Silgan (SLGN) - 2023 Q4 - Annual Report

Part I Business Silgan Holdings Inc. is a leading global manufacturer of sustainable rigid packaging solutions, with 2023 consolidated net sales of approximately $6.0 billion, operating 107 plants across three segments - Silgan operates 107 manufacturing plants in North America, Europe, Asia, and South America, generating consolidated net sales of approximately $6.0 billion in 2023[13] 2023 Business Segment Overview | Business Segment | 2023 Net Sales | % of Consolidated Sales | 2023 EBIT | % of Consolidated EBIT | | :--- | :--- | :--- | :--- | :--- | | Dispensing and Specialty Closures | $2.2 billion | 37.1% | $281.0 million | 45.2% | | Metal Containers | $3.1 billion | 52.4% | $287.4 million | 46.3% | | Custom Containers | $626 million | 10.5% | $52.8 million | 8.5% | - The company's strategy is centered on growing the business through acquisitions and organically, reducing operating costs, and building sustainable competitive positions[17] - In late 2023, Silgan initiated a cost reduction program aiming for $50 million in savings over two years, resulting in the closure of three manufacturing facilities with two more announced[22][32] Dispensing and Specialty Closures Business This segment, a leading global manufacturer of dispensing systems and specialty closures, generated $2.2 billion in 2023 net sales, representing 37.1% of total - The Dispensing and Specialty Closures business provides innovative dispensing systems and proprietary metal and plastic specialty closures, along with capping/sealing equipment[35] - Key markets include fragrance and beauty, food, beverage, personal and health care, home care, and lawn and garden[35] - Recent acquisitions, including Albéa Dispensing Business (2020), Silgan Specialty Packaging (2021), and Silgan Unicep (2021), have expanded the portfolio, particularly in highly engineered pumps and precision dosing systems for health care markets[36] Metal Containers Business The largest segment, Metal Containers, generated $3.1 billion in 2023 net sales (52.4% of total), holding over half the U.S. market share for metal food containers - The company is the largest manufacturer of metal food containers in North America, with a unit volume market share in the U.S. of more than half in 2023[37] - Products include steel and aluminum containers for food products (pet food, vegetables, soup, proteins) and general line containers, with the 2021 Easytech acquisition increasing capacity for easy-open ends[37] - Metal containers are positioned as superior for high-temperature processing and long-term storage, and are highlighted as infinitely recyclable[39] Custom Containers Business The Custom Containers segment generated $626.0 million in 2023 net sales (10.5% of total), producing custom-designed plastic containers for diverse markets - This segment manufactures custom designed and stock plastic containers for markets including food, beverage, personal care, home care, and automotive[41] - The business offers a comprehensive array of molding (extrusion, injection blowmolding) and decorating (in-mold labeling, silk screen, etc.) capabilities[40][48][49] - The market position is driven by rapid response to customer design needs and a diverse, value-added product line[42] Risk Factors The company faces significant risks including intense competition, raw material price volatility, substantial indebtedness, acquisition integration challenges, and global economic and political instability - The packaging industry is highly competitive, which could lead to lost customers or reduced margins, and the loss of a major customer could adversely affect results[92][94] - The company is exposed to fluctuations in raw material prices (steel, aluminum, resin) and availability, with the ability to pass costs to customers not guaranteed[96][98][99] - As of December 31, 2023, the company had $3.44 billion of total consolidated indebtedness, with a significant portion of cash flow used for debt service and exposure to floating interest rates[119][120] - Future acquisitions, a key part of the growth strategy, present risks such as integration difficulties, diversion of management attention, and potential failure to achieve expected synergies[125][127] - International operations, accounting for about 27% of 2023 net sales, are subject to risks including political/economic instability, currency fluctuations, and trade disputes[133] - The company's two principal stockholders beneficially owned approximately 23% of outstanding common stock as of December 31, 2023, giving them substantial influence over stockholder matters[143] Unresolved Staff Comments The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[146] Cybersecurity Silgan employs a comprehensive, multi-layered cybersecurity management approach aligned with the NIST Cybersecurity Framework, with board oversight and a dedicated governance committee - The company's cybersecurity management is aligned with the National Institute on Standards and Technology (NIST) Cybersecurity Framework[148] - The Board of