SILGAN HOLDINGS INC [SLGN] Filings

10-Q 1 slgn-20210930.htm 10-Q slgn-20210930

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, 2021


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

For the transition period from ________________ to ________________

Commission file number 000-22117

SILGAN HOLDINGS INC.

(Exact name of Registrant as specified in its charter)


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

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

(203) 975-7110

(Registrant's telephone number, including area code)

N/A

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

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


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SLGN	Nasdaq Global Select Market

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

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

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

Large accelerated filer

☒

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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

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

As of October 31, 2021, the number of shares outstanding of the Registrant’s common stock was 110,410,229.

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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, 2021 and 2020 and December 31, 2020			3

Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2021 and 2020			4

Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2021 and 2020			5

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2021 and 2020			6

Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2021 and 2020			7

Notes to Condensed Consolidated Financial Statements			8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			20

Item 3. Quantitative and Qualitative Disclosures About Market Risk			28

Item 4. Controls and Procedures			28

Part II. Other Information			29

Item 6. Exhibits			29

Signatures			30

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Part I. Financial Information

Item 1. Financial Statements

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	Sept. 30, 2021		Sept. 30, 2020		Dec. 31, 2020
	(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	270,567	$	193,759	$	409,481
Trade accounts receivable, net	1,033,680		865,436		619,535
Inventories	762,182		678,181		677,534
Prepaid expenses and other current assets	114,945		84,715		92,643
Total current assets	2,181,374		1,822,091		1,799,193

Property, plant and equipment, net	1,963,349		1,785,787		1,840,758
Goodwill	2,039,033		1,702,463		1,741,496
Other intangible assets, net	839,332		633,256		637,208
Other assets, net	524,752		508,982		492,931
	$	7,547,840	$	6,452,579	$	6,511,586

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving loans and current portion of long-term debt	$	934,246	$	284,465	$	28,036
Trade accounts payable	761,018		592,881		802,541
Accrued payroll and related costs	110,452		119,369		130,088
Accrued liabilities	235,372		245,626		230,955
Total current liabilities	2,041,088		1,242,341		1,191,620

Long-term debt	3,191,581		3,163,305		3,223,217
Deferred income taxes	383,154		371,966		355,995
Other liabilities	475,311		456,104		487,881

Stockholders’ equity:
Common stock	1,751		1,751		1,751
Paid-in capital	320,132		301,463		306,363
Retained earnings	2,622,401		2,348,728		2,395,395
Accumulated other comprehensive loss	(291,158)		(272,352)		(260,953)
Treasury stock	(1,196,420)		(1,160,727)		(1,189,683)
Total stockholders’ equity	1,456,706		1,218,863		1,252,873
	$	7,547,840	$	6,452,579	$	6,511,586

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the three and nine months ended September 30, 2021 and 2020

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

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020

Net sales	$	1,651,070	$	1,488,499	$	4,237,841	$	3,695,353
Cost of goods sold	1,402,836		1,230,148		3,533,257		3,027,809
Gross profit	248,234		258,351		704,584		667,544
Selling, general and administrative expenses	90,299		91,525		282,072		282,011
Rationalization charges	2,315		2,505		13,026		7,247
Other pension and postretirement income	(12,297)		(9,712)		(37,934)		(29,122)
Income before interest and income taxes	167,917		174,033		447,420		407,408
Interest and other debt expense before loss on early extinguishment of debt	27,039		27,725		79,868		77,051
Loss on early extinguishment of debt	—		—		883		1,481
Interest and other debt expense	27,039		27,725		80,751		78,532
Income before income taxes	140,878		146,308		366,669		328,876
Provision for income taxes	34,586		33,457		92,620		80,253
Net income	$	106,292	$	112,851	$	274,049	$	248,623

Earnings per share:
Basic net income per share	$	0.96	$	1.02	$	2.48	$	2.24
Diluted net income per share	$	0.96	$	1.01	$	2.47	$	2.23

