Silgan Holdings (SLGN) Risk Analysis

Effective internal controls are necessary to provide reliable financial reports and to assist in the effective prevention of fraud. Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. We also need to adapt our internal control over financial reporting as our business grows and changes. As we grow our business and acquire other businesses, our internal controls could become increasingly complex, requiring more time and resources. As further discussed in Item 9A, "Controls and Procedures," included elsewhere in this Annual Report, management concluded that we maintained effective internal control over financial reporting as of December 31, 2024. There is no assurance that, in the future, material weaknesses will not be identified that would cause management to change its conclusion as to the effectiveness of our internal controls. If we fail to maintain the adequacy of our internal controls, as such standards are modified,supplemented or amended from time to time, we could be subject to regulatory scrutiny, civil or criminal penalties or litigation. In addition, failure to maintain adequate internal controls could result in financial statements that do not accurately reflect our financial condition, and we may be required to restate previously published financial information, which could have a material adverse effect on our operations, investor confidence in our business and the trading prices of our securities.

U.S. GAAP and SEC accounting and reporting changes are common. These changes could have significant effects on our reported results when compared to prior periods and other companies and may even require us to retrospectively adjust prior periods. Additionally, material changes to the presentation of transactions in the consolidated financial statements could impact key ratios that investors, analysts and credit rating agencies use to assess or rate our performance and could ultimately impact our ability to access the credit markets in an efficient manner.

As a result of our acquisitions, we have $2.3 billion of goodwill and $32.1 million of indefinite-lived trade names recorded on our consolidated balance sheet at December 31, 2024. We are required to periodically determine if our goodwill and trade names have become impaired, in which case we would write-down the impaired portion. If we were required to write-down all or part of our goodwill or trade names, our net income and net worth could be materially adversely affected.

At December 31, 2024, we had $4.15 billion of total consolidated indebtedness. We incurred much of this indebtedness as a result of financing acquisitions and refinancing our previously outstanding debt. In addition, at December 31, 2024, after taking into account outstanding letters of credit of $20.5 million, we had up to $1.48 billion of revolving loans available to be borrowed under our Credit Agreement. We also have available to us under our Credit Agreement an uncommitted multi-currency incremental loan facility in an amount of up to an additional $1.5 billion (which amount may be increased as provided in our Credit Agreement), which may take the form of one or more incremental term loan facilities, increased commitments under our revolving loan facility and/or incremental indebtedness in the form of senior secured loans and/or notes, and we may incur additional indebtedness as permitted by our Credit Agreement and our other instruments governing our indebtedness. In October 2024, we borrowed €868.0 million of term loans and revolving loans under our Credit Agreement, including a €700.0 million incremental term loan, which we used, along with cash on hand, to fund the purchase price for our acquisition of Weener Packaging, which term and revolving loans were subsequently refinanced by a new €900.0 million term loan when we further amended our Credit Agreement in November 2024. A significant portion of our cash flow must be used to service our indebtedness and is therefore not available to be used in our business. In 2024, we paid $160.2 million in interest on our indebtedness. Our ability to generate cash flow is subject to general economic, financial, competitive, legislative, regulatory and other factors that may be beyond our control. In addition, a significant portion of our indebtedness bears interest at floating rates, and therefore a substantial increase in interest rates could adversely impact our results of operations. After the London Interbank Offered Rate, or LIBOR, expired on June 30, 2023, we transitioned to using the Secured Overnight Financing Rate, or SOFR, in place of LIBOR. SOFR has a limited history and SOFR-based reference rates may perform differently from LIBOR, which may affect our net interest expense, change our market risk profile and require changes to our financing strategies. Based on the average outstanding amount of our variable rate indebtedness in 2024, a one percentage point change in the interest rates for our variable rate indebtedness would have impacted our 2024 interest expense by an aggregate amount of approximately $11.3 million, after taking into account the average outstanding notional amount of our interest rate swap agreements during 2024. Our indebtedness could have important consequences. For example, it could: - increase our vulnerability to general adverse economic and industry conditions;- require us to dedicate a significant portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund working capital, acquisitions and capital expenditures, and for other general corporate purposes;- limit our flexibility in planning for, or reacting to, changes in our business and the industry in which we operate;- restrict us from making strategic acquisitions or exploiting business opportunities; and - limit, along with the financial and other restrictive covenants in our indebtedness, among other things, our ability to borrow additional funds.

