What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-05-03 compared with 2022-11-03 · 142 added, 132 removed, 71 unchanged (79% of the section changed)

4 unchanged sentences

As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements.

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

We are a leading manufacturer of sustainable rigid packaging solutions for the world's essential consumer goods products.

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

1 unchanged sentence

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.

2 unchanged sentences

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, 2022 Sept.

30, 2021 Sept.

30, 2022 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 40.9 % 41.5 %

6 unchanged sentences

Rationalization charges 0.3 0.1

Other pension and postretirement income (0.5) (0.8) (0.7) (0.9)

Other pension and postretirement expense (income) 0.1 (0.8)

Income before interest and income taxes 9.3 9.9

3 unchanged sentences

Net income 5.1 % 5.9 %

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

Three Months Ended Nine Months Ended

30, 2022 Sept.

30, 2021 Sept.

30, 2022 Sept.

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

(dollars in millions)

3 unchanged sentences

Consolidated $ 1,418.3 $ 1,441.9

Segment income

Income before interest and income taxes

Dispensing and Specialty Closures $ 70.9 $ 87.3

$ 79.2 $ 60.1 $ 257.8 $ 199.6

Metal Containers 47.8 38.0

121.3 94.3 225.6 198.5

Custom Containers 18.5 24.7

24.3 22.7 79.8 74.4

Corporate (6.0) (6.6)

(5.4) (9.2) (42.4) (25.1)

Consolidated $ 131.2 $ 143.4

(1) Includes rationalization charges of $0.3 million and $0.4 million for the three months ended September 30, 2022 and 2021, respectively, and $0.3 million and $5.7 million for the nine months ended September 30, 2022 and 2021, respectively.

Includes a charge for the write-up of inventory for purchase accounting of $0.9 million as a result of the acquisition of Gateway Plastics LLC for the three and nine months ended September 30, 2021.

(2) Includes rationalization charges of $2.5 million and $1.8 million for the three months ended September 30, 2022 and 2021, respectively, and $7.2 million and $7.1 million for the nine months ended September 30, 2022 and 2021, respectively.

(3) Includes rationalization (credits) charges of $(0.1) million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively, and $0.2 million for the nine months ended September 30, 2021.

(4) Includes a charge of $25.2 million for the settlement with the European Commission for the nine months ended September 30, 2022.

Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021

Consolidated net sales were $1.97 billion in the third quarter of 2022, a 19.3 percent increase as compared to the third 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 and a more favorable mix of products sold in the dispensing and specialty closures and custom containers segments, partially offset by lower unit volumes in the metal containers and custom containers segments and the impact from unfavorable foreign currency translation.

Income before interest and income taxes for the third quarter of 2022 was $219.4 million, a $51.5 million increase as compared to the same period in 2021 primarily as a result of higher average selling prices across all segments due to the pass through of inflationary costs, strong operating performances in each of the segments which included the benefit from an inventory management program in the metal containers segment, 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 the dispensing and specialty closures and custom containers segments, a more favorable mix of products sold and higher unit volumes in the dispensing and specialty closures segment and a $0.9 million charge for the write-up of inventory for purchase accounting in the prior year period.

These increases were partially offset by inflation in manufacturing and selling, general and administrative costs, lower volumes in the metal containers and custom containers segments, and the impact of unfavorable foreign currency translation.

Results for the third quarters of 2022 and 2021 included rationalization charges of $2.7 million and $2.3 million, respectively.

Net income for the third quarter of 2022 was $138.7 million as compared to $106.3 million for the same period in 2021.

Net income per diluted share for the third quarter of 2022 was $1.25 as compared to $0.96 for the same period in 2021.

The $319.3 million increase in consolidated net sales in the third quarter of 2022 as compared to the third quarter of 2021 was the result of higher net sales across all the segments.

Net sales for the dispensing and specialty closures segment increased $42.1 million, or 7.9 percent, in the third 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, higher unit volumes of approximately one percent and a more favorable mix of products sold, partially offset by the impact of unfavorable foreign currency translation of approximately $37 million.

The increase in unit volumes was principally the result of higher volumes for dispensing products, including from the acquisitions completed in September 2021, partially offset by expected volume decreases in closures for certain food and beverage markets compared to record pandemic driven volumes in the prior year period.

Net sales for the metal containers segment increased $269.9 million, or 28.6 percent, in the third 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 nine percent and the impact of unfavorable foreign currency translation of approximately $19 million.

The decrease in unit volumes was principally the result of lower volumes of vegetable and fruit cans as compared to higher volumes from customer restocking in the record prior year period and the continued unfavorable impact from customers’ ongoing supply chain and labor challenges in the current year period.

Net sales for the custom containers segment increased $7.3 million, or 4.2 percent, in the third quarter of 2022 as compared to the same period in 2021.

This increase was principally due to a more favorable mix of products sold and higher average selling prices, including the pass through of higher resin and other inflationary costs, partially offset by lower volumes of approximately seven percent and the impact of unfavorable foreign currency translation of approximately $1 million.

The decline in volumes was primarily for home, personal care and lawn and garden products.

Gross Profit .

Gross profit margin increased 0.6 percentage points to 15.6 percent in the third 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 4.9 percent in the third quarter of 2022 as compared to 5.5 percent in the same period in 2021.

Selling, general and administrative expenses increased $6.4 million to $96.7 million for the third quarter of 2022 as compared to $90.3 million for the same period in 2021.

The increase in selling, general and administrative expenses was principally the result of inflation in such expenses in the current year period and the inclusion of selling, general and administrative expenses from the acquisitions completed late in the third quarter and in the fourth quarter of 2021.

Income before Interest and Income Taxes .

Income before interest and income taxes for the third quarter of 2022 increased by $51.5 million as compared to the third quarter of 2021, and margins increased to 11.1 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 all of the

segments and lower corporate expenses.

The prior year period included costs attributed to announced acquisitions and a charge for the write-up of inventory for purchase accounting of $4.1 million and $0.9 million, respectively.

Rationalization charges were $2.7 million and $2.3 million in the third quarters of 2022 and 2021, respectively.

Segment income of the dispensing and specialty closures segment for the third quarter of 2022 increased $19.1 million as compared to the same period in 2021, and segment income margin increased to 13.8 percent from 11.3 percent over the same periods.

The increase in segment income was primarily due to higher average selling prices due to the pass through of inflationary costs, 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, strong operating performance, a more favorable mix of products sold, higher unit volumes and a $0.9 million charge for the write-up of inventory for purchase accounting in the prior year period, partially offset by inflation in manufacturing and selling, general and administrative costs and the impact of unfavorable foreign currency translation.

Segment income of the metal containers segment for the third quarter of 2022 increased $27.0 million as compared to the same period in 2021, and segment income margin remained unchanged at 10.0 percent for both periods.

The increase in segment income was primarily due to strong operating performance, including the benefit of an inventory management program, and higher average selling prices due to the pass through of inflationary costs, partially offset by inflation in manufacturing and selling, general and administrative costs, lower unit volumes, the impact of unfavorable foreign currency translation and higher rationalization charges.

Rationalization charges were $2.5 million and $1.8 million in the third quarters of 2022 and 2021, respectively.

Segment income of the custom containers segment for the third quarter of 2022 increased $1.6 million as compared to the same period in 2021, and segment income margin increased to 13.3 percent from 12.9 percent over the same periods.

The increase in segment income was primarily attributable to the pass through of inflationary costs and 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, partially offset by inflation in manufacturing and selling, general and administrative costs and lower volumes.

Interest and Other Debt Expense.

Interest and other debt expense for the third quarter of 2022 increased $6.7 million to $33.7 million as compared to $27.0 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 completed late in the third quarter and in the fourth quarter of 2021 and higher weighted average interest rates, partially offset by lower foreign currency exchange rates on outstanding Euro denominated debt.

Provision for Income Taxes.

The effective tax rates were 25.3 percent and 24.6 percent for the third quarters of 2022 and 2021, respectively.

The effective tax rate for the third quarter of 2022 was unfavorably impacted by higher income generated in less favorable tax jurisdictions.

Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021

Consolidated net sales were $4.96 billion in the first nine months of 2022, a 16.9 percent increase as compared to the first nine months of 2021 primarily as a result of higher average selling prices across all segments principally related to the pass through of higher raw material and other inflationary costs, higher unit volumes in the dispensing and specialty closures segment and a more favorable mix of products sold in the custom containers segment, partially offset by lower volumes in the metal containers and custom containers segments and the impact of unfavorable foreign currency translation.

