UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

For the quarterly period ended September 30, 2022March 31, 2023

For the transition period from ________________ to ________________

Commission file number  000-22117001-41459

SILGAN HOLDINGS INC.

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Part I. Financial Information

Item 1. Financial Statements

(Dollars in thousands)

See accompanying notes.

See accompanying notes.

 

See accompanying notes.

See accompanying notes.

See accompanying notes.

Note 1.               Significant Accounting Policies

The Condensed Consolidated Balance Sheet at December 31, 20212022 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021.2022.

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 for the three months ended March 31 were as follows:

Revenues by geography for the three months ended March 31 were as follows:

Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $113.3$108.5 million, $94.6$99.1 million, and $78.2$110.2 million as of September 30,March 31, 2023 and 2022 and 2021 and December 31, 2021,2022, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheets.

Note 3.               Rationalization Charges

Activity in reserves for our rationalization plans were as follows:

Rationalization reserves as of September 30, 2022March 31, 2023 were recorded in our Condensed Consolidated Balance Sheet as accrued liabilities of $4.4$3.2 million and other liabilities of $36.2$27.6 million. Excluding the impact of our withdrawal from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $3.1$1.7 million and $6.0$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$0.8 million in 2023 and $2.6 million annually thereafter through 2040.

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:

 

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, 2022March 31, 2023 were net (losses) of $(0.9)$(2.6) million, and $(2.4) million, respectively, excluding income tax benefits of $0.3 million and $0.7 million, respectively. For the three and nine months ended September 30, 2022, thesemillion. These net (losses) consisted of amortization of net actuarial (losses) of $(1.3) million and $(3.5)$(2.8) million and amortization of net prior service credit of $0.4 million and $1.1 million, respectively.$0.2 million. 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 910 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, 2022March 31, 2023 were not significant.

Other comprehensive loss before reclassifications related to foreign currency translation for the three and nine months ended September 30, 2022March 31, 2023 consisted of (i) foreign currency (losses)gains related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $(82.5)$25.6 million, and $(168.1) million, respectively, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $1.2$0.8 million, and $3.1 million, respectively, and (iii) foreign currency gains(losses) related to our net investment hedges of $30.2$(8.8) million, and $72.2 million, respectively, excluding an income tax (provisions)benefit of $(7.1) million and $(17.1) million, respectively.$2.1 million. See Note 7 for further discussion.

Note 5.               Inventories

Inventories consisted of the following: 

Note 6.               Long-Term Debt

Long-term debt consisted of the following: 

At September 30, 2022,March 31, 2023, the current portion of long-term debt consisted of $497.0 million of bank revolving loans and $50.0$755.0 million of U.S. termrevolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $41.6$27.4 million of other foreign bank revolving and term loans and $2.7$2.4 million of finance leases.

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, 2022:March 31, 2023:

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.

The financial assets and liabilities that were measured on a recurring basis at September 30, 2022March 31, 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.

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.

Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

We also utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. 

We have entered intohad 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 of 2.878ranging from 3.930 percent andto 3.942 percent, mature on March 24, 2023.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, 2022. These agreements are with a financial institution which is expected to fully perform under the terms thereof.March 31, 2023. The total fair value of our interest rate swapswaps agreements in effect at September 30, 2022March 31, 2023 was not significant.

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, 2022.March 31, 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, 2022March 31, 2023 was not significant.

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(losses) related to our net investment hedges included in accumulated other comprehensive loss for the three and nine months ended September 30, 2022March 31, 2023 were $30.2 million and $72.2 million, respectively.$(8.8) million.

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.

The components of the net periodic pension benefit creditcost (credit) for the three months ended March 31 were as follows:

 

The components of the net periodic other postretirement benefit credit for the three months ended March 31 were as follows:

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 20202021 tax year with no change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 20212022 and 20222023 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.

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 ninethree months ended September 30, 2022,March 31, 2023, we repurchased an aggregate of 649,72792,996 shares of our common stock at an average price per share of $40.56,$51.60, for a total purchase price of $26.4$4.8 million. At September 30, 2022,March 31, 2023, we had approximately $273.6$263.1 million remaining under this authorization for the repurchase of our common stock.

During the first ninethree months of 2022,2023, we issued 765,917427,763 treasury shares which had an average cost of $3.19 per share for restricted stock units that vested during the period. In accordance withperiod that had been previously issued under the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan,Plan. In accordance with the applicable agreements for such restricted stock units, we repurchased 310,904161,328 shares of our common stock at an average cost of $41.92$53.38 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, 2022, 64,896,981March 31, 2023, 64,860,050 shares of our common stock were held in treasury.

ReportableWe 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 information wasincome, 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 follows: