SILGAN HOLDINGS INC 10-Q

Item 1. Financial Statements SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) June 30, 2023 June 30, 2022 Dec. 31, 2022 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 236,606 $ 247,843 $ 585,622 Trade accounts receivable, net 1,067,550 931,282 657,968 Inventories 1,251,544 1,253,894 769,403 Prepaid expenses and other current assets 142,757 120,133 119,659 Total current assets 2,698,457 2,553,152 2,132,652 Property, plant and equipment, net 1,934,187 1,932,805 1,931,497 Goodwill 2,007,388 1,966,136 1,984,952 Other intangible assets, net 745,275 785,976 763,812 Other assets, net 528,414 636,430 532,844 $ 7,913,721 $ 7,874,499 $ 7,345,757 Liabilities and Stockholders’ Equity Current liabilities: Revolving loans and current portion of long-term debt $ 811,387 $ 718,695 $ 80,061 Trade accounts payable 751,758 880,862 974,030 Accrued payroll and related costs 94,961 109,211 98,914 Accrued liabilities 221,521 251,271 284,855 Total current liabilities 1,879,627 1,960,039 1,437,860 Long-term debt 3,351,176 3,367,469 3,345,381 Deferred income taxes 384,410 430,147 388,677 Other liabilities 427,372 491,381 455,583 Stockholders’ equity: Common stock 1,751 1,751 1,751 Paid-in capital 345,442 331,877 339,839 Retained earnings 3,072,021 2,833,431 2,961,079 Accumulated other comprehensive loss ( 279,554 ) ( 308,216 ) ( 345,310 ) Treasury stock ( 1,268,524 ) ( 1,233,380 ) ( 1,239,103 ) Total stockholders’ equity 1,871,136 1,625,463 1,718,256 $ 7,913,721 $ 7,874,499 $ 7,345,757 See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three and six months ended June 30, 2023 and 2022 (Dollars and shares in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Net sales $ 1,426,727 $ 1,543,781 $ 2,845,008 $ 2,985,667 Cost of goods sold 1,176,601 1,269,855 2,356,917 2,478,288 Gross profit 250,126 273,926 488,091 507,379 Selling, general and administrative expenses 102,171 123,830 203,501 223,841 Rationalization charges 2,667 3,428 6,788 4,807 Other pension and postretirement expense (income) 1,295 ( 11,349 ) 2,581 ( 22,678 ) Income before interest and income taxes 143,993 158,017 275,221 301,409 Interest and other debt expense before loss on early extinguishment of debt 46,792 28,660 83,558 58,009 Loss on early extinguishment of debt — — — 1,481 Interest and other debt expense 46,792 28,660 83,558 59,490 Income before income taxes 97,201 129,357 191,663 241,919 Provision for income taxes 18,311 36,682 40,744 64,369 Net income $ 78,890 $ 92,675 $ 150,919 $ 177,550 Earnings per share: Basic net income per share $ 0.72 $ 0.84 $ 1.37 $ 1.60 Diluted net income per share $ 0.71 $ 0.83 $ 1.36 $ 1.59 Weighted average number of shares: Basic 110,129 110,840 110,211 110,750 Effect of dilutive securities 323 388 476 590 Diluted 110,452 111,228 110,687 111,340 See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three and six months ended June 30, 2023 and 2022 (Dollars in thousands) (Unaudited) Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Net income $ 78,890 $ 92,675 $ 150,919 $ 177,550 Other comprehensive income (loss), net of tax: Changes in net prior service credit and actuarial losses 1,217 539 3,523 1,038 Change in fair value of derivatives 4,652 ( 60 ) 3,365 2,277 Foreign currency translation 39,147 ( 64,053 ) 58,868 ( 51,703 ) Other comprehensive income (loss) 45,016 ( 63,574 ) 65,756 ( 48,388 ) Comprehensive income $ 123,906 $ 29,101 $ 216,675 $ 129,162 See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the six months ended June 30, 2023 and 2022 (Dollars in thousands) (Unaudited) 2023 2022 Cash flows provided by (used in) operating activities: Net income $ 150,919 $ 177,550 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 134,122 136,790 Rationalization charges 6,788 4,807 Stock compensation expense 7,156 8,870 Loss on early extinguishment of debt — 1,481 Other changes that provided (used) cash, net of effects from acquisitions: Trade accounts receivable, net ( 397,413 ) ( 243,261 ) Inventories ( 472,989 ) ( 475,171 ) Trade accounts payable ( 143,180 ) 15,331 Accrued liabilities ( 78,545 ) 15,914 Other, net ( 18,606 ) 5,753 Net cash (used in) operating activities ( 811,748 ) ( 351,936 ) Cash flows provided