SILGAN HOLDINGS INC 10-Q

Item 1. Financial Statements SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in thousands) Sept. 30, 2023 Sept. 30, 2022 Dec. 31, 2022 (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents $ 307,124 $ 243,609 $ 585,622 Trade accounts receivable, net 1,295,882 1,124,051 657,968 Inventories 919,013 851,070 769,403 Prepaid expenses and other current assets 139,803 113,498 119,659 Total current assets 2,661,822 2,332,228 2,132,652 Property, plant and equipment, net 1,911,638 1,886,596 1,931,497 Goodwill 1,979,693 1,914,894 1,984,952 Other intangible assets, net 724,340 757,882 763,812 Other assets, net 534,814 627,813 532,844 $ 7,812,307 $ 7,519,413 $ 7,345,757 Liabilities and Stockholders’ Equity Current liabilities: Revolving loans and current portion of long-term debt $ 897,809 $ 591,287 $ 80,061 Trade accounts payable 651,991 688,383 974,030 Accrued payroll and related costs 96,375 110,358 98,914 Accrued liabilities 269,386 291,384 284,855 Total current liabilities 1,915,561 1,681,412 1,437,860 Long-term debt 3,312,685 3,246,738 3,345,381 Deferred income taxes 380,250 425,181 388,677 Other liabilities 421,922 472,851 455,583 Stockholders’ equity: Common stock 1,751 1,751 1,751 Paid-in capital 349,634 335,924 339,839 Retained earnings 3,163,161 2,954,292 2,961,079 Accumulated other comprehensive loss ( 309,586 ) ( 365,356 ) ( 345,310 ) Treasury stock ( 1,423,071 ) ( 1,233,380 ) ( 1,239,103 ) Total stockholders’ equity 1,781,889 1,693,231 1,718,256 $ 7,812,307 $ 7,519,413 $ 7,345,757 See accompanying notes. -3- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME For the three and nine months ended September 30, 2023 and 2022 (Dollars and shares in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 Net sales $ 1,803,101 $ 1,970,445 $ 4,648,109 $ 4,956,112 Cost of goods sold 1,517,183 1,662,680 3,874,100 4,140,968 Gross profit 285,918 307,765 774,009 815,144 Selling, general and administrative expenses 84,320 96,680 287,821 320,521 Rationalization charges 6,424 2,726 13,212 7,533 Other pension and postretirement expense (income) 1,083 ( 11,051 ) 3,664 ( 33,729 ) Income before interest and income taxes 194,091 219,410 469,312 520,819 Interest and other debt expense before loss on early extinguishment of debt 47,264 33,743 130,822 91,752 Loss on early extinguishment of debt — — — 1,481 Interest and other debt expense 47,264 33,743 130,822 93,233 Income before income taxes 146,827 185,667 338,490 427,586 Provision for income taxes 36,210 46,964 76,954 111,333 Net income $ 110,617 $ 138,703 $ 261,536 $ 316,253 Earnings per share: Basic net income per share $ 1.02 $ 1.26 $ 2.39 $ 2.86 Diluted net income per share $ 1.02 $ 1.25 $ 2.38 $ 2.85 Weighted average number of shares: Basic 108,421 110,281 109,583 110,572 Effect of dilutive securities 331 460 428 548 Diluted 108,752 110,741 110,011 111,120 See accompanying notes. -4- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME For the three and nine months ended September 30, 2023 and 2022 (Dollars in thousands) (Unaudited) Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 Net income $ 110,617 $ 138,703 $ 261,536 $ 316,253 Other comprehensive income (loss), net of tax: Changes in net prior service credit and actuarial losses 1,995 693 5,518 1,731 Change in fair value of derivatives 1,865 421 5,230 2,698 Foreign currency translation ( 33,892 ) ( 58,254 ) 24,976 ( 109,957 ) Other comprehensive (loss) income ( 30,032 ) ( 57,140 ) 35,724 ( 105,528 ) Comprehensive income $ 80,585 $ 81,563 $ 297,260 $ 210,725 See accompanying notes. -5- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS For the nine months ended September 30, 2023 and 2022 (Dollars in thousands) (Unaudited) 2023 2022 Cash flows provided by (used in) operating activities: Net income $ 261,536 $ 316,253 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 200,747 201,912 Rationalization charges 13,212 7,533 Stock compensation expense 11,348 12,917 Loss on early extinguishment of debt — 1,481 Other changes that provided (used) cash, net of effects from acquisitions: Trade accounts receivable, net ( 638,282 ) ( 459,131 ) Inventories ( 152,891 ) ( 92,181 ) Trade accounts payable ( 233,724 ) ( 165,717 ) Accrued liabilities ( 31,055 ) 64,458 Other, net ( 26,933 ) ( 5,047 ) Net cash (used in) operating activities ( 596,042 ) ( 117,522 ) Cash flows provided by (used in) investing activities: Purchase of businesses, net of cash acquired — ( 1,333 ) Capital expenditures ( 173,453 ) ( 162,271 ) Other, net 2,895 1,993 Net cash (used in) investing activities ( 170,558 ) ( 161,611 ) Cash flows provided by (used in) financing activities: Borrowings under revolving loans 1,119,960 813,628 Repayments under revolving loans ( 283,275 ) ( 290,327 ) Proceeds from issuance of long-term debt 8,649 6,042 Repayments of long-term debt ( 52,650 ) ( 300,314 ) Changes in outstanding checks - principally vendors ( 61,433 ) ( 225,863 ) Dividends paid on common stock ( 59,712 ) ( 54,325 ) Repurchase of common stock ( 183,939 ) ( 39,402 ) Net cash provided by (used in) financing activities 487,600 ( 90,561 ) Effect of exchange rate changes on cash and cash equivalents 502 ( 18,136 ) Cash and cash equivalents: Net (decrease) ( 278,498 ) ( 387,830 ) Balance at beginning of year 585,622 631,439 Balance at end of period $ 307,124 $ 243,609 Interest paid, net $ 123,944 $ 91,037 Income taxes paid, net 95,911 66,959 See accompanying notes. -6- SILGAN HOLDINGS INC. CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY For the three and nine months ended September 30, 2023 and 2022 (Dollars and shares in thousands, except per share amounts) (Unaudited) Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 Common stock - shares outstanding Balance at beginning of period 109,946 110,215 110,079 110,410 Net issuance of treasury stock for vested restricted stock units — — 312 455 Repurchases of common stock ( 3,448 ) — ( 3,893 ) ( 650 ) Balance at end of period 106,498 110,215 106,498 110,215 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 345,442 331,877 339,839 325,448 Stock compensation expense 4,192 4,047 11,348 12,917 Net issuance of treasury stock for vested restricted stock units — — ( 1,553 ) ( 2,441 ) Balance at end of period 349,634 335,924 349,634 335,924 Retained earnings Balance at beginning of period 3,072,021 2,833,431 2,961,079 2,691,745 Net income 110,617 138,703 261,536 316,253 Dividends declared on common stock ( 19,477 ) ( 17,842 ) ( 59,454 ) ( 53,706 ) Balance at end of period 3,163,161 2,954,292 3,163,161 2,954,292 Accumulated other comprehensive loss Balance at beginning of period ( 279,554 ) ( 308,216 ) ( 345,310 ) ( 259,828 ) Other comprehensive (loss) income ( 30,032 ) ( 57,140 ) 35,724 ( 105,528 ) Balance at end of period ( 309,586 ) ( 365,356 ) ( 309,586 ) ( 365,356 ) Treasury stock Balance at beginning of period ( 1,268,524 ) ( 1,233,380 ) ( 1,239,103 ) ( 1,196,420 ) Net issuance of treasury stock for vested restricted stock units — — ( 7,664 ) ( 10,593 ) Repurchases of common stock ( 154,547 ) — ( 176,304 ) ( 26,367 ) Balance at end of period ( 1,423,071 ) ( 1,233,380 ) ( 1,423,071 ) ( 1,233,380 ) Total stockholders’ equity $ 1,781,889 $ 1,693,231 $ 1,781,889 $ 1,693,231 Dividends declared on common stock per share $ 0.18 $ 0.16 $ 0.54 $ 0.48 See accompanying notes. -7- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2023 and 2022 and for the three and nine 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. Goodwill and Other Intangible Assets. We review goodwill and other indefinite-lived intangible assets for impairment as of July 1 of each year and more frequently if circumstances indicate a possible impairment. We determined that our goodwill and other indefinite-lived intangible assets were not impaired in our annual 2023 assessment performed during the third quarter. 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 Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) Dispensing and Specialty Closures $ 559,081 $ 575,530 $ 1,699,109 $ 1,775,888 Metal Containers 1,094,609 1,212,034 2,475,569 2,617,156 Custom Containers 149,411 182,881 473,431 563,068 $ 1,803,101 $ 1,970,445 $ 4,648,109 $ 4,956,112 Revenues by geography were as follows: Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) North America $ 1,437,539 $ 1,592,775 $ 3,555,971 $ 3,833,613 Europe and other 365,562 377,670 1,092,138 1,122,499 $ 1,803,101 $ 1,970,445 $ 4,648,109 $ 4,956,112 Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $ 104.2 million, $ 113.3 million, and $ 110.2 million as of September 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 September 30, 2023 and 2022 and for the three and nine 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 Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) Dispensing and Specialty Closures $ 3,836 $ 346 $ 5,164 $ 346 Metal Containers 2,588 2,480 7,944 7,182 Custom Containers — ( 100 ) 104 5 $ 6,424 $ 2,726 $ 13,212 $ 7,533 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, 2022 $ 31,641 $ 159 $ — $ 31,800 Charged to expense 5,947 3,890 3,375 13,212 Utilized and currency translation ( 6,647 ) ( 3,885 ) ( 3,375 ) ( 13,907 ) Balance at September 30, 2023 $ 30,941 $ 164 $ — $ 31,105 Rationalization reserves as of September 30, 2023 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $ 4.1 million and other liabilities of $ 27.0 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 $ 6.6 million and $ 9.9 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $ 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 September 30, 2023 and 2022 and for the three and nine 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 — 4,938 1,387 6,325 Amounts reclassified from accumulated other comprehensive loss 5,518 292 23,589 29,399 Other comprehensive income 5,518 5,230 24,976 35,724 Balance at September 30, 2023 $ ( 151,215 ) $ 4,458 $ ( 162,829 ) $ ( 309,586 ) The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and nine months ended September 30, 2023 were net (losses) of $( 2.5 ) million and $( 7.7 ) million, respectively, excluding income tax benefits of $ 0.5 million and $ 2.2 million, respectively. For the three and nine months ended September 30, 2023, these net (losses) consisted of amortization of net actuarial (losses) of $( 2.7 ) million and $( 8.3 ) million and amortization of net prior service credit of $ 0.2 million and $ 0.6 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 nine months ended September 30, 2023 were not significant. Other comprehensive income before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2023 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 $( 45.5 ) million and $( 3.8 ) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $ 0.1 million and $ 2.0 million, respectively, and (iii) foreign currency gains related to our net investment hedges of $ 15.0 million and $ 4.1 million, respectively, excluding income tax (provisions) of $( 3.6 ) million and $( 1.0 ) million, respectively. See Note 7 for further discussion. Amounts reclassified from accumulated other comprehensive loss related to foreign currency translation for the nine months ended September 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 September 30, 2023 and 2022 and for the three and nine months then ended is unaudited) Note 5. Inventories Inventories consisted of the following: Sept. 30, 2023 Sept. 30, 2022 Dec. 31, 2022 (Dollars in thousands) Raw materials $ 460,137 $ 452,307 $ 409,349 Work-in-process 220,164 231,036 218,691 Finished goods 565,790 542,044 469,212 Other 17,234 16,857 16,463 1,263,325 1,242,244 1,113,715 Adjustment to value inventory at cost on the LIFO method ( 344,312 ) ( 391,174 ) ( 344,312 ) $ 919,013 $ 851,070 $ 769,403 Note 6. Long-Term Debt Long-term debt consisted of the following: Sept. 30, 2023 Sept. 30, 2022 Dec. 31, 2022 (Dollars in thousands) Bank debt Bank revolving loans $ 818,000 $ 497,000 $ — U.S. term loans 950,000 1,000,000 1,000,000 Other foreign bank revolving and term loans 75,502 66,649 49,673 Total bank debt 1,843,502 1,563,649 1,049,673 3¼% Senior Notes 688,155 636,740 693,680 4⅛% Senior Notes 600,000 600,000 600,000 2¼% Senior Notes 529,350 489,800 533,600 1.4% Senior Secured Notes 500,000 500,000 500,000 Finance leases 63,663 66,109 65,667 Total debt - principal 4,224,670 3,856,298 3,442,620 Less unamortized debt issuance costs and debt discount 14,176 18,273 17,178 Total debt 4,210,494 3,838,025 3,425,442 Less current portion 897,809 591,287 80,061 $ 3,312,685 $ 3,246,738 $ 3,345,381 At September 30, 2023, the current portion of long-term debt consisted of $ 818.0 million of U.S. revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $ 51.9 million of other foreign bank revolving and term loans and $ 27.9 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 September 30, 2023 and 2022 and for the three and nine 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 September 30, 2023: Carrying Amount Fair Value (Dollars in thousands) Assets: Cash and cash equivalents $ 307,124 $ 307,124 Liabilities: Bank debt $ 1,843,502 $ 1,843,502 3¼% Senior Notes 688,155 671,385 4⅛% Senior Notes 599,407 536,790 2¼% Senior Notes 529,350 451,149 1.4 % Senior Secured Notes 499,862 443,505 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 September 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 September 30, 2023 and 2022 and for the three and nine 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 nine months ended September 30, 2023. The total fair value of our interest rate swaps agreements in effect at September 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 nine months ended September 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 September 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 gains related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2023 were $ 15.0 million and $ 4.1 million, respectively. -13- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2023 and 2022 and for the three and nine 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 $ 294.1 million, $ 321.9 million and $ 346.8 million at September 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 Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) Service cost $ 1,962 $ 2,937 $ 6,425 $ 9,507 Interest cost 8,617 5,131 26,050 15,430 Expected return on plan assets ( 10,211 ) ( 17,220 ) ( 30,587 ) ( 51,849 ) Amortization of prior service cost 29 62 82 170 Amortization of actuarial losses 2,845 1,370 8,729 3,682 Net periodic benefit cost (credit) $ 3,242 $ ( 7,720 ) $ 10,699 $ ( 23,060 ) The components of the net periodic other postretirement benefit credit were as follows: Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) Service cost $ 12 $ 5 $ 38 $ 56 Interest cost 181 96 559 314 Amortization of prior service credit ( 237 ) ( 415 ) ( 705 ) ( 1,247 ) Amortization of actuarial gains ( 141 ) ( 75 ) ( 464 ) ( 229 ) Net periodic benefit credit $ ( 185 ) $ ( 389 ) $ ( 572 ) $ ( 1,106 ) -14- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2023 and 2022 and for the three and nine 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 nine months ended September 30, 2023, we repurchased an aggregate of 3,893,098 shares of our common stock at an average price per share of $ 44.86 , for a total purchase price of $ 174.6 million. At September 30, 2023, we had approximately $ 93.3 million remaining under this authorization for the repurchase of our common stock. During the first nine 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 September 30, 2023, 68,614,060 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 September 30, 2023 and 2022 and for the three and nine 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 September 30, 2023 Net sales $ 559,081 $ 1,094,609 $ 149,411 $ — $ 1,803,101 Adjusted EBIT 93,786 113,519 11,839 ( 4,711 ) 214,433 Depreciation 25,691 18,177 8,089 8 51,965 Three Months Ended September 30, 2022 Net sales $ 575,530 $ 1,212,034 $ 182,881 $ — $ 1,970,445 Adjusted EBIT 88,305 117,612 22,791 ( 5,282 ) 223,426 Depreciation 24,541 17,509 8,752 39 50,841 Nine Months Ended September 30, 2023 Net sales $ 1,699,109 $ 2,475,569 $ 473,431 $ — $ 4,648,109 Adjusted EBIT 253,604 241,659 50,317 ( 20,945 ) 524,635 Depreciation 76,206 54,693 25,923 66 156,888 Nine Months Ended September 30, 2022 Net sales $ 1,775,888 $ 2,617,156 $ 563,068 $ — $ 4,956,112 Adjusted EBIT 285,173 214,002 75,606 ( 17,283 ) 557,498 Depreciation 74,010 57,798 26,291 120 158,219 -16- SILGAN HOLDINGS INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Information at September 30, 2023 and 2022 and for the three and nine months then ended is unaudited) Total adjusted EBIT is reconciled to income before income taxes as follows: Three Months Ended Nine Months Ended Sept. 30, 2023 Sept. 30, 2022 Sept. 30, 2023 Sept. 30, 2022 (Dollars in thousands) Total adjusted EBIT $ 214,433 $ 223,426 $ 524,635 $ 557,498 Less: Acquired intangible asset amortization expense 13,309 12,946 39,834 39,564 Other pension expense (income) for U.S. pension plans 609 ( 11,656 ) 2,277 ( 35,621 ) Rationalization charges 6,424 2,726 13,212 7,533 European Commission settlement — — — 25,203 Income before interest and income taxes 194,091 219,410 469,312 520,819 Less interest and other debt expense 47,264 33,743 130,822 93,233 Income before income taxes $ 146,827 $ 185,667 $ 338,490 $ 427,586 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-