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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-06 · 96 added, 137 removed, 49 unchanged (83% of the section changed)

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We are a leading manufacturer of sustainable rigid packaging solutions for consumer goods products.

We currently produce steel and aluminum containers for human and pet food and general line products;

metal and plastic closures and dispensing systems for food, beverage, health care, garden, home, personal care and beauty products;

and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products.

We are a leading manufacturer of metal containers in North America and Europe, a leading worldwide manufacturer of metal and plastic closures and dispensing systems and a leading manufacturer of plastic containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets.

We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care and beauty products;

steel and aluminum containers for human and pet food and general line products;

and custom designed containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products.

We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom plastic containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical markets.

Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs and build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns.

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RESULTS OF OPERATIONS

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented:

Three Months Ended Nine Months Ended

30, 2020 Sept.

30, 2019 Sept.

30, 2020 Sept.

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the three months ended March 31

Dispensing and Specialty Closures 41.1 % 34.7 %

Metal Containers 44.8 49.3

Closures 31.9 26.8 33.6 31.2

Plastic containers 10.5 11.0 13.3 13.5

Custom Containers 14.1 16.0

Consolidated 100.0 100.0

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Net income 5.9 % 5.6 %

Summary unaudited results of operations for the periods presented are provided below.

Three Months Ended Nine Months Ended

30, 2020 Sept.

30, 2019 Sept.

30, 2020 Sept.

Summary unaudited results of operations for the three months ended March 31 are provided below.

(dollars in millions)

Dispensing and Specialty Closures $ 509.3 $ 357.2

Metal Containers 554.1 508.5

Closures 475.1 353.4 1,242.7 1,073.0

Plastic containers 156.7 145.6 490.3 463.7

Custom Containers 174.7 164.7

Consolidated $ 1,238.1 $ 1,030.4

Segment income

Metal containers (1)

$ 94.5 $ 81.1 $ 213.8 $ 134.1

64.2 44.8 168.0 131.9

Plastic containers (3)

Dispensing and Specialty Closures (1)

$ 65.7 $ 45.2

Metal Containers (2)

Custom Containers (3)

Corporate (4)

(6.6) (4.6) (41.3) (14.9)

Consolidated $ 126.6 $ 102.1

(1) Includes rationalization charges of $1.6 million and $3.0 million for the three months ended September 30, 2020 and 2019, respectively, and $4.7 million and $42.3 million for the nine months ended September 30, 2020 and 2019, respectively.

(2) Includes rationalization charges of $0.8 million and $0.1 million for the three months ended September 30, 2020 and 2019, respectively, and $2.2 million and $6.0 million for the nine months ended September 30, 2020 and 2019, respectively.

Includes a charge of $3.5 million for the write-up of inventory for purchase accounting as a result of the acquisition of the Albéa Dispensing Business for the nine months ended September 30, 2020.

(3) Includes rationalization charges of $0.1 million for each of the three months ended September 30, 2020 and 2019 and $0.3 million for each of the nine months ended September 30, 2020 and 2019.

(4) Includes costs attributed to announced acquisitions of $0.7 million and $19.0 million for the three and nine months ended September 30, 2020,respectively.

Three Months Ended September 30, 2020 Compared with Three Months Ended September 30, 2019

Consolidated net sales were $1.49 billion in the third quarter of 2020, a 12.7 percent increase as compared to the third quarter of 2019 primarily due to higher volumes across all businesses including the impact from acquisitions, a more favorable mix of products sold in the closures business and the impact of favorable foreign currency translation, partially offset by the pass through of lower raw material costs in all businesses and a less favorable mix of products sold in the metal and plastic container businesses.

Income before interest and income taxes for the third quarter of 2020 was $174.0 million, a $41.3 million increase as compared to the same period in 2019, primarily due to higher volumes and strong operating performance across all businesses, higher pension income and a more favorable mix of products sold in the closures business, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold in the metal container business.