Weighted average number of shares:
Basic	110,465		110,921		110,372		110,895
Effect of dilutive securities	732		691		739		565
Diluted	111,197		111,612		111,111		111,460

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, 2021 and 2020

(Dollars in thousands)

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020

Net income	$	106,292	$	112,851	$	274,049	$	248,623
Other comprehensive income (loss), net of tax:
Changes in net prior service credit and actuarial losses	2,156		1,807		5,910		4,555
Change in fair value of derivatives	1,071		681		2,540		(1,670)
Foreign currency translation	(30,952)		22,520		(38,655)		(15,495)
Other comprehensive (loss) income	(27,725)		25,008		(30,205)		(12,610)
Comprehensive income	$	78,567	$	137,859	$	243,844	$	236,013

See accompanying notes.

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SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2021 and 2020

(Dollars in thousands)

(Unaudited)


	2021		2020
Cash flows provided by (used in) operating activities:
Net income	$	274,049	$	248,623
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	185,968		163,454
Rationalization charges	13,026		7,247
Stock compensation expense	15,605		13,880
Loss on early extinguishment of debt	883		1,481
Other changes that provided (used) cash, net of effects from acquisitions:
Trade accounts receivable, net	(415,331)		(311,008)
Inventories	(78,738)		2,435
Trade accounts payable	62,303		(73,814)
Accrued liabilities	(33,488)		57,187

Other, net	(30,055)		8,981
Net cash (used in) provided by operating activities	(5,778)		118,466

Cash flows provided by (used in) investing activities:
Purchase of businesses, net of cash acquired	(718,430)		(940,875)
Capital expenditures	(172,994)		(165,163)
Other, net	2,234		999
Net cash used in investing activities	(889,190)		(1,105,039)

Cash flows provided by (used in) financing activities:
Borrowings under revolving loans	1,155,199		993,406
Repayments under revolving loans	(248,310)		(748,539)
Proceeds from issuance of long-term debt	499,725		1,639,661
Repayments of long-term debt	(500,000)		(766,170)
Changes in outstanding checks - principally vendors	(84,216)		(79,006)
Dividends paid on common stock	(47,030)		(40,432)
Debt issuance costs	(4,909)		(10,265)

Repurchase of common stock	(8,573)		(13,155)


Net cash provided by financing activities	761,886		975,500

Effect of exchange rate changes on cash and cash equivalents	(5,832)		1,008

Cash and cash equivalents:
Net decrease	(138,914)		(10,065)
Balance at beginning of year	409,481		203,824
Balance at end of period	$	270,567	$	193,759

Interest paid, net	$	79,107	$	70,948
Income taxes paid, net	79,812		91,378

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, 2021 and 2020

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

(Unaudited)


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020

Common stock - shares outstanding
Balance at beginning of period	110,408		110,886		110,057		110,780
Net issuance of treasury stock for vested restricted stock units	2		—		353		365
Repurchases of common stock	—		—		—		(259)
Balance at end of period	110,410		110,886		110,410		110,886

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	314,873		296,639		306,363		289,422
Stock compensation expense	5,268		4,824		15,605		13,880
Net issuance of treasury stock for vested restricted stock units	(9)		—		(1,836)		(1,839)
Balance at end of period	320,132		301,463		320,132		301,463

Retained earnings
Balance at beginning of period	2,531,783		2,249,391		2,395,395		2,141,302
Net income	106,292		112,851		274,049		248,623
Dividends declared on common stock	(15,674)		(13,514)		(47,043)		(40,532)
Adoption of accounting standards update related to credit losses in 2020	—		—		—		(665)
Balance at end of period	2,622,401		2,348,728		2,622,401		2,348,728

Accumulated other comprehensive loss
Balance at beginning of period	(263,433)		(297,360)		(260,953)		(259,742)
Other comprehensive (loss) income	(27,725)		25,008		(30,205)		(12,610)
Balance at end of period	(291,158)		(272,352)		(291,158)		(272,352)

Treasury stock
Balance at beginning of period	(1,196,394)		(1,160,727)		(1,189,683)		(1,149,411)
Net issuance of treasury stock for vested restricted stock units	(26)		—		(6,737)		(4,382)
Repurchases of common stock	—		—		—		(6,934)
Balance at end of period	(1,196,420)		(1,160,727)		(1,196,420)		(1,160,727)
Total stockholders' equity	$	1,456,706	$	1,218,863	$	1,456,706	$	1,218,863

Dividends declared on common stock per share	$	0.14	$	0.12	$	0.42	$	0.36

See accompanying notes.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 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, 2020 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, 2020.

Effective with the first quarter of 2021, we renamed our Closures segment as our Dispensing and Specialty Closures segment and our Plastic Containers segment as our Custom Containers segment, in each case to better capture the evolving nature of their products and our ongoing strategic focus. Each of these segments continues to consist of the same operations as prior to it being renamed.

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 2021 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, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020
	(Dollars in thousands)
Dispensing and Specialty Closures	$	533,329	$	475,105	$	1,588,449	$	1,242,725
Metal Containers	942,125		856,660		2,120,740		1,962,370
Custom Containers	175,616		156,734		528,652		490,258
	$	1,651,070	$	1,488,499	$	4,237,841	$	3,695,353

Revenues by geography were as follows:


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020
	(Dollars in thousands)
North America	$	1,274,025	$	1,143,562	$	3,140,924	$	2,858,561
Europe and other	377,045		344,937		1,096,917		836,792
	$	1,651,070	$	1,488,499	$	4,237,841	$	3,695,353

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $94.6 million, $80.2 million, and $83.0 million as of September 30, 2021 and 2020 and December 31, 2020, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.

Note 3. Acquisitions

Gateway Plastics Acquisition

On September 20, 2021, we acquired Gateway Plastics LLC, or Silgan Specialty Packaging, a manufacturer and seller of dispensing closures and integrated dispensing packaging solutions, such as a combined container and closure or 100% recyclable dispensing beverage pods, to consumer goods product companies primarily for the food and beverage markets. The purchase price for this acquisition of $483.8 million, net of cash acquired, was funded with revolving loan borrowings under our amended and restated senior secured credit facility, as amended, or the Credit Agreement. The purchase price is subject to adjustments for working capital, net indebtedness and seller's transaction expenses. The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches, primarily using Level 3 inputs (as defined in Note 9). For this acquisition, we applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date, and we recognized goodwill of $200.7 million which is expected to be deductible for income tax purposes, a customer relationship intangible asset of $166.0 million with an estimated remaining life of 22 years and technology know-how of $3.4 million with an estimated remaining life of 5 years. The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets. Silgan Specialty Packaging's results of operations were included in our Dispensing and Specialty Closures segment since the acquisition date and were not significant since such date.

Unicep Packaging Acquisition

On September 30, 2021, we acquired Unicep Packaging LLC, or Unicep, a Specialty Contract Manufacturer and Developer, or SCMD, solutions provider that develops, formulates, manufactures and sells precision dosing dispensing packaging solutions, such as diagnostic test components, oral care applications and skin care products, primarily for the health care, diagnostics, animal health, oral care and personal care markets. The purchase price for this acquisition of $236.9 million, net of cash acquired, was funded with revolving loan borrowings under the Credit Agreement. The purchase price is subject to adjustments for working capital, net indebtedness and seller's transaction expenses. The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches, primarily using Level 3 inputs (as defined in Note 9). For this acquisition, we applied the acquisition method of accounting and recognized assets acquired and liabilities assumed at fair value as of the acquisition date, and we recognized goodwill of $142.8 million which is expected to be deductible for income tax purposes, a customer relationship intangible asset of $72.0 million with an estimated remaining life of 18 years, technology know-how of $4.0 million with an estimated remaining life of 10 years and a trade name of $3.7 million with an estimated remaining life of 10 years. The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets. Unicep's results of operations were included in our Dispensing and Specialty Closures segment since the acquisition date and were not significant since such date.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 4. 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, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020
	(Dollars in thousands)
Dispensing and Specialty Closures	$	406	$	787	$	5,704	$	2,229
Metal Containers	1,822		1,639		7,068		4,755
Custom Containers	87		79		254		263
	$	2,315	$	2,505	$	13,026	$	7,247

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, 2020	$	41,005	$	555	$	—	$	41,560
Charged to expense	7,262		1,210		4,554		13,026
Utilized and currency translation	(5,253)		(1,638)		(4,554)		(11,445)
Balance at September 30, 2021	$	43,014	$	127	$	—	$	43,141

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 9 for information regarding a Level 3 fair value measurement).

Rationalization reserves as of September 30, 2021 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $7.1 million and other liabilities of $36.0 million. Exclusive of the footprint optimization plan for our Metal Container segment and our resulting withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $1.2 million and $5.9 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.1 million per year and be recognized annually 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, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 5. Accumulated Other Comprehensive Loss

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


	Unrecognized Net Defined Benefit Plan Costs		Change in Fair Value of Derivatives		Foreign Currency Translation		Total
	(Dollars in thousands)
Balance at December 31, 2020	$	(168,604)	$	(4,656)	$	(87,693)	$	(260,953)
Other comprehensive loss before reclassifications	—		1,022		(38,655)		(37,633)
Amounts reclassified from accumulated other comprehensive loss	5,910		1,518		—		7,428
Other comprehensive loss	5,910		2,540		(38,655)		(30,205)
Balance at September 30, 2021	$	(162,694)	$	(2,116)	$	(126,348)	$	(291,158)

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, 2021 were net (losses) of $(2.9) million and $(8.1) million, respectively, excluding income tax benefits of $0.8 million and $2.2 million, respectively. For the three and nine months ended September 30, 2021, these net (losses) consisted of amortization of net actuarial (losses) of $(3.3) million and $(9.3) million and amortization of net prior service credit of $0.4 million and $1.2 million, respectively. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 11 for further information.

The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and nine months ended September 30, 2021 were not significant.

Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2021 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 $(40.5) million and $(63.1) million, respectively, (ii) foreign currency (losses) gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $(0.1) million and $0.8 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $12.6 million and $30.9 million, respectively, excluding an income tax (provision) of $(3.0) million and $(7.3) million, respectively. See Note 9 for further discussion.

Note 6. Inventories

Inventories consisted of the following:


	Sept. 30, 2021		Sept. 30, 2020		Dec. 31, 2020
	(Dollars in thousands)
Raw materials	$	333,202	$	294,896	$	270,066
Work-in-process	152,429		154,157		167,100
Finished goods	370,134		370,406		335,346
Other	16,005		15,217		14,610
	871,770		834,676		787,122
Adjustment to value inventory at cost on the LIFO method	(109,588)		(156,495)		(109,588)
	$	762,182	$	678,181	$	677,534

-11-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 7. Goodwill and Other Intangibles

Changes in the carrying amount of goodwill were as follows:


	Dispensing and Specialty Closures		Metal Containers		Custom Containers		Total
	(Dollars in thousands)
Balance at December 31, 2020	$	1,396,191	$	117,938	$	227,367	$	1,741,496
Acquisitions	346,916		—		—		346,916
Currency translation	(46,610)		(2,869)		100		(49,379)
Balance at September 30, 2021	$	1,696,497	$	115,069	$	227,467	$	2,039,033

In connection with our acquisitions of Silgan Specialty Packaging and Unicep as discussed in Note 3, we recognized goodwill of $343.5 million.

The components of other intangible assets, net were as follows:


	Sept. 30, 2021				Dec. 31, 2020
	Gross Amount		Accumulated Amortization		Gross Amount		Accumulated Amortization
	(Dollars in thousands)
Definite-lived intangibles:
Customer relationships	$	926,566	$	(163,998)	$	711,065	$	(147,014)
Other	81,339		(36,715)		72,689		(31,672)
	1,007,905		(200,713)		783,754		(178,686)
Indefinite-lived intangibles:
Trade names	32,140		—		32,140		—
	$	1,040,045	$	(200,713)	$	815,894	$	(178,686)

In connection with our acquisitions of Silgan Specialty Packaging and Unicep as discussed in Note 3, we recognized intangible assets for customer relationships of $238.0 million, technology know-how of $7.4 million and a trade name of $3.7 million.

Amortization expense was $10.5 million and $31.1 million for the three and nine months ended September 30, 2021, respectively, and $10.4 million and $25.4 million for the three and nine months ended September 30, 2020, respectively. Amortization expense is expected to be $45.1 million, $52.8 million, $52.7 million, $52.7 million and $48.7 million for the years ended December 31, 2021 through 2025, respectively.

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 8. Long-Term Debt

Long-term debt consisted of the following:


	Sept. 30, 2021		Sept. 30, 2020		Dec. 31, 2020
	(Dollars in thousands)
Bank debt
Bank revolving loans	$	910,000	$	246,000	$	—
U.S. term loans	400,000		900,000		900,000

Other foreign bank revolving and term loans	36,003		39,825		30,407
Total bank debt	1,346,003		1,185,825		930,407


4¾% Senior Notes	300,000		300,000		300,000
3¼% Senior Notes	753,285		762,223		795,307
4⅛% Senior Notes	600,000		600,000		600,000
2¼% Senior Notes	579,450		586,325		611,775
1.4% Senior Secured Notes	500,000		—		—
Finance leases	69,061		35,035		34,480
Total debt - principal	4,147,799		3,469,408		3,271,969
Less unamortized debt issuance costs and debt discount	21,972		21,638		20,716
Total debt	4,125,827		3,447,770		3,251,253
Less current portion	934,246		284,465		28,036
	$	3,191,581	$	3,163,305	$	3,223,217

At September 30, 2021, the current portion of long-term debt consisted of $910.0 million of bank revolving loans under the Credit Agreement, $21.6 million of other foreign bank revolving and term loans and $2.6 million of finance leases.

On February 1, 2021, we and certain of our subsidiaries entered into a Second Amendment to Amended and Restated Credit Agreement, or the Second Amendment, with certain lenders party thereto and Wells Fargo Bank, National Association, as administrative agent under the Credit Agreement. The Second Amendment amends the Credit Agreement to provide us with additional flexibility to issue new senior secured notes with related guarantees from our U.S. subsidiaries, which new senior secured notes and related guarantees may be secured on a pari passu basis with the U.S. Obligations by the U.S. Collateral (each as defined in the Second Amendment). The Second Amendment also makes minor technical changes and allows for certain additional internal corporate reorganizations.

1.4% SENIOR SECURED NOTES

On February 10, 2021, we issued $500.0 million aggregate principal amount of our 1.4% Senior Secured Notes due 2026, or the 1.4% Notes, at 99.945 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. The proceeds from the sale of the 1.4% Notes were $499.7 million. We used the proceeds from the sale of the 1.4% Notes to prepay $500.0 million of our outstanding term loans under the Credit Agreement. We paid the initial purchasers’ discount and offering expenses related to the sale of the 1.4% Notes with cash on hand. As a result of this prepayment, we recorded a pre-tax charge for the loss on early extinguishment of debt of $0.9 million during the first quarter of 2021 for the write-off of unamortized debt issuance costs.

The 1.4% Notes are guaranteed on a senior secured basis by our U.S. subsidiaries that guarantee the Credit Agreement. The 1.4% Notes are not guaranteed by any of our subsidiaries that do not guarantee the Credit Agreement, any of our foreign subsidiaries or any of our non-wholly owned subsidiaries. The 1.4% Notes and related guarantees are secured by pledges of equity interests, or the Collateral, that are owned by us and by each subsidiary guarantor, which equity interests are the same equity interests pledged to secure the obligations of U.S. borrowers under the Credit Agreement. The 1.4% Notes will share equally in the Collateral with the Credit Agreement. The guarantee of each such subsidiary guarantor will be released to the

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

extent such subsidiary no longer guarantees the Credit Agreement and in certain other circumstances, and the Collateral pledged by such subsidiary guarantor will also be released upon the release of such subsidiary guarantor’s guarantee.

The 1.4% Notes and related guarantees are senior secured obligations of us and the subsidiary guarantors. The 1.4% Notes and related guarantees rank equally in right of payment with all of our and the subsidiary guarantors’ existing and future senior indebtedness, including under the Credit Agreement and our 4¾% Senior Notes due 2025, or the 4¾% Notes, our 3¼% Senior Notes due 2025, or the 3¼% Notes, our 4⅛% Senior Notes due 2028, or the 4⅛% Notes, and our 2¼% Senior Notes due 2028, or the 2¼% Notes; are senior in right of payment to all of our and the subsidiary guarantors’ future indebtedness that is by its terms expressly subordinated in right of payment to the 1.4% Notes; rank equally in right of payment to all of our and the subsidiary guarantors’ existing and future senior secured indebtedness (including indebtedness under the Credit Agreement) that is secured by the Collateral on a first-priority basis, to the extent of the value of the Collateral; rank effectively senior to all of our and the subsidiary guarantors’ existing and future unsecured indebtedness and indebtedness secured on a junior basis, in each case to the extent of the value of the Collateral; rank effectively junior to all existing and future indebtedness that is secured by liens on assets that do not constitute a part of the Collateral, to the extent of the value of such assets; and are structurally subordinated to all existing and future indebtedness and other liabilities of each of our existing and future subsidiaries that do not guarantee the 1.4% Notes.

As a result of the guarantees by the subsidiary guarantors of the 1.4% Notes, such subsidiaries were also required to guarantee, and have now guaranteed, on a senior unsecured basis the 4¾% Notes, the 3¼% Notes, the 4⅛% Notes and the 2¼% Notes pursuant to supplemental indentures to the indenture for the 4¾% Notes and the 3¼% Notes, the indenture for the 4⅛% Notes and the indenture for the 2¼% Notes.

The 1.4% Notes are not, and are not required to be, registered under the Securities Act of 1933, as amended.

The 1.4% Notes mature on April 1, 2026. Interest on the 1.4% Notes will be payable semi-annually in cash on April 1 and October 1 of each year, beginning on October 1, 2021. The 1.4% Notes were issued pursuant to an indenture by and among Silgan, certain of our U.S. subsidiaries and Wells Fargo Bank, National Association, as trustee and collateral 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, the indenture for the 4⅛% Notes and the indenture for the 2¼% Notes.

Prior to March 1, 2026 (one month prior to the maturity date of the 1.4% Notes, or the Par Call Date) the 1.4% Notes will be redeemable at a redemption price equal to the greater of (i) 100 percent of the principal amount of the 1.4% Notes to be redeemed and (ii) the principal amount of the 1.4% Notes plus a “make-whole” amount, plus, in each case, accrued and unpaid interest thereon to the redemption date. On or after the Par Call Date, the 1.4% Notes will be redeemable at a redemption price equal to 100 percent of the aggregate principal amount of any 1.4% Notes being redeemed, plus accrued and unpaid interest thereon to the redemption date.

We will be required to make an offer to repurchase the 1.4% 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 1.4% Notes.

-14-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 9. Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at September 30, 2021:


	Carrying Amount		Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	270,567	$	270,567


Liabilities:
Bank debt	$	1,346,003	$	1,346,003

4¾% Notes	300,000		304,140
3¼% Notes	753,285		760,291
4⅛% Notes	599,172		616,500
2¼% Notes	579,450		584,607
1.4% Notes	499,758		492,000

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, 2021 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.

Financial Instruments Not Measured at Fair Value

Our bank debt, 4¾% Notes, 3¼% Notes, 4⅛% Notes, 2¼% Notes and 1.4% Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 4¾% Notes, 3¼% Notes, 4⅛% Notes, 2¼% Notes and 1.4% Notes were estimated based on quoted market prices, a Level 1 input.

Derivative Instruments and Hedging Activities

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

-15-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

We utilize certain derivative financial instruments to manage a portion of our interest rate, foreign currency exchange rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate, foreign currency exchange 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, foreign currency exchange 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. The notional principal amounts outstanding under foreign currency exchange rate agreements and natural gas swap agreements were not significant as of September 30, 2021.

In addition, 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, 2021. 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, 2021 was not significant.

Foreign Currency Exchange Rate Risk

In an effort to minimize our foreign currency exchange rate risk, in addition to limited foreign currency exchange rate derivative financial instruments, 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 related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2021 were $12.6 million and $30.9 million, respectively.

Note 10. Commitments and Contingencies

A competition authority in Germany commenced an antitrust investigation in 2015 involving the industry association for metal packaging in Germany and its members, including our metal closures and metal container subsidiaries in Germany. At the end of April 2018, the European Commission commenced an antitrust investigation involving the metal packaging industry in Europe including our metal closures and metal container subsidiaries, which should effectively close out the investigation in Germany. Given the current stage of the investigation, we cannot reasonably assess what actions may result from these investigations or estimate what costs we may incur as a result thereof.

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

-16-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 11. Retirement Benefits

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


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020
	(Dollars in thousands)
Service cost	$	3,177	$	2,983	$	10,754	$	9,958
Interest cost	4,579		5,816		13,288		17,236
Expected return on plan assets	(19,892)		(18,104)		(59,590)		(54,091)
Amortization of prior service cost	67		43		183		154
Amortization of actuarial losses	3,464		2,993		9,518		8,862

Net periodic benefit credit	$	(8,605)	$	(6,269)	$	(25,847)	$	(17,881)

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


	Three Months Ended				Nine Months Ended
	Sept. 30, 2021		Sept. 30, 2020		Sept. 30, 2021		Sept. 30, 2020
	(Dollars in thousands)
Service cost	$	25	$	18	$	81	$	66
Interest cost	82		142		272		425
Amortization of prior service credit	(460)		(487)		(1,373)		(1,454)
Amortization of actuarial gains	(137)		(115)		(232)		(254)
Net periodic benefit credit	$	(490)	$	(442)	$	(1,252)	$	(1,217)

Note 12. Income Taxes

Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 2019 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2020 and 2021 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.

Note 13. Treasury Stock

On October 17, 2016, our Board of Directors authorized the repurchase by us of up to an aggregate of $300.0 million of our common stock by various means from time to time through and including December 31, 2021. We did not repurchase any shares of our common stock pursuant to this authorization during the nine months ended September 30, 2021. At September 30, 2021, we had approximately $76.6 million remaining under this authorization for the repurchase of our common stock.

During the first nine months of 2021, we issued 576,232 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 223,030 shares of our common stock at an average cost of $38.44 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, 2021, 64,702,267 shares of our common stock were held in treasury.

-17-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at September 30, 2021 and 2020 and for the

three and nine months then ended is unaudited)

Note 14. Stock-Based Compensation

We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first nine months of 2021, 364,769 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 $14.1 million, which is being amortized ratably over the respective vesting period from the grant date.

Note 15. 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, 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