 111,632 |
| | 111,363 |
|
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars and shares in thousands) |
| Net income | $ | 269,659 |
| | $ | 153,351 |
| | $ | 172,413 |
|
| Weighted average number of shares used in: | | | | | |
| Basic earnings per share | 110,353 |
| | 119,732 |
| | 122,042 |
|
| Dilutive common stock equivalents: | | | | | |
| Restricted stock units | 1,010 |
| | 766 |
| | 570 |
|
| Diluted earnings per share | 111,363 |
| | 120,498 |
| | 122,612 |
|
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 16. 17. BUSINESS SEGMENT INFORMATION
We are engaged in the packaging industry and report our results in three3 business segments, which are our reportable segments: metal containers, closures and plastic containers. The metal containers segment manufactures steel and aluminum containers for human and pet food and general line products. The closures segment manufactures an extensive range of metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty products. The plastic containers segment manufactures 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. These segments are strategic business operations that are managed separately to maximize the production, technology and marketing of their packaging product. Our metal container business operates primarily in North America and Europe. Our closures business operates in North and South America, Europe and Asia. Our plastic container business operates primarily in North America. The accounting policies of the business segments are the same as those described in Note 1.
Information for each of the past three years for our business segments is as follows:
| | | | Metal Containers | | Closures | | Plastic Containers | | Corporate | | Total | Metal Containers | | Closures | | Plastic Containers | | Corporate | | Total |
| | (Dollars in thousands) | (Dollars in thousands) |
| 2019 | | | | | | | | | | |
| Net sales | | $ | 2,473,214 |
| | $ | 1,405,611 |
| | $ | 611,102 |
| | $ | — |
| | $ | 4,489,927 |
|
| Depreciation and amortization | | 86,114 |
| | 83,133 |
| | 37,077 |
| | 159 |
| | 206,483 |
|
| Rationalization charges | | 49,425 |
| | 6,562 |
| | 364 |
| | — |
| | 56,351 |
|
Segment income (1) | | 159,980 |
| | 173,485 |
| | 48,915 |
| | (22,894 | ) | | 359,486 |
|
| Segment assets | | 1,853,875 |
| | 2,263,131 |
| | 722,848 |
| | 35,474 |
| | 4,875,328 |
|
| Capital expenditures | | 102,832 |
| | 95,153 |
| | 32,928 |
| | 31 |
| | 230,944 |
|
| 2018 | | | | | | | | | | |
| Net sales | | $ | 2,377,980 |
| | $ | 1,456,799 |
| | $ | 614,096 |
| | $ | — |
| | $ | 4,448,875 |
|
| Depreciation and amortization | | 81,420 |
| | 74,217 |
| | 35,949 |
| | 151 |
| | 191,737 |
|
| Rationalization charges | | 5,316 |
| | 180 |
| | 757 |
| | — |
| | 6,253 |
|
| Segment income | | 198,826 |
| | 189,906 |
| | 42,562 |
| | (19,194 | ) | | 412,100 |
|
| Segment assets | | 1,601,944 |
| | 2,169,985 |
| | 722,205 |
| | 33,791 |
| | 4,527,925 |
|
| Capital expenditures | | 84,490 |