Results for the third quarters of 2020 and 2019 included rationalization charges of $2.5 million and $3.2 million, respectively.

Results for the third quarters of 2020 and 2019 also included other pension and postretirement income of $9.7 million and $4.3 million, respectively.

Results for the third quarter of 2020 also included costs attributed to announced acquisitions of $0.7 million, while results for the third quarter of 2019 included a loss on early extinguishment of debt of $1.7 million.

Net income for the third quarter of 2020 was $112.9 million as compared to $81.3 million for the same period in 2019.

Net income per diluted share for the third quarter of 2020 was $1.01 as compared to $0.73 for the same period in 2019.

The $167.2 million increase in consolidated net sales in the third quarter of 2020 as compared to the third quarter of 2019 was the result of higher net sales across all the businesses.

Net sales for the metal container business increased $34.4 million, or 4.2 percent, in the third quarter of 2020 as compared to the same period in 2019.

This increase was primarily the result of higher unit volumes of approximately seventeen percent and the impact of favorable foreign currency translation of approximately $4.0 million, partially offset by the pass through of lower raw material costs and a higher percentage of smaller cans sold.

The increase in unit volumes was primarily due to the continued increase in at home food consumption and a shift in the timing of certain fruit and vegetable pack shipments from the first half of the year to the third quarter.

Net sales for the closures business increased $121.7 million, or 34.4 percent, in the third quarter of 2020 as compared to the same period in 2019.

This increase was primarily the result of higher unit volumes of approximately ten percent, a more favorable mix of products sold due primarily to strong unit volume growth in dispensing closures and the impact of favorable foreign currency translation of approximately $2.0 million, partially offset by the pass through of lower raw material costs.

The increase in unit volumes was principally the result of the inclusion of the recent acquisitions of the Albéa Dispensing Business and Cobra Plastics and continued strong volumes for certain consumer health, hygiene, personal care and food products.

These volume gains were partially offset by weak demand for certain beauty products during the COVID-19 pandemic.

Net sales for the plastic container business increased $11.1 million, or 7.6 percent, in the third quarter of 2020 as compared to the same period in 2019.

This increase was principally due to higher volumes of approximately fourteen percent, partially offset by the pass through of lower raw material costs and a less favorable mix of products sold.

The increase in volumes was due primarily to higher demand for certain food and consumer health and hygiene products and continued new business awards.

Gross Profit .

Gross profit margin increased 1.7 percentage points to 17.4 percent in the third quarter of 2020 as compared to the same period in 2019 for the reasons discussed below in "Income before Interest and Income Taxes."

Selling, General and Administrative Expenses .

Selling, general and administrative expenses as a percentage of consolidated net sales increased to 6.2 percent in the third quarter of 2020 as compared to 5.8 percent in the same period in 2019.

Selling, general and administrative expenses increased $15.4 million to $91.5 million for the third quarter of 2020 as compared to $76.1 million for the same period in 2019.

The increase in selling, general and administrative expenses was principally due to the inclusion of selling, general and administrative expenses from the Albéa Dispensing Business and Cobra Plastics which were acquired in 2020 and costs attributed to announced acquisitions of $0.7 million.

Income before Interest and Income Taxes .

Income before interest and income taxes for the third quarter of 2020 increased by $41.3 million as compared to the third quarter of 2019, and margins increased to 11.7 percent from 10.0 percent over the same periods.

The increase in income before interest and income taxes was primarily the result of higher income in each of the businesses, partially offset by higher selling, general and administrative expenses.

Rationalization charges were $2.5 million and $3.2 million in the third quarters of 2020 and 2019, respectively.

Segment income of the metal container business for the third quarter of 2020 increased $13.4 million as compared to the same period in 2019, and segment income margin increased to 11.0 percent from 9.9 percent over the same periods.

The increase in segment income was due primarily to higher unit volumes and strong operating performance, higher pension income and lower rationalization charges, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold.

Rationalization charges were $1.6 million and $3.0 million in the third quarters of 2020 and 2019, respectively.

Segment income of the closures business for the third quarter of 2020 increased $19.4 million as compared to the same period in 2019, and segment income margin increased to 13.5 percent from 12.7 percent over the same periods.

The increase in segment income was primarily due to higher unit volumes including from recent acquisitions, a more favorable mix of products sold, strong operating performance and higher pension income.

Segment income of the plastic container business for the third quarter of 2020 increased $10.5 million as compared to the same period in 2019, and segment income margin increased to 14.0 percent from 7.8 percent over the same periods.

The increase in segment income was primarily attributable to higher volumes, strong operating performance and lower manufacturing costs and higher pension income.

Interest and Other Debt Expense.

Interest and other debt expense before loss on early extinguishment of debt for the third quarter of 2020 increased $0.9 million to $27.7 million as compared to $26.8 million in the same period in 2019.

This increase was due to higher average outstanding borrowings primarily related to the acquisition of the Albéa Dispensing Business, partially offset by lower weighted average interest rates.

Loss on early extinguishment of debt of $1.7 million in the third quarter of 2019 was the result of the redemption of all outstanding 5½% Senior Notes due 2022.

Provision for Income Taxes.

The effective tax rates were 22.9 percent and 22.0 percent for the third quarters of 2020 and 2019, respectively, both of which were favorably impacted by an audit period expiration.

Nine Months Ended September 30, 2020 Compared with Nine Months Ended September, 2019

Consolidated net sales were $3.70 billion in the first nine months of 2020, a 7.4 percent increase as compared to the first nine months of 2019 primarily as a result of higher volumes in each of the businesses including the impact from acquisitions and a more favorable mix of products sold in the closures business, partially offset by the pass through of lower raw material costs across all businesses, a less favorable mix of products sold in the metal and plastic container businesses and the impact of unfavorable foreign currency translation.

Income before interest and income taxes for the first nine months of 2020 increased by $119.4 million as compared to the same period in 2019 primarily due to higher volumes and strong operating performance in each of the businesses, lower rationalization charges, higher pension income and a more favorable mix of products sold in the closures business.

These increases were partially offset by higher selling, general and administrative expenses, the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold in the metal container business, the negative impact from the purchase accounting write-up of acquired inventory of the Albéa Dispensing Business and the unfavorable impact of a charge in the plastic container business for a non-commercial legal dispute relating to prior periods.

Results for the first nine months of 2020 and 2019 included rationalization charges of $7.2 million and $48.6 million, respectively.

Results for the first nine months of 2020 also included costs attributed to announced acquisitions of $19.0 million.

Results for the first nine months of 2020 and 2019 included a loss on early extinguishment of debt of $1.5 million and $1.7 million, respectively.

Results for the first nine months of 2020 and 2019 also included other pension and postretirement income of $29.1 million and $13.3 million, respectively.

Net income for the first nine months of 2020 was $248.6 million as compared to $159.0 million for the same period in 2019.

Net income per diluted share for the first nine months of 2020 was $2.23 as compared to $1.43 for the same period in 2019.

The $253.8 million increase in consolidated net sales in the first nine months of 2020 as compared to the first nine months of 2019 was the result of higher net sales across all businesses.

Net sales for the metal container business increased $57.5 million, or 3.0 percent, in the first nine months of 2020 as compared to the same period in 2019.

This increase was primarily the result of higher unit volumes of approximately thirteen percent, partially offset by the pass through of lower raw material and other manufacturing costs and a higher percentage of smaller cans sold.

The increase in unit volumes was primarily the result of continued higher demand in at home food consumption and lower volumes in the first quarter of 2019 as a result of the 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019.

Net sales for the closures business increased $169.7 million, or 15.8 percent, in the first nine months of 2020 as compared to the same period in 2019.

This increase was primarily the result of higher unit volumes of approximately six percent and a more favorable mix of products sold, partially offset by the pass through of lower raw material costs and the impact of unfavorable foreign currency translation of approximately $10.0 million.

