SILGAN HOLDINGS INC 10-Q

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 59,490 53,712 Income before income taxes $ 129,357 $ 126,548 $ 241,919 $ 225,791 -16- 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) Sales and segment income of our metal containers segment and of part of our dispensing and specialty closures segment are dependent, in part, upon the vegetable and fruit harvests in the United States and, to a lesser extent, in a variety of national growing regions in Europe. The size and quality of these harvests varies from year to year, depending in large part upon the weather conditions in applicable regions. Because of the seasonality of the harvests, we have historically experienced higher unit sales volume in the third quarter of our fiscal year and generated a disproportionate amount of our annual segment income during that quarter. -17-