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Silgan Announces 2018 Earnings, a 26 Percent Increase Over 2017, and Record Cash Generation

Share:

Highlights

  • Net income of $2.01 per diluted share
  • Record adjusted net income of $2.08 per diluted share, 26 percent
    above prior year
  • Record cash from operations of $506.5 million, or $4.54 per diluted
    share
  • Record free cash flow of $311.4 million, or $2.79 per diluted share,
    39 percent above prior year
  • Renewed long-term contract with largest customer through 2025 in
    support of its growth initiatives
  • Exceeded inventory reduction target in U.S. metal food cans
  • Continued strong growth and further accretion from dispensing systems
    operations
  • Delivered another year of significant improvement in the plastic
    container business
  • Commercialized two new manufacturing facilities to support growth in
    the pet food market
  • Rationalized can manufacturing operations at two metal container
    facilities
  • Completed favorable amendment to senior secured credit facility and
    redeemed all outstanding 5% Senior Notes
  • Increased cash dividend per share by approximately 11 percent

Silgan Holdings Inc. (NASDAQ:SLGN), a leading supplier of rigid
packaging for consumer goods products, today reported full year 2018 net
income of $224.0 million, or $2.01 per diluted share, as compared to
full year 2017 net income of $269.7 million, or $2.42 per diluted share.
Adjusted net income per diluted share was a record $2.08 for the full
year 2018, an increase of 26 percent over the prior year, after
adjustments increasing net income per diluted share by $0.07. Adjusted
net income per diluted share was $1.65 for the full year 2017, after
adjustments decreasing net income per diluted share by $0.77. A
reconciliation of net income per diluted share to "adjusted net income
per diluted share," a Non-GAAP financial measure used by the Company
which adjusts net income per diluted share for certain items, can be
found in Tables A and B at the back of this press release.

"In 2018, we posted record adjusted net income per diluted share of
$2.08 and record free cash flow of $311.4 million, or $2.79 per diluted
share, representing a free cash flow yield of 11.8 percent on our year
end stock price. These record results were largely driven by the
continued successful integration and strong performance of the
dispensing systems operations and the ongoing improvement in our plastic
container business," said Tony Allott, President and CEO. "As expected,
these improvements were partially offset by unfavorable overhead
absorption of approximately $18 million in our metal container business
due to the successful reduction of finished goods inventory by
approximately $65 million. Volumes in the metal container business were
down approximately four percent in 2018 as a result of a few discrete
customer actions as well as a poor fruit and vegetable growing season in
Europe," continued Mr. Allott. "We expect all of our businesses to
deliver improved operating results in 2019, largely offset by an
approximately $20 million, or $0.13 per diluted share, non-cash pension
headwind as a result of significant market declines in investment values
at the end of 2018. As a result, we estimate adjusted net income per
diluted share for 2019 to be in a range of $2.10 to $2.20, a 9.6 percent
improvement over the prior year at the midpoint of the range excluding
the unfavorable non-cash pension impact. We also expect to continue to
generate significant free cash flow of approximately $275 million in
2019," concluded Mr. Allott.

The Company reported record net cash provided by operating activities of
$506.5 million in 2018 as compared to $389.7 million in 2017. Free cash
flow improved $87.3 million to a record $311.4 million in 2018 as
compared to $224.1 million in 2017 due to working capital benefits
largely as a result of a significant planned reduction in finished goods
inventory in the metal container business and strong operating
performance. The Company is providing a reconciliation in Table C of
this press release of net cash provided by operating activities to "free
cash flow," a Non-GAAP financial measure used by the Company which
adjusts net cash provided by operating activities for certain items.

Net sales for the full year of 2018 were $4.45 billion, an increase of
$359.0 million, or 8.8 percent, as compared to 2017. This increase was
the result of higher net sales across all businesses.

Income before interest and income taxes for 2018 was $412.1 million, an
increase of $55.1 million, or 15.4 percent, as compared to $357.0
million for 2017, and operating margin increased to 9.3 percent from 8.7
percent over the same periods. The increase in income before interest
and income taxes was the result of higher segment income in the closures
and plastic container businesses and lower costs attributed to announced
acquisitions, partially offset by lower segment income in the metal
container business. Income before interest and income taxes for 2017
included costs attributed to announced acquisitions of $24.7 million and
the unfavorable impact from the write-up of inventory for purchase
accounting in the dispensing systems operations of $11.9 million.
Rationalization charges were $6.3 million and $5.8 million in 2018 and
2017, respectively.

Interest and other debt expense before loss on early extinguishment of
debt for 2018 was $116.3 million, an increase of $6.1 million as
compared to 2017 due primarily to higher weighted average outstanding
borrowings largely as a result of borrowings for the acquisition of the
dispensing systems operations in April 2017 and higher weighted average
interest rates. Loss on early extinguishment of debt of $2.5 million in
2018 was the result of the redemption of all remaining outstanding 5%
Senior Notes due 2020 in April 2018 and the amendment to the senior
secured credit facility in May 2018. Loss on early extinguishment of
debt of $7.1 million in 2017 was a result of the prepayment of
outstanding U.S term loans and Euro term loans under the previous senior
secured credit facility in conjunction with the issuance of new senior
notes and the partial redemption in April 2017 of the 5% Senior Notes
due 2020.

The effective tax rate for 2018, which incorporates the lower U.S.
corporate tax rate under the U.S. Tax Cuts and Jobs Act of 2017, was a
provision of 23.6 percent as compared to a negative 12.5 percent for
2017. The effective tax rate for 2017 was favorably impacted by the
benefit from effective tax rate adjustments primarily related to the
revaluation of net deferred tax liabilities at December 31, 2017 to
reflect lower future cash tax obligations as a result of 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.

Metal Containers

Net sales of the metal container business were $2.38 billion in 2018, an
increase of $99.9 million, or 4.4 percent, as compared to 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, 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.

Segment income of the metal container business in 2018 was $198.8
million, a decrease of $31.4 million as compared to $230.2 million in
2017, and segment income margin decreased to 8.4 percent in 2018 from
10.1 percent in the prior year. The decrease in segment income 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 the current year period, lower
unit volumes, higher freight expense and higher rationalization charges,
partially offset by the favorable impact from the contractual pass
through to customers of indexed inflation on non-metal costs as compared
to the unfavorable impact in the prior year period from the contractual
pass through of indexed deflation on non-metal costs, lower
manufacturing costs and a charge in the prior year period related to the
resolution of a past non-commercial legal dispute. Rationalization
charges were $5.3 million and $3.3 million in 2018 and 2017,
respectively.

Closures

Net sales of the closures business were $1.46 billion in 2018, an
increase of $210.1 million, or 16.9 percent, as compared to $1.25
billion in 2017. This increase was primarily the result of the inclusion
of a full year of the dispensing systems operations, the pass through of
higher raw material and other manufacturing costs and the impact of
favorable foreign currency translation, partially offset by lower unit
volumes of approximately two percent in the legacy closures operations
due primarily to a less favorable fruit and vegetable pack in Europe as
a result of weather conditions.

Segment income of the closures business for 2018 increased $47.9 million
to $189.9 million as compared to $142.0 million in 2017, and segment
income margin increased to 13.0 percent from 11.4 percent over the same
periods. The increase in segment income was primarily due to the
inclusion of a full year of the dispensing systems operations, the
unfavorable impact in the prior year period of a charge for the write-up
of inventory of the dispensing systems operations for purchase
accounting, lower manufacturing costs and foreign currency transaction
losses in the prior year period, partially offset by the volume impact
from a less favorable fruit and vegetable pack in Europe.

Plastic Containers

Net sales of the plastic container business were $614.1 million in 2018,
an increase of $49.0 million, or 8.7 percent, as compared to $565.1
million in 2017. This increase was principally due to the pass through
of higher raw material costs and higher volumes of approximately four
percent.

Segment income of the plastic container business in 2018 was $42.6
million, an increase of $14.8 million as compared to $27.8 million in
2017, and segment income margin increased to 6.9 percent from 4.9
percent over the same periods. The increase in segment income was
primarily attributable to higher volumes and lower manufacturing costs,
partially offset by costs associated with the start-up of the new
manufacturing facility in Fort Smith, Arkansas.

Fourth Quarter

The Company reported net income for the fourth quarter of 2018 of $38.2
million, or $0.34 per diluted share, as compared to net income for the
fourth quarter of 2017 of $146.1 million, or $1.31 per diluted share.
Adjusted net income per diluted share for the fourth quarter of 2018 was
a record $0.38, after adjustments increasing net income per diluted
share by $0.04. Adjusted net income per diluted share for the fourth
quarter of 2017 was $0.32, after adjustments decreasing net income per
diluted share by $0.99.

Net sales for the fourth quarter of 2018 increased $74.8 million, or 7.5
percent, to $1.07 billion as compared to $995.7 million for the fourth
quarter of 2017. This increase was primarily due to the pass through of
higher raw material and other manufacturing costs and an increase in
volumes in each of the businesses, partially offset by the impact of
unfavorable foreign currency translation. The increase in volumes of
approximately four percent in the metal container business was
principally due to a larger buy ahead by customers in 2018 as compared
to 2017 in anticipation of significant steel inflation in 2019. Volumes
in the plastic container and closures businesses increased approximately
four percent and one percent, respectively.

Income before interest and income taxes for the fourth quarter of 2018
was $77.3 million, a decrease of $9.1 million as compared to $86.4
million for the fourth quarter of 2017, and margin decreased to 7.2
percent from 8.7 percent over the same periods. The decrease in income
before interest and income taxes was primarily due to the unfavorable
overhead absorption of approximately $18 million in the metal container
business due to the reduction of finished goods inventory by
approximately $65 million, higher selling, general and administrative
expenses, higher rationalization charges and costs associated with the
start-up of the new manufacturing facility in Fort Smith, Arkansas,
partially offset by higher volumes in each of the businesses, lower
manufacturing costs, a favorable mix of products sold in the closures
business and the favorable impact from the lagged pass through of lower
resin costs in the closures business. The increase in selling, general
and administrative expenses in the current year period was due primarily
to the timing of costs for certain services, the impact of inflation and
foreign currency transaction losses. Rationalization charges were $4.8
million and $1.3 million in the fourth quarters of 2018 and 2017,
respectively. Costs attributed to announced acquisitions were $0.9
million in the fourth quarter of 2017.

Interest and other debt expense for the fourth quarter of 2018 was $27.7
million, a decrease of $2.3 million as compared to the fourth quarter of
2017. This decrease was primarily due to lower weighted average
outstanding borrowings largely as a result of the partial repayment of
acquisition borrowings under the senior secured credit facility at the
end of 2017.

The effective tax rate for the fourth quarter of 2018, which
incorporates the lower U.S. corporate tax rate under the 2017 Tax Act,
was a provision of 23.1 percent as compared to a negative 159.2 percent
for the fourth quarter of 2017. The effective tax rate for 2017 was
favorably impacted by the benefit from effective tax rate adjustments
primarily related to the revaluation of net deferred tax liabilities at
December 31, 2017 to reflect lower future cash tax obligations as a
result of the 2017 Tax Act. The effective tax rate in the fourth quarter
of 2017, exclusive of these effective tax rate adjustments, would have
been a provision of 37.6 percent.

Outlook for 2019

The Company currently estimates that its adjusted net income per diluted
share for the full year 2019 will be in the range of $2.10 to $2.20,
which includes the unfavorable non-cash pension impact of approximately
$20 million, or $0.13 per diluted share, resulting from significant
market declines in investment values at the end of 2018 that negatively
impacted the assets held in the Company's pension plans. Despite these
significant market declines, the Company's funded pension plans remain
overfunded at approximately 112 percent at year end 2018. The Company's
estimate for 2019 compares to adjusted net income per diluted share for
the full year of 2018 of $2.08. Adjusted net income per diluted share
excludes rationalization charges and loss on early extinguishment of
debt.

Net sales in the metal container business are expected to increase in
2019 as compared to 2018 primarily due to the pass through of
anticipated higher raw material and other manufacturing costs, partially
offset by an anticipated decline in unit volumes. Unit volumes in the
metal container business are expected to decline due to customer pre-buy
activity in 2018 in advance of raw material price increases expected for
2019, the expected continuation of an inventory and portfolio management
program at a certain customer and the continued impact from the prior
year loss of a smaller customer, partially offset by anticipated
continued growth in pet food volumes and an expected more normal fruit
and vegetable pack in Europe. Segment income in the metal container
business is expected to benefit from a normal production level planned
in 2019 as compared to the unfavorable overhead absorption from a
significant reduction of finished goods inventory in 2018 and continued
manufacturing efficiencies, offset by the unfavorable pension impact and
anticipated lower unit volumes. Net sales in the closures business are
expected to increase in 2019 as compared to 2018 primarily as a result
of the pass through of anticipated higher raw material costs and
anticipated higher unit volumes. Segment income in the closures business
is expected to benefit from anticipated higher unit volumes and
continued manufacturing efficiencies, offset by the unfavorable pension
impact. Net sales in the plastic container business are expected to
increase in 2019 as compared to the prior year as a result of the pass
through of anticipated higher raw material costs and anticipated volume
growth. Segment income in the plastic container business is expected to
benefit from higher volumes and continued manufacturing efficiencies,
partially offset by the unfavorable pension impact.

The Company expects slightly lower interest expense in 2019 due to lower
average outstanding borrowings, partially offset by higher weighted
average variable interest rates.

The Company expects its effective tax rate for 2019 to be approximately
24 percent, as compared to the effective tax rate for 2018 of 23.6
percent.

The Company currently estimates that free cash flow in 2019 will be
approximately $275 million as compared to $311.4 million in 2018. The
prior year free cash flow benefitted from significant improvements in
working capital principally as a result of an approximately $65 million
reduction of finished goods inventory in the metal container business.

For the first quarter of 2019, the Company is providing an estimate of
adjusted net income per diluted share in the range of $0.40 to $0.45, as
compared to $0.42 in the first quarter of 2018. The Company anticipates
slightly higher volumes in the closures and plastic container
businesses, continued manufacturing efficiencies across all businesses,
a more normal seasonal inventory build in the metal container business,
the favorable impact from the lagged pass through of lower resin costs
and lower interest costs, as well as lower unit volumes in the metal
container business and the unfavorable non-cash pension impact of
approximately $0.03 per diluted share. Unit volumes are expected to be
lower in the metal container business as a result of a strong buy ahead
by customers at the end of 2018, the continuation of an inventory and
portfolio management program at a certain customer and the continued
impact from the loss of a smaller customer in the second quarter of
2018, partially offset by anticipated higher pet food volumes. Adjusted
net income per diluted share excludes rationalization charges and loss
on early extinguishment of debt.

Conference Call

Silgan Holdings Inc. will hold a conference call to discuss the
Company's results for the fourth quarter and full year 2018 at 11:00
a.m. eastern time on Wednesday January 30, 2019. The toll free number
for those in the U.S. and Canada is (800) 289-0571 and the number for
international callers is (323) 794-2093. For those unable to listen to
the live call, a taped rebroadcast will be available through February
13, 2019. To access the rebroadcast, U.S. and Canadian callers should
dial (888) 203-1112, and international callers should dial (719)
457-0820. The pass code for the rebroadcast is 8853120.

Silgan is a leading supplier of rigid packaging for consumer goods
products with annual net sales of approximately $4.4 billion in 2018.
Silgan operates 100 manufacturing facilities in North and South America,
Europe and Asia. The Company is a leading supplier of metal containers
in North America and Europe for food and general line products. The
Company is also a leading worldwide supplier of metal and plastic
closures and dispensing systems for food, beverage, health care, garden,
personal care, home and beauty products. In addition, the Company is a
leading supplier of plastic containers for shelf-stable food and
personal care products in North America.

Statements included in this press release 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. Such forward looking
statements are made based upon management's expectations and beliefs
concerning future events impacting the Company and therefore involve a
number of uncertainties and risks, including, but not limited to, those
described in the Company's Annual Report on Form 10-K for 2017 and other
filings with the Securities and Exchange Commission. Therefore, the
actual results of operations or financial condition of the Company could
differ materially from those expressed or implied in such forward
looking statements.

         

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

For the quarter and year ended December 31,

(Dollars in millions, except per share amounts)

 

Fourth Quarter

Year Ended

2018

   

2017

2018

   

2017

 
Net sales $1,070.5 $995.7 $4,448.9 $4,089.9
 
Cost of goods sold (1) 918.1 843.5 3,759.1 3,455.4
 
Gross profit 152.4 152.2 689.8 634.5
 
Selling, general and administrative expenses (1) 79.7 72.7 308.4 305.1
 
Rationalization charges 4.8 1.3 6.3 5.8
 
Other pension and postretirement income (1) (9.4) (8.2) (37.0) (33.4)
 
Income before interest and income taxes 77.3 86.4 412.1 357.0
 
Interest and other debt expense before loss

on early extinguishment of debt

27.7 30.0 116.3 110.2

 

Loss on early extinguishment of debt - - 2.5 7.1
 
Interest and other debt expense 27.7 30.0 118.8 117.3
 
Income before income taxes 49.6 56.4 293.3 239.7
 
Provision (benefit) for income taxes 11.4 (89.7) 69.3 (30.0)
 
Net income $ 38.2 $ 146.1 $ 224.0 $ 269.7
 
Earnings per share:
Basic net income per share $0.35 $1.32 $2.03 $2.44
Diluted net income per share $0.34 $1.31 $2.01 $2.42
 
Cash dividends per common share $0.10 $0.09 $0.40 $0.36
 
Weighted average shares (000's):
Basic 110,615 110,429 110,603 110,353
Diluted 111,699 111,480 111,632 111,363
 
(1)   Includes 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 plan
assets, amortization of prior service cost or credits and actuarial
gains and losses, separately. These items have been restated from
cost of goods sold and selling, general and administrative expenses
to other pension and postretirement income for each of the quarters
and years ended December 31, 2018 and 2017.
 
         

SILGAN HOLDINGS INC.

CONSOLIDATED SUPPLEMENTAL FINANCIAL DATA (UNAUDITED)

For the quarter and year ended December 31,

(Dollars in millions)

 

Fourth Quarter

Year Ended

2018

   

2017

2018

   

2017

Net sales:
Metal containers $569.4 $509.7 $2,378.0 $2,278.1
Closures 346.9 342.6 1,456.8 1,246.7
Plastic containers 154.2 143.4 614.1 565.1
Consolidated $1,070.5 $995.7 $4,448.9 $4,089.9
 
Segment income:
Metal containers (a) $ 26.6 $ 44.7 $ 198.8 $ 230.2
Closures (b) 46.6 39.1 189.9 142.0
Plastic containers (c) 9.9 7.8 42.6 27.8
Corporate (d) (5.8) (5.2) (19.2) (43.0)
Consolidated $ 77.3 $ 86.4 $ 412.1 $ 357.0
 
         

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

December 31,

(Dollars in millions)

 

2018

2017

Assets:
Cash and cash equivalents $ 72.8 $ 53.5
Trade accounts receivable, net 511.3 454.6
Inventories 634.8 721.3
Other current assets 63.9 62.5
Property, plant and equipment, net 1,517.5 1,489.9
Other assets, net 1,771.7 1,863.6
Total assets $4,572.0 $4,645.4
 
Liabilities and stockholders' equity:
Current liabilities, excluding debt $ 901.6 $ 849.4
Current and long-term debt 2,304.6 2,547.3
Other liabilities 484.5 482.6
Stockholders' equity 881.3 766.1
Total liabilities and stockholders' equity $4,572.0 $4,645.4
 
(a)   Includes rationalization charges of $4.5 million for the fourth
quarter of 2018 and $5.3 million and $3.3 million for the years
ended December 31, 2018 and 2017, respectively.
(b) Includes rationalization charges of $0.5 million for the fourth
quarter of 2017 and $0.2 million and $1.0 million for the years
ended December 31, 2018 and 2017, respectively.
(c) Includes rationalization charges of $0.3 million and $0.8 million
for the fourth quarters of 2018 and 2017, respectively, and $0.8
million and $1.5 million for the years ended December 31, 2018 and
2017, respectively.
(d) Includes costs attributed to announced acquisitions of $0.9 million
and $24.7 million for the fourth quarter and year ended December 31,
2017.
 
         

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

For the year ended December 31,

(Dollars in millions)

 

2018

2017

 
Cash flows provided by (used in) operating activities:
Net income $ 224.0 $ 269.7
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 195.5 178.3
Rationalization charges 6.3 5.8
Loss on early extinguishment of debt 2.5 7.1
Stock compensation expense 14.9 14.6
Deferred income tax provision (benefit) 23.7 (115.0)
Other changes that provided (used) cash, net
of effects from acquisition:
Trade accounts receivable, net 0.5 (37.1)
Inventories 20.4 (17.2)
Trade accounts payable and other changes, net 18.7 83.5
Net cash provided by operating activities 506.5 389.7
 
Cash flows provided by (used in) investing activities:
Purchase of business, net of cash acquired - (1,023.8)
Capital expenditures (191.0) (174.5)
Other investing activities 1.1 0.6
Net cash used in investing activities (189.9) (1,197.7)
 
Cash flows provided by (used in) financing activities:
Dividends paid on common stock (44.5) (40.5)
Changes in outstanding checks - principally vendors (4.1) 8.9
Shares repurchased under authorized repurchase program (4.8) -
Net borrowings and other financing activities (240.2) 868.4
Net cash (used in) provided by financing activities

(293.6)

836.8
 
Effect of exchange rate changes on cash and cash equivalents (3.7) -
 
Cash and cash equivalents:
Net increase 19.3 28.8
Balance at beginning of year 53.5 24.7
Balance at end of year $ 72.8 $ 53.5
 
Interest paid, net $ 118.4 $ 97.6
Income taxes paid, net of refunds 47.2 70.2
 
         

SILGAN HOLDINGS INC.

RECONCILIATION OF ADJUSTED NET INCOME PER DILUTED SHARE (1)
(UNAUDITED)

For the quarter and year ended December 31,

 

Table A

 

Fourth Quarter

Year Ended

2018

   

2017

2018

   

2017

 
Net income per diluted share as reported $0.34 $1.31 $2.01 $2.42
 
Adjustments:
Rationalization charges 0.04 0.01 0.05 0.04
Loss on early extinguishment of debt - - 0.02 0.04
Costs attributed to announced acquisitions - - - 0.15
Effective tax rate adjustments - (1.00) - (1.00)
 
Adjusted net income per diluted share $0.38 $0.32 $2.08 $1.65
 
         

SILGAN HOLDINGS INC.

RECONCILIATION OF ADJUSTED NET INCOME PER DILUTED SHARE (1)
(UNAUDITED)

For the quarter and year ended,

 

Table B

 

First Quarter

Year Ended

March 31,

December 31,

Estimated

   

Actual

Estimated

   

Actual

Low
2019

   

High
2019

2018

Low
2019

   

High
2019

2018

 
Net income per diluted share as estimated
for 2019 and as reported for 2018 $0.40 $0.45 $0.41 $2.10 $2.20 $2.01
 
Adjustments:
Rationalization charges - - 0.01 - - 0.05
Loss on early extinguishment of debt - - - - - 0.02

Costs attributed to announced acquisitions

- - - - - -
Adjusted net income per diluted share
as estimated for 2019 and presented for 2018 $0.40 $0.45 $0.42 $2.10 $2.20 $2.08
 
         

SILGAN HOLDINGS INC.

RECONCILIATION OF FREE CASH FLOW (2)

(UNAUDITED)

For the year ended December 31,

(Dollars in millions, except per share data)

 

Table C

 

2018

2017

 
Net cash provided by operating activities $506.5 $389.7
 
Capital expenditures (191.0) (174.5)
Changes in outstanding checks (4.1) 8.9
Free cash flow $311.4 $224.1
 
Net cash provided by operating activities per diluted share $4.54 $3.50
 
Free cash flow per diluted share $2.79 $2.01
 
Weighted average diluted shares (000's) 111,632 111,363
 
(1)   The Company has presented adjusted net income per diluted share for
the periods covered by this press release, which measure is a
Non-GAAP financial measure. The Company's management believes it is
useful to exclude rationalization charges, costs attributed to
announced acquisitions, the loss on early extinguishment of debt and
the effective tax rate adjustments primarily due to the U.S. Tax
Cuts and Jobs Act of 2017 from its net income per diluted share as
calculated under U.S. generally accepted accounting principles
because such Non-GAAP financial measure allows for a more
appropriate evaluation of its operating results. While
rationalization costs are incurred on a regular basis, management
views these costs more as an investment to generate savings rather
than period costs. Costs attributed to announced acquisitions
consist of third party fees and expenses that are viewed by
management as part of the acquisition and not indicative of the
on-going cost structure of the Company. The loss on early
extinguishment of debt consists of third party fees and expenses
incurred or debt costs written off that are viewed by management as
part of the cost of prepayment of debt and not indicative of the
on-going cost structure of the Company. The effective tax rate
adjustments in 2017 are primarily a result of the impact of the U.S.
Tax Cuts and Jobs Act of 2017 principally as a result of the
revaluation of the net deferred tax liabilities at the new lower
estimated corporate tax rate and are viewed by the Company as a
period adjustment that is not indicative of the effective tax rate
of the Company. Such Non-GAAP financial measure is not in accordance
with U.S. generally accepted accounting principles and should not be
considered in isolation but should be read in conjunction with the
unaudited condensed consolidated statements of income and the other
information presented herein. Additionally, such Non-GAAP financial
measure should not be considered a substitute for net income per
diluted share as calculated under U.S. generally accepted accounting
principles and may not be comparable to similarly titled measures of
other companies.
 
(2) The Company has presented free cash flow in this press release,
which is a Non-GAAP financial measure. The Company's management
believes that free cash flow is important to support its stated
business strategy of investing in internal growth and acquisitions.
Free cash flow is defined as net cash provided by operating
activities adjusted for changes in outstanding checks and reduced by
capital expenditures. At times, there may be other unusual cash
items that will be excluded from free cash flow. Net cash provided
by operating activities is the most comparable financial measure
under U.S. generally accepted accounting principles to free cash
flow, and it should not be inferred that the entire free cash flow
amount is available for discretionary expenditures. Such Non-GAAP
financial measure is not in accordance with U.S. generally accepted
accounting principles and should not be considered in isolation but
should be read in conjunction with the unaudited condensed
consolidated statements of cash flows and the other information
presented herein. Additionally, such Non-GAAP financial measure
should not be considered a substitute for net cash provided by
operating activities as calculated under U.S. generally accepted
accounting principles and may not be comparable to similarly titled
measures of other companies.
 

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