Income before interest and income taxes for the first nine months of 2022 increased by $73.4 million as compared to the same period in 2021 primarily due to higher average selling prices across all segments principally due to the pass through of higher raw material and other inflationary costs, strong operating performances in each of the segments including the benefit of inventory management programs in the dispensing and specialty closures and metal containers segments, the favorable impact from the delayed pass through of lower resin costs in the current year period as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin costs in the dispensing and specialty closures and custom containers segments, higher unit volumes in the dispensing and specialty closures segment, cost recovery for certain customer project expenditures in the dispensing and specialty closures segment and lower rationalization charges.

These increases were partially offset by inflation in manufacturing and selling, general and administrative costs, lower volumes and a less favorable mix of products sold in the metal containers segment, higher corporate expenses due to the charge for the settlement with the European Commission in the current year period, the impact of unfavorable foreign currency translation and lower volumes in the custom containers segment.

Results for the first nine months of 2022 and 2021 included rationalization charges of $7.5 million and $13.0 million,

respectively, a loss on early extinguishment of debt of $1.5 million and $0.9 million, respectively.

Results for the first nine months of 2021 also included costs attributed to announced acquisitions of $4.1 million and a $0.9 million charge for the write-up of inventory for purchase accounting.

Net income for the first nine months of 2022 was $316.3 million as compared to $274.0 million for the same period in 2021.

Net income per diluted share for the first nine months of 2022 was $2.85 as compared to $2.47 for the same period in 2021.

The $718.3 million increase in consolidated net sales in the first nine months of 2022 as compared to the first nine months of 2021 was the result of higher net sales across all the segments.

Net sales for the dispensing and specialty closures segment increased $187.5 million, or 11.8 percent, in the first nine months of 2022 as compared to the same period in 2021.

This increase was primarily the result of higher average selling prices related to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately three percent, partially offset by the impact of unfavorable foreign currency translation of approximately $81 million.

The increase in unit volumes was principally the result of the inclusion of volumes from acquisitions completed in 2021 and higher volumes for beauty and fragrance products, partially offset by expected volume declines for closures for certain food and beverage markets compared to record pandemic driven volumes in the prior year period and due to customer pre-buy activity in late 2021 in advance of significant metal inflation this year and a decrease in volumes for garden, hygiene and home cleaning products, which were impacted by further inventory corrections throughout the supply chain.

Net sales for the metal containers segment increased $496.4 million, or 23.4 percent, in the first nine months of 2022 as compared to the same period in 2021.

This increase was primarily the result of higher average selling prices related to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately eleven percent and the impact of unfavorable foreign currency translation of approximately $40 million.

The decrease in unit volumes was primarily due to the impact of the customer pre-buy activity in late 2021 in advance of significant price increases due to unprecedented metal inflation this year, lower volumes of vegetable and fruit cans as compared to higher volumes from customer restocking in the prior year period and the unfavorable impact from customers' ongoing supply chain and labor challenges in the current year period.

Net sales for the custom containers segment increased $34.4 million, or 6.5 percent, in the first nine months of 2022 as compared to the same period in 2021.

This increase was primarily due to higher average selling prices, which include the pass through of higher resin and other inflationary costs, and a more favorable mix of products sold, partially offset by lower volumes of approximately seven percent and the impact of unfavorable foreign currency translation of approximately $3 million.

The decrease in volumes was primarily due to higher volumes in the prior year period as a result of strong pandemic driven demand and subsequent inventory corrections throughout the supply chain in the current year period.

Three Months Ended March 31, 2023 Compared with Three Months Ended March 31, 2022

Consolidated net sales were $1.42 billion in the first quarter of 2023, a decrease of $23.6 million, or 1.6 percent, as compared to the first quarter of 2022 primarily due to lower volumes in the dispensing and specialty closures and custom containers segments, the impact from unfavorable foreign currency translation, non-recurring net sales associated with Russia in 2022, lower average selling prices due primarily to the pass through of lower resin costs in the custom containers segment and a less favorable mix of products sold in the metal container segment.