by (used in) investing activities: Purchase of businesses, net of cash acquired — ( 1,333 ) Capital expenditures ( 118,204 ) ( 118,357 ) Other, net 1,239 ( 688 ) Net cash (used in) investing activities ( 116,965 ) ( 120,378 ) Cash flows provided by (used in) financing activities: Borrowings under revolving loans 998,167 753,657 Repayments under revolving loans ( 244,554 ) ( 54,815 ) Proceeds from issuance of long-term debt 5,094 — Repayments of long-term debt ( 51,867 ) ( 300,000 ) Changes in outstanding checks - principally vendors ( 61,433 ) ( 225,863 ) Dividends paid on common stock ( 40,422 ) ( 36,680 ) Repurchase of common stock ( 30,974 ) ( 39,402 ) Net cash provided by financing activities 574,011 96,897 Effect of exchange rate changes on cash and cash equivalents 5,686 ( 8,179 ) Cash and cash equivalents: Net (decrease) ( 349,016 ) ( 383,596 ) Balance at beginning of year 585,622 631,439 Balance at end of period $ 236,606 $ 247,843 Interest paid, net $ 80,623 $ 59,297 Income taxes paid, net 84,884 28,881 See accompanying notes. -6- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the three and six months ended June 30, 2023 and 2022 (Dollars and shares in thousands, except per share amounts) (Unaudited) Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Common stock - shares outstanding Balance at beginning of period 110,252 110,800 110,079 110,410 Net issuance of treasury stock for vested restricted stock units 46 65 312 455 Repurchases of common stock ( 352 ) ( 650 ) ( 445 ) ( 650 ) Balance at end of period 109,946 110,215 109,946 110,215 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 342,157 328,201 339,839 325,448 Stock compensation expense 3,475 3,991 7,156 8,870 Net issuance of treasury stock for vested restricted stock units ( 190 ) ( 315 ) ( 1,553 ) ( 2,441 ) Balance at end of period 345,442 331,877 345,442 331,877 Retained earnings Balance at beginning of period 3,013,104 2,758,697 2,961,079 2,691,745 Net income 78,890 92,675 150,919 177,550 Dividends declared on common stock ( 19,973 ) ( 17,941 ) ( 39,977 ) ( 35,864 ) Balance at end of period 3,072,021 2,833,431 3,072,021 2,833,431 Accumulated other comprehensive loss Balance at beginning of period ( 324,570 ) ( 244,642 ) ( 345,310 ) ( 259,828 ) Other comprehensive income (loss) 45,016 ( 63,574 ) 65,756 ( 48,388 ) Balance at end of period ( 279,554 ) ( 308,216 ) ( 279,554 ) ( 308,216 ) Treasury stock Balance at beginning of period ( 1,251,152 ) ( 1,205,768 ) ( 1,239,103 ) ( 1,196,420 ) Net issuance of treasury stock for vested restricted stock units ( 415 ) ( 1,245 ) ( 7,664 ) ( 10,593 ) Repurchases of common stock ( 16,957 ) ( 26,367 ) ( 21,757 ) ( 26,367 ) Balance at end of period ( 1,268,524 ) ( 1,233,380 ) ( 1,268,524 ) ( 1,233,380 ) Total stockholders’ equity $ 1,871,136 $ 1,625,463 $ 1,871,136 $ 1,625,463 Dividends declared on common stock per share $ 0.18 $ 0.16 $ 0.36 $ 0.32 See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 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, 2022 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, 2022. 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, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) Dispensing and Specialty Closures $ 560,096 $ 602,431 $ 1,140,028 $ 1,200,358 Metal Containers 710,864 754,396 1,380,960 1,405,122 Custom Containers 155,767 186,954 324,020 380,187 $ 1,426,727 $ 1,543,781 $ 2,845,008 $ 2,985,667 Revenues by geography were as follows: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) North America $ 1,061,906 $ 1,154,614 $ 2,118,432 $ 2,240,838 Europe and other 364,821 389,167 726,576 744,829 $ 1,426,727 $ 1,543,781 $ 2,845,008 $ 2,985,667 Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $ 109.7 million, $ 110.3 million, and $ 110.2 million as of June 30, 2023 and 2022 and December 31, 2022, 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, 2023 and 2022 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, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) Dispensing and Specialty Closures $ 1,214 $ — $ 1,328 $ — Metal Containers 1,453 3,428 5,356 4,702 Custom Containers — — 104 105 $ 2,667 $ 3,428 $ 6,788 $ 4,807 Activity in reserves for our