Directors is responsible for risk oversight, including cybersecurity, and receives quarterly reports from senior management[151] - A Cybersecurity Governance Committee, comprising the CEO, CFO, General Counsel, and other senior leaders, meets multiple times per quarter to address cybersecurity risks and threats[153][154] - To date, the company has not experienced any cybersecurity incident that has materially affected its business, results of operations, or financial condition[151] Properties The company operates 107 manufacturing facilities globally across its three segments, with 56 owned and 51 leased properties Manufacturing Facilities by Segment | Segment | Number of Facilities | | :--- | :--- | | Dispensing and Specialty Closures | 44 | | Metal Containers | 40 | | Custom Containers | 23 | | Total | 107 | - The company owns 56 of its manufacturing facilities and leases 51[155] Legal Proceedings The company is party to routine legal proceedings that are not expected to have a material adverse effect on its business or financial condition - The company is not a party to any pending legal proceedings that are expected to have a material adverse effect on its business or financial condition[157] Mine Safety Disclosures This item is not applicable to the company - Not applicable[158] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Silgan's common stock trades on the NYSE under SLGN, with the company consistently increasing its quarterly cash dividend since 2004 and having $93.3 million remaining for share repurchases - Common stock is traded on the NYSE under the symbol SLGN[161] - The company has increased its quarterly cash dividend each year since 2004[162] - As of December 31, 2023, approximately $93.3 million remained available for share repurchases under the current authorization, which runs through December 31, 2026[163] Management's Discussion and Analysis of Financial Condition and Results of Operations This section details the company's financial performance, highlighting a 6.6% decrease in 2023 net sales to $6.0 billion due to lower volumes and destocking, while gross profit margin improved Consolidated Financial Highlights (2023 vs. 2022) | Metric | 2023 | 2022 | Change | | :--- | :--- | :--- | :--- | | Net Sales | $6.0 billion | $6.4 billion | -6.6% | | Gross Profit Margin | 16.6% | 16.3% | +0.3 ppt | | Income before Interest and Income Taxes | $595.4 million | $602.0 million | -1.1% | | Net Income | $326.0 million | $340.8 million | -4.3% | - The decrease in 2023 net sales was primarily driven by lower volumes across all segments, customer destocking activities, and the pass-through of lower resin costs in the custom containers segment[183] - Interest expense increased by $47.0 million in 2023 compared to 2022, mainly due to higher weighted average interest rates[187] - The company utilizes supply chain financing (SCF) programs for both receivables and payables to manage working capital, with approximately $330.2 million in outstanding trade payables subject to the supplier SCF program as of December 31, 2023[228][231] Results of Operations Consolidated net sales decreased 6.6% to $6.0 billion in 2023 due to lower volumes, while gross profit margin improved to 16.6%, and income before interest and taxes slightly decreased Net Sales by Segment (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Dispensing and Specialty Closures | $2,221.4 | $2,316.7 | $2,160.5 | | Metal Containers | $3,140.8 | $3,371.8 | $2,808.0 | | Custom Containers | $626.0 | $723.0 | $708.6 | | Consolidated | $5,988.2 | $6,411.5 | $5,677.1 | Income Before Interest and Income Taxes by Segment (in millions) | Segment | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Dispensing and Specialty Closures | $281.0 | $323.0 | $262.1 | | Metal Containers | $287.4 | $234.2 | $253.7 | | Custom Containers | $52.8 | $92.5 | $92.4 | | Corporate | $(25.8) | $(47.7) | $(32.1) | | Consolidated | $595.4 | $602.0 | $576.1 | Segment Performance Analysis In 2023, all segments experienced sales decreases due to volume declines and customer destocking, with Dispensing and Specialty Closures down 4.1%, Metal Containers down 6.9%, and Custom Containers down 13.4% - Dispensing and Specialty Closures: 2023 net sales decreased 4.1% to $2.22 billion, with unit volumes down approximately 7% primarily due to customer destocking in U.S. food and beverage markets[199] - Metal Containers: 2023 net sales decreased 6.9% to $3.14 billion, with unit volumes falling by approximately 7% due to customer destocking and non-recurring sales[204] - Custom Containers: 2023 net sales decreased 13.4% to $626.0 million, driven by a 9% volume decline from customer destocking and lower resin cost pass-throughs[209] Capital Resources and Liquidity The company's liquidity is primarily from cash operations ($482.6 million in 2023) and debt, with total debt at $3.44 billion and a $1.5 billion undrawn revolving credit facility as of year-end 2023 Cash Flow Summary (in millions) | Cash Flow Activity | 2023 | 2022 | 2021 | | :--- | :--- | :--- | :--- | | Net Cash from Operating Activities | $482.6 | $748.4 | $556.8 | | Net Cash used in Investing Activities | $(223.8) | $(215.6) | $(976.0) | | Net Cash (used in) from Financing Activities | $(211.4) | $(569.6) | $648.6 | - At December 31, 2023, total consolidated indebtedness was $3.44 billion, with cash and cash equivalents of $642.9 million[224] - The company has a $1.5 billion multi-currency revolving loan facility available until November 2026, with $1.48 billion available at year-end 2023[225] - Projected capital expenditures for 2024 are approximately $240.0 million[234] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates, foreign currency, and commodity prices through swaps, local currency debt, and contractual pass-through agreements - A one percentage point change in interest rates would have impacted 2023 interest expense by approximately $13.2 million, after considering interest rate swap agreements[265] - As of December 31, 2023, the company had four outstanding U.S. dollar interest rate swap agreements with a total notional principal of $300.0 million, maturing in 2026, to convert variable-rate exposure to fixed rates[264] - Foreign currency risk is primarily managed by financing European operations with Euro-denominated borrowings[266] Financial Statements and Supplementary Data This section incorporates by reference the full financial statements and schedules listed under Item 15 of the report - Refers to Item 15 for a full listing of financial statements and schedules[269] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with an unqualified attestation report from Ernst & Young LLP - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2023[271] - Management concluded that the company maintained effective internal control over financial reporting as of December 31, 2023, based on the COSO framework[274] - Ernst & Young LLP issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting as of December 31, 2023[275][277] Part III Directors, Compensation, Security Ownership, and Accountant Fees Information for Items 10-14 regarding directors, executive compensation, security ownership, related transactions, and accountant fees is incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding directors, executive compensation, security ownership, related transactions, and accountant fees is incorporated by reference from the company's forthcoming Proxy Statement[287][288][289] Part IV Exhibits and Financial Statement Schedules This section lists the financial statements, schedules, and numerous exhibits filed as part of the Form 10-K report, including corporate governance documents and certifications - This section contains the index of financial statements, schedules, and exhibits included with the 10-K filing[293] Financial Statements and Notes Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on Silgan's 2023 consolidated financial statements and internal control over financial reporting, identifying goodwill valuation as a critical audit matter - Ernst & Young LLP provided an unqualified opinion on the consolidated financial statements and the effectiveness of internal control over financial reporting[310][311] - The valuation of the company's $2.0 billion in goodwill was identified as a Critical Audit Matter, due to the complex and judgmental nature of estimating the fair value of reporting units[316][317] Consolidated Financial Statements The consolidated financial statements show total assets of $7.61 billion and stockholders' equity of $1.89 billion as of December 31, 2023, with 2023 net sales of $6.0 billion and net income of $326.0 million Consolidated Balance Sheet Highlights (December 31, 2023) | Account | Amount (in thousands) | | :--- | :--- | | Total Current Assets | $2,348,982 | | Total Assets | $7,611,236 | | Total Current Liabilities | $2,311,856 | | Total Long-Term Debt | $2,546,451 | | Total Stockholders' Equity | $1,889,358 | Consolidated Income Statement Highlights (Year Ended December 31, 2023) | Account | Amount (in thousands) | | :--- | :--- | | Net Sales | $5,988,205 | | Gross Profit | $992,558 | | Income Before Income Taxes | $422,121 | | Net Income | $325,965 | | Diluted EPS | $2.98 | Notes to Consolidated Financial Statements The notes detail accounting policies, $3.44 billion in long-term debt maturities, overfunded U.S. pension plans, and segment performance, including a $17.7 million loss recovery in 2023 - Goodwill and other indefinite-lived intangible assets are tested for impairment annually on July 1[342] - In 2022, the company recognized a rationalization charge of $73.8 million for the write-off of net assets in Russia, and in 2023, recorded a credit of $17.7 million related to a loss recovery for these assets[362] Long-Term Debt Maturities (in thousands) | Year | Amount | | :--- | :--- | | 2024 | $852,711 | | 2025 | $106,723 | | 2026 | $603,665 | | 2027 | $653,192 | | 2028 | $1,153,269 | | Thereafter | $6,973 | - The company's U.S. pension plans are significantly overfunded, with plan assets at approximately 134% of projected benefit obligations at year-end 2023[255][467]