These decreases were partially offset by higher selling prices primarily related to inflation in other manufacturing costs in each of the segments, higher unit volumes in the metal containers segment and a more favorable mix of products sold in the dispensing and specialty closures segment.

Gross Profit .

Gross profit margin decreased 0.2 percentage points to 16.4 percent in the first nine months of 2022 as compared to the same period in 2021 for the reasons discussed below in "Income before Interest and Income Taxes".

Gross profit margin increased 0.6 percentage points to 16.8 percent in the first quarter of 2023 as compared to the same period in 2022 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 6.5 percent for the first nine months of 2022 as compared to 6.6 percent in the same period in 2021.

Selling, general and administrative expenses increased $38.4 million to $320.5 million for the first nine months of 2022 as compared to $282.1 million for the same period in 2021.

The increase in selling, general and administrative expenses was principally the result of a charge of $25.2 million for the settlement with the European Commission, the inclusion of selling, general and administrative expenses from the acquisitions completed late in the third quarter and in the fourth quarter of 2021, and inflation in such expenses in the current year period.

Selling, general and administrative expenses as a percentage of consolidated net sales increased to 7.1 percent in the first quarter of 2023 as compared to 7.0 percent in the same period in 2022.

Selling, general and administrative expenses increased $1.3 million to $101.3 million for the first quarter of 2023 as compared to $100.0 million for the same period in 2022.

Other pension and postretirement expense (income) .

Other pension and postretirement expense in the first quarter of 2023 was $1.3 million, while other pension and postretirement (income) in the first quarter of 2022 was $(11.3) million.

This period -over-period change in other pension and postretirement expense (income) was the result of a lower pension asset balance in 2023 due to a lower rate of return on assets in 2022, higher pension plan interest cost and a decrease in the expected long-term rate of return on U.S.

pension plan assets in 2023 from 2022.

The expected long-term rate of return on pension plan assets was decreased from 6.9 percent in 2022 to 5.5 percent in 2023 due to planned changes in investment allocations for our U.S.

pension plans, which are overfunded with plan assets of approximately 129 percent of projected benefit obligations at December 31, 2022, to a liability driven investment strategy that more closely matches plan assets with plan liabilities primarily using long duration bonds.

Income before Interest and Income Taxes .

Income before interest and income taxes for the first nine months of 2022 increased by $73.4 million as compared to the first nine months of 2021, while margins decreased slightly to 10.5 percent from 10.6 percent over the same periods.

The increase in income before interest and income taxes was primarily due to higher income across all the segments and lower rationalization charges, partially offset by higher corporate expenses due to the $25.2 million settlement with the European Commission.

Rationalization charges were $7.5 million and $13.0 million for the first nine months of 2022 and 2021, respectively.

Segment income of the dispensing and specialty closures segment for the first nine months of 2022 increased $58.2 million as compared to the same period in 2021, and segment income margin increased to 14.5 percent from 12.6 percent over the same period.

The increase in segment income was due primarily to higher average selling prices principally as a result of the pass through of higher raw material and other inflationary costs, strong operating performance including the benefit of an inventory management program, higher unit volumes, the favorable impact from the delayed pass through of lower resin costs in the current year period as compared to the unfavorable impact in the prior year period from the delayed pass through of higher resin

costs, cost recovery for certain customer project expenditures and lower rationalization charges, partially offset by inflation in manufacturing and selling, general and administrative costs and the impact of unfavorable foreign currency translation.

Rationalization charges were $0.3 million and $5.7 million in the first nine months of 2022 and 2021, respectively.

Segment income of the metal containers segment for the first nine months of 2022 increased $27.1 million as compared to the same period in 2021, while segment income margin decreased to 8.6 percent from 9.4 percent over the same periods.

The increase in segment income was primarily attributable to higher average selling prices due to the pass through of higher raw material and other inflationary costs and strong operating performance including the benefit of an inventory management program, partially offset by inflation in manufacturing and selling, general and administrative costs, lower unit volumes, a less favorable mix of products sold and the impact of unfavorable foreign currency translation.

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

Rationalization charges were $7.2 million and $7.1 million in the first nine months of 2022 and 2021, respectively.

Segment income of the custom containers segment for the first nine months of 2022 increased $5.4 million as compared to the same period in 2021, and segment income margin increased to 14.2 percent from 14.1 percent over the same periods.

The increase in segment income was primarily attributable to higher average selling prices principally due to the pass through of inflationary costs, the favorable impact from the delayed pass through of lower resin costs in the current year period as compared to the unfavorable impact of the delayed pass through of higher resin costs in the prior year period and strong operating performance, partially offset by inflation in manufacturing and selling, general and administrative costs and lower volumes.

Income before interest and income taxes for the first quarter of 2023 decreased by $12.2 million to $131.2 million as compared to $143.4 million in the first quarter of 2022, and margins decreased to 9.3 percent from 9.9 percent over the same periods.

The decrease in income before interest and income taxes was primarily the result of other pension and postretirement expense in the current year period as compared to other pension and postretirement income in the prior year period, the unfavorable impact in the current year period from the delayed pass through of higher resin costs as compared to the favorable impact in the prior year period from the delayed pass through of lower resin costs in the dispensing and specialty closures segment, the favorable impact in the prior year period from an inventory management program in the dispensing and specialty closures segment, lower volumes in the custom containers and dispensing and specialty closures segments, a less favorable mix of products sold in the metal containers segment, higher rationalization charges and the impact of unfavorable foreign currency translation.

These decreases were partially offset by the favorable impact in the current year period from the lagged contractual pass through of inflation in other manufacturing costs in the metal containers segment, a more favorable mix of products sold in the dispensing and specialty closures segment, higher unit volumes in the metal containers segment, and cost savings and higher prices primarily related to inflation in other manufacturing costs in the custom containers business.

Rationalization charges were $4.1 million and $1.4 million in the first quarters of 2023 and 2022, respectively.

Interest and Other Debt Expense .

Interest and other debt expense before loss on early extinguishment of debt for the first nine months of 2022 increased $11.8 million to $91.7 million as compared to $79.9 million in the same period in 2021 principally due to higher weighted average outstanding borrowings as a result of the acquisitions completed in 2021, partially offset by lower foreign currency exchange rates on outstanding Euro denominated debt and lower weighted average interest rates primarily as a result of the redemption of the 4¾% Notes with proceeds from revolving loan borrowings under the Credit Agreement and cash on hand.

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

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

In February 2021, we issued the 1.4% Senior Secured Notes due 2026, or 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.

Interest and other debt expense for the first quarter of 2023 increased $6.0 million to $36.8 million as compared to $30.8 million in the same period in 2022.

This increase was primarily due to higher weighted average interest rates.

Provision for Income Taxes .

The effective tax rates were 26.0 percent and 25.3 percent for the first nine months of 2022 and 2021, respectively.

The effective tax rate in 2022 was unfavorably impacted by the non-deductible settlement with the European Commission and higher income generated in less favorable tax jurisdictions.

The effective tax rates were 23.8 percent and 24.6 percent for the first quarters of 2023 and 2022, respectively.

The effective tax rate for the first quarter of 2023 was favorably impacted by higher income generated in more favorable tax jurisdictions.

Non-GAAP Measures

Generally accepted accounting principles in the United States are commonly referred to as GAAP.

A non-GAAP financial measure is generally defined as a financial measure that purports to measure financial performance, financial position or liquidity but excludes or includes amounts that could not be so adjusted in the most comparable GAAP measure.

Adjusted EBIT and adjusted EBIT margin are unaudited supplemental measures of financial performance that the Company uses, which are not required by, or presented in accordance with, GAAP and therefore are non-GAAP financial measures.

These non-GAAP financial measures should not be considered as alternatives to income before interest and income taxes or any other measures derived in accordance with GAAP.

Such non-GAAP financial measures should not be considered in isolation or as a substitute for any financial data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies.

The Company uses such non-GAAP financial measures because it considers them to be important and useful supplemental measures of its and its segments’ financial performance which provide a more complete understanding of the Company and its segments than could be obtained absent such non-GAAP financial measures.

The Company believes that it is important and useful to present these non-GAAP financial measures because they allow for a better period-over-period comparison of results by removing the impact of items that, in management’s view, do not reflect the Company’s or its segments’ core operating performance.

Management uses these non-GAAP financial measures to review and analyze the operating performance of the Company and its segments.

Investors and others are urged to review and consider carefully the adjustments made by management to the most comparable GAAP financial measure to arrive at these non-GAAP financial measures.

Adjusted EBIT, a non-GAAP financial measure, means income before interest and income taxes excluding, as applicable, acquired intangible asset amortization expense, other pension expense (income) for U.S.

pension plans, rationalization charges, the impact from charges for the write-up of acquired inventory required under purchase accounting, the charge for the European Commission settlement and costs attributed to announced acquisitions.

Adjusted EBIT margin, a non-GAAP financial measure, means adjusted EBIT divided by segment net sales.

Acquired intangible asset amortization expense is a non-cash expense related to acquired operations that management believes is not indicative of the on-going performance of the acquired operations.

Since the Company’s U.S.

pension plans are significantly over funded and have no required cash contributions for the foreseeable future based on current regulations, management views other pension expense (income) from the Company’s U.S.

pension plans, which excludes service costs, as not reflective of the operational performance of the Company or its segments.

While rationalization costs are incurred on a regular basis, management views these costs more as an investment to generate savings rather than period costs.

The write-up of acquired inventory required under purchase accounting is viewed by management as part of the acquisition and is a non-cash charge that is not considered to be indicative of the on-going performance of the acquired operations.

The charge for the European Commission settlement is nonrecurring and non-operational and relates to prior years and is not indicative of the on-going cost structure of the Company or its segments.

Costs attributed to announced acquisitions consist of third party fees and expenses that are viewed by management as part of the acquisition and not indicative of the on-going cost structure of the Company.

A reconciliation of such non-GAAP financial measures is provided below for the three months ended March 31:

(dollars in millions)

Dispensing and Specialty Closures:

Income before interest and income taxes (EBIT) $ 70.9 $ 87.3

Acquired intangible asset amortization expense 11.8 12.0

Other pension expense (income) for U.S.

pension plans 0.1 (2.8)

Rationalization charges 0.1 —

Adjusted EBIT $ 82.9 $ 96.5

Metal Containers

Income before interest and income taxes (EBIT) $ 47.8 $ 38.0

Acquired intangible asset amortization expense 0.3 0.3

Other pension expense (income) for U.S.

pension plans 0.4 (6.7)

Rationalization charges 3.9 1.3

Adjusted EBIT $ 52.4 $ 32.9

Custom Containers

Income before interest and income taxes (EBIT) $ 18.5 $ 24.7

Acquired intangible asset amortization expense 1.1 1.1

Other pension expense (income) for U.S.

pension plans 0.4 (2.5)

Rationalization charges 0.1 0.1

Adjusted EBIT $ 20.1 $ 23.4

Loss before interest and income taxes (EBIT) $ (6.0) $ (6.6)

Adjusted EBIT $ (6.0) $ (6.6)

Total adjusted EBIT $ 149.4 $ 146.2

Dispensing and Specialty Closures Segment

(dollars in millions)

Net sales $ 579.9 $ 597.9

Income before interest and income taxes (EBIT) 70.9 87.3

Income before interest and income taxes margin (EBIT margin) 12.2 % 14.6 %

Adjusted EBIT $ 82.9 $ 96.5

Adjusted EBIT margin 14.3 % 16.1 %

Net sales for the dispensing and specialty closures segment decreased $18.0 million, or 3.0 percent, in the first quarter of 2023 as compared to the same period in 2022.

This decrease was primarily the result of lower unit volumes of approximately six percent, the impact of unfavorable foreign currency translation of approximately $12 million and non-recurring net sales associated with Russia in 2022 of $4.0 million, partially offset by a more favorable mix of products sold and higher selling prices primarily related to inflation in other manufacturing costs.

The decrease in unit volumes was principally the result of lower volumes for closures for food and beverage markets due to the timing of customer purchases, partially offset by volume growth in higher margin dispensing products.

Adjusted EBIT of the dispensing and specialty closures segment for the first quarter of 2023 decreased $13.6 million as compared to the same period in 2022, and adjusted EBIT margin decreased to 14.3 percent from 16.1 percent over the same periods.

The decrease in adjusted EBIT was primarily due to the unfavorable impact in the current year period from the delayed pass through of higher resin costs as compared to the favorable impact in the prior year period from the delayed pass through of lower resin costs, the favorable impact in the prior year period from an inventory management program, lower unit volumes and the impact of unfavorable foreign currency translation, partially offset by a more favorable mix of products sold.

Metal Containers Segment

(dollars in millions)

Net sales $ 670.1 $ 650.7

Income before interest and income taxes (EBIT) 47.8 38.0

Income before interest and income taxes margin (EBIT margin) 7.1 % 5.8 %

Adjusted EBIT $ 52.4 $ 32.9

Adjusted EBIT margin 7.8 % 5.1 %

Net sales for the metal containers segment increased $19.4 million, or 3.0 percent, in the first quarter of 2023 as compared to the same period in 2022.

This increase was primarily the result of higher unit volumes of approximately three percent and higher average selling prices due to the lagged contractual pass through of inflation in other manufacturing costs, partially offset by a less favorable mix of products sold, non-recurring net sales associated with Russia in 2022 of $5.5 million and the impact of unfavorable foreign currency translation of approximately $4 million.

The increase in unit volumes was principally the result of higher volumes primarily for pet food.

Adjusted EBIT of the metal containers segment for the first quarter of 2023 increased $19.5 million as compared to the same period in 2022, and adjusted EBIT margin increased to 7.8 percent from 5.1 percent for the same periods.

The increase in adjusted EBIT was primarily due to higher average selling prices due to the lagged contractual pass through of inflation in other manufacturing costs and higher unit volumes, partially offset by a less favorable mix of products sold and the impact of unfavorable foreign currency translation.

Custom Containers Segment

(dollars in millions)

Net sales $ 168.3 $ 193.3

Income before interest and income taxes (EBIT) 18.5 24.7

Income before interest and income taxes margin (EBIT margin) 11.0 % 12.8 %

Adjusted EBIT $ 20.1 $ 23.4

Adjusted EBIT margin 11.9 % 12.1 %

Net sales for the custom containers segment decreased $25.0 million, or 12.9 percent, in the first quarter of 2023 as compared to the same period in 2022.

This decrease was principally due to lower volumes of approximately ten percent, the unfavorable impact in the current year period from the pass through of lower resin costs and the impact of unfavorable foreign currency translation of approximately $2 million, partially offset by price increases primarily related to inflation in other manufacturing costs.

The decline in volumes was primarily due to the exiting of lower margin business that did not meet reinvestment criteria.

Adjusted EBIT of the custom containers segment for the first quarter of 2023 decreased $3.3 million as compared to the same period in 2022, and adjusted EBIT margin decreased to 11.9 percent from 12.1 percent over the same periods.

The decrease in adjusted EBIT was primarily attributable to lower volumes, partially offset by cost savings and higher prices primarily related to inflation in other manufacturing costs.

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 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 and nine months ended September 30, 2022 included elsewhere in this Quarterly Report.

For the nine months ended September 30, 2022, we used net borrowings of revolving loans and proceeds from other foreign long-term debt of an aggregate of $529.3 million and cash and cash equivalents of $387.8 million to fund the redemption of the 4¾% Notes and other foreign long-term debt for an aggregate of $300.3 million, decreases in outstanding checks of $225.9 million, net capital expenditures and other investing activities of $161.6 million, cash used in operations of $117.5 million,

dividends paid on our common stock of $54.3 million, repurchases of our common stock of $39.4 million and the negative effect of exchange rate changes on cash and cash equivalents of $18.1 million.

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.

At September 30, 2022, we had $497.0 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, 2022 was $983.3 million.

For the three months ended March 31, 2023, we used net borrowings of revolving loans and proceeds from other foreign long-term debt of an aggregate of $756.5 million and cash and cash equivalents of $84.6 million (including the positive effect of exchange rate changes of $3.8 million) to fund cash used in operations of $631.8 million, net capital expenditures and other investing activities of $67.0 million, decreases in outstanding checks of $61.4 million, the repayment of long-term debt of $50.7 million, dividends paid on our common stock of $20.6 million and repurchases of our common stock of $13.4 million.

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 our 4¾% Senior 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.

At March 31, 2023, we had $755.0 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, 2023 was $724.6 million.

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

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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.

obligations, pension benefit plan contributions, share repurchases and common stock dividends for the foreseeable future.

We continue to evaluate acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under the Credit Agreement, to finance any such acquisition.

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 2023 with all of these covenants.

Supply Chain Finance Program

We believe that we negotiate the best terms possible with our suppliers, including payment terms.

In connection therewith, we initiated a SCF program with a major global financial institution.

Under this SCF program, qualifying suppliers may elect, but are not obligated, to sell their receivables from us to such financial institution.

A participating supplier negotiates its receivables sale arrangements directly with the financial institution under this SCF program.

While we are not party to, and do not participate in the negotiation of, such receivables sale arrangements, such financial institution allows a participating supplier to utilize our creditworthiness in establishing a credit spread in respect of the sale of its receivables from us as well as in establishing other applicable terms.

This may provide a supplier with more favorable terms than it would be able to secure on its own.

We have no economic interest in a supplier’s decision to sell a receivable.

Once a qualifying supplier elects to participate in this SCF program and reaches an agreement with the financial institution, the supplier independently elects which individual invoices to us that they sell to the financial institution.

All of our payments to a participating supplier are paid to the financial institution on the invoice due date under our agreement with such supplier, regardless of whether the individual invoice was sold by the supplier to the financial institution.

The financial institution then pays the supplier on the invoice due date under our agreement with such supplier for any invoices not previously sold by the supplier to the financial institution.

Amounts due to a supplier that elects to participate in this SCF program are included in accounts payable in our Condensed Consolidated Balance Sheet, and the associated payments are reflected in net cash provided by operating activities in our Condensed Consolidated Statements of Cash Flows.

Separate from this SCF program, we and suppliers who participate in this SCF program generally maintain the contractual right to require the other party to negotiate in good faith the existing payment terms as a result of changes in market conditions, including changes in interest rates and general market liquidity, or in some cases for any reason.

Outstanding trade accounts payables subject to this SCF program were approximately $318.4 million, $372.2 million and $346.8 million at March 31, 2023 and 2022 and December 31, 2022, respectively.

Guaranteed Securities

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

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 September 30, 2022 and December 31, 2021 and for the nine months ended September 30, 2022.

The following summarized financial information relates to the Obligor Group as of March 31, 2023 and December 31, 2022 and for the three months ended March 31, 2023.

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 $1.4 billion as of each of September 30, 2022 and December 31, 2021 are not included in noncurrent assets in the table below.

30, 2022 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, 2023 and December 31, 2022 are not included in noncurrent assets in the table below.

March 31, 2023 Dec.

(Dollars in millions)

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Noncurrent liabilities 3,946.5 3,911.4

At September 30, 2022 and December 31, 2021, the Obligor Group held current receivables due from other subsidiary companies of $44.9 million and $70.5 million, respectively;

long-term notes receivable due from other subsidiary companies of

$685.9 million and $782.4 million, respectively;

At March 31, 2023 and December 31, 2022, the Obligor Group held current receivables due from other subsidiary companies of $39.2 million and $72.4 million, respectively;

long-term notes receivable due from other subsidiary companies of $754.5 million and $730.0 million, respectively;

and current payables due to other subsidiary companies of $5.4 million and $7.9 million, respectively.

Nine Months Ended Sept.

Three months ended March 31, 2023

(Dollars in millions)

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Net income 45.0

For the nine months ended September 30, 2022, net income in the table above excludes income from equity method investments of other subsidiary companies of $88.9 million.

For the nine months ended September 30, 2022, the Obligor Group recorded the following transactions with other subsidiary companies:

For the three months ended March 31, 2023, net income in the table above excludes income from equity method investments of other subsidiary companies of $27.1 million.

For the three months ended March 31, 2023, the Obligor Group recorded the following transactions with other subsidiary companies:

sales to such other subsidiary companies of $13.3 million;

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and net interest income from such other subsidiary companies of $8.5 million.

For the nine months ended September 30, 2022, the Obligor Group received dividends from other subsidiary companies of $2.3 million.

For the three months ended March 31, 2023, the Obligor Group received dividends from other subsidiary companies of $2.4 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 $6.3 million and $6.9 million for the nine months ended September 30, 2022 and 2021, respectively.

Under our rationalization plans, we made cash payments of $5.1 million and $2.5 million for the three months ended March 31, 2023 and 2022, 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 $1.7 million and $5.4 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.

You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and nine months ended September 30, 2022 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, 2023 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