SILGAN HOLDINGS INC [SLGN] Filings

10-Q 1 slgn-20220930.htm 10-Q slgn-20220930

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)


			☒						QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2022


			☐						TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 000-22117

SILGAN HOLDINGS INC.

(Exact name of Registrant as specified in its charter)


Delaware		06-1269834
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

4 Landmark Square
Stamford,	Connecticut	06901
(Address of principal executive offices)		(Zip Code)

(203) 975-7110

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SLGN	New York Stock Exchange

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of October 31, 2022, the number of shares outstanding of the Registrant’s common stock was 110,079,007.

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SILGAN HOLDINGS INC.

TABLE OF CONTENTS

			Page No.


Part I. Financial Information			3

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets at September 30, 2022 and 2021 and December 31, 2021			3

Condensed Consolidated Statements of Income for the three and n ine months ended September 30, 2022 and 2021			4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021			5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021			6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021			7

Notes to Condensed Consolidated Financial Statements			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			18

Item 3. Quantitative and Qualitative Disclosures About Market Risk			26

Item 4. Controls and Procedures			26

Part II. Other Information			27

Item 1. Legal Proceedings			27

Item 6. Exhibits			28

Signatures			29

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Part I. Financial Information

Item 1. Financial Statements

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	Sept. 30, 2022		Sept. 30, 2021		Dec. 31, 2021
	(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	243,609	$	270,567	$	631,439
Trade accounts receivable, net	1,124,051		1,033,680		711,332
Inventories	851,070		762,182		798,837
Prepaid expenses and other current assets	113,498		114,945		154,241
Total current assets	2,332,228		2,181,374		2,295,849

Property, plant and equipment, net	1,886,596		1,963,349		1,993,877
Goodwill	1,914,894		2,039,033		2,038,408
Other intangible assets, net	757,882		839,332		830,772
Other assets, net	627,813		524,752		611,940
	$	7,519,413	$	7,547,840	$	7,770,846

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving loans and current portion of long-term debt	$	591,287	$	934,246	$	20,251
Trade accounts payable	688,383		761,018		1,133,318
Accrued payroll and related costs	110,358		110,452		109,279
Accrued liabilities	291,384		235,372		245,674
Total current liabilities	1,681,412		2,041,088		1,508,522

Long-term debt	3,246,738		3,191,581		3,772,926
Deferred income taxes	425,181		383,154		435,252
Other liabilities	472,851		475,311		491,450

Stockholders’ equity:
Common stock	1,751		1,751		1,751
Paid-in capital	335,924		320,132		325,448
Retained earnings	2,954,292		2,622,401		2,691,745
Accumulated other comprehensive loss	(365,356)		(291,158)		(259,828)
Treasury stock	(1,233,380)		(1,196,420)		(1,196,420)
Total stockholders’ equity	1,693,231		1,456,706		1,562,696
	$	7,519,413	$	7,547,840	$	7,770,846

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2022 and 2021

(Dollars and shares in thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021


Net sales	$	1,970,445	$	1,651,070	$	4,956,112	$	4,237,841
Cost of goods sold	1,662,680		1,402,836		4,140,968		3,533,257
Gross profit	307,765		248,234		815,144		704,584
Selling, general and administrative expenses	96,680		90,299		320,521		282,072
Rationalization charges	2,726		2,315		7,533		13,026
Other pension and postretirement income	(11,051)		(12,297)		(33,729)		(37,934)
Income before interest and income taxes	219,410		167,917		520,819		447,420
Interest and other debt expense before loss on early extinguishment of debt	33,743		27,039		91,752		79,868
Loss on early extinguishment of debt	—		—		1,481		883
Interest and other debt expense	33,743		27,039		93,233		80,751
Income before income taxes	185,667		140,878		427,586		366,669
Provision for income taxes	46,964		34,586		111,333		92,620
Net income	$	138,703	$	106,292	$	316,253	$	274,049

Earnings per share:
Basic net income per share	$	1.26	$	0.96	$	2.86	$	2.48
Diluted net income per share	$	1.25	$	0.96	$	2.85	$	2.47

Weighted average number of shares:
Basic	110,281		110,465		110,572		110,372
Effect of dilutive securities	460		732		548		739
Diluted	110,741		111,197		111,120		111,111

