SILGAN HOLDINGS INC [SLGN] Filings

10-Q 1 slgn-20220630.htm 10-Q slgn-20220630

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 June 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 July 29, 2022, the number of shares outstanding of the Registrant’s common stock was 110,215,515.

-1-


SILGAN HOLDINGS INC.

TABLE OF CONTENTS

			Page No.


Part I. Financial Information			3

Item 1. Financial Statements			3

Condensed Consolidated Balance Sheets at June 3 0 , 2022 and 2021 and December 31, 2021			3

Condensed Consolidated Statements of Income for the three and six months ended June 30 , 2022 and 2021			4

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

Condensed Consolidated Statements of Cash Flows for the si x months ended June 3 0 , 2022 and 2021			6

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 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 2. Unregistered Sales of Equity Securities and Use of Proceeds			27

Item 6. Exhibits			28

Signatures			29

-2-

Part I. Financial Information

Item 1. Financial Statements

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)


	June 30, 2022		June 30, 2021		Dec. 31, 2021
	(unaudited)		(unaudited)
Assets
Current assets:
Cash and cash equivalents	$	247,843	$	164,821	$	631,439
Trade accounts receivable, net	931,282		891,812		711,332
Inventories	1,253,894		907,805		798,837
Prepaid expenses and other current assets	120,133		88,818		154,241
Total current assets	2,553,152		2,053,256		2,295,849

Property, plant and equipment, net	1,932,805		1,832,885		1,993,877
Goodwill	1,966,136		1,719,815		2,038,408
Other intangible assets, net	785,976		609,882		830,772
Other assets, net	636,430		508,481		611,940
	$	7,874,499	$	6,724,319	$	7,770,846

Liabilities and Stockholders’ Equity
Current liabilities:
Revolving loans and current portion of long-term debt	$	718,695	$	240,859	$	20,251
Trade accounts payable	880,862		727,523		1,133,318
Accrued payroll and related costs	109,211		112,270		109,279
Accrued liabilities	251,271		234,503		245,674
Total current liabilities	1,960,039		1,315,155		1,508,522

Long-term debt	3,367,469		3,176,393		3,772,926
Deferred income taxes	430,147		360,027		435,252
Other liabilities	491,381		484,164		491,450

Stockholders’ equity:
Common stock	1,751		1,751		1,751
Paid-in capital	331,877		314,873		325,448
Retained earnings	2,833,431		2,531,783		2,691,745
Accumulated other comprehensive loss	(308,216)		(263,433)		(259,828)
Treasury stock	(1,233,380)		(1,196,394)		(1,196,420)
Total stockholders’ equity	1,625,463		1,388,580		1,562,696
	$	7,874,499	$	6,724,319	$	7,770,846

See accompanying notes.

-3-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the three and six months ended June 30, 2022 and 2021

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

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021


Net sales	$	1,543,781	$	1,348,661	$	2,985,667	$	2,586,771
Cost of goods sold	1,269,855		1,113,777		2,478,288		2,130,421
Gross profit	273,926		234,884		507,379		456,350
Selling, general and administrative expenses	123,830		94,394		223,841		191,773
Rationalization charges	3,428		354		4,807		10,711
Other pension and postretirement income	(11,349)		(12,818)		(22,678)		(25,637)
Income before interest and income taxes	158,017		152,954		301,409		279,503
Interest and other debt expense before loss on early extinguishment of debt	28,660		26,406		58,009		52,829
Loss on early extinguishment of debt	—		—		1,481		883
Interest and other debt expense	28,660		26,406		59,490		53,712
Income before income taxes	129,357		126,548		241,919		225,791
Provision for income taxes	36,682		32,072		64,369		58,034
Net income	$	92,675	$	94,476	$	177,550	$	167,757

Earnings per share:
Basic net income per share	$	0.84	$	0.86	$	1.60	$	1.52
Diluted net income per share	$	0.83	$	0.85	$	1.59	$	1.51

Weighted average number of shares:
Basic	110,840		110,442		110,750		110,323
Effect of dilutive securities	388		661		590		743
Diluted	111,228		111,103		111,340		111,066

See accompanying notes.