The increase in unit volumes was principally the result of the inclusion of the recent acquisitions of the Albéa Dispensing Business and Cobra Plastics, strong volumes for certain consumer health, hygiene, personal care and food products, and lower volumes in the first quarter of 2019 as a result of the 2018 pre-buy of products by customers in anticipation of significant metal inflation in 2019.

These volume gains were partially offset by weak demand for certain beauty and beverage products.

Net sales for the plastic container business increased $26.6 million, or 5.7 percent, in the first nine months of 2020 as compared to the same period in 2019.

This increase was primarily due to higher volumes of approximately twelve percent, partially offset by the pass through of lower raw material costs, a less favorable mix of products sold and the impact of unfavorable foreign currency translation of approximately $1.0 million.

The increase in volumes was due primarily to continued higher demand for certain food and consumer health and hygiene products and continued new business awards.

(1) Includes rationalization charges of $5.2 million and $0.7 million for the three months ended March 31, 2021 and 2020, respectively.

(2) Includes rationalization charges of $5.0 million and $2.0 million for the three months ended March 31, 2021 and 2020, respectively.

(3) Includes rationalization charges of $0.1 million and $0.1 million for the three months ended March 31, 2021 and 2020, respectively.

(4) Includes costs attributed to announced acquisitions of $2.3 million in 2020.

Three Months Ended March 30, 2021 Compared with Three Months Ended March 30, 2020

Consolidated net sales were $1.24 billion in the first quarter of 2021, a 20.2 percent increase as compared to the first quarter of 2020 primarily due to higher volumes in the Dispensing and Specialty Closures and Metal Container segments, the pass through of higher raw material and other costs, the impact from favorable foreign currency translation and a more favorable mix of products sold in the Dispensing and Specialty Closures and Custom Container segments, partially offset by a higher percentage of smaller cans sold in the Metal Container segment.

Income before interest and income taxes for the first

quarter of 2021 was $126.6 million, a $24.5 million increase as compared to the same period in 2020 primarily due to higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, a more favorable mix of products sold and strong operating performance in the Dispensing and Specialty Closures and Custom Container segments and higher pension income, partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs in the Dispensing and Specialty Closures and Custom Container segments, higher production costs in the Metal Container segment, higher rationalization charges and foreign currency transaction losses in the Dispensing and Specialty Closures segment.

Results for the first quarters of 2021 and 2020 included rationalization charges of $10.3 million and $2.8 million, respectively.

Results for the first quarters of 2021 and 2020 also included a loss on early extinguishment of debt of $0.9 million and $1.5 million, respectively.

Net income for the first quarter of 2021 was $73.3 million as compared to $57.6 million for the same period in 2020.

Net income per diluted share for the first quarter of 2021 was $0.66 as compared to $0.52 for the same period in 2020.

The $207.7 million increase in consolidated net sales in the first quarter of 2021 as compared to the first quarter of 2020 was the result of higher net sales across all the segments.

Net sales for the Dispensing and Specialty Closures segment increased $152.1 million, or 42.6 percent, in the first quarter of 2021 as compared to the same period in 2020.

This increase was primarily the result of higher unit volumes of approximately nine percent, the pass through of higher raw material costs, a more favorable mix of products sold and the impact of favorable foreign currency translation of approximately $11 million.

The increase in unit volumes was principally the result of volumes from the dispensing operations of the Albéa Group acquired in June 2020 and continued higher volume demand across the product offerings.

Net sales for the Metal Container segment increased $45.6 million, or 9.0 percent, in the first quarter of 2021 as compared to the same period in 2020.

This increase was primarily the result of higher unit volumes of approximately nine percent, the pass through of higher raw material and other costs and the impact of favorable foreign currency translation of approximately $5 million, partially offset by a higher percentage of smaller cans sold.

The increase in unit volumes was primarily due to the continued high consumer demand levels for food cans.