We are continually evaluating and pursuing acquisition opportunities in the consumer goods packaging market and may incur additional indebtedness, including indebtedness under our Credit Agreement, to finance any such acquisitions and to fund any resulting increased operating needs. For example, in October 2024, we funded the purchase price for Weener Packaging with €868.0 million of term and revolving loan borrowings under our Credit Agreement, which we subsequently refinanced with a new €900.0 million term loan when we amended our Credit Agreement in November 2024. If new debt is added to our current debt levels, the related risks we now face could increase. We will have to effect any new financing in compliance with the agreements governing our then existing indebtedness. The indentures governing the 3¼% Senior Notes due 2025, or the 3¼% Notes, our 4?% Senior Notes due 2028, or the 4?% Notes, our 2¼% Senior Notes due 2028, or the 2¼% Notes, and our 1.4% Senior Notes, or the 1.4% Notes, do not prohibit us from incurring additional indebtedness.

Our Credit Agreement contains numerous covenants, including financial and operating covenants, some of which are quite restrictive. These covenants affect, and in many respects limit, among other things, our ability to: - incur additional indebtedness;- create liens;- consolidate, merge or sell assets;- make certain advances, investments and loans;- enter into certain transactions with affiliates; and - engage in any business other than the packaging business and certain related businesses. The indentures governing the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the 1.4% Notes contain certain covenants that also generally restrict our ability to create liens, issue guarantees, engage in sale and leaseback transactions and consolidate, merge or sell assets. These covenants could restrict us in the pursuit of our growth strategy.

Under our Credit Agreement, the occurrence of a change of control (as defined in our Credit Agreement) constitutes an event of default, permitting, among other things, the acceleration of amounts owed thereunder. Additionally, upon the occurrence of a change of control repurchase event as defined in the indentures governing the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the 1.4% Notes, we must make an offer to repurchase the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the 1.4% Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued interest to the date of purchase. We may not have sufficient funds or be able to obtain sufficient financing to meet such obligations under our Credit Agreement and such indentures. In addition, even if we were able to finance such obligations, such financing may be on terms that are unfavorable to us or less favorable to us than the terms of our existing indebtedness.

Historically, we have grown predominantly through acquisitions. Our future growth will depend in large part on additional acquisitions of consumer goods packaging businesses. We may not be able to locate or acquire other suitable acquisition candidates consistent with our strategy, and we may not be able to fund future acquisitions because of limitations under our indebtedness or otherwise, including due to the limited availability of funds if the financial markets are impaired or if we cannot borrow funds at rates which we find attractive.

In pursuing our strategy of growth through acquisitions, we will face risks commonly encountered with an acquisition strategy. These risks include: - failing to identify material problems and liabilities in our due diligence review of acquisition targets;- failing to obtain sufficient indemnification rights to fully offset possible liabilities associated with acquired businesses;- failing to integrate the operations, technologies and personnel of the acquired businesses;- difficulties in identifying or retaining employees for the acquired businesses;- disrupting our ongoing business;- diluting our limited management resources;- operating in new geographic regions; and - impairing relationships with employees and customers of the acquired business as a result of changes in ownership and management. Through our experience integrating our acquisitions, we have learned that, depending upon the size of the acquisition, it can take us up to two to three years to completely integrate an acquired business into our operations and systems and realize the full benefit of the integration. During the early part of this integration period, the operating results of an acquired business may decrease from results attained prior to the acquisition due to costs, delays or other challenges that arise when integrating the acquired business. In addition, we may not be able to achieve potential synergies or maintain the levels of revenue, earnings or operating efficiency that each business had achieved or might achieve separately. Moreover, indebtedness incurred to fund acquisitions could adversely affect our liquidity and financial stability.