| | 62,183 |
| | 44,242 |
| | 58 |
| | 190,973 |
|
| 2017 | | | | | | | | | | | | | | | | | | |
| Net sales | $ | 2,278,054 |
| | $ | 1,246,669 |
| | $ | 565,131 |
| | $ | — |
| | $ | 4,089,854 |
| $ | 2,278,054 |
| | $ | 1,246,669 |
| | $ | 565,131 |
| | $ | — |
| | $ | 4,089,854 |
|
| Depreciation and amortization | 77,698 |
| | 61,668 |
| | 34,607 |
| | 89 |
| | 174,062 |
| 77,698 |
| | 61,668 |
| | 34,607 |
| | 89 |
| | 174,062 |
|
| Rationalization charges | 3,308 |
| | 1,042 |
| | 1,476 |
| | — |
| | 5,826 |
| 3,308 |
| | 1,042 |
| | 1,476 |
| | — |
| | 5,826 |
|
Segment income from operations (1) | 230,199 |
| | 142,048 |
| | 27,770 |
| | (43,027 | ) | | 356,990 |
| |
Segment income (1) | | 230,199 |
| | 142,048 |
| | 27,770 |
| | (43,027 | ) | | 356,990 |
|
| Segment assets | 1,670,426 |
| | 2,182,529 |
| | 704,432 |
| | 34,081 |
| | 4,591,468 |
| 1,670,426 |
| | 2,182,529 |
| | 704,432 |
| | 34,081 |
| | 4,591,468 |
|
| Capital expenditures | 87,115 |
| | 56,682 |
| | 30,141 |
| | 491 |
| | 174,429 |
| 87,115 |
| | 56,682 |
| | 30,141 |
| | 491 |
| | 174,429 |
|
| 2016 | | | | | | | | | | |
| Net sales | $ | 2,271,933 |
| | $ | 797,074 |
| | $ | 543,907 |
| | $ | — |
| | $ | 3,612,914 |
| |
| Depreciation and amortization | 72,810 |
| | 38,146 |
| | 31,993 |
| | 109 |
| | 143,058 |
| |
| Rationalization charges | 12,056 |
| | 568 |
| | 6,437 |
| | — |
| | 19,061 |
| |
Segment income from operations (1) | 214,696 |
| | 99,806 |
| | 5,231 |
| | (20,003 | ) | | 299,730 |
| |
| Segment assets | 1,551,729 |
| | 808,771 |
| | 707,578 |
| | 32,891 |
| | 3,100,969 |
| |
| Capital expenditures | 108,606 |
| | 43,120 |
| | 40,152 |
| | 15 |
| | 191,893 |
| |
| 2015 | | | | | | | | | | |
| Net sales | $ | 2,365,268 |
| | $ | 804,988 |
| | $ | 593,715 |
| | $ | — |
| | $ | 3,763,971 |
| |
| Depreciation and amortization | 70,685 |
| | 37,720 |
| | 33,665 |
| | 122 |
| | 142,192 |
| |
| Rationalization charges | 41 |
| | 1,684 |
| | 12,682 |
| | — |
| | 14,407 |
| |
Segment income from operations | 236,421 |
| | 91,823 |
| | 7,768 |
| | (16,200 | ) | | 319,812 |
| |
| Segment assets | 1,542,120 |
| | 834,114 |
| | 735,182 |
| | 33,209 |
| | 3,144,625 |
| |
| Capital expenditures | 146,972 |
| | 41,796 |
| | 48,510 |
| | 24 |
| | 237,302 |
| |
______________________
| |
| (1) | Corporate includes costs attributed to announced acquisitions of $1.8 million and $24.7 million in 2019 and $1.4 million in 2017, and 2016, respectively. |
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
Total segment income from operations is reconciled to income before income taxes as follows: |
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Total segment income | $ | 359,486 |
| | $ | 412,100 |
| | $ | 356,990 |
|
| Interest and other debt expense | 107,350 |
| | 118,799 |
| | 117,309 |
|
| Income before income taxes | $ | 252,136 |
| | $ | 293,301 |
| | $ | 239,681 |
|
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Total segment income from operations | $ | 356,990 |