-4-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and six months ended June 30, 2022 and 2021

(Dollars in thousands)

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021


Net income	$	92,675	$	94,476	$	177,550	$	167,757
Other comprehensive income (loss), net of tax:
Changes in net prior service credit and actuarial losses	539		1,876		1,038		3,754
Change in fair value of derivatives	(60)		828		2,277		1,469
Foreign currency translation	(64,053)		25,669		(51,703)		(7,703)
Other comprehensive (loss) income	(63,574)		28,373		(48,388)		(2,480)
Comprehensive income	$	29,101	$	122,849	$	129,162	$	165,277

See accompanying notes.

-5-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2022 and 2021

(Dollars in thousands)

(Unaudited)


	2022		2021
Cash flows provided by (used in) operating activities:
Net income	$	177,550	$	167,757
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	136,790		122,386
Rationalization charges	4,807		10,711
Stock compensation expense	8,870		10,337
Loss on early extinguishment of debt	1,481		883
Other changes that provided (used) cash, net of effects from acquisitions:
Trade accounts receivable, net	(243,261)		(277,768)
Inventories	(475,171)		(233,815)
Trade accounts payable	15,331		31,825
Accrued liabilities	15,914		(24,316)

Other, net	5,753		(17,313)
Net cash used in operating activities	(351,936)		(209,313)

Cash flows provided by (used in) investing activities:
Purchase of businesses, net of cash acquired	(1,333)		2,305
Capital expenditures	(118,357)		(123,604)
Other, net	(688)		4,914
Net cash used in investing activities	(120,378)		(116,385)

Cash flows provided by (used in) financing activities:
Borrowings under revolving loans	753,657		318,141
Repayments under revolving loans	(54,815)		(105,856)
Proceeds from issuance of long-term debt	—		499,725
Repayments of long-term debt	(300,000)		(500,000)
Changes in outstanding checks - principally vendors	(225,863)		(84,216)
Dividends paid on common stock	(36,680)		(31,564)
Debt issuance costs	—		(4,905)

Repurchase of common stock	(39,402)		(8,538)


Net cash provided by financing activities	96,897		82,787

Effect of exchange rate changes on cash and cash equivalents	(8,179)		(1,749)

Cash and cash equivalents:
Net decrease	(383,596)		(244,660)
Balance at beginning of year	631,439		409,481
Balance at end of period	$	247,843	$	164,821

Interest paid, net	$	59,297	$	48,026
Income taxes paid, net	28,881		47,297

See accompanying notes.

-6-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

For the three and six months ended June 30, 2022 and 2021

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

(Unaudited)


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021


Common stock - shares outstanding
Balance at beginning of period	110,800		110,386		110,410		110,057
Net issuance of treasury stock for vested restricted stock units	65		22		455		351
Repurchases of common stock	(650)		—		(650)		—
Balance at end of period	110,215		110,408		110,215		110,408

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	328,201		309,635		325,448		306,363
Stock compensation expense	3,991		5,327		8,870		10,337
Net issuance of treasury stock for vested restricted stock units	(315)		(89)		(2,441)		(1,827)
Balance at end of period	331,877		314,873		331,877		314,873

Retained earnings
Balance at beginning of period	2,758,697		2,452,996		2,691,745		2,395,395
Net income	92,675		94,476		177,550		167,757
Dividends declared on common stock	(17,941)		(15,689)		(35,864)		(31,369)
Balance at end of period	2,833,431		2,531,783		2,833,431		2,531,783

Accumulated other comprehensive loss
Balance at beginning of period	(244,642)		(291,806)		(259,828)		(260,953)
Other comprehensive (loss) income	(63,574)		28,373		(48,388)		(2,480)
Balance at end of period	(308,216)		(263,433)		(308,216)		(263,433)

Treasury stock
Balance at beginning of period	(1,205,768)		(1,196,221)		(1,196,420)		(1,189,683)
Net issuance of treasury stock for vested restricted stock units	(1,245)		(173)		(10,593)		(6,711)
Repurchases of common stock	(26,367)		—		(26,367)		—
Balance at end of period	(1,233,380)		(1,196,394)		(1,233,380)		(1,196,394)
Total stockholders' equity	$	1,625,463	$	1,388,580	$	1,625,463	$	1,388,580

Dividends declared on common stock per share	$	0.16	$	0.14	$	0.32	$	0.28

See accompanying notes.