Net sales for the Custom Container segment increased $10.0 million, or 6.1 percent, in the first quarter of 2021 as compared to the same period in 2020.

This increase was principally due to a more favorable mix of products sold, the pass through of higher raw material costs and the impact of favorable foreign currency translation of approximately $2 million.

Aggregate volumes in 2021 were comparable to prior year record volumes as consumer goods and pet food products continued to experience strong demand, offset by lower volumes in hygiene products which had a significant surge in the prior year period.

Gross Profit .

Gross profit margin increased 1.9 percentage points to 18.1 percent in the first nine months of 2020 as compared to the same period in 2019 for the reasons discussed below in "Income before Interest and Income Taxes".

Gross profit margin decreased 0.1 percentage points to 17.9 percent in the first quarter of 2021 as compared to the same period in 2020.

Selling, General and Administrative Expenses .

Selling, general and administrative expenses as a percentage of consolidated net sales increased to 7.7 percent for the first nine months of 2020 as compared to 6.8 percent in the same period in 2019.

Selling, general and administrative expenses increased $48.2 million to $282.0 million for the first nine months of 2020 as compared to $233.8 million for the same period in 2019.

The increase in selling, general and administrative expenses was principally the result of costs attributed to announced acquisitions of $19.0 million, the inclusion of selling, general and administrative expenses from the Albéa Dispensing Business and Cobra Plastics which were acquired in 2020, one-time plant employee incentive payments in the first quarter of 2020 and a charge of $2.8 million in the plastic container business for a non-commercial legal dispute relating to prior periods.

Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.9 percent in the first quarter of 2021 as compared to 8.7 percent in the same period in 2020.

Selling, general and administrative expenses increased $7.5 million to $97.4 million for the first quarter of 2021 as compared to $89.9 million for the same period in 2020.

The increase in selling, general and administrative expenses was principally the result of the inclusion of selling, general and administrative expenses from the dispensing operations of the Albéa Group acquired in June 2020, partially offset by lower corporate expenses primarily related to prior year costs for one-time plant employee incentive payments and announced acquisitions.

Income before Interest and Income Taxes .

Income before interest and income taxes for the first nine months of 2020 increased by $119.4 million as compared to the first nine months of 2019, and margins increased to 11.0 percent from 8.4 percent over the same periods.

The increase in income before interest and income taxes was primarily due to higher income in each of the businesses, partially offset by higher selling, general and administrative expenses.

Rationalization charges were $7.2 million and $48.6 million for the first nine months of 2020 and 2019, respectively.

Segment income of the metal container business for the first nine months of 2020 increased $79.7 million as compared to the same period in 2019, and segment income margin increased to 10.9 percent from 7.0 percent over the same periods.

The increase in segment income was primarily attributable to lower rationalization charges, higher unit volumes and strong operating performance and higher pension income, partially offset by the impact from the renewal of certain significant customer contracts at the end of 2019 and a higher percentage of smaller cans sold.

Rationalization charges were $4.7 million and $42.3 million in the first nine months of 2020 and 2019, respectively.

Segment income of the closures business for the first nine months of 2020 increased $36.1 million, as compared to the same period in 2019, and segment income margin increased to 13.5 percent from 12.3 percent over the same periods.

The increase in segment income was primarily due to higher unit volumes including from recent acquisitions, strong operating performance, a more favorable mix of products sold, higher pension income and lower rationalization charges, partially offset by the negative impact from the purchase accounting write-up of inventory of the Albéa Dispensing Business.

Rationalization charges were $2.2 million and $6.0 million in the first nine months of 2020 and 2019, respectively.

Segment income of the plastic container business for the first nine months of 2020 increased $30.0 million as compared to the same period in 2019, and segment income margin increased to 13.6 percent from 8.0 percent over the same periods.

The increase in segment income was primarily attributable to higher volumes, strong operating performance and lower manufacturing costs and higher pension income, partially offset by the unfavorable impact of a charge of $2.8 million for a non-commercial legal dispute relating to prior periods.