| | $ | 299,730 |
| | $ | 319,812 |
|
| Interest and other debt expense | 117,309 |
| | 67,813 |
| | 66,926 |
|
| Income before income taxes | $ | 239,681 |
| | $ | 231,917 |
| | $ | 252,886 |
|
Total segment assets at December 31 are reconciled to total assets as follows: |
| | | | | | | |
| | 2019 | | 2018 |
| | (Dollars in thousands) |
| Total segment assets | $ | 4,875,328 |
| | $ | 4,527,925 |
|
| Other assets | 55,731 |
| | 51,369 |
|
| Total assets | $ | 4,931,059 |
| | $ | 4,579,294 |
|
|
| | | | | | | |
| | 2017 | | 2016 |
| | (Dollars in thousands) |
| Total segment assets | $ | 4,591,468 |
| | $ | 3,100,969 |
|
| Other assets | 53,981 |
| | 48,421 |
|
| Total assets | $ | 4,645,449 |
| | $ | 3,149,390 |
|
Financial information relating to our operations by geographic area is as follows: |
| | | | | | | | | | | |
| | 2019 | | 2018 | | 2017 |
| | (Dollars in thousands) |
| Net sales: | | | | | |
| United States | $ | 3,418,848 |
| | $ | 3,333,668 |
| | $ | 3,110,595 |
|
| Foreign: | | | | | |
| Europe | 818,032 |
| | 858,255 |
| | 747,043 |
|
| Other | 253,047 |
| | 256,952 |
| | 232,216 |
|
Total net sales from foreign operations | 1,071,079 |
| | 1,115,207 |
| | 979,259 |
|
| Total net sales | $ | 4,489,927 |
| | $ | 4,448,875 |
| | $ | 4,089,854 |
|
| Long-lived assets: | | | | | |
| United States | $ | 1,028,965 |
| | $ | 989,426 |
| | |
| Foreign: | | | | | |
| Europe | 419,195 |
| | 410,919 |
| | |
| Other | 122,171 |
| | 117,165 |
| | |
Total long-lived assets at foreign operations | 541,366 |
| | 528,084 |
| | |
| Total long-lived assets | $ | 1,570,331 |
| | $ | 1,517,510 |
| | |
|
| | | | | | | | | | | |
| | 2017 | | 2016 | | 2015 |
| | (Dollars in thousands) |
| Net sales: | | | | | |
| United States | $ | 3,110,595 |
| | $ | 2,905,157 |
| | $ | 3,014,068 |
|
| Foreign: | | | | | |
| Europe | 747,043 |
| | 551,071 |
| | 576,688 |
|
| Other | 232,216 |
| | 156,686 |
| | 173,215 |
|
Total net sales from foreign operations | 979,259 |
| | 707,757 |
| | 749,903 |
|
| Total net sales | $ | 4,089,854 |
| | $ | 3,612,914 |
| | $ | 3,763,971 |
|
| Long-lived assets: | | | | | |
| United States | $ | 942,171 |
| | $ | 853,508 |
| | |
| Foreign: | | | | | |
| Europe | 422,709 |
| | 252,246 |
| | |
| Other | 124,992 |
| | 51,198 |
| | |
Total long-lived assets at foreign operations | 547,701 |
| | 303,444 |
| | |
| Total long-lived assets | $ | 1,489,872 |
| | $ | 1,156,952 |
| | |
Net sales are attributed to the country from which the product was manufactured and shipped.
Sales of our metal containers segment to Nestlé Food Company accounted for 10.211.1 percent, 11.510.4 percent and 11.110.2 percent of our consolidated net sales in 2017, 20162019, 2018 and 2015,2017, respectively.
Sales and income from operations of our metal container business and part of our closures business 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 income from operations during that quarter (see Note 17)18).