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and nine months ended September 30, 2022 and 2021

(Dollars in thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021


Net income	$	138,703	$	106,292	$	316,253	$	274,049
Other comprehensive income (loss), net of tax:
Changes in net prior service credit and actuarial losses	693		2,156		1,731		5,910
Change in fair value of derivatives	421		1,071		2,698		2,540
Foreign currency translation	(58,254)		(30,952)		(109,957)		(38,655)
Other comprehensive loss	(57,140)		(27,725)		(105,528)		(30,205)
Comprehensive income	$	81,563	$	78,567	$	210,725	$	243,844

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2022 and 2021

(Dollars in thousands)

(Unaudited)


	2022		2021
Cash flows provided by (used in) operating activities:
Net income	$	316,253	$	274,049
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	201,912		185,968
Rationalization charges	7,533		13,026
Stock compensation expense	12,917		15,605
Loss on early extinguishment of debt	1,481		883
Other changes that provided (used) cash, net of effects from acquisitions:
Trade accounts receivable, net	(459,131)		(415,331)
Inventories	(92,181)		(78,738)
Trade accounts payable	(165,717)		62,303
Accrued liabilities	64,458		(33,488)

Other, net	(5,047)		(30,055)
Net cash used in operating activities	(117,522)		(5,778)

Cash flows provided by (used in) investing activities:
Purchase of businesses, net of cash acquired	(1,333)		(718,430)
Capital expenditures	(162,271)		(172,994)
Other, net	1,993		2,234
Net cash used in investing activities	(161,611)		(889,190)

Cash flows provided by (used in) financing activities:
Borrowings under revolving loans	813,628		1,155,199
Repayments under revolving loans	(290,327)		(248,310)
Proceeds from issuance of long-term debt	6,042		499,725
Repayments of long-term debt	(300,314)		(500,000)
Changes in outstanding checks - principally vendors	(225,863)		(84,216)
Dividends paid on common stock	(54,325)		(47,030)
Debt issuance costs	—		(4,909)

Repurchase of common stock	(39,402)		(8,573)


Net cash (used in) provided by financing activities	(90,561)		761,886

Effect of exchange rate changes on cash and cash equivalents	(18,136)		(5,832)

Cash and cash equivalents:
Net decrease	(387,830)		(138,914)
Balance at beginning of year	631,439		409,481
Balance at end of period	$	243,609	$	270,567

Interest paid, net	$	91,037	$	79,107
Income taxes paid, net	66,959		79,812

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the three and nine months ended September 30, 2022 and 2021

(Dollars and shares in thousands, except per share amounts)

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021


Common stock - shares outstanding
Balance at beginning of period	110,215		110,408		110,410		110,057
Net issuance of treasury stock for vested restricted stock units	—		2		455		353
Repurchases of common stock	—		—		(650)		—
Balance at end of period	110,215		110,410		110,215		110,410

Common stock - par value
Balance at beginning and end of period	$	1,751	$	1,751	$	1,751	$	1,751

Paid-in capital
Balance at beginning of period	331,877		314,873		325,448		306,363
Stock compensation expense	4,047		5,268		12,917		15,605
Net issuance of treasury stock for vested restricted stock units	—		(9)		(2,441)		(1,836)
Balance at end of period	335,924		320,132		335,924		320,132

Retained earnings
Balance at beginning of period	2,833,431		2,531,783		2,691,745		2,395,395
Net income	138,703		106,292		316,253		274,049
Dividends declared on common stock	(17,842)		(15,674)		(53,706)		(47,043)
Balance at end of period	2,954,292		2,622,401		2,954,292		2,622,401

Accumulated other comprehensive loss
Balance at beginning of period	(308,216)		(263,433)		(259,828)		(260,953)
Other comprehensive loss	(57,140)		(27,725)		(105,528)		(30,205)
Balance at end of period	(365,356)		(291,158)		(365,356)		(291,158)

Treasury stock
Balance at beginning of period	(1,233,380)		(1,196,394)		(1,196,420)		(1,189,683)
Net issuance of treasury stock for vested restricted stock units	—		(26)		(10,593)		(6,737)
Repurchases of common stock	—		—		(26,367)		—
Balance at end of period	(1,233,380)		(1,196,420)		(1,233,380)		(1,196,420)
Total stockholders' equity	$	1,693,231	$	1,456,706	$	1,693,231	$	1,456,706

Dividends declared on common stock per share	$	0.16	$	0.14	$	0.48	$	0.42

See accompanying notes.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 1. Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year.

The Condensed Consolidated Balance Sheet at December 31, 2021 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.

Goodwill and Other Intangible Assets. We review goodwill and other indefinite-lived intangible assets for impairment as of July 1 of each year and more frequently if circumstances indicate a possible impairment. We determined that our goodwill and other indefinite-lived intangible assets were not impaired in our annual 2022 assessment performed during the third quarter.

Note 2. Revenue

The following tables present our revenues disaggregated by reportable segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors. Revenues by segment were as follows:


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
Dispensing and Specialty Closures	$	575,530	$	533,329	$	1,775,888	$	1,588,449
Metal Containers	1,212,034		942,125		2,617,156		2,120,740
Custom Containers	182,881		175,616		563,068		528,652
	$	1,970,445	$	1,651,070	$	4,956,112	$	4,237,841

Revenues by geography were as follows:


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
North America	$	1,592,775	$	1,274,025	$	3,833,613	$	3,140,924
Europe and other	377,670		377,045		1,122,499		1,096,917
	$	1,970,445	$	1,651,070	$	4,956,112	$	4,237,841

Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $113.3 million, $94.6 million, and $78.2 million as of September 30, 2022 and 2021 and December 31, 2021, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 3. Rationalization Charges

We continually evaluate cost reduction opportunities across each of our segments, including rationalizations of our existing facilities through plant closings and downsizings. We use a disciplined approach to identify opportunities that generate attractive cash returns. Rationalization charges by segment were as follows:


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
Dispensing and Specialty Closures	$	346	$	406	$	346	$	5,704
Metal Containers	2,480		1,822		7,182		7,068
Custom Containers	(100)		87		5		254
	$	2,726	$	2,315	$	7,533	$	13,026

Activity in reserves for our rationalization plans were as follows:


	Employee Severance and Benefits		Plant Exit Costs		Non-Cash Asset Write-Down		Total
	(Dollars in thousands)
Balance at December 31, 2021	$	41,090	$	157	$	—	$	41,247
Charged to expense	5,324		348		1,861		7,533
Utilized and currency translation	(5,908)		(378)		(1,861)		(8,147)
Balance at September 30, 2022	$	40,506	$	127	$	—	$	40,633

Non-cash asset write-downs were the result of comparing the carrying value of certain production related assets to their fair value using estimated future discounted cash flows, a Level 3 fair value measurement (see Note 7 for information regarding a Level 3 fair value measurement).

Rationalization reserves as of September 30, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $4.4 million and other liabilities of $36.2 million. Excluding the impact of our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $3.1 million and $6.0 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $0.9 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually through 2040.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 4. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity. Amounts included in accumulated other comprehensive loss, net of tax, were as follows:


	Unrecognized Net Defined Benefit Plan Costs		Change in Fair Value of Derivatives		Foreign Currency Translation		Total
	(Dollars in thousands)
Balance at December 31, 2021	$	(119,474)	$	(2,327)	$	(138,027)	$	(259,828)
Other comprehensive loss before reclassifications	—		3,135		(109,957)		(106,822)
Amounts reclassified from accumulated other comprehensive loss	1,731		(437)		—		1,294
Other comprehensive loss	1,731		2,698		(109,957)		(105,528)
Balance at September 30, 2022	$	(117,743)	$	371	$	(247,984)	$	(365,356)

The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and nine months ended September 30, 2022 were net (losses) of $(0.9) million and $(2.4) million, respectively, excluding income tax benefits of $0.3 million and $0.7 million, respectively. For the three and nine months ended September 30, 2022, these net (losses) consisted of amortization of net actuarial (losses) of $(1.3) million and $(3.5) million and amortization of net prior service credit of $0.4 million and $1.1 million, respectively. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 9 for further information.

The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 2022 were not significant.

Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2022 consisted of (i) foreign currency (losses) related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $(82.5) million and $(168.1) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $1.2 million and $3.1 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $30.2 million and $72.2 million, respectively, excluding income tax (provisions) of $(7.1) million and $(17.1) million, respectively. See Note 7 for further discussion.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 5. Inventories

Inventories consisted of the following:


	Sept. 30, 2022		Sept. 30, 2021		Dec. 31, 2021
	(Dollars in thousands)
Raw materials	$	452,307	$	333,202	$	394,102
Work-in-process	231,036		152,429		157,406
Finished goods	542,044		370,134		394,378
Other	16,857		16,005		15,731
	1,242,244		871,770		961,617
Adjustment to value inventory at cost on the LIFO method	(391,174)		(109,588)		(162,780)
	$	851,070	$	762,182	$	798,837

During the nine months ended September 30, 2022, we implemented an inventory management program which resulted in permanent reductions of inventories valued under the last-in, first-out basis. This resulted in liquidations of inventory layers carried at costs prevailing in prior years and thereby decreased cost of goods sold by $26.2 million and $33.5 million for the three and nine months ended September 20, 2022, respectively.

Note 6. Long-Term Debt

Long-term debt consisted of the following:


	Sept. 30, 2022		Sept. 30, 2021		Dec. 31, 2021
	(Dollars in thousands)
Bank debt
Bank revolving loans	$	497,000	$	910,000	$	—
U.S. term loans	1,000,000		400,000		1,000,000

Other foreign bank revolving and term loans	66,649		36,003		38,862
Total bank debt	1,563,649		1,346,003		1,038,862


4¾% Senior Notes	—		300,000		300,000
3¼% Senior Notes	636,740		753,285		739,180
4⅛% Senior Notes	600,000		600,000		600,000
2¼% Senior Notes	489,800		579,450		568,600
1.4% Senior Secured Notes	500,000		500,000		500,000
Finance leases	66,109		69,061		68,730
Total debt - principal	3,856,298		4,147,799		3,815,372
Less unamortized debt issuance costs and debt discount	18,273		21,972		22,195
Total debt	3,838,025		4,125,827		3,793,177
Less current portion	591,287		934,246		20,251
	$	3,246,738	$	3,191,581	$	3,772,926

At September 30, 2022, the current portion of long-term debt consisted of $497.0 million of bank revolving loans and $50.0 million of U.S. term loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $41.6 million of other foreign bank revolving and term loans and $2.7 million of finance leases.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of our outstanding 4¾% Senior Notes due 2025, or the 4¾% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of $1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs.

Note 7. Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at September 30, 2022:


	Carrying Amount		Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	243,609	$	243,609


Liabilities:
Bank debt	$	1,563,649	$	1,563,649


3¼% Senior Notes	636,740		601,083
4⅛% Senior Notes	599,287		532,200
2¼% Senior Notes	489,800		394,632
1.4% Senior Secured Notes	499,811		427,000

Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Financial Instruments Measured at Fair Value

The financial assets and liabilities that were measured on a recurring basis at September 30, 2022 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.

Financial Instruments Not Measured at Fair Value

Our bank debt, 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 3¼% Senior Notes, 4⅛% Senior Notes, 2¼% Senior Notes and 1.4% Senior Secured Notes were estimated based on quoted market prices, a Level 1 input.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Derivative Instruments and Hedging Activities

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

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

We also utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss.

Interest Rate Swap Agreements

We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three and nine months ended September 30, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at September 30, 2022 was not significant.

Natural Gas Swap Agreements

We have entered into natural gas swap agreements to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income and was not significant for the three and nine months ended September 30, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at September 30, 2022 was not significant.

Foreign Currency Exchange Rate Risk

In an effort to minimize our foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations, including net investment hedges related to the 3¼% Senior Notes which are Euro denominated. Foreign currency gains related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2022 were $30.2 million and $72.2 million, respectively.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 8. Commitments and Contingencies

On July 12, 2022, we concluded a settlement with the European Commission to end a long-running investigation of our metal packaging operations in Europe. This investigation was started in 2015 by the German antitrust authority and was transferred in 2018 to the European Commission. With the settlement, the European Commission closed its investigation and we paid a fine of €23.9 million in October 2022, although we do not fully concur with the facts and legal qualifications put forth by the European Commission.