Income before interest and income taxes for the first quarter of 2021 increased by $24.5 million as compared to the first quarter of 2020, and margins increased to 10.2 percent from 9.9 percent over the same periods.

The increase in income before interest and income taxes was primarily the result of higher income in the Dispensing and Specialty Closures and Custom Containers segments and lower corporate expenses, partially offset by higher rationalization charges.

Rationalization charges were $10.3 million and $2.8 million in the first quarters of 2021 and 2020, respectively.

Segment income of the Dispensing and Specialty Closures segment for the first quarter of 2021 increased $20.5 million as compared to the same period in 2020, and segment income margin increased to 12.9 percent from 12.7 percent over the same periods.

The increase in segment income was primarily due to higher unit volumes, a more favorable mix of products sold and strong operating performance, partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, higher rationalization charges and foreign currency transaction losses in the current year period.

Rationalization charges were $5.2 million and $0.7 million in the first quarters of 2021 and 2020, respectively.

Segment income of the Metal Container segment for the first quarter of 2021 decreased $1.9 million as compared to the same period in 2020, and segment income margin decreased to 8.2 percent from 9.3 percent over the same periods.

The decrease in segment income was due primarily to higher production costs principally due to challenges associated with severe winter weather conditions and one-time investments in hiring and training new employees to support increased demand levels, a higher percentage of smaller cans sold and higher rationalization charges, partially offset by higher unit volumes and higher pension income.

Rationalization charges were $5.0 million and $2.0 million in the first quarters of 2021 and 2020, respectively.

Segment income of the Custom Container segment for the first quarter of 2021 increased $2.5 million as compared to the same period in 2020, and segment income margin increased to 14.0 percent from 13.4 percent over the same periods.

The increase in segment income was primarily attributable to a more favorable mix of products sold and strong operating performance, partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs.

Interest and Other Debt Expense.

Interest and other debt expense before loss on early extinguishment of debt for the first nine months of 2020 decreased $5.2 million to $77.1 million as compared to $82.3 million in the same period in 2019 primarily due to lower weighted average interest rates, partially offset by higher average outstanding borrowings primarily related to the acquisition of the Albéa Dispensing Business and additional revolving loan borrowings outstanding during the first half of the current year principally to hold cash and cash equivalents to ensure liquidity against potential credit market disruptions as a result of the COVID-19 pandemic.

Weighted average interest rates were lower during the first nine months of 2020 due to

lower variable market rates and the redemption of all outstanding 5½% Senior Notes due 2022 in the third quarter of 2019.

During the first nine months of 2020, we recognized a loss on early extinguishment of debt of $1.5 million in conjunction with the prepayment of U.S.

term loans under the Credit Agreement.

Loss on early extinguishment of debt of $1.7 million in the first nine months of 2019 was the result of the redemption of all outstanding 5½% Senior Notes due 2022.

Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2021 increased $3.0 million to $26.4 million as compared to $23.4 million in the same period in 2020.

This increase was primarily due to higher weighted average outstanding borrowings during the quarter as a result of the acquisition of the dispensing operations of the Albéa Group in June 2020, partially offset by lower weighted average interest rates during the current quarter due to lower variable market rates.

In February 2021, we issued the 1.4% Notes and utilized the proceeds therefrom to prepay outstanding term loans under the Credit Agreement.

In conjunction with this prepayment, we recognized a loss on early extinguishment of debt of $0.9 million in the first quarter of 2021.

Provision for Income Taxes.

The effective tax rates were 24.4 percent and 22.1 percent for the first nine months of 2020 and 2019, respectively.

The effective tax rate for the first nine months of 2020 was unfavorably impacted by increased income in higher tax jurisdictions and certain nondeductible expenses principally related to costs incurred for the acquisition of the Albéa Dispensing Business, partially offset by the favorable impact of an audit period expiration.