rationalization plans were as follows: Employee Severance and Benefits Plant Exit Costs Total (Dollars in thousands) Balance at December 31, 2022 $ 31,641 $ 159 $ 31,800 Charged to expense 3,640 3,148 6,788 Utilized and currency translation ( 5,710 ) ( 3,143 ) ( 8,853 ) Balance at June 30, 2023 $ 29,571 $ 164 $ 29,735 Rationalization reserves as of June 30, 2023 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $ 2.5 million and other liabilities of $ 27.2 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 $ 1.0 million and $ 3.3 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $ 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 $ 0.8 million in 2023 and $ 2.6 million annually thereafter through 2040. -9- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 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, 2022 $ ( 156,733 ) $ ( 772 ) $ ( 187,805 ) $ ( 345,310 ) Other comprehensive income before reclassifications — 2,736 35,279 38,015 Amounts reclassified from accumulated other comprehensive loss 3,523 629 23,589 27,741 Other comprehensive income 3,523 3,365 58,868 65,756 Balance at June 30, 2023 $ ( 153,210 ) $ 2,593 $ ( 128,937 ) $ ( 279,554 ) 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, 2023 were net (losses) of $( 2.6 ) million and $( 5.1 ) million, respectively, excluding income tax benefits of $ 1.4 million and $ 1.6 million, respectively. For the three and six months ended June 30, 2023, these net (losses) consisted of amortization of net actuarial (losses) of $( 2.8 ) million and $( 5.5 ) million and amortization of net prior service credit of $ 0.2 million and $ 0.4 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 10 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, 2023 were not significant. Other comprehensive income before reclassifications related to foreign currency translation for the three and six months ended June 30, 2023 consisted of (i) foreign currency gains related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $ 16.1 million and $ 41.7 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 (losses) related to our net investment hedges of $( 2.1 ) million and $( 10.9 ) million, respectively, excluding income tax benefits of $ 0.5 million and $ 2.6 million, respectively. See Note 7 for further discussion. Amounts reclassified from accumulated other comprehensive loss related to foreign currency translation for the three and six months ended June 30, 2023 related to the shutdown of our metal container manufacturing facilities in Russia. -10- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) Note 5. Inventories Inventories consisted of the following: June 30, 2023 June 30, 2022 Dec. 31, 2022 (Dollars in thousands) Raw materials $ 524,993 $ 362,950 $ 409,349 Work-in-process 238,546 255,249 218,691 Finished goods 815,884 807,219 469,212 Other 16,433 16,881 16,463 1,595,856 1,442,299 1,113,715 Adjustment to value inventory at cost on the LIFO method ( 344,312 ) ( 188,405 ) ( 344,312 ) $ 1,251,544 $ 1,253,894 $ 769,403 Note 6. Long-Term Debt Long-term debt consisted of the following: June 30, 2023 June 30, 2022 Dec. 31, 2022 (Dollars in thousands) Bank debt Bank revolving loans $ 738,000 $ 675,000 $ — U.S. term loans 950,000 1,000,000 1,000,000 Other foreign bank revolving and term loans 71,016 61,364 49,673 Total bank debt 1,759,016 1,736,364 1,049,673 3¼% Senior Notes 709,150 679,510 693,680 4⅛% Senior Notes 600,000 600,000 600,000 2¼% Senior Notes 545,500 522,700 533,600 1.4% Senior Secured Notes 500,000 500,000 500,000 Finance leases 64,225 66,938 65,667 Total debt - principal 4,177,891 4,105,512 3,442,620 Less unamortized debt issuance costs and debt discount 15,328 19,348 17,178 Total debt 4,162,563 4,086,164 3,425,442 Less current portion 811,387 718,695 80,061 $ 3,351,176 $ 3,367,469 $ 3,345,381 At June 30, 2023, the current portion of long-term debt consisted of $ 738.0 million of U.S. revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $ 46.7 million of other foreign bank revolving and term loans and $ 26.7 million of finance leases. On June 22, 2023, we and certain of our wholly owned subsidiaries entered into the Fourth Amendment to Amended and Restated Credit Agreement, or the Fourth Amendment, with the lenders party to the Credit Agreement and Wells Fargo Bank, National Association, as administrative agent. The Fourth Amendment amended the Credit Agreement to provide for the transition from LIBOR based interest rates to SOFR (Secured Overnight Financing Rates) and SONIA (Sterling Overnight Index Average) based interest rates and to provide for standard interest rate benchmark replacement language. The Fourth Amendment also reduced the spread adjustments for Term SOFR borrowings. -11- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) 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, 2023: Carrying Amount Fair Value (Dollars in thousands) Assets: Cash and cash equivalents $ 236,606 $ 236,606 Liabilities: Bank debt $ 1,759,016 $ 1,759,016 3¼% Senior Notes 709,150 696,570 4⅛% Senior Notes 599,376 550,530 2¼% Senior Notes 545,500 471,012 1.4% Senior Secured Notes 499,849 441,595 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, 2023 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. 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. -12- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) 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 had 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, with a fixed rate of 2.878 percent, that matured on March 24, 2023. In March 2023, we entered into four U.S. dollar interest rate swap agreements, each for $ 75.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate ranging from 3.889 percent to 3.905 percent, mature on April 3, 2026, and were entered into with financial institutions which are expected to fully perform under the terms thereof. 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, 2023. The total fair value of our interest rate swaps agreements in effect at June 30, 2023 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, 2023. 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, 2023 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 (losses) related to our net investment hedges included in accumulated other comprehensive loss for the three and six months ended June 30, 2023 were $( 2.1 ) million and $( 10.9 ) million, respectively. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) Note 8. Commitments and Contingencies 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. Supply Chain Finance Program We have a supply chain finance (“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. We agree to pay the financial institution the stated amount of invoices from our suppliers electing to participate on the original maturity dates of the invoices. We may terminate our agreement with the financial institution upon at least 30 days’ notice, and the financial institution may terminate our agreement upon at least 10 days’ notice. Additionally, suppliers who elect to participate in this SCF program may terminate their participation upon at least 30 days’ notice. The suppliers' invoices sold under this SCF program can be outstanding up to 210 days from the invoice date. Suppliers’ invoices included in this SCF program were $ 321.9 million, $ 369.5 million and $ 346.8 million at June 30, 2023 and 2022 and December 31, 2022, respectively, and were included in accounts payable in our Condensed Consolidated Balance Sheets. Note 10. Retirement Benefits The components of the net periodic pension benefit cost (credit) were as follows: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) Service cost $ 2,234 $ 3,270 $ 4,463 $ 6,570 Interest cost 8,724 5,140 17,433 10,299 Expected return on plan assets ( 10,187 ) ( 17,315 ) ( 20,376 ) ( 34,629 ) Amortization of prior service cost 25 53 53 108 Amortization of actuarial losses 2,939 1,157 5,884 2,312 Net periodic benefit cost (credit) $ 3,735 $ ( 7,695 ) $ 7,457 $ ( 15,340 ) The components of the net periodic other postretirement benefit credit were as follows: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) Service cost $ 12 $ 26 $ 26 $ 51 Interest cost 189 109 378 218 Amortization of prior service credit ( 233 ) ( 416 ) ( 468 ) ( 832 ) Amortization of actuarial gains ( 162 ) ( 77 ) ( 323 ) ( 154 ) Net periodic benefit credit $ ( 194 ) $ ( 358 ) $ ( 387 ) $ ( 717 ) -14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) Note 11. 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 2021 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2022 and 2023 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing. Note 12. 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, 2023, we repurchased an aggregate of 445,104 shares of our common stock at an average price per share of $ 48.74 , for a total purchase price of $ 21.7 million. At June 30, 2023, we had approximately $ 246.2 million remaining under this authorization for the repurchase of our common stock. During the first six months of 2023, we issued 487,409 treasury shares which had an average cost of $ 3.19 per share for restricted stock units that vested during the period that had been previously issued under a prior stock-based compensation plan. In accordance with the applicable agreements for such restricted stock units, we repurchased 174,882 shares of our common stock at an average cost of $ 52.71 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, 2023, 65,166,066 shares of our common stock were held in treasury. Note 13. Stock-Based Compensation We currently have one stock-based compensation plan in effect under which we have issued restricted stock units to our officers, other key employees and outside directors. In May and June of 2023, 293,190 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 $ 13.6 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, 2023 and 2022 and for the three and six months then ended is unaudited) Note 14. Segment Information We evaluate performance of our business segments and allocate resources based on the adjusted EBIT of our business segments. Adjusted EBIT is not a defined term under GAAP. We define adjusted EBIT as income before interest and income taxes excluding 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. We began using adjusted EBIT in 2023. Previously, we used segment income, without any adjustments, for our business segments. We have provided adjusted EBIT for 2022 below for comparative purposes. Adjusted EBIT should not be considered in isolation or as a substitute for income before interest and income taxes or any other financial data prepared in accordance with GAAP and may not be comparable to calculations of similarly titled measures by other companies. Reportable segment information was as follows: Dispensing and Specialty Closures Metal Containers Custom Containers Corporate Total (Dollars in thousands) Three Months Ended June 30, 2023 Net sales $ 560,096 $ 710,864 $ 155,767 $ — $ 1,426,727 Adjusted EBIT 76,882 75,740 18,444 ( 10,268 ) 160,798 Depreciation 25,756 18,528 8,999 18 53,301 Three Months Ended June 30, 2022 Net sales $ 602,431 $ 754,396 $ 186,954 $ — $ 1,543,781 Adjusted EBIT 100,340 63,439 29,451 ( 5,377 ) 187,853 Depreciation 24,808 19,558 8,796 39 53,201 Six Months Ended June 30, 2023 Net sales $ 1,140,028 $ 1,380,960 $ 324,020 $ — $ 2,845,008 Adjusted EBIT 159,818 128,140 38,478 ( 16,234 ) 310,202 Depreciation 50,515 36,516 17,834 58 104,923 Six Months Ended June 30, 2022 Net sales $ 1,200,358 $ 1,405,122 $ 380,187 $ — $ 2,985,667 Adjusted EBIT 196,868 96,390 52,815 ( 12,001 ) 334,072 Depreciation 49,469 40,289 17,539 81 107,378 -16- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at June 30, 2023 and 2022 and for the three and six months then ended is unaudited) Total adjusted EBIT is reconciled to income before income taxes as follows: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in thousands) Total adjusted EBIT $ 160,798 $ 187,853 $ 310,202 $ 334,072 Less: Acquired intangible asset amortization expense 13,304 13,188 26,525 26,618 Other pension expense (income) for U.S. pension plans 834 ( 11,983 ) 1,668 ( 23,965 ) Rationalization charges 2,667 3,428 6,788 4,807 European Commission settlement — 25,203 — 25,203 Income before interest and income taxes 143,993 158,017 275,221 301,409 Less interest and other debt expense 46,792 28,660 83,558 59,490 Income before income taxes $ 97,201 $ 129,357 $ 191,663 $ 241,919 Net sales and adjusted EBIT 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 adjusted EBIT during that quarter. -17-