What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-04 · 69 added, 124 removed, 74 unchanged (72% 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 dispensing and specialty closures for food, beverage, health care, garden, home, personal care and beauty products;

We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care, fragrance 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.

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 worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers in North America and Europe, and a leading manufacturer of custom 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, 2021 Sept.

30, 2020 Sept.

30, 2021 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 41.5 % 41.1 %

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Net income 5.9 % 5.9 %

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

Three Months Ended Nine Months Ended

30, 2021 Sept.

30, 2020 Sept.

30, 2021 Sept.

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

(dollars in millions)

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Metal Containers (2)

94.3 94.5 198.5 213.8

Custom Containers (3)

22.7 21.9 74.4 66.9

Corporate (6.6) (9.2)

(9.2) (6.6) (25.1) (41.3)

Consolidated $ 143.4 $ 126.6

(1) Includes rationalization charges of $0.4 million and $0.8 million for the three months ended September 30, 2021 and 2020, respectively, and $5.7 million and $2.2 million for the nine months ended September 30, 2021 and 2020, respectively.

Includes a charge for the write-up of inventory for purchase accounting of $0.9 million as a result of the acquisition of Silgan Specialty Packaging for the three and nine months ended September 30, 2021 and $3.5 million as a result of the acquisition of the dispensing operations of the Albéa Group for the nine months ended September 30, 2020.

(2) Includes rationalization charges of $1.8 million and $1.6 million for the three months ended September 30, 2021 and 2020, respectively, and $7.1 million and $4.7 million for the nine months ended September 30, 2021 and 2020, respectively.

(3) Includes rationalization charges of $0.1 million for each of the three months ended September 30, 2021 and 2020 and $0.2 million and $0.3 million for the nine months ended September 30, 2021 and 2020, respectively.

(4) Includes costs attributed to announced acquisitions of $4.1 million and $0.7 million for the three months ended September 30, 2021 and 2020, respectively, and $4.1 million and $19.0 million for the nine months ended September 30, 2021 and 2020, respectively.

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

Consolidated net sales were $1.65 billion in the third quarter of 2021, a 10.9 percent increase as compared to the third quarter of 2020 primarily due to the pass through of higher raw material and other manufacturing costs, higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, a more favorable mix of products sold in the Custom Container segment and the impact of favorable foreign currency translation, partially offset by lower volumes in the Custom Container segment and a less favorable mix of products sold in the Dispensing and Specialty Closures and Metal Container segments.

Income before interest and income taxes for the third quarter of 2021 was $167.9 million, a $6.1 million decrease as compared to the same period in 2020, primarily due to the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, a less favorable mix of products sold, higher costs as a result of labor and supply chain challenges in the Dispensing and Specialty Closures and Metal Container segments, lower volumes in the Custom Container segment, higher costs attributed to announced acquisitions and the negative impact in the current year period of a charge from the write-up of inventory for purchase accounting related to the acquisition of Silgan Specialty Packaging, partially offset by higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, strong operating performance and cost control in the Custom Container segment, the pass through of other cost increases and productivity improvements in the Dispensing and Specialty Closures segment and higher pension income.

Results for the third quarters of 2021 and 2020 included rationalization charges of $2.3 million and $2.5 million, respectively.

Results for the third quarters of 2021 and 2020 also included costs attributable to announced acquisitions of $4.1 million and $0.7 million, respectively.

Net income for the third quarter of 2021 was $106.3 million as compared to $112.9 million for the same period in 2020.

Net income per diluted share for the third quarter of 2021 was $0.96 as compared to $1.01 for the same period in 2020.

The $162.6 million increase in consolidated net sales in the third quarter of 2021 as compared to the third quarter of 2020 was the result of higher net sales across all the segments.

Net sales for the Dispensing and Specialty Closures segment increased $58.3 million, or 12.3 percent, in the third quarter of 2021 as compared to the same period in 2020.

This increase was primarily the result of the pass through of higher raw material and other manufacturing costs, higher unit volumes of approximately two percent and the impact of favorable foreign currency translation of approximately $4 million, partially offset by a less favorable mix of products sold.

The increase in unit volumes was principally the result of higher volumes for the beauty, fragrance, beverage and food markets as well as the inclusion of the recently acquired Silgan Specialty Packaging, partially offset by a decrease in volumes for hygiene and home cleaning products largely due to the ongoing inventory management throughout the supply chain for those products which surged in 2020 during the pandemic.

Net sales for the Metal Container segment increased $85.4 million, or 10.0 percent, in the third quarter of 2021 as compared to the same period in 2020.

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

The increase in unit volumes was primarily due to higher volumes for pet food and seasonal vegetable markets.

Net sales for the Custom Container segment increased $18.9 million, or 12.1 percent, in the third quarter of 2021 as compared to the same period in 2020.

This increase was principally due to the pass through of significantly higher raw material costs, a more favorable mix of products sold and the impact of favorable foreign currency translation of approximately $2 million, partially offset by lower volumes of approximately fourteen percent as compared to record pandemic driven volumes in the prior year period.

The decline in volumes was due primarily to a decrease in certain consumer health and personal and home care products, partially offset by growth in pet food products.

Gross Profit .

Gross profit margin decreased 2.4 percentage points to 15.0 percent in the third quarter of 2021 as compared to the same period in 2020 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 decreased to 5.5 percent in the third quarter of 2021 as compared to 6.2 percent in the same period in 2020.

Selling, general and administrative expenses decreased $1.2 million to $90.3 million for the third quarter of 2021 as compared to $91.5 million for the same period in 2020.

Income before Interest and Income Taxes .

Income before interest and income taxes for the third quarter of 2021 decreased by $6.1 million as compared to the third quarter of 2020, and margins decreased to 10.2 percent from 11.7 percent over the same periods.

The decrease in income before interest and income taxes was primarily the result of higher costs attributed to announced acquisitions and lower income in the Dispensing and Specialty Closures segment, partially offset by higher income in the Custom Container segment.

Segment income of the Dispensing and Specialty Closures segment for the third quarter of 2021 decreased $4.1 million as compared to the same period in 2020, and segment income margin decreased to 11.3 percent from 13.5 percent over the same periods due primarily to the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, a less favorable mix of products sold, higher costs associated with labor and supply chain challenges and the negative impact of a $0.9 million charge from the write-up of inventory for purchase accounting in 2021 related to the acquisition of Silgan Specialty Packaging, partially offset by the pass through of other cost increases, plant productivity improvements and higher unit volumes.

Segment income of the Metal Container segment for the third quarter of 2021 decreased $0.2 million as compared to the same period in 2020, and segment income margin decreased to 10.0 percent from 11.0 percent over the same periods.

The decrease in segment income was primarily attributable to operational inefficiencies and higher costs as a result of labor and supply chain challenges and the mix effect of smaller cans sold, mostly offset by higher unit volumes and higher pension income.

Rationalization charges were $1.8 million and $1.6 million in the third quarters of 2021 and 2020, respectively.

Segment income of the Custom Container segment for the third quarter of 2021 increased $0.8 million as compared to the same period in 2020, while segment income margin decreased to 12.9 percent from 14.0 percent over the same periods.

The increase in segment income was primarily attributable to strong operating performance and cost control, partially offset by lower volumes as compared to record pandemic driven volumes in the prior year period and a less favorable mix of products sold.

Interest and Other Debt Expense.

Interest and other debt expense for the third quarter of 2021 decreased $0.7 million to $27.0 million as compared to $27.7 million in the same period in 2020.

This decrease was primarily due to lower weighted average interest rates during the current quarter due to lower variable market rates.

Provision for Income Taxes.

The effective tax rates were 24.6 percent and 22.9 percent for the third quarters of 2021 and 2020, respectively.

The effective tax rate in the third quarter of 2020 was favorably impacted by an audit period expiration.

Nine Months Ended September 30, 2021 Compared with Nine Months Ended September 30, 2020

Consolidated net sales were $4.24 billion in the first nine months of 2021, a 14.7 percent increase as compared to the first nine months of 2020 primarily as a result of higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, the pass through of higher raw material and other manufacturing costs, the impact of favorable foreign currency translation and a more favorable mix of products sold in the Custom Container segment, partially offset by lower volumes in the Custom Container segment and a higher percentage of smaller cans sold in the Metal Container segment.

Income before interest and income taxes for the first nine months of 2021 increased by $40.0 million as compared to the same period in 2020 primarily due to higher unit volumes in the Dispensing and Specialty Closures and Metal Container segments, strong operating performance in all of the segments, lower corporate expenses, higher pension income, a more favorable mix of products sold in the Custom Container segment, the negative impact in the prior year period of a charge for the purchase accounting write-up of acquired inventory of the dispensing operations of the Albéa Group, or the Albéa Dispensing Business, and the inclusion in the prior year period of a charge in the Custom Container segment for a non-commercial legal dispute relating to prior periods.

These increases were partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, higher operating costs largely as a result of labor and supply chain challenges, lower volumes in the Custom Container segment, higher rationalization charges, a higher percentage of smaller cans sold in the Metal Container segment, foreign currency transaction losses and the negative impact of a charge for the purchase accounting write-up of inventory related to the acquisition of Silgan Specialty Packaging.

Results for the first nine months of 2021 and 2020 included rationalization charges of $13.0 million and $7.2 million and a loss on early extinguishment of debt of $0.9 million and $1.5 million, respectively.

Results for the first nine months of 2021 and 2020 also included costs attributed to acquisitions of $4.1 million and $19.0 million, respectively.

Net income for the first nine months of 2021 was $274.0 million as compared to $248.6 million for the same period in 2020.

Net income per diluted share for the first nine months of 2021 was $2.47 as compared to $2.23 for the same period in 2020.

The $542.4 million increase in consolidated net sales in the first nine months of 2021 as compared to the first nine months of 2020 was the result of higher net sales across all the segments.

Net sales for the Dispensing and Specialty Closures segment increased $345.7 million, or 27.8 percent, in the first nine months of 2021 as compared to the same period in 2020.

This increase was primarily the result of higher unit volumes of approximately six percent, the pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately $31 million.

The increase in unit volumes was principally the result of the inclusion of volumes

from the Albéa Dispensing Business which was acquired in June 2020 and strong volumes for beverage, beauty and fragrance products.

Net sales for the Metal Container segment increased $158.3 million, or 8.1 percent, in the first nine months of 2021 as compared to the same period in 2020.

This increase was primarily the result of the pass through of higher raw material and other manufacturing costs, higher unit volumes of approximately four percent and the impact of favorable foreign currency translation of approximately $12 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, partially offset by the negative impact on volume of production shortfalls caused by raw material and labor supply challenges across the supply chain.

Net sales for the Custom Container segment increased $38.4 million, or 7.8 percent, in the first nine months of 2021 as compared to the same period in 2020.

This increase was primarily due to 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 $7 million, partially offset by lower volumes of approximately nine percent.

The decrease in volumes was due primarily to a decrease in certain consumer health and personal and home care products largely due to the prior year initial pantry filling in response to the emerging pandemic, partially offset by growth in pet food products.

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

(2) Includes rationalization charges of $1.3 million and $5.0 million for the three months ended March 31, 2022 and 2021, respectively.

(3) Includes rationalization charges of $0.1 million for each of the three months ended March 31, 2022 and 2021.

Three Months Ended March 31, 2022 Compared with Three Months Ended March 31, 2021

Consolidated net sales were $1.44 billion in the first quarter of 2022, a 16.5 percent increase as compared to the first quarter of 2021 primarily due to higher average selling prices due to the pass through of higher raw material and other inflationary costs across all segments, higher unit volumes in the dispensing and specialty closures segment including from acquisitions, and a more favorable mix of products sold in the custom containers segment, partially offset by lower unit volumes and a higher percentage of smaller cans sold in the metal containers segment, lower volumes in the custom containers segment and the impact from unfavorable foreign currency translation.

Income before interest and income taxes for the first quarter of 2022 was $143.4 million, a $16.8 million increase as compared to the same period in 2021 primarily due to the

favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs in both the dispensing and specialty closures and custom containers segments, strong manufacturing performance and operating efficiencies, higher unit volumes in the dispensing and specialty closures segment and lower rationalization charges, partially offset by inflation in manufacturing costs, lower volumes in the metal containers and custom containers segments, the mix impact of more smaller cans sold in the metal containers segment and the impact of unfavorable foreign currency translation.

Results for the first quarters of 2022 and 2021 included rationalization charges of $1.4 million and $10.3 million, respectively.

Results for the first quarters of 2022 and 2021 also included a loss on early extinguishment of debt of $1.5 million and $0.9 million, respectively.

Net income for the first quarter of 2022 was $84.9 million as compared to $73.3 million for the same period in 2021.

Net income per diluted share for the first quarter of 2022 was $0.76 as compared to $0.66 for the same period in 2021.

The $203.8 million increase in consolidated net sales in the first quarter of 2022 as compared to the first quarter of 2021 was the result of higher net sales across all the segments.

Net sales for the dispensing and specialty closures segment increased $88.6 million, or 17.4 percent, in the first quarter of 2022 as compared to the same period in 2021.

This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately eight percent, partially offset by the impact of unfavorable foreign currency translation of approximately $15 million.

The increase in unit volumes was principally the result of the inclusion of the recent acquisitions and higher volumes for beauty and fragrance products, partially offset by a decrease in volumes for hygiene and home cleaning products which continued to be impacted by an inventory correction throughout the supply chain, and for metal closures as a result of customer pre-buy activity in late 2021 in advance of significant metal inflation this year.

Net sales for the metal containers segment increased $96.6 million, or 17.4 percent, in the first quarter of 2022 as compared to the same period in 2021.

This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately fourteen percent, a higher percentage of smaller cans sold and the impact of unfavorable foreign currency translation of approximately $7 million.

The decrease in unit volumes was principally the result of higher customer purchases in late 2021 in advance of significant metal inflation this year and customers’ ongoing supply chain and labor challenges in the current year period.

Net sales for the custom containers segment increased $18.6 million, or 10.6 percent, in the first quarter of 2022 as compared to the same period in 2021.

This increase was principally due to higher average selling prices related to the pass through of higher resin costs and a more favorable mix of products sold, partially offset by lower volumes of approximately eight percent.

The decline in volumes was primarily due to strong pandemic driven demand in the first quarter of 2021.

Gross Profit .

Gross profit margin decreased 1.5 percentage points to 16.6 percent in the first nine months of 2021 as compared to the same period in 2020 for the reasons discussed below in "Income before Interest and Income Taxes".

Gross profit margin decreased 1.7 percentage points to 16.2 percent in the first quarter of 2022 as compared to the same period in 2021 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 decreased to 6.6 percent for the first nine months of 2021 as compared to 7.7 percent in the same period in 2020.

Selling, general and administrative expenses were $282.1 million for the first nine months of 2021 as compared to $282.0 million for the same period in 2020.

The inclusion of selling, general and administrative expenses from the Albéa Dispensing Business which was acquired in June 2020 and costs attributed to announced acquisitions of $4.1 million in the current year period were mostly offset by the inclusion in the prior year period of costs attributed to announced acquisitions of $19.0 million, one-time plant employee incentive payments and a charge of $2.8 million in the Custom Container segment for a non-commercial legal dispute relating to prior periods.

Selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.0 percent in the first quarter of 2022 as compared to 7.9 percent in the same period in 2021.

Selling, general and administrative expenses increased $2.6 million to $100.0 million for the first quarter of 2022 as compared to $97.4 million for the same period in 2021.

Income before Interest and Income Taxes .

Income before interest and income taxes for the first nine months of 2021 increased by $40.0 million as compared to the first nine months of 2020, while margins decreased to 10.6 percent from 11.0 percent over the same periods.

The increase in income before interest and income taxes was primarily due to higher income in the Dispensing and Specialty Closures and Custom Container segments and lower corporate expenses primarily as a result of higher costs attributed to announced acquisitions in the prior year period, partially offset by lower income in the Metal Container segment and higher rationalization charges.

Rationalization charges were $13.0 million and $7.2 million for the first nine months of 2021 and 2020, respectively.

Segment income of the Dispensing and Specialty Closures segment for the first nine months of 2021 increased $31.6 million, as compared to the same period in 2020, while segment income margin decreased to 12.6 percent from 13.5 percent over the same periods.

The increase in segment income was primarily due to higher unit volumes, strong operating performance, the pass through of other cost increases and the inclusion in the prior year period of a $3.5 million charge for the purchase accounting write-up of inventory of the Albéa Dispensing Business.

These increases were partially offset by the unfavorable impact in the current year period from the delayed pass through of significantly higher resin costs, higher costs associated with labor and supply chain challenges, higher rationalization charges, foreign currency transaction losses and a $0.9 million charge in the current year period related to the acquisition of Silgan Specialty Packaging.

Rationalization charges were $5.7 million and $2.2 million in the first nine months of 2021 and 2020, respectively.

Segment income of the Metal Container segment for the first nine months of 2021 decreased $15.3 million as compared to the same period in 2020, and segment income margin decreased to 9.4 percent from 10.9 percent over the same periods.

The decrease in segment income was primarily attributable to higher production costs, less efficient manufacturing processes and lower production levels largely as a result of labor and supply chain challenges, a higher percentage of smaller cans sold and higher rationalization charges, partially offset by higher unit volumes and higher pension income.

Rationalization charges were $7.1 million and $4.7 million in the first nine months of 2021 and 2020, respectively.

Segment income of the Custom Container segment for the first nine months of 2021 increased $7.5 million as compared to the same period in 2020, and segment income margin increased to 14.1 percent from 13.6 percent over the same periods.

The increase in segment income was primarily attributable to strong operating performance and cost control, a more favorable mix of products sold and the inclusion in the prior year period of a $2.8 million charge for a non-commercial legal dispute relating to prior periods, partially offset by lower volumes and the delayed pass through of higher resin costs.

Income before interest and income taxes for the first quarter of 2022 increased by $16.8 million as compared to the first quarter of 2021, while margins decreased to 9.9 percent from 10.2 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, partially offset by lower income in the metal containers segment.

Rationalization charges were $1.4 million and $10.3 million in the first quarters of 2022 and 2021, respectively.

Segment income of the dispensing and specialty closures segment for the first quarter of 2022 increased $21.6 million as compared to the same period in 2021, and segment income margin increased to 14.6 percent from 12.9 percent over the same periods.

The increase in segment income was primarily due to the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs, higher unit volumes including from recent acquisitions, improved operating efficiencies and lower rationalization charges, partially offset by inflation in manufacturing costs and the impact of unfavorable foreign currency translation.

Rationalization charges were $5.2 million in the first quarter of 2021.

Segment income of the metal containers segment for the first quarter of 2022 decreased $7.6 million as compared to the same period in 2021, and segment income margin decreased to 5.8 percent from 8.2 percent over the same periods.

The decrease in segment income was due primarily to lower unit volumes, the mix impact of more smaller cans sold and inflation in manufacturing costs, partially offset by strong manufacturing performance.

The decrease in segment income margin was primarily due to to the mathematical consequence of the pass through of inflation in raw material and other manufacturing costs in the first quarter of 2022.

Rationalization charges were $1.3 million and $5.0 million in the first quarters of 2022 and 2021, respectively.

Segment income of the custom containers segment for the first quarter of 2022 increased $0.2 million as compared to the same period in 2021, while segment income margin decreased to 12.8 percent from 14.0 percent over the same periods.

The increase in segment income was primarily attributable to the favorable impact in the current year period from the delayed pass through of lower resin costs as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs and strong operational performance, partially offset by lower volumes.

The decrease in segment income margin was primarily due to the mathematical consequence of the pass through of higher raw material costs in the first quarter of 2022.

Interest and Other Debt Expense.

Interest and other debt expense before loss on early extinguishment of debt for the first nine months of 2021 increased $2.8 million to $79.9 million as compared to $77.1 million in the same period in 2020 principally due to higher weighted average outstanding borrowings primarily related to the acquisition of the Albéa Dispensing Business in June 2020, partially offset by lower weighted average interest rates 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.

Interest and other debt expense before loss on early extinguishment of debt for the first quarter of 2022 increased $2.9 million to $29.3 million as compared to $26.4 million in the same period in 2021.

This increase was primarily due to higher weighted average outstanding borrowings during the quarter as a result of the acquisitions in the third and fourth quarters of 2021.

In March 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 4¾% Notes.

In conjunction with this prepayment, we recognized a loss on early extinguishment of debt of $1.5 million in the first quarter of 2022.

In 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 term loans under the Credit Agreement.

Provision for Income Taxes.

The effective tax rates were 25.3 percent and 24.4 percent for the first nine months of 2021 and 2020, respectively.

The effective tax rate for the first nine months of 2020 was favorably impacted by an audit period expiration.

The effective tax rates were 24.6 percent and 26.2 percent for the first quarters of 2022 and 2021, 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 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.

We acquired Silgan Specialty Packaging and Unicep in September 2021 and Easytech on October 1, 2021.

We funded the purchase price for each of these acquisitions with revolving loan borrowings under the Credit Agreement.

You should also read Notes 3, 8 and 16 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 included elsewhere in this Quarterly Report.

For the nine months ended September 30, 2021, we used proceeds from the net borrowings of revolving loans of $906.9 million, the issuance of the 1.4% Notes of $499.7 million and cash and cash equivalents of $138.9 million to fund acquisitions for $718.4 million, repayments of long-term debt of $500.0 million, net capital expenditures and other investing activities of $170.8 million, decreases in outstanding checks of $84.2 million, dividends paid on our common stock of $47.0 million, repurchases of our common stock of $8.6 million under our stock-based compensation plan, cash used in operations of $5.8 million, debt issuance costs of $4.9 million and the negative effect of exchange rate changes on cash and cash equivalents of $5.8 million.

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 from incremental term loans borrowed under the Credit Agreement 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.

At September 30, 2021, we had $910.0 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, 2021 was $258.9 million and Cdn $15.0 million.

On March 28, 2022, we redeemed all $300.0 million aggregate principal amount of the outstanding 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.

You should also read Note 6 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2022 included elsewhere in this Quarterly Report.

For the three months ended March 31, 2022, we used net borrowings of revolving loans of $520.2 million and cash and cash equivalents of $371.9 million (including the positive effect of exchange rate changes of $1.4 million) to fund the redemption of the 4¾% Notes for $300.0 million, cash used in operations of $267.4 million, decreases in outstanding checks of $225.9 million, net capital expenditures and other investing activities of $70.0 million, dividends paid on our common stock of $18.7 million, and repurchases of our common stock of $11.5 million under our stock-based compensation plan.

For the three months ended March 31, 2021, we used proceeds from the issuance of the 1.4% Senior Secured 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.

At March 31, 2022, we had $508.0 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, 2022 was $972.2 million.

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

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We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand.

We may use the

available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.

We may use the available portion of revolving loans under the Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes including acquisitions, capital expenditures, dividends, stock repurchases and to refinance or repurchase other debt.

We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future.

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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 September 30, 2021 and December 31, 2020 and for the nine months ended September 30, 2021.

Each of the 3¼% Senior Notes, the 4⅛% Senior Notes, the 2¼% Senior Notes and the 1.4% Senior Secured Notes were issued by Silgan and are guaranteed by our U.S.

subsidiaries that also guarantee our obligations under the Credit Agreement, collectively the Obligor Group.

The following summarized financial information relates to the Obligor Group as of March 31, 2022 and December 31, 2021 and for the three months ended March 31, 2022.

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 $2.18 billion and $1.46 billion as of September 30, 2021 and December 31, 2020, respectively, are not included in noncurrent assets in the table below.

30, 2021 Dec.

Investments in subsidiaries of Silgan that are not part of the Obligor Group of $1.5 billion and $1.4 billion as of March 31, 2022 and December 31, 2021, respectively, are not included in noncurrent assets in the table below.

March 31, 2022 Dec.

(Dollars in millions)

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Noncurrent liabilities 4,050.6 4,392.4

At September 30, 2021 and December 31, 2020, the Obligor Group held current receivables due from other subsidiary companies of $38.0 million and $54.8 million, respectively;

At March 31, 2022 and December 31, 2021, the Obligor Group held current receivables due from other subsidiary companies of $36.9 million and $70.5 million, respectively;

long-term notes receivable due from other subsidiary companies of $778.5 million and $782.4 million, respectively;

and current payables due to other subsidiary companies of $6.6 million and $7.3 million, respectively.

Nine months ended

Three months ended March 31, 2022

(Dollars in millions)

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Net income 57.3

For the nine months ended September 30, 2021, net income in the table above excludes income from equity method investments of other subsidiary companies of $65.9 million.

For the nine months ended September 30, 2021, the Obligor Group recorded the following transactions with other subsidiary companies:

For the three months ended March 31, 2022, net income in the table above excludes income from equity method investments of other subsidiary companies of $27.6 million.

For the three months ended March 31, 2022, the Obligor Group recorded the following transactions with other subsidiary companies:

sales to such other subsidiary companies of $9.6 million;

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and net interest income from such other subsidiary companies of $4.9 million.

For the nine months ended September 30, 2021, the Obligor Group received dividends from other subsidiary companies of $16.0 million.

For the three months ended March 31, 2022, the Obligor Group received dividends from other subsidiary companies of $0.2 million.

Rationalization Charges

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We use a disciplined approach to identify opportunities that generate attractive cash returns.

Under our rationalization plans, we made cash payments of $6.9 million and $7.7 million for the nine months ended September 30, 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 $1.2 million and $5.9 million, respectively.

Under our rationalization plans, we made cash payments of $2.5 million and $2.0 million for the three months ended March 31, 2022 and 2021, respectively.

Excluding the impact of our withdrawal from the Central States Pension Plan in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $0.6 million and $2.2 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 $1.0 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 4 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2021 included elsewhere in this Quarterly Report.

You should also read Note 3 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2022 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