The effective tax rate for the first nine months of 2019 benefitted from an audit period expiration, the resolution of a prior year tax audit and the timing of certain tax deductions.

The effective tax rates were 26.2 percent and 25.4 percent for the first quarters of 2021 and 2020, respectively.

The effective tax rate for the first quarter of 2021 was unfavorably impacted by higher income in less favorable tax jurisdictions.

CAPITAL RESOURCES AND LIQUIDITY

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Our liquidity requirements arise from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment, the funding of our seasonal working capital needs and other general corporate uses.

On February 26, 2020, we issued (i) an additional $200 million aggregate principal amount of the 4⅛% Notes at 99.5 percent of their principal amount, plus accrued and unpaid interest from November 12, 2019, and €500 million aggregate principal amount of the 2¼% Notes at 100 percent of their principal amount.

We used the net proceeds from these issuances and revolving loan borrowings under the Credit Agreement to prepay all of our outstanding U.S.

term loans under the Credit Agreement.

On February 10, 2021, we issued $500.0 million aggregate principal amount of the 1.4% Notes at 99.945 percent of their principal amount.

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.

On April 17, 2020, we and certain of our subsidiaries entered into the Incremental Term Loan Commitment Agreement pursuant to the Credit Agreement, which provided for the lenders thereunder to lend to us, on a delayed draw basis, $900 million of Incremental U.S.

Term Loans to fund the purchase price for the acquisition of the Albéa Dispensing Business.

On June 1, 2020, we borrowed the Incremental U.S.

Term Loans to fund the purchase price for the acquisition of the Albéa Dispensing Business.

On June 1, 2020, we acquired the Albéa Dispensing Business.

This business operates a global network of ten manufacturing facilities across North America, Europe, South America and Asia.

We funded the purchase price for this acquisition with the Incremental U.S.

Term Loans and revolving loan borrowings under the Credit Agreement.

You should also read Notes 3 and 8 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report.

For the nine months ended September 30, 2020, we used net proceeds from the issuance of the 2¼% Notes and the additional 4⅛% Notes and the Incremental U.S.

Term Loans of $1,639.7 million, net borrowings of revolving loans of $244.9 million, cash provided by operations of $118.5 million and cash and cash equivalents of $10.0 million (excluding the positive effect of exchange rate changes of $1.0 million) to fund the purchases of the Albéa Dispensing Business and Cobra Plastics for $940.9 million, repayments of long-term debt of $766.2 million, net capital expenditures and other investing activities of $164.2 million, decreases in outstanding checks of $79.0 million, dividends paid on our common stock of $40.4 million, repurchases of our common stock of $13.1 million and debt issuance costs of $10.3 million.

For the nine months ended September 30, 2019, we used net borrowings of revolving loans of $674.6 million to fund repayments of long-term debt of $308.2 million, decreases in outstanding checks of $83.7 million, cash used in operations of $2.4 million, net capital expenditures and other investing activities of $166.3 million, dividends paid on our common stock of $38.6 million and repurchases of our common stock of $27.4 million and to increase cash and cash equivalents (including the negative effect of exchange rate changes of $3.4 million) by $44.6 million.

At September 30, 2020, we had $246.0 million of revolving loans outstanding under the Credit Agreement.

After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at September 30, 2020 was $927.3 million and Cdn $15.0 million.

You should also read Note 6 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2021 included elsewhere in this Quarterly Report.

For the three months ended March 31, 2021, we used proceeds from the issuance of the 1.4% Notes of $499.7 million, net borrowings of revolving loans of $139.2 million and cash and cash equivalents of $219.4 million to fund repayments of long-term debt of $500.0 million, cash used in operations of $172.2 million, decreases in outstanding checks of $84.2 million, net capital expenditures and other investing activities of $68.4 million, dividends paid on our common stock of $16.1 million, repurchases of our common stock of $8.3 million under our stock-based compensation plan, debt issuance costs of $4.6 million and the negative effect of exchange rate changes of $4.5 million.