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

Note 9. Retirement Benefits

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


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
Service cost	$	2,937	$	3,177	$	9,507	$	10,754
Interest cost	5,131		4,579		15,430		13,288
Expected return on plan assets	(17,220)		(19,892)		(51,849)		(59,590)
Amortization of prior service cost	62		67		170		183
Amortization of actuarial losses	1,370		3,464		3,682		9,518

Net periodic benefit credit	$	(7,720)	$	(8,605)	$	(23,060)	$	(25,847)

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


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
Service cost	$	5	$	25	$	56	$	81
Interest cost	96		82		314		272
Amortization of prior service credit	(415)		(460)		(1,247)		(1,373)
Amortization of actuarial gains	(75)		(137)		(229)		(232)
Net periodic benefit credit	$	(389)	$	(490)	$	(1,106)	$	(1,252)

Note 10. Income Taxes

Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 2020 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2021 and 2022 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 11. Treasury Stock

On March 4, 2022, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2026. During the nine months ended September 30, 2022, we repurchased an aggregate of 649,727 shares of our common stock at an average price per share of $40.56, for a total purchase price of $26.4 million. At September 30, 2022, we had approximately $273.6 million remaining under this authorization for the repurchase of our common stock.

During the first nine months of 2022, we issued 765,917 treasury shares which had an average cost of $3.19 per share for restricted stock units that vested during the period. In accordance with the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, we repurchased 310,904 shares of our common stock at an average cost of $41.92 to satisfy minimum employee withholding tax requirements resulting from the vesting of such restricted stock units.

We account for treasury shares using the first-in, first-out (FIFO) cost method. As of September 30, 2022, 64,896,981 shares of our common stock were held in treasury.

Note 12. Stock-Based Compensation

We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first nine months of 2022, 429,731 restricted stock units were granted to certain of our officers, other key employees and outside directors. The fair value of these restricted stock units at the grant date was $17.9 million, which is being amortized ratably over the respective vesting period from the grant date.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2022 and 2021 and for the

three and nine months then ended is unaudited)

Note 13. Segment Information

Reportable segment information was as follows:


	Dispensing and Specialty Closures		Metal Containers		Custom Containers		Corporate		Total
	(Dollars in thousands)
Three Months Ended September 30, 2022
Net sales	$	575,530	$	1,212,034	$	182,881	$	—	$	1,970,445
Depreciation and amortization(1)	36,056		17,811		9,882		39		63,788
Rationalization charges	346		2,480		(100)		—		2,726
Segment income	79,163		121,267		24,262		(5,282)		219,410

Three Months Ended September 30, 2021
Net sales	$	533,329	$	942,125	$	175,616	$	—	$	1,651,070
Depreciation and amortization(1)	30,830		21,231		10,072		38		62,171
Rationalization charges	406		1,822		87		—		2,315
Segment income	60,090		94,271		22,704		(9,148)		167,917

Nine Months Ended September 30, 2022
Net sales	$	1,775,888	$	2,617,156	$	563,068	$	—	$	4,956,112
Depreciation and amortization(1)	109,216		58,749		29,699		120		197,784
Rationalization charges	346		7,182		5		—		7,533
Segment income (2)	257,825		225,634		79,846		(42,486)		520,819

Nine Months Ended September 30, 2021
Net sales	$	1,588,449	$	2,120,740	$	528,652	$	—	$	4,237,841
Depreciation and amortization(1)	88,821		63,809		29,077		119		181,826
Rationalization charges	5,704		7,068		254		—		13,026
Segment income	199,571		198,520		74,434		(25,105)		447,420

_____________

(1)Depreciation and amortization excludes amortization of debt discount and debt issuance costs of $1.3 million and $1.4 million for the three months ended September 30, 2022 and 2021, respectively, and $4.1 million for each of the nine months ended September 30, 2022 and 2021.

(2)Corporate includes a charge of $25.2 million for the settlement with the European Commission for the nine months ended September 30, 2022.

Total segment income is reconciled to income before income taxes as follows:


	Three Months Ended				Nine Months Ended
	Sept. 30, 2022		Sept. 30, 2021		Sept. 30, 2022		Sept. 30, 2021

	(Dollars in thousands)
Total segment income	$	219,410	$	167,917	$	520,819	$	447,420
Interest and other debt expense	33,743		27,039		93,233