-7-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six months then ended is unaudited)

Note 1. Significant Accounting Policies

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

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

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

Note 2. Revenue

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


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
Dispensing and Specialty Closures	$	602,431	$	545,768	$	1,200,358	$	1,055,120
Metal Containers	754,396		624,534		1,405,122		1,178,615
Custom Containers	186,954		178,359		380,187		353,036
	$	1,543,781	$	1,348,661	$	2,985,667	$	2,586,771

Revenues by geography were as follows:


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
North America	$	1,154,614	$	968,497	$	2,240,838	$	1,866,899
Europe and other	389,167		380,164		744,829		719,872
	$	1,543,781	$	1,348,661	$	2,985,667	$	2,586,771

Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $110.3 million, $92.6 million, and $78.2 million as of June 30, 2022 and 2021 and December 31, 2021, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.

-8-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
Dispensing and Specialty Closures	$	—	$	67	$	—	$	5,298
Metal Containers	3,428		225		4,702		5,246
Custom Containers	—		62		105		167
	$	3,428	$	354	$	4,807	$	10,711

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	3,833		737		237		4,807
Utilized and currency translation	(3,519)		(737)		(237)		(4,493)
Balance at June 30, 2022	$	41,404	$	157	$	—	$	41,561

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 June 30, 2022 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $5.0 million and other liabilities of $36.6 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 $3.8 million and $7.4 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.

-9-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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	—		2,257		(51,703)		(49,446)
Amounts reclassified from accumulated other comprehensive loss	1,038		20		—		1,058
Other comprehensive loss	1,038		2,277		(51,703)		(48,388)
Balance at June 30, 2022	$	(118,436)	$	(50)	$	(189,730)	$	(308,216)

The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and six months ended June 30, 2022 were net (losses) of $(0.7) million and $(1.4) million, respectively, excluding income tax benefits of $0.2 million and $0.4 million, respectively. For the three and six months ended June 30, 2022, these net (losses) consisted of amortization of net actuarial (losses) of $(1.1) million and $(2.2) million and amortization of net prior service credit of $0.4 million and $0.8 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 six months ended June 30, 2022 were not significant.

Other comprehensive loss before reclassifications related to foreign currency translation for the three and six months ended June 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 $(88.7) million and $(85.6) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $1.1 million and $1.9 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $30.8 million and $42.0 million, respectively, excluding income tax (provisions) of $(7.3) million and $(10.0) million, respectively. See Note 7 for further discussion.

-10-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six months then ended is unaudited)

Note 5. Inventories

Inventories consisted of the following:


	June 30, 2022		June 30, 2021		Dec. 31, 2021
	(Dollars in thousands)
Raw materials	$	362,950	$	302,719	$	394,102
Work-in-process	255,249		164,655		157,406
Finished goods	807,219		534,522		394,378
Other	16,881		15,497		15,731
	1,442,299		1,017,393		961,617
Adjustment to value inventory at cost on the LIFO method	(188,405)		(109,588)		(162,780)
	$	1,253,894	$	907,805	$	798,837

During the three and six months ended June 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 $7.3 million for both periods.

Note 6. Long-Term Debt

Long-term debt consisted of the following:


	June 30, 2022		June 30, 2021		Dec. 31, 2021
	(Dollars in thousands)
Bank debt
Bank revolving loans	$	675,000	$	195,859	$	—
U.S. term loans	1,000,000		400,000		1,000,000

Other foreign bank revolving and term loans	61,364		47,132		38,862
Total bank debt	1,736,364		642,991		1,038,862


4¾% Senior Notes	—		300,000		300,000
3¼% Senior Notes	679,510		770,835		739,180
4⅛% Senior Notes	600,000		600,000		600,000
2¼% Senior Notes	522,700		592,950		568,600
1.4% Senior Secured Notes	500,000		500,000		500,000
Finance leases	66,938		33,460		68,730
Total debt - principal	4,105,512		3,440,236		3,815,372
Less unamortized debt issuance costs and debt discount	19,348		22,984		22,195
Total debt	4,086,164		3,417,252		3,793,177
Less current portion	718,695		240,859		20,251
	$	3,367,469	$	3,176,393	$	3,772,926

At June 30, 2022, the current portion of long-term debt consisted of $675.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $41.0 million of other foreign bank revolving and term loans and $2.7 million of finance leases.

-11-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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 June 30, 2022:


	Carrying Amount		Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	247,843	$	247,843


Liabilities:
Bank debt	$	1,736,364	$	1,736,364


3¼% Senior Notes	679,510		643,496
4⅛% Senior Notes	599,258		538,020
2¼% Senior Notes	522,700		412,828
1.4% Senior Secured Notes	499,797		447,200

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 June 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.

-12-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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 six months ended June 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 June 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 six months ended June 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 June 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 six months ended June 30, 2022 were $30.8 million and $42.0 million, respectively.

-13-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six months then ended is unaudited)

Note 8. Commitments and Contingencies

On July 12, 2022, we announced that 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. As part of the settlement, we agreed to pay a fine of $25.2 million to put an end to the investigation, although we do not fully concur with the facts and legal qualifications put forth by the European Commission. The fine will be payable in the fourth quarter of 2022. The European Commission has agreed to close its investigation and not proceed any further with this matter.

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				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
Service cost	$	3,270	$	3,789	$	6,570	$	7,577
Interest cost	5,140		4,355		10,299		8,709
Expected return on plan assets	(17,315)		(19,850)		(34,629)		(39,698)
Amortization of prior service cost	53		58		108		116
Amortization of actuarial losses	1,157		3,028		2,312		6,054

Net periodic benefit credit	$	(7,695)	$	(8,620)	$	(15,340)	$	(17,242)

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


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
Service cost	$	26	$	28	$	51	$	56
Interest cost	109		95		218		190
Amortization of prior service credit	(416)		(457)		(832)		(913)
Amortization of actuarial gains	(77)		(47)		(154)		(95)
Net periodic benefit credit	$	(358)	$	(381)	$	(717)	$	(762)

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.

-14-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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 six months ended June 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 June 30, 2022, we had approximately $273.6 million remaining under this authorization for the repurchase of our common stock.

During the first six 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 June 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 six 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.

-15-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

three and six 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 June 30, 2022
Net sales	$	602,431	$	754,396	$	186,954	$	—	$	1,543,781
Depreciation and amortization(1)	36,541		19,874		9,934		39		66,388
Rationalization charges	—		3,428		—		—		3,428
Segment income (2)	91,349		66,358		30,890		(30,580)		158,017

Three Months Ended June 30, 2021
Net sales	$	545,768	$	624,534	$	178,359	$	—	$	1,348,661
Depreciation and amortization(1)	29,101		21,329		9,632		42		60,104
Rationalization charges	67		225		62		—		354
Segment income	73,836		58,635		27,244		(6,761)		152,954

Six Months Ended June 30, 2022
Net sales	$	1,200,358	$	1,405,122	$	380,187	$	—	$	2,985,667
Depreciation and amortization(1)	73,160		40,938		19,817		81		133,996
Rationalization charges	—		4,702		105		—		4,807
Segment income (2)	178,662		104,367		55,584		(37,204)		301,409

Six Months Ended June 30, 2021
Net sales	$	1,055,120	$	1,178,615	$	353,036	$	—	$	2,586,771
Depreciation and amortization(1)	57,991		42,578		19,005		81		119,655
Rationalization charges	5,298		5,246		167		—		10,711
Segment income	139,481		104,249		51,730		(15,957)		279,503

_____________

(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 June 30, 2022 and 2021, respectively, and $2.8 million and $2.7 million for the six months ended June 30, 2022 and 2021, respectively.

(2)Corporate includes a charge of $25.2 million for the settlement with the European Commission for each of the three and six months ended June 30, 2022.

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


	Three Months Ended				Six Months Ended
	June 30, 2022		June 30, 2021		June 30, 2022		June 30, 2021

	(Dollars in thousands)
Total segment income	$	158,017	$	152,954	$	301,409	$	279,503
Interest and other debt expense	28,660		26,406