For the three months ended March 31, 2020, we used net borrowings of revolving loans of $828.1 million and net proceeds from the issuance of the 2¼% Notes and the additional 4⅛% Notes of $739.7 million to fund repayments of long-term debt of $766.2 million, cash used in operations of $168.1 million, decreases in outstanding checks of $79.0 million, net capital expenditures and other investing activities of $64.6 million, the purchase of Cobra Plastics for $39.8 million, dividends paid on our common stock of $13.8 million, repurchases of our common stock of $12.7 million, debt issuance costs of $7.5 million and the negative effect of exchange rate changes of $5.1 million and to increase cash and cash equivalents by $411.0 million.

At March 31, 2021, we had $137.0 million of revolving loans outstanding under the Credit Agreement.

After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at March 31, 2021 was $1.04 billion and Cdn $15.0 million.

Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales.

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We are in compliance with all financial and operating covenants contained in our financing agreements and believe that we will continue to be in compliance during 2021 with all of these covenants.

Guaranteed Securities

Each of the 4¾% Notes, the 3¼% Notes, the 4⅛% Notes, the 2¼% Notes and the 1.4% Notes were issued by Silgan and are guaranteed by certain wholly owned subsidiaries of Silgan, collectively the Obligor Group.

The following summarized financial information relates to the Obligor Group as of March 31, 2021 and December 31, 2020 and for the three months ended March 31, 2021.

Intercompany transactions, equity investments and other intercompany activity within the Obligor Group have been eliminated from the summarized financial information.

Investments in subsidiaries of Silgan that are not part of the Obligor Group of $1.41 billion and $1.46 billion as of March 31, 2021 and December 31, 2020, respectively, are not included in noncurrent assets in the table below.

March 31, 2021 December 31, 2020

(Dollars in millions)

Current assets $1,094.2 $1,104.1

Noncurrent assets 3,293.9 3,324.0

Current liabilities 818.1 891.1

Noncurrent liabilities 3,699.0 3,744.6

At March 31, 2021 and December 31, 2020, the Obligor Group held current receivables due from other subsidiary companies of $35.1 million and $54.8 million, respectively;

long-term notes receivable due from other subsidiary companies of $788.1 million and $818.9 million, respectively;

and current payables due to other subsidiary companies of $5.9 million and $13.4 million, respectively.

Three months ended

March 31, 2021

(Dollars in millions)

Net sales $894.8

Gross profit 140.1

Net income 58.8

For the three months ended March 31, 2021, net income in the table above excludes income from equity method investments of other subsidiary companies of $14.5 million.

For the three months ended March 31, 2021, the Obligor Group recorded the following transactions with other subsidiary companies:

sales to such other subsidiary companies of $9.8 million;

net credits from such other subsidiary companies of $8.2 million;

and net interest income from such other subsidiary companies of $4.7 million.

For the three months ended March 31, 2021, the Obligor Group received dividends from other subsidiary companies of $16.0 million.

Rationalization Charges

We continually evaluate cost reduction opportunities across each of our businesses, including rationalizations of our existing facilities through plant closings and downsizings.

We 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.

Under our rationalization plans, we made cash payments of $7.7 million and $3.8 million for the nine months ended September 30, 2020 and 2019, respectively.

Exclusive of the footprint optimization plan for our metal container business and our resulting withdrawal from the Central States Pension Plan announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $2.1 million and $3.9 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 for the next twenty years, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $3.1 million annually for the next twenty years, beginning in 2020.

You should also read Note 4 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2020 included elsewhere in this Quarterly Report.

Under our rationalization plans, we made cash payments of $2.0 million and $3.6 million for the three months ended March 31, 2021 and 2020, respectively.

Exclusive of the footprint optimization plan for our Metal Container segment and our resulting withdrawal from the Central States Pension Plan announced in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $2.5 million and $8.3 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.

You should also read Note 3 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2021 included elsewhere in this Quarterly Report.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis