Silgan (SLGN) - 2024 Q1 - Quarterly Report

Part I. Financial Information This section provides the unaudited condensed consolidated financial statements and management's discussion and analysis for the three months ended March 31, 2024 Item 1. Financial Statements This section presents the unaudited condensed consolidated financial statements for Q1 2024 and 2023, covering balance sheets, income, comprehensive income, cash flows, and stockholders' equity, alongside detailed notes on accounting policies, revenue, debt, and other financial aspects Condensed Consolidated Balance Sheets The balance sheet provides a snapshot of the company's assets, liabilities, and stockholders' equity at specific points in time | Metric | March 31, 2024 (unaudited, Dollars in thousands) | March 31, 2023 (unaudited, Dollars in thousands) | Dec. 31, 2023 (Dollars in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | :----------------------------------- | | Assets | | | | | Cash and cash equivalents | $308,641 | $501,060 | $642,923 | | Total current assets | 2,376,371 | 2,625,009 | 2,348,982 | | Total assets | $7,574,255 | $7,861,722 | $7,611,236 | | Liabilities and Stockholders' Equity | | | | | Total current liabilities | 2,289,477 | 1,844,115 | 2,311,856 | | Long-term debt | 2,534,504 | 3,370,346 | 2,546,451 | | Total stockholders' equity | 1,899,846 | 1,781,290 | 1,889,358 | | Total liabilities and stockholders' equity | $7,574,255 | $7,861,722 | $7,611,236 | Condensed Consolidated Statements of Income This statement details the company's revenues, expenses, and net income over the reporting period | Metric | Three months ended March 31, 2024 (Dollars in thousands) | Three months ended March 31, 2023 (Dollars in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net sales | $1,317,038 | $1,418,281 | | Gross profit | 223,479 | 237,965 | | Income before interest and income taxes | 111,719 | 131,228 | | Net income | $55,164 | $72,029 | | Basic net income per share | $0.52 | $0.65 | | Diluted net income per share | $0.52 | $0.65 | - Net sales decreased by $101.3 million (7.1%) from $1,418.3 million in Q1 2023 to $1,317.0 million in Q1 2024[11] - Net income decreased by $16.8 million (23.4%) from $72.0 million in Q1 2023 to $55.2 million in Q1 2024[11] - Diluted EPS decreased by $0.13 (20%) from $0.65 in Q1 2023 to $0.52 in Q1 2024[11] Condensed Consolidated Statements of Comprehensive Income This statement presents net income and other comprehensive income or loss, reflecting changes in equity from non-owner sources | Metric | Three months ended March 31, 2024 (Dollars in thousands) | Three months ended March 31, 2023 (Dollars in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net income | $55,164 | $72,029 | | Other comprehensive (loss) income | (20,629) | 20,740 | | Comprehensive income | $34,535 | $92,769 | - Comprehensive income decreased significantly from $92.8 million in Q1 2023 to $34.5 million in Q1 2024, primarily due to a foreign currency translation loss of $(24.5) million in 2024 compared to a gain of $19.7 million in 2023[14] Condensed Consolidated Statements of Cash Flows This statement summarizes cash inflows and outflows from operating, investing, and financing activities | Metric | Three months ended March 31, 2024 (Dollars in thousands) | Three months ended March 31, 2023 (Dollars in thousands) | | :-------------------------------- | :--------------------------------------- | :--------------------------------------- | | Net cash (used in) operating activities | $(547,810) | $(631,774) | | Net cash (used in) investing activities | $(72,462) | $(66,991) | | Net cash provided by financing activities | $292,676 | $610,375 | | Net (decrease) in cash and cash equivalents | $(334,282) | $(84,562) | | Balance at end of period | $308,641 | $501,060 | - Net cash used in operating activities improved from $(631.8) million in Q1 2023 to $(547.8) million in Q1 2024[17] - Net cash provided by financing activities decreased substantially from $610.4 million in Q1 2023 to $292.7 million in Q1 2024[17] Condensed Consolidated Statements of Stockholders' Equity This statement outlines changes in equity accounts, including common stock, retained earnings, and accumulated other comprehensive loss | Metric | March 31, 2024 | March 31, 2023 | | :-------------------------------- | :------------- | :------------- | | Common stock - shares outstanding (end of period) | 106,775 | 110,252 | | Retained earnings (end of period) | $3,242,914 | $3,013,104 | | Accumulated other comprehensive loss (end of period) | $(271,990) | $(324,570) | | Total stockholders' equity | $1,899,846 | $1,781,290 | | Dividends declared on common stock per share | $0.19 | $0.18 | - Total stockholders' equity increased to $1,899.8 million at March 31, 2024, from $1,781.3 million at March 31, 2023[19] - Dividends declared per common stock increased from $0.18 in Q1 2023 to $0.19 in Q1 2024[19] Notes to Condensed Consolidated Financial Statements These notes provide detailed explanations and disclosures for the financial statements, clarifying accounting policies and specific financial items Note 1. Significant Accounting Policies This note describes the key accounting principles and methods used in preparing the financial statements - The unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP for interim financial information and Form 10-Q instructions, not including all footnotes required for complete financial statements[20] - Management considers all adjustments (normal recurring accruals) necessary for fair presentation[20] Note 2. Revenue This note disaggregates revenue by segment and geography, detailing contract assets and revenue recognition policies | Segment | 2024 (Dollars in thousands) | 2023 (Dollars in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Dispensing and Specialty Closures | $535,920 | $579,932 | | Metal Containers | 617,129 | 670,096 | | Custom Containers | 163,989 | 168,253 | | Total Revenues | $1,317,038 | $1,418,281 | | Geography | 2024 (Dollars in thousands) | 2023 (Dollars in thousands) | | :---------------- | :-------------------------- | :-------------------------- | | North America | $981,963 | $1,056,526 | | Europe and other | 335,075 | 361,755 | | Total Revenues | $1,317,038 | $1,418,281 | - Contract assets (unbilled accounts receivable) were $97.2 million at March 31, 2024, down from $108.5 million at March 31, 2023[23] Note 3. Rationalization Charges This note details charges related to restructuring and cost-reduction initiatives across business segments | Segment | 2024 (Dollars in thousands) | 2023 (Dollars in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Dispensing and Specialty Closures | $6,557 | $114 | | Metal Containers | 3,584 | 3,903 | | Custom Containers | 1,550 | 104 | | Total Rationalization Charges | $11,691 | $4,121 | - Total rationalization charges increased significantly to $11.7 million in Q1 2024 from $4.1 million in Q1 2023, primarily driven by the Dispensing and Specialty Closures segment[24] - Rationalization reserves at March 31, 2024, totaled $33.6 million, with $7.2 million in accrued liabilities and $26.4 million in other liabilities[24] Note 4. Accumulated Other Comprehensive Loss This note explains changes in accumulated other comprehensive loss, including foreign currency translation adjustments and derivative fair values | Component | Dec. 31, 2023 (Dollars in thousands) | Other comprehensive loss (Dollars in thousands) | March 31, 2024 (Dollars in thousands) | | :-------------------------------- | :----------------------------------- | :-------------------------------------- | :------------------------------------ | | Unrecognized Net Defined Benefit Plan Costs | $(133,523) | $1,403 | $(132,120) | | Fair Value of Derivatives | $(216) | $2,425 | $2,209 | | Foreign Currency Translation | $(117,622) | $(24,457) | $(142,079) | | Total Accumulated Other Comprehensive Loss | $(251,361) | $(20,629) | $(271,990) | - Accumulated other comprehensive loss increased to $(272.0) million at March 31, 2024, from $(251.4) million at December 31, 2023, primarily due to foreign currency translation losses of $(24.5) million[26] - Foreign currency translation losses included $(33.5) million from foreign subsidiary financial statements, $0.1 million from intra-entity transactions, and $11.6 million from net investment hedges[28] Note 5. Inventories This note provides a breakdown of inventory components, including raw materials, work-in-process, and finished goods | Inventory Type | March 31, 2024 (Dollars in thousands) | March 31, 2023 (Dollars in thousands) | Dec. 31, 2023 (Dollars in thousands) | | :--------------- | :------------------------------------ | :------------------------------------ | :--------------------------------- | | Raw materials | $395,261 | $498,580 | $465,375 | | Work-in-process | 209,296 | 254,373 | 219,462 | | Finished goods | 652,724 | 630,233 | 556,737 | | Other | 17,341 | 16,205 | 16,616 | | LIFO adjustment | (317,382) | (344,312) | (317,382) | | Total Inventories | $957,240 | $1,055,079 | $940,808 | - Total inventories decreased to $957.2 million at March 31, 2024, from $1,055.1 million at March 31, 2023, primarily due to a reduction in raw materials[30] Note 6. Long-Term Debt This note details the company's long-term debt obligations, including various senior notes and term loans | Debt Type | March 31, 2024 (Dollars in thousands) | March 31, 2023 (Dollars in thousands) | Dec. 31, 2023 (Dollars in thousands) | | :-------------------------- | :------------------------------------ | :------------------------------------ | :--------------------------------- | | Bank revolving loans | $580,000 | $755,000 | $0 | | U.S. term loans | 850,000 | 950,000 | 950,000 | | 3¼% Senior Notes | 702,000 | 706,160 | 717,990 | | 4⅛% Senior Notes | 600,000 | 600,000 | 600,000 | | 2¼% Senior Notes | 540,000 | 543,200 | 552,300 | | 1.4% Senior Secured Notes | 500,000 | 500,000 | 500,000 | | Total debt - principal | $3,892,340 | $4,171,250 | $3,439,835 | | Less current portion | 1,345,851 | 784,795 | 880,315 | | Long-term debt | $2,534,504 | $3,370,346 | $2,546,451 | - Current portion of long-term debt increased to $1,345.9 million at March 31, 2024, from $784.8 million at March 31, 2023, primarily due to $702.0 million of 3¼% Senior Notes due 2025 and $580.0 million of U.S. revolving loans[31] Note 7. Financial Instruments This note describes the company's financial instruments, their fair value measurements, and risk management strategies | Financial Instrument | Carrying Amount (March 31, 2024, Dollars in thousands) | Fair Value (March 31, 2024, Dollars in thousands) | | :-------------------------- | :----------------------------------------------- | :------------------------------------------ | | Cash and cash equivalents | $308,641 | $308,641 | | Bank debt | $1,487,435 | $1,487,435 | | 3¼% Senior Notes | 702,000 | 695,415 | | 4⅛% Senior Notes | 599,469 | 567,708 | | 2¼% Senior Notes | 540,000 | 493,063 | | 1.4% Senior Secured Notes | 499,889 | 457,980 | - Fair value measurements are classified into a three-level hierarchy: Level 1 (quoted prices in active markets), Level 2 (observable inputs other than Level 1), and Level 3 (unobservable inputs)[33] - Cash and cash equivalents are measured using Level 1 inputs, while derivative instruments (interest rate and natural gas swaps) are measured using Level 2 inputs[34] - The company uses interest rate and natural gas swap agreements to manage exposure to interest rate and natural gas cost fluctuations, not for speculative purposes[37] - Foreign currency exchange rate risk is minimized through Euro-denominated borrowings for foreign acquisitions and internal hedging strategies, including net investment hedges[41] Note 8. Commitments and Contingencies This note outlines the company's legal proceedings, contractual commitments, and potential contingent liabilities - The company is involved in legal proceedings, contract disputes, and claims in the ordinary course of business but is not party to any pending legal proceedings that could have a material adverse effect on its business or financial condition[43] Note 9. Supply Chain Finance Program This note explains the company's supply chain finance program and its impact on supplier receivables - The company has a supply chain finance (SCF) program with a major global financial institution, allowing qualifying suppliers to sell their receivables to the institution[44] - Suppliers' invoices included in the SCF program were $252.6 million at March 31, 2024, a decrease from $318.4 million at March 31, 2023[44] Note 10. Retirement Benefits This note details the costs associated with the company's pension and other postretirement benefit plans | Component | 2024 (Dollars in thousands) | 2023 (Dollars in thousands) | | :-------------------------- | :-------------------------- | :-------------------------- | | Net periodic pension benefit cost | $1,682 | $3,722 | | Net periodic other postretirement benefit cost (credit) | $83 | $(193) | - Net periodic pension benefit cost decreased to $1.7 million in Q1 2024 from $3.7 million in Q1 2023, primarily due to a higher expected return on plan assets[45] Note 11. Income Taxes This note provides information on the company's income tax position, including effective tax rates and IRS reviews - The IRS completed its review of the 2022 tax year with no changes and the company has been accepted into the Compliance Assurance Program for 2023 and 2024[46] Note 12. Treasury Stock This note describes the company's treasury stock activities, including share repurchases and authorizations - As of March 31, 2024, approximately $93.3 million remained under the $300.0 million common stock repurchase authorization, which extends through December 31, 2026[47] - No shares were repurchased under this authorization during Q1 2024[47] - The company issued 449,998 treasury shares for vested restricted stock units and repurchased 174,819 shares to satisfy tax requirements in Q1 2024[48] Note 13. Stock-Based Compensation This note details the company's stock-based compensation plans and related expenses - 460,600 restricted stock units were granted in Q1 2024 to officers and key employees, with a fair value of $20.2 million[50] Note 14. Segment Information This note provides financial data disaggregated by business segment, including net sales and adjusted EBIT | Segment | Net Sales (Q1 2024, Dollars in thousands) | Net Sales (Q1 2023, Dollars in thousands) | Adjusted EBIT (Q1 2024, Dollars in thousands) | Adjusted EBIT (Q1 2023, Dollars in thousands) | | :-------------------------- | :---------------------------------------- | :---------------------------------------- | :------------------------------------------ | :------------------------------------------ | | Dispensing and Specialty Closures | $535,920 | $579,932 | $77,850 | $82,936 | | Metal Containers | 617,129 | 670,096 | 44,954 | 52,400 | | Custom Containers | 163,989 | 168,253 | 20,168 | 20,034 | | Corporate | — | — | (7,492) | (5,966) | | Total | $1,317,038 | $1,418,281 | $135,480 | $149,404 | - Total adjusted EBIT decreased to $135.5 million in Q1 2024 from $149.4 million in Q1 2023[54] - The Metal Containers segment and part of the Dispensing and Specialty Closures segment experience seasonality, with higher unit sales and disproportionate adjusted EBIT in the third quarter due to vegetable and fruit harvests[54] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results for Q1 2024, analyzing consolidated and segment performance, capital resources, and liquidity, including non-GAAP measures General This section introduces Silgan Holdings Inc. as a leading provider of rigid packaging solutions and outlines its strategic objectives - Silgan Holdings Inc. is a leading manufacturer and supplier of sustainable rigid packaging solutions for consumer goods, including dispensing and specialty closures, metal containers, and custom plastic containers[59] - The company aims to increase shareholder value through business growth, cost reduction, competitive positioning, and strategic acquisitions, with cash flow potentially used for debt repayment, share repurchases, or dividends if acquisition opportunities are limited[60] Results of Operations This section analyzes the company's consolidated and segment-specific financial performance, including net sales, gross profit, and income before interest and taxes | Metric | Q1 2024 (% of Net Sales) | Q1 2023 (% of Net Sales) | | :-------------------------------- | :----------------------- | :----------------------- | | Net sales | 100.0 % | 100.0 % | | Cost of goods sold | 83.0 % | 83.2 % | | Gross profit | 17.0 % | 16.8 % | | Selling, general and administrative expenses | 7.6 % | 7.1 % | | Rationalization charges | 0.9 % | 0.3 % | | Income before interest and income taxes | 8.5 % | 9.3 % | | Net income | 4.2 % | 5.1 % | - Consolidated net sales decreased by 7.1% to $1.32 billion in Q1 2024, primarily due to lower volumes across all segments, the pass-through of lower raw material costs in metal containers, and a less favorable product mix in dispensing and specialty closures[64] - Gross profit margin increased by 0.2 percentage points to 17.0% in Q1 2024[65] - Income before interest and income taxes decreased by $19.5 million to $111.7 million in Q1 2024, with margins falling to 8.5% from 9.3%, mainly due to lower volumes, higher cost metal inventory, and increased rationalization charges[67] - Interest and other debt expense increased by $1.8 million to $38.6 million in Q1 2024 due to higher weighted average interest rates[68] - The effective tax rate increased to 24.5% in Q1 2024 from 23.8% in Q1 2023[68] - Adjusted EBIT, a non-GAAP measure, excludes acquired intangible asset amortization, other pension (income) expense for U.S. pension plans, and rationalization charges to provide a clearer view of core operating performance[71][72] Dispensing and Specialty Closures Segment This section analyzes the financial performance of the Dispensing and Specialty Closures segment, focusing on sales and profitability drivers - Net sales decreased by 7.6% to $535.9 million in Q1 2024, driven by a 7% decline in unit volumes and a less favorable product mix, partially offset by favorable foreign currency translation[75] - Adjusted EBIT decreased by $5.1 million, but adjusted EBIT margin increased to 14.5% from 14.3%, due to lower volumes and higher cost inventory, partially offset by improved manufacturing productivity[76] Metal Containers Segment This section analyzes the financial performance of the Metal Containers segment, detailing sales trends and profitability factors - Net sales decreased by 7.9% to $617.1 million in Q1 2024, primarily due to a 5% drop in unit volumes (customer destocking) and the pass-through of lower raw material costs, partially offset by a more favorable product mix and foreign currency translation[77] - Adjusted EBIT decreased by $7.4 million, and adjusted EBIT margin fell to 7.3% from 7.8%, mainly due to higher cost inventory from the prior year and lower volumes, partially offset by reduced SG&A costs[78] Custom Containers Segment This section analyzes the financial performance of the Custom Containers segment, highlighting sales and margin changes - Net sales decreased by 2.6% to $164.0 million in Q1 2024, mainly due to a 3% decline in volumes from customer destocking[80] - Adjusted EBIT increased by $0.1 million, and adjusted EBIT margin rose to 12.3% from 11.9%, primarily due to a more favorable product mix, despite lower volumes[81] Capital Resources and Liquidity This section discusses the company's sources and uses of cash, liquidity position, and ability to meet financial obligations - Principal liquidity sources are net cash from operating activities and debt borrowings, used for debt obligations, capital investment, seasonal working capital, and general corporate uses[82] - In Q1 2024, the company used $547.8 million in cash from operations, $160.6 million for outstanding checks, $100.0 million for long-term debt repayment, $72.5 million for net capital expenditures, $21.1 million for dividends, and $7.7 million for stock repurchases[83] - As of March 31, 2024, $899.4 million of revolving loans were available under the Credit Agreement, after accounting for $580.0 million outstanding and letters of credit[85] - The company expects cash from operations and available borrowings to meet operating needs, capital expenditures, debt service, tax obligations, pension contributions, share repurchases, and dividends for the foreseeable future[87] - Outstanding trade accounts payables subject to the Supply Chain Finance program were $252.6 million at March 31, 2024, down from $318.4 million at March 31, 2023[89] - The Obligor Group's current assets were $1,435.4 million and noncurrent assets were $5,532.9 million at March 31, 2024[92] - Cash payments for rationalization plans were $11.8 million in Q1 2024, with remaining expenses and cash expenditures expected to be $8.1 million and $14.3 million, respectively, excluding Central States Pension Plan withdrawal liability[95] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company discloses its exposure to market risks from interest rates, foreign currency, and commodity prices, detailing risk management strategies using derivative instruments without speculative intent - Market risks primarily stem from changes in interest rates, foreign currency exchange rates, and commodity prices (e.g., natural gas)[98] - The company uses derivative financial instruments (interest rate and natural gas swap agreements) to manage exposure, not for trading or speculative purposes[98] - No material changes to market risks or management policies have occurred since the December 31, 2023, Form 10-K filing, except as noted in Note 7[99] Item 4. Controls and Procedures Management assessed the effectiveness of disclosure controls and procedures as of March 31, 2024, confirming their efficacy with no material changes in internal controls - Disclosure controls and procedures were evaluated and deemed effective as of March 31, 2024, ensuring timely and accurate reporting[100] - No material changes in internal controls over financial reporting occurred during the period covered by the report[101] Part II. Other Information This section includes additional information and exhibits required for the quarterly report Item 6. Exhibits This section lists all exhibits accompanying the Form 10-Q, including CEO and CFO certifications and XBRL documents - Exhibits include certifications by the CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act) and various XBRL documents[103] Signatures This section contains the official signatures, confirming the due authorization and filing of the Quarterly Report on Form 10-Q Signatures This section contains the official signatures, confirming the due authorization and filing of the Quarterly Report on Form 10-Q - The Quarterly Report was signed on May 8, 2024, by Kimberly I. Ulmer, Senior Vice President and Chief Financial Officer, on behalf of Silgan Holdings Inc[108]