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017, 20162019, 2018 and 20152017
NOTE 17. 18. QUARTERLY RESULTSOF OPERATIONS (UNAUDITED)
The following table presents our quarterly results of operations for the years ended December 31, 20172019 and 2016:2018:
|
| | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth |
| | (Dollars in thousands, except per share data) |
2019 (1) | | | | | | | |
| Net sales | $ | 1,027,131 |
| | $ | 1,093,163 |
| | $ | 1,321,342 |
| | $ | 1,048,291 |
|
| Gross profit | 165,997 |
| | 183,513 |
| | 207,615 |
| | 156,619 |
|
| Net income | 46,742 |
| | 30,955 |
| | 81,274 |
| | 34,843 |
|
| | | | | | | | |
Basic net income per share (3) | $ | 0.42 |
| | $ | 0.28 |
| | $ | 0.73 |
| | $ | 0.31 |
|
Diluted net income per share (3) | 0.42 |
| | 0.28 |
| | 0.73 |
| | 0.31 |
|
| | | | | | | | |
| Dividends per share | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.11 |
| | $ | 0.11 |
|
| | | | | | | | |
2018 (2) | | | | | | | |
| Net sales | $ | 1,012,280 |
| | $ | 1,059,103 |
| | $ | 1,306,999 |
| | $ | 1,070,493 |
|
| Gross profit | 160,034 |
| | 173,250 |
| | 204,107 |
| | 152,372 |
|
| Net income | 45,721 |
| | 55,343 |
| | 84,739 |
| | 38,191 |
|
| | | | | | | | |
Basic net income per share (3) | $ | 0.41 |
| | $ | 0.50 |
| | $ | 0.77 |
| | $ | 0.35 |
|
Diluted net income per share (3) | 0.41 |
| | 0.50 |
| | 0.76 |
| | 0.34 |
|
| | | | | | | | |
| Dividends per share | $ | 0.10 |
| | $ | 0.10 |
| | $ | 0.10 |
| | $ | 0.10 |
|
|
| | | | | | | | | | | | | | | |
| | First | | Second | | Third | | Fourth |
| | (Dollars in thousands, except per share data) |
2017 (1) | | | | | | | |
| Net sales | $ | 805,407 |
| | $ | 1,021,814 |
| | $ | 1,266,930 |
| | $ | 995,703 |
|
| Gross profit | 124,566 |
| | 165,189 |
| | 212,559 |
| | 158,802 |
|
| Net income | 23,232 |
| | 27,926 |
| | 72,382 |
| | 146,119 |
|
| | | | | | | | |
Basic net income per share (3) | $ | 0.21 |
| | $ | 0.25 |
| | $ | 0.66 |
| | $ | 1.32 |
|
Diluted net income per share (3) | 0.21 |
| | 0.25 |
| | 0.65 |
| | 1.31 |
|
| | | | | | | | |
| Dividends per share | $ | 0.09 |
| | $ | 0.09 |
| | $ | 0.09 |
| | $ | 0.09 |
|
| | | | | | | | |
2016 (2) | | | | | | | |
| Net sales | $ | 792,738 |
| | $ | 874,642 |
| | $ | 1,139,643 |
| | $ | 805,891 |
|
| Gross profit | 113,877 |
| | 127,707 |
| | 181,939 |
| | 110,013 |
|
| Net income | 26,572 |
| | 33,315 |
| | 69,770 |
| | 23,694 |
|
| | | | | | | | |
Basic net income per share (3) | $ | 0.22 |
| | $ | 0.28 |
| | $ | 0.58 |
| | $ | 0.20 |
|
Diluted net income per share (3) | 0.22 |
| | 0.27 |
| | 0.57 |
| | 0.20 |
|
| | | | | | | | |
| Dividends per share | $ | 0.085 |
| | $ | 0.085 |
| | $ | 0.085 |
| | $ | 0.085 |
|
______________________
| |
| (1) | The first, second, third and fourth quarters of 20172019 include rationalization charges of $0.9$6.1 million, $3.0$39.3 million, $0.6$3.2 million and $1.3$7.8 million, respectively. The first, second, third and fourth quartersquarter of 20172019 includes costs attributed to announced acquisitions of $13.2 million, $9.8 million, $0.8 million and $0.9 million, respectively. The first and second quarters of 2017 include a loss on early extinguishment of debt of $2.7 million and $4.4 million, respectively.$1.7 million. The fourth quarter of 20172019 includes the benefit from effective tax rate adjustments totaling $110.9 million primarily relatedcosts attributed to the remeasurementannounced acquisitions of net deferred tax liabilities to reflect the lower future cash tax obligations as a result of the reduction in the federal corporate tax rate under the 2017 Tax Act.$1.8 million. |
| |
| (2) | The first, second, third and fourth quarters of 20162018 include rationalization charges of $1.1$0.7 million, $5.0$0.5 million, $7.8$0.3 million and $5.1$4.8 million, respectively. The fourthsecond quarter of 20162018 includes costs attributed to announced acquisitionsa loss on early extinguishment of $1.4debt of $2.5 million. |
| |
| (3) | Net income per share data is computed independently for each of the periods presented. Accordingly, the sum of the quarterly earnings per share amounts may not equal the total for the year. |
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
NOTE 19. SUBSEQUENT EVENTS
BINDING OFFER TO ACQUIRE ALBÉA'S DISPENSING BUSINESS
On January 27, 2020, we made a binding offer, or the Offer, to Twist Beauty Packaging S.A.S., or Albéa, on behalf of itself and certain of its subsidiaries, or the Sellers, to purchase all the outstanding securities of certain subsidiaries of the Sellers engaged in the dispensing business and certain assets related to the Sellers’ dispensing business in China, or collectively the Albéa Dispensing Business, for an aggregate purchase price of $900 million in cash, subject to certain adjustments, including for working capital and other current assets and current liabilities and net indebtedness. In conjunction with the Offer, we obtained a commitment for $900 million of incremental delayed draw term loans, or the Committed Financing, under the Credit Agreement. We expect to fund the purchase price for this proposed acquisition from a combination of borrowings under the Credit Agreement, including the Committed Financing, and cash on hand.
The Albéa Dispensing Business is 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 10 plants across North America, Europe, South America and Asia. For the fiscal year ended 2018, the Albéa Dispensing Business generated sales of approximately $383 million. As a result of this proposed acquisition, we expect to realize certain operational cost synergies, estimated to be approximately $20 million on an annual basis, within 18 months of closing related to procurement savings, reductions in general and administrative expenses and manufacturing efficiencies.
In the Offer, we undertake to (1) execute a securities and assets purchase agreement, or the SPA, in the form attached to the Offer upon receipt of a notice to exercise the option contained in the Offer, or the Option, by Albéa and (2) consummate the acquisition subject to the terms and conditions set forth in the SPA. The Offer will remain open for acceptance by the Sellers until the earlier of the two following dates: (1) seven business days after the completion of certain consultation and notification processes with applicable works’ councils and trade unions and (2) July 27, 2020. As set forth in the Offer, we have an exclusivity period extending from January 27, 2020 to the earlier of (1) the execution of the SPA or (2) October 27, 2020. Our and the Sellers’ obligations to complete the acquisition are subject to certain conditions, including antitrust clearances under the laws of various jurisdictions.
The form of SPA attached to the Offer provides that either we or the Sellers have the right to terminate the SPA in the event that the applicable antitrust clearances have not been obtained by October 27, 2020, or the Outside Date; provided, however, that we and the Sellers have the right to unilaterally postpone the Outside Date by up to three months after the Outside Date, or the Postponed Outside Date, in the event that applicable antitrust clearances have not yet been obtained by the Outside Date. The form of SPA further provides that if the applicable antitrust clearances have not been obtained by the Outside Date or the Postponed Outside Date, as the case may be, then we are required to pay a break fee of $25 million to the Sellers. In addition, if the parties have not yet entered into the SPA, the Sellers may terminate the Offer if (1) the applicable antitrust clearances required under the SPA are no longer capable of being obtained on or before the Outside Date or the Postponed Outside Date, as the case may be, or (2) we do not execute the SPA even though the Option has been exercised by the Sellers. In the case of either of the foregoing, then we are required to pay a termination fee of $25 million to the Sellers. Alternatively, if the Sellers have not executed the SPA after the consultation and notification processes with applicable works’ councils and trade unions have been completed, then the Sellers are required to pay $25 million to us for estimated costs and expenses and time incurred in connection with the Offer and the proposed acquisition.
ACQUISITION OF COBRA PLASTICS, INC.
On February 4, 2020, we acquired Cobra Plastics, Inc., or Cobra Plastics, a manufacturer of injection molded plastic closures for a wide variety of consumer products, with a particular focus on the aerosol overcap market. Cobra Plastics had sales of approximately $30 million for the year ended December 31, 2018 and currently operates from two manufacturing facilities located in close proximity to one another in Macedonia, Ohio.
SILGAN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2019, 2018 and 2017
SENIOR NOTES OFFERINGS
On February 26, 2020, we issued 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, in a private placement in reliance on Rule 144A and Regulation S under the Securities Act of 1933, as amended. For a description of the 4⅛% Notes, see Note 9.
The 2¼% Notes are general unsecured obligations of Silgan, ranking equal in right of payment with our existing and future unsecured unsubordinated indebtedness, including the 4¾% Notes, 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.
The net proceeds from the sale of the additional 4⅛% Notes were approximately $196.5 million and the net proceeds from the sale of the 2¼% Notes were approximately €494.0 million, in each case after deducting the initial purchasers' discount and estimated offering expenses and excluding pre-issuance interest deemed to have accrued on the additional 4⅛% Notes to the closing date for the additional 4⅛% Notes and paid by purchasers of the additional 4⅛% Notes. We used the net proceeds from the sale of the additional 4⅛% Notes and the 2¼% Notes to prepay most of our outstanding U.S. A term loans under the Credit Agreement.
Annual aggregate maturities of the prepaid U.S. A term loans of $751.2 million were extended to 2028 to match the maturities of the additional 4⅛% Notes and the 2¼% Notes because we refinanced these U.S. A term loans with the net proceeds from the issuances of the additional 4⅛% Notes and the 2¼% Notes. This amount included current maturities of U.S. A term loans of $80 million that are now classified as long-term debt in the Consolidated Balance Sheet at December 31, 2019.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
SILGAN HOLDINGS INC.
For the years ended December 31, 2017, 20162019, 2018 and 20152017
(Dollars in thousands)
| | | | | | Additions | | Other Changes Increase (Decrease) | | | | | Additions | | Other Changes Increase (Decrease) | | |
| Description | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Cumulative translation adjustment | | Other (1) | | Balance at end of period | Balance at beginning of period | | Charged to costs and expenses | | Charged to other accounts | | Cumulative translation adjustment | | Other (1) | | Balance at end of period |
| | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, 2019: | | | | | | | | | | | | |
Allowance for doubtful accounts receivable | | $ | 5,095 |
| | $ | 1,609 |
| | $ | — |
| | $ | (56 | ) | | $ | (1,163 | ) | | $ | 5,485 |
|
| For the year ended December 31, 2018: | | | | | | | | | | | | |
Allowance for doubtful accounts receivable | | $ | 5,339 |
| | $ | 1,103 |
| | $ | — |
| | $ | (208 | ) | | $ | (1,139 | ) | | $ | 5,095 |
|
| For the year ended December 31, 2017: | | | | | | | | | | | | | | | | | | | | | | |
Allowance for doubtful accounts receivable | $ | 4,073 |
| | $ | 1,216 |
| | $ | — |
| | $ | 570 |
| | $ | (520 | ) | | $ | 5,339 |
| $ | 4,073 |
| | $ | 1,216 |
| | $ | — |
| | $ | 570 |
| | $ | (520 | ) | | $ | 5,339 |
|
| For the year ended December 31, 2016: | | | | | | | | | | | | |
Allowance for doubtful accounts receivable | $ | 4,975 |
| | $ | 180 |
| | $ | — |
| | $ | (122 | ) | | $ | (960 | ) | | $ | 4,073 |
| |
| For the year ended December 31, 2015: | | | | | | | | | | | | |
Allowance for doubtful accounts receivable | $ | 5,497 |
| | $ | 309 |
| | $ | — |
| | $ | (369 | ) | | $ | (462 | ) | | $ | 4,975 |
| |
______________________
(1) Uncollectible accounts written off, net of recoveries.
INDEX TO EXHIBITS
|
| | |
| | |
Exhibit No. | | Exhibit |
| |
12 | | |
| |
21 | | |
| |
23 | | |
| |
31.1 | | |
| |
31.2 | | |
| |
32.1 | | |
| |
32.2 | | |
| |
101.INS | | XBRL Instance Document. |
| |
101.SCH | | XBRL Taxonomy Extension Schema Document. |
| |
101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| |
101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| |
101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| |
101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |