SILGAN HOLDINGS INC. The following discussion and analysis is intended to assist you in understanding our consolidated financial condition and results of operations for the three-year period endedDecember 31, 2022 . Our consolidated financial statements and the accompanying notes included elsewhere in this Annual Report contain detailed information that you should refer to in conjunction with the following discussion and analysis. GENERAL We are a leading manufacturer of sustainable rigid packaging solutions for the world's essential consumer goods products. We currently produce dispensing and specialty closures for food, beverage, health care, garden, home, personal care, fragrance and beauty products; steel and aluminum containers for human and pet food and general line products; and custom designed plastic containers for personal care, food, health care, pharmaceutical, household and industrial chemical, pet food and care, agricultural, automotive and marine chemical products. We are a leading worldwide manufacturer of dispensing and specialty closures, a leading manufacturer of metal containers inNorth America andEurope , the largest manufacturer of metal food containers inNorth America with a unit volume market share inthe United States for the year endedDecember 31, 2022 of more than half of the market, and a leading manufacturer of custom containers inNorth America for a variety of markets. Our objective is to increase shareholder value by efficiently deploying capital and management resources to grow our business, reduce operating costs, build sustainable competitive positions, or franchises, and to complete acquisitions that generate attractive cash returns. We have grown our net sales and income from operations largely through acquisitions but also through organic growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market.
SALES GROWTH
We have increased net sales and market share in our dispensing and specialty closures, metal containers, and custom containers businesses through both acquisitions and organic growth. As a result, we have expanded and diversified our customer base, geographic presence and product lines. With our acquisitions of SDS, the Albéa Dispensing Business,Silgan Specialty Packaging and Silgan Unicep and through organic growth, we established ourselves as a leading worldwide manufacturer of dispensing systems and specialty closures for food, beverage, health care, garden, home, personal care, fragrance and beauty products. Since 2003, following our acquisition of the White Cap closures operations inthe United States , net sales of our dispensing and specialty closures business have increased to$2.32 billion in 2022 as a result of acquisitions and organic growth, representing a compound annual growth rate of approximately 13.5 percent over that period. We may pursue further acquisition opportunities in the dispensing and specialty closures markets, including in dispensing systems, or in adjacent markets, such as our acquisitions ofSilgan Specialty Packaging and Silgan Unicep. Additionally, we expect to continue to generate organic growth in our dispensing and specialty closures business, particularly in dispensing systems. In 2022, unit volumes for our dispensing and specialty closures business increased approximately 1 percent principally as a result of higher volumes for beauty and fragrance and dispensing products, including from the acquisitions we completed in 2021, partially offset by expected volume decreases in metal closures for certain food and beverage markets primarily due to customer pre-buy activity in late 2021 in advance of significant steel inflation in 2022 and lower volumes for lawn and garden, hygiene and home cleaning products which were impacted by further inventory corrections throughout the supply chain in 2022. Volumes for our dispensing and specialty closures in 2022 remained above COVID-19 pre-pandemic levels. For 2023, we expect demand levels for beauty and fragrance products to continue to be strong, demand levels for hygiene and cleaning products to improve, and increased volumes for metal closures due to less customer pre-buy activity in 2022 than 2021. We are a leading manufacturer of metal containers inNorth America andEurope , primarily as a result of our acquisitions but also as a result of growth with existing customers. During the past 35 years, the metal food container market inNorth America has experienced significant consolidation primarily due to the desire by food processors to reduce costs and focus resources on their core operations rather than self-manufacture their metal food containers. Our acquisitions of the metal food container manufacturing operations of Nestlé, Dial, Del Monte, Birds Eye, Campbell,Pacific Coast andPurina Steel Can reflect this trend. We estimate that approximately nine percent of the market for metal food containers inthe United States is still served by self-manufacturers. Prior to 2020, the metal food container market inNorth America was relatively flat during this period of consolidation, despite losing market share as a result of more dining out, fresh produce and competing materials. Despite a relatively flat market, we increased our share of the market for metal food containers inthe United States primarily 28 -------------------------------------------------------------------------------- through acquisitions and growth with existing customers. Since 1987, net sales of our metal containers business have increased to$3.37 billion , representing a compound annual growth rate of approximately 7.6 percent. We also enhanced our business by focusing on providing customers with high levels of quality and service, a more sustainable solution for their packaging needs and value-added features such as our Quick Top® easy-open ends, shaped metal food containers and alternative color offerings for metal food containers. In 2020 and 2021, we experienced a significant increase in demand for many of our products, including metal food containers primarily due to higher demand for at home food consumption and continued growth in pet food products. As expected, volumes for our metal food containers decreased by approximately 11 percent in 2022 as compared to 2021 due, in part, to customer pre-buy activity at the end of 2021 in advance of unprecedented metal inflation in 2022. Volumes for our metal food containers in 2022 remained significantly above COVID-19 pre-pandemic levels despite the volume decrease in 2022. Net sales in the metal containers business did increase significantly in 2022 as compared to 2021 primarily as a result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs. For 2023, we anticipate that demand levels for our metal food containers will continue to be strong principally due to continued growth in pet food products, less customer pre-buy activity in 2022 as compared to 2021 and continued demand for at-home food consumption. We have improved the market position of our custom containers business since 1987, with net sales increasing to$723.0 million in 2022, representing a compound annual growth rate of approximately 6.2 percent over that period. We achieved this improved market position primarily through strategic acquisitions as well as through organic growth. The custom container market of the consumer goods packaging industry continues to be highly fragmented. We have focused on the segment of this market where custom design and decoration allows customers to differentiate their products such as in personal care. We intend to pursue further acquisition opportunities in markets where we believe that we can successfully apply our acquisition and value-added operating expertise and strategy. Our custom containers business experienced a decrease in volumes in 2022 and 2021 as compared to record pandemic driven volumes in 2020 primarily due to lower volumes for home care, personal care and lawn and garden products which were impacted by inventory corrections throughout the supply chain in 2022 and 2021. We anticipate that demand levels for our custom containers will increase in 2023, primarily as a result of improved volume levels for home care, personal care and lawn and garden products and continued growth in pet food products, offset by the timing impact of exiting lower margin business in the latter half of 2022 that did not meet reinvestment return hurdles and replacing it with new business that is expected to be commercialized in the fourth quarter of 2023. OPERATING PERFORMANCE We operate in a competitive industry where it is necessary to realize cost reduction opportunities to offset continued competitive pricing pressure. We have improved the operating performance of our plant facilities through the investment of capital for productivity improvements, manufacturing efficiencies, manufacturing cost reductions and the optimization of our manufacturing facilities footprints. Our acquisitions and investments have enabled us to rationalize plant operations and decrease overhead costs through plant closings and downsizings and to realize manufacturing efficiencies as a result of optimizing production scheduling. From 2017, we have closed two dispensing and specialty closures manufacturing facilities and five metal container manufacturing facilities in connection with our continuing efforts to streamline our plant operations, reduce operating costs and better match supply with geographic demand. In 2019, we initiated a multi-year footprint optimization plan in our metal containers business in theU.S. to reduce capacity and continue to drive cost reductions, under which we shut down two metal container manufacturing facilities in the fourth quarter of 2019. Although we delayed implementation of this footprint optimization plan in 2020 and 2021 due to a strong increase in demand for our products, we resumed a portion of this footprint optimization plan in 2022, closing an additional metal container manufacturing facility to better align our manufacturing locations with our customer locations and to drive further cost reductions.
Historically, we have been successful in renewing our multi-year supply arrangements with our customers. We estimate that in 2023 approximately 90 percent of our projected metal containers sales and a majority of our projected dispensing and specialty closures and custom containers sales will be under multi-year arrangements.
Many of our multi-year customer supply arrangements generally provide for the
pass through of changes in raw material, labor and other manufacturing costs,
thereby significantly reducing the exposure of our results of operations to the
volatility of these costs. Our metal closures and metal containers supply
agreements with our customers provide for the pass through of changes in our
metal costs. For our metal closures and metal containers customers without
long-term contracts, we have also generally increased prices to pass through
increases in our metal costs. Our dispensing systems, plastic closures and
plastic containers supply agreements with our customers provide for the pass
through of changes in our resin costs, subject in many cases to a lag in the
timing of such pass
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through. For our dispensing systems, plastic closures and plastic containers
customers without long-term contracts, we have also generally increased prices
to pass through increases in our resin costs.
Our metal containers business is dependent, in part, upon the vegetable and
fruit harvests in the midwest and western regions of the United States and, to a
lesser extent, in a variety of national growing regions in Europe . Our
dispensing and specialty closures business is also dependent, in part, upon
vegetable and fruit harvests. 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 income from operations during
that quarter. Additionally, as is common in the packaging industry, we provide
extended payment terms to some of our customers in our metal containers business
due to the seasonality of the vegetable and fruit packing process.
USE OF CAPITAL
Historically, we have used leverage to support our growth and increase shareholder returns. Our stable and predictable cash flow, generated largely as a result of our long-term customer relationships and generally recession resistant business, supports our financial strategy. We intend to continue using reasonable leverage, supported by our stable cash flows, to make value enhancing acquisitions. In determining reasonable leverage, we evaluate our cost of capital and manage our level of debt to maintain an optimal cost of capital based on current market conditions. If acquisition opportunities are not identified over a long period of time, we may use our cash flow to repay debt, repurchase shares of our common stock or increase dividends to our stockholders or for other permitted purposes. InFebruary 2020 , we issued an additional$200.0 million of the 4?% Notes, resulting in an aggregate outstanding amount of$600.0 million of the 4?% Notes, and €500.0 million of the 2¼% Notes. We used the net proceeds of these issuances and revolving loan borrowings under our Credit Agreement to prepay all of our outstandingU.S. dollar term loans under our Credit Agreement at that time. InJune 2020 , we funded the purchase price for the Albéa Dispensing Business with$900.0 million of incremental term loans under our Credit Agreement. InFebruary 2021 , we amended our Credit Agreement to provide us with additional flexibility to, among other things, issue new senior secured notes, and we issued$500.0 million aggregate principal amount of our 1.4% Notes and used the proceeds therefrom to prepay$500.0 million of outstanding term loans under our Credit Agreement. In September andOctober 2021 , we funded the purchase price forSilgan Specialty Packaging , Silgan Unicep and Easytech with revolving loan borrowings under our Credit Agreement. InNovember 2021 , we further amended our Credit Agreement to extend maturity dates by more than three years, increase our revolving loan facility from$1.2 billion to$1.5 billion , borrow$1.0 billion in new term loans to refinance outstanding term and revolving loans under our Credit Agreement that were used to fund the three acquisitions completed in 2021 and the acquisition of the Albéa Dispensing Business in 2020, and provide us with additional flexibility with regard to our strategic initiatives. InMarch 2022 , we redeemed all$300.0 million aggregate principal amount of our outstanding 4¾% Notes with revolving loan borrowings under our Credit Agreement and cash on hand. You should also read Notes 3 and 9 to our Consolidated Financial Statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report. To the extent we utilize debt for acquisitions or other permitted purposes in future periods, our interest expense may increase. Further, since the revolving loan and term loan borrowings under our Credit Agreement bear interest at floating rates, our interest expense is sensitive to changes in prevailing rates of interest and, accordingly, our interest expense may vary from period to period. After taking into account interest rate swap agreements that we entered into to mitigate the effect of interest rate fluctuations, atDecember 31, 2022 , we had$922.5 million of indebtedness, or approximately 27 percent of our total outstanding indebtedness, which bore interest at floating rates. Over the course of the year, we also borrow revolving loans under our revolving loan facilities which bear interest at floating rates to fund our seasonal working capital needs. Accordingly, during 2022 our average outstanding variable rate debt, after taking into account the average outstanding notional amount of our interest rate swap agreements, was approximately 35 percent of our total outstanding indebtedness. You should also read Note 10 to our Consolidated Financial Statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report for information regarding our interest rate swap agreements. In light of our strategy to use leverage to support our growth and optimize shareholder returns, we have incurred and will continue to incur significant interest expense. For 2022, 2021 and 2020, our aggregate interest and other debt expense before loss on early extinguishment of debt as a percentage of our income before interest and income taxes was 21.0 percent, 18.8 percent and 20.3 percent, respectively. 30 --------------------------------------------------------------------------------
RESULTS OF OPERATIONS
The following table sets forth certain income statement data expressed as a percentage of net sales for each of the periods presented. You should read this table in conjunction with our Consolidated Financial Statements for the year endedDecember 31, 2022 and the accompanying notes included elsewhere in this Annual Report. Year Ended December 31, 2022 2021 2020 Operating Data: Net sales: Dispensing and Specialty Closures 36.1 % 38.0 % 34.8 % Metal Containers 52.6 49.5 52.0 Custom Containers 11.3 12.5 13.2 Consolidated 100.0 100.0 100.0 Cost of goods sold 83.7 83.8 82.4 Gross profit 16.3 16.2 17.6 Selling, general and administrative expenses 6.5 6.7 7.7 Rationalization charges 1.1 0.3 0.3 Other pension and postretirement income (0.7) (0.9) (0.8) Income before interest and income taxes 9.4 10.1 10.4 Interest and other debt expense 2.0 1.9 2.1 Income before income taxes 7.4 8.2 8.3 Provision for income taxes 2.1 1.9 2.0 Net income 5.3 % 6.3 % 6.3 %
Summary results for our reportable segments for the years ended
Year Ended December 31,
2022 2021 2020
(Dollars in millions)
Net sales:
Dispensing and Specialty Closures $ 2,316.7 $ 2,160.5 $ 1,712.4
Metal Containers 3,371.8 $ 2,808.0 $ 2,558.0
Custom Containers 723.0 $ 708.6 $ 651.5
Consolidated $ 6,411.5 $ 5,677.1 $ 4,921.9
Segment income:
Dispensing and Specialty Closures(1) $ 323.0 $ 262.1 $ 224.4
Metal Containers(2) 234.2 $ 253.7 $ 246.6
Custom Containers(3) 92.5 $ 92.4 $ 87.8
Corporate(4) (47.7) $ (32.1) $ (46.4)
Consolidated $ 602.0 $ 576.1 $ 512.4
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(1)Includes rationalization charges of $1.0 million , $5.8 million and
$5.7 million in 2022, 2021 and 2020, respectively. Also includes a charge for
the write-up of inventory for purchase accounting of $1.6 million as a result of
the acquisition of Silgan Specialty Packaging in 2021 and $3.5 million as a
result of the acquisition of the Albéa Dispensing Business in 2020.
(2)Includes rationalization charges of $73.1 million , $8.9 million and
$9.9 million in 2022, 2021 and 2020, respectively. Also includes a charge for
the write-up of inventory for purchase accounting of $1.0 million as a result of
the acquisition of Easytech in 2021.
(3)Includes rationalization charges of $0.3 million and $0.4 million in 2021 and
2020, respectively.
(4)Includes a charge of $25.2 million for the settlement with the European
Commission in 2022 and costs attributed to announced acquisitions of
$5.0 million and $19.3 million in 2021 and 2020, respectively.
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YEAR ENDED
Overview. Consolidated net sales were$6.41 billion in 2022, representing a 12.9 percent increase as compared to 2021 primarily as a result of higher average selling prices due to the pass through of higher raw material and other inflationary costs, higher volumes in the dispensing and specialty closures segment and a more favorable mix of products sold in the custom containers segment, partially offset by lower volumes in the metal containers and custom containers segments and the impact of unfavorable foreign currency translation. Income before interest and income taxes for 2022 increased by$25.9 million , or 4.5 percent, as compared to 2021 primarily due to higher average selling prices principally as a result of the pass through of higher raw material and other inflationary costs, strong operating performance in all segments including the benefits of inventory management programs in the dispensing and specialty closures and metal containers segments, the favorable year-over-year comparative impact from the delayed pass through of resin costs in the dispensing and specialty closures and custom containers segments and cost recovery for certain customer project expenditures in the dispensing and specialty closures segment. These increases were partially offset by inflation in manufacturing and selling, general and administrative costs, higher rationalization charges primarily due to the write-off of net assets to service the Russian market in the metal containers segment, higher corporate expenses as a result of a charge of$25.2 million related to theEuropean Commission settlement, lower volumes in the metal containers and custom containers segments, a less favorable mix of products sold in the metal containers segment, the impact of unfavorable foreign currency translation and the inclusion in the prior year of charges from the write-up of inventory for purchase accounting. Rationalization charges were$74.1 million and$15.0 million for the years ended 2022 and 2021, respectively. Results for 2022 and 2021 included a loss on early extinguishment of debt of$1.5 million and$1.4 million , respectively. Results for 2021 also included costs attributed to announced acquisitions of$5.0 million . Net income in 2022 was$340.8 million as compared to$359.1 million in 2021.
Net sales for the dispensing and specialty closures segment in 2022 increased$156.2 million , or 7.2 percent, as compared to 2021. This increase was primarily the result of higher average selling prices due to the pass through of higher raw material and other inflationary costs and higher unit volumes of approximately one percent, partially offset by the impact of unfavorable foreign currency translation of approximately$106 million . The increase in unit volumes was primarily the result of higher unit volumes for beauty and fragrance and dispensing products, including from the acquisitions completed in 2021. This increase was partially offset by volume decreases in closures for certain food and beverage markets as compared to record volumes in 2021, primarily due to customer pre-buy activity in the fourth quarter of 2021 in advance of significant metal inflation in 2022, and a decrease in volumes for lawn and garden, hygiene and home cleaning products which were impacted by further inventory corrections throughout the supply chain in 2022. Volumes for our dispensing and specialty closures in 2022 remained above COVID-19 pre-pandemic levels. Net sales for the metal containers segment increased$563.8 million , or 20.1 percent, in 2022 as compared to 2021. This increase was primarily a result of higher average selling prices due to the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately eleven percent and the impact of unfavorable foreign currency translation of approximately$52 million . The decrease in unit volumes was principally the result of the impact of customer pre-buy activity in the fourth quarter of 2021 in advance of significant price increases due to unprecedented metal inflation in 2022, lower fruit and vegetable volumes as compared to higher volumes in the prior year from customer restocking and the continued unfavorable impact from certain customers' ongoing supply chain and labor challenges in 2022. Volumes for our metal food containers in 2022 remained significantly above COVID-19 pre-pandemic levels despite the volume decrease in 2022. Net sales for the custom containers segment in 2022 increased$14.4 million , or 2.0 percent, as compared to 2021. This increase was principally due to higher average selling prices, including the pass through of higher resin and other inflationary costs and a more favorable mix of products sold, partially offset by lower volumes of approximately eight percent and the impact of unfavorable foreign currency translation of approximately$5 million . The decline in volumes was due primarily to higher volumes in the prior year as a result of increased demand related to the COVID-19 pandemic and subsequent inventory corrections throughout the supply chain in 2022, particularly for home, personal care and lawn and garden products.
Gross Profit. Gross profit margin increased 0.1 percentage points to 16.3 percent in 2022 as compared to 16.2 percent in 2021 for the reasons discussed below in "Income before Interest and Income Taxes."
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Selling, General and Administrative Expenses. Selling, general and
administrative expenses as a percentage of consolidated net sales decreased 0.2
percentage point to 6.5 percent for 2022 as compared to 6.7 percent in 2021.
Selling, general and administrative expenses increased $38.9 million in 2022 as
compared to 2021. The increase in selling, general and administrative expenses
was principally a result of a charge of $25.2 million for the settlement with
the European Commission , the inclusion of a full year of expenses from the
acquisitions completed late in the third quarter and in the fourth quarter of
2021, inflation in such expenses in the current year and an increase in travel
related expenses.
Income before Interest and Income Taxes. Income before interest and income taxes
for 2022 increased by $25.9 million as compared to 2021, while margin decreased
to 9.4 percent from 10.1 percent over the same periods. The increase in income
before interest and income taxes was primarily the result of higher income in
the dispensing and specialty closures and custom containers segments, partially
offset by lower income in the metal containers segment due to higher
rationalization charges and higher corporate expenses as a result of a charge of
$25.2 million related to the European Commission settlement. Income before
interest and income taxes included rationalization charges of $74.1 million and
$15.0 million in 2022 and 2021, respectively. Results for 2021 also included
costs attributed to announced acquisitions of $5.0 million and a charge for the
write-up of inventory for purchase accounting of $2.6 million .
Segment income of the dispensing and specialty closures segment for 2022
increased $60.9 million as compared to 2021, and segment income margin increased
to 13.9 percent from 12.1 percent over the same periods. The increase in segment
income was primarily due to higher average selling prices due to the pass
through of higher raw material and other inflationary costs, strong operating
performance including the benefit of an inventory management program, the
favorable impact in 2022 from the delayed pass through of lower resin costs as
compared to the unfavorable impact in 2021 from the delayed pass through of
higher resin costs, cost recovery for certain customer project expenditures,
lower rationalization charges and a $1.6 million charge for the write-up of
inventory for purchase accounting in the prior year, partially offset by
inflation in manufacturing and selling, general and administrative costs and the
impact of unfavorable foreign currency translation.
Segment income of the metal containers segment for 2022 decreased $19.5 million
as compared to 2021, and segment income margin decreased to 6.9 percent from 9.0
percent over the same periods. The decrease in segment income was primarily
attributable to higher rationalization charges of $64.2 million . Segment income
benefited from strong operating performance, which included an inventory
management program, and higher average selling prices due to the pass through of
higher raw material and other inflationary costs. These benefits were partially
offset by inflation in manufacturing and selling, general and administrative
costs, lower unit volumes, a less favorable mix of products sold and the impact
of unfavorable foreign currency translation. Rationalization charges were $73.1
million and $8.9 million in 2022 and 2021, respectively. Rationalization charges
in 2022 included $73.8 million primarily related to the write-off of net assets
of operations in Russia , partially offset by a rationalization credit of $8.5
million related to finalizing the liability for the withdrawal from the Central
States Pension Plan in 2019.
Segment income of the custom containers segment for 2022 increased $0.1 million
as compared to 2021, while segment income margin decreased to 12.8 percent from
13.0 percent over the same periods. The increase in segment income was primarily
attributable to higher average selling prices, the favorable impact in 2022 from
the delayed pass through of lower resin costs as compared to the unfavorable
impact in 2021 from the delayed pass through of higher resin costs and strong
operating performance. These increases were partially offset by lower volumes
and inflation in manufacturing and selling, general and administrative costs.
Interest and Other Debt Expense. Interest and other debt expense before loss on
early extinguishment of debt for 2022 was $126.3 million , an increase of $17.9
million as compared to $108.4 million for 2021 due primarily to higher weighted
average outstanding borrowings as a result of the acquisitions completed in the
latter half of 2021, partially offset by the impact from lower foreign currency
exchange rates on outstanding Euro denominated debt. Loss on early
extinguishment of debt was $1.5 million and $1.4 million in 2022 and 2021,
respectively.
Provision for Income Taxes. The effective tax rates for 2022 and 2021 were 28.1
percent and 23.0 percent, respectively. The effective tax rate in 2022 was
unfavorably impacted by the write-off of net assets related to operations in
Russia and the European Commission settlement, each of which was non-deductible.
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YEAR ENDED
Overview. Consolidated net sales were$5.7 billion in 2021, representing a 15.3 percent increase as compared to 2020 primarily as a result of the pass through of higher raw material and other costs, higher unit volumes in the dispensing and specialty closures and metal containers segments including from acquisitions, the impact of favorable foreign currency translation and a more favorable mix of products sold in the custom containers segment, partially offset by lower volumes in the custom containers segment and a higher percentage of smaller cans sold in the metal containers segment. Income before interest and income taxes for 2021 increased by$63.7 million , or 12.4 percent, as compared to 2020 primarily as a result of higher unit volumes in the dispensing and specialty closures and metal containers segments, strong operating performance, lower corporate expenses, higher pension income, a more favorable mix of products sold and the pass through of other cost increases in the dispensing and specialty closures segment, lower charges in 2021 from the write-up of inventory for purchase accounting as a result of acquisitions as compared to 2020, the inclusion in the prior year of a charge in the custom containers segment for a non-commercial legal dispute relating to prior periods and lower rationalization charges, partially offset by the unfavorable impact from the lagged pass through to customers of significantly higher resin costs, higher costs largely as a result of labor and supply chain challenges, lower volumes in the custom containers segment and a higher percentage of smaller cans sold in the metal containers segment. Rationalization charges were$15.0 million and$16.0 million for the years ended 2021 and 2020, respectively. Results for 2021 and 2020 also included costs attributed to announced acquisitions of$5.0 million and$19.3 million , respectively and a loss on early extinguishment of debt of$1.4 million and$1.5 million , respectively. Net income in 2021 was$359.1 million as compared to$308.7 million in 2020.
Net sales for the dispensing and specialty closures segment in 2021 increased$448.1 million , or 26.2 percent, as compared to 2020. This increase was primarily the result of higher unit volumes of approximately nine percent, the pass through of higher raw material and other manufacturing costs and the impact of favorable foreign currency translation of approximately$23.0 million . The increase in unit volumes was principally the result of the inclusion of volumes from the dispensing operations of the Albéa Dispensing Business which was acquired inJune 2020 and fromSilgan Specialty Packaging and Silgan Unicep which were acquired inSeptember 2021 as well as strong volumes for beauty, fragrance, beverage and food products. These volume gains were partially offset by a decrease in volumes for hygiene and home cleaning products largely due to the ongoing inventory management throughout the supply chain for those products which had surged in 2020 during the COVID-19 pandemic. Net sales for the metal containers segment increased$250.0 million , or 9.8 percent, in 2021 as compared to 2020. This increase was primarily a result of the pass through of higher raw material and other manufacturing costs, higher unit volumes of approximately four percent and the impact of favorable foreign currency translation of approximately$9.0 million , partially offset by a higher percentage of smaller cans sold. The increase in unit volumes over record volumes in 2020 was due primarily to continued strong consumer demand levels for food cans and continued growth in pet food products, as well as customer purchases in advance of significant raw material inflation expected in 2022. Net sales for the custom containers segment in 2021 increased$57.1 million , or 8.8 percent, as compared to 2020. This increase was principally due to the pass through of higher raw material costs, a more favorable mix of products sold and the impact of favorable foreign currency translation of approximately$8.0 million , partially offset by lower volumes of approximately ten percent. The decline in volumes was due primarily to a decrease in volumes for certain consumer health and personal and home care products, partially offset by growth in pet food products.
Gross Profit. Gross profit margin decreased 1.4 percentage points to 16.2 percent in 2021 as compared to 17.6 percent in 2020 primarily due to the mathematical consequence of passing through significant raw material cost inflation during 2021.
Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased 1.0 percentage point to 6.7 percent for 2021 as compared to 7.7 percent in 2020. Selling, general and administrative expenses increased$0.4 million in 2021 as compared to 2020. Selling, general and administrative expenses in 2021 included a full year of expenses from the Albéa Dispensing Business and Cobra Plastics which were acquired inJune 2020 andFebruary 2020 , respectively, and costs attributed to announced acquisitions of$5.0 million in 2021, which were mostly offset by the inclusion in the prior year of costs attributed to announced acquisitions of$19.3 million , one-time plant employee incentive payments and 34 --------------------------------------------------------------------------------
a charge of
Income before Interest and Income Taxes. Income before interest and income taxes for 2021 increased by$63.7 million as compared to 2020, while margin decreased to 10.1 percent from 10.4 percent over the same periods. The increase in income before interest and income taxes was primarily the result of higher income in each of the segments, lower corporate expenses primarily as a result of lower acquisition related costs and lower rationalization charges. Income before interest and income taxes included rationalization charges of$15.0 million and$16.0 million and costs attributed to announced acquisitions of$5.0 million and$19.3 million in 2021 and 2020, respectively. Segment income margin was negatively impacted by the mathematical consequence of passing through significant raw material cost inflation during the year. Segment income of the dispensing and specialty closures segment for 2021 increased$37.7 million as compared to 2020, while segment income margin decreased to 12.1 percent from 13.1 percent over the same periods. The increase in segment income was primarily due to higher unit volumes including from acquisitions completed in 2021 and 2020, a more favorable mix of products sold, strong operating performance, the pass through of other cost increases and lower charges from the write-up of inventory from acquisitions for purchase accounting in the current year, partially offset by the unfavorable impact from the delayed pass through of significantly higher resin costs, higher costs associated with labor and supply chain challenges and foreign currency transaction losses. Segment income margin was negatively impacted by the mathematical consequence of passing through significant raw material cost inflation in 2021. Segment income of the metal containers segment for 2021 increased$7.1 million as compared to 2020, while segment income margin decreased to 9.0 percent from 9.6 percent over the same periods. The increase in segment income was primarily attributable to higher unit volumes, higher pension income, higher foreign currency transaction losses in the prior year and lower rationalization charges, partially offset by operational inefficiencies and higher costs as a result of labor and supply chain challenges, a higher percentage of smaller cans sold and the negative impact of a$1.0 million charge for the write-up of inventory for purchase accounting related to the acquisition of Easytech in 2021. Rationalization charges were$8.9 million and$9.9 million in 2021 and 2020, respectively. Segment income margin was negatively impacted by the mathematical consequence of passing through significant raw material cost inflation in 2021. Segment income of the custom containers segment for 2021 increased$4.6 million as compared to 2020, while segment income margin decreased to 13.0 percent from 13.5 percent over the same periods. The increase in segment income was primarily attributable to strong operating performance and cost control and the inclusion in the prior year of a$3.2 million charge for a non-commercial legal dispute related to prior periods, partially offset by lower volumes. Segment income margin was negatively impacted by the mathematical consequence of passing through significant raw material cost inflation in 2021. Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for 2021 was$108.4 million , an increase of$4.6 million as compared to$103.8 million for 2020 due primarily to higher weighted average outstanding borrowings as a result of the acquisition of the Albéa Dispensing Business inJune 2020 and the acquisitions completed in the latter half of 2021, partially offset by lower weighted average interest rates during 2021. Loss on early extinguishment of debt was$1.4 million and$1.5 million in 2021 and 2020, respectively. Provision for Income Taxes. The effective tax rates for 2021 and 2020 were 23.0 percent and 24.2 percent, respectively. The effective tax rate in 2021 was favorably impacted by tax rate changes in certain jurisdictions and more income in lower tax jurisdictions.
CAPITAL RESOURCES AND LIQUIDITY
Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our Credit Agreement. Our liquidity requirements arise primarily from our obligations under the indebtedness incurred in connection with our acquisitions and the refinancing of that indebtedness, capital investment in new and existing equipment and the funding of our seasonal working capital needs. OnMarch 28, 2022 , we redeemed all$300.0 million aggregate principal amount of the outstanding 4¾% Notes, at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest to the redemption date. We funded this redemption with revolving loan borrowings under our Credit Agreement and cash 35 -------------------------------------------------------------------------------- on hand. As a result of this redemption, we recorded a pre-tax charge for the loss on early extinguishment of debt of$1.5 million during the first quarter of 2022 for the write-off of unamortized debt issuance costs. InNovember 2021 , we amended our Credit Agreement to extend maturity dates by more than three years, increase our multi-currency revolving loan facility from$1.2 billion to$1.5 billion , borrow$1.0 billion in new term loans to refinance outstanding term and revolving loans under our Credit Agreement that were used to fund the purchase prices for the three acquisitions completed in 2021 and the acquisition of the Albéa Dispensing Business in 2020, and provide us with additional flexibility with regard to our strategic initiatives. As a result of the repayment of term and revolving loans under our Credit Agreement in connection with this amendment to our Credit Agreement, we recorded a pre-tax charge for the loss on early extinguishment of debt of$0.5 million in 2021.
We used aggregate revolving loan borrowings under our Credit Agreement of
OnFebruary 1, 2021 , we amended our Credit Agreement to provide us with additional flexibility to, among other things, issue new senior secured notes. OnFebruary 10, 2021 , we issued$500.0 million aggregate principal amount of the 1.4% Notes at 99.945 percent of their principal amount. The proceeds from the sale of the 1.4% Notes were$499.7 million . We used the proceeds from the sale of the 1.4% Notes to prepay$500.0 million of outstanding incremental term loans under our Credit Agreement that were used to fund the purchase price for the Albéa Dispensing Business. We paid the initial purchasers' discount and offering expenses related to the sale of the 1.4% Notes with cash on hand. As a result of this prepayment, we recorded a pre-tax charge for the loss on early extinguishment of debt of$0.9 million in 2021 for the write-off of unamortized debt issuance costs. InJune 2020 , we funded the purchase price for the Albéa Dispensing Business with$900.0 million of incremental term loans under our Credit Agreement. InFebruary 2020 , we issued an additional$200.0 million of the 4?% Notes and €500.0 million of the 2¼% Notes. We used the net proceeds from these issuances and revolving loan borrowings under our Credit Agreement to prepay all of our outstandingU.S. dollar term loans under our Credit Agreement at that time. You should also read Notes 3 and 9 to our Consolidated Financial Statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report with regard to our debt. In 2022, we used cash provided by operations of$748.4 million , cash and cash equivalents of$45.8 million and net borrowings of revolving loans and proceeds from other foreign long-term debt of an aggregate of$13.1 million to fund the redemption of the 4¾% Notes and the repayment of other foreign long-term debt for an aggregate of$301.3 million , decreases in outstanding checks of$164.4 million , net capital expenditures and other investing activities of$215.6 million , dividends paid on our common stock of$71.9 million , repurchases of our common stock of$45.1 million and the negative effect of exchange rate changes on cash and cash equivalents of$9.0 million . In 2021, we used proceeds from new term loans under our Credit Agreement of$1.0 billion and from the issuance of the 1.4% Notes of$499.7 million , cash provided by operating activities of$556.8 million and increases in outstanding checks of$141.7 million to fund repayments of long-term debt of$900.0 million , the purchase price for the acquisitions ofSilgan Specialty Packaging , Silgan Unicep and Easytech for an aggregate$745.7 million , net capital expenditures and other investing activities of$230.3 million , dividends paid on our common stock of$62.5 million , debt issuance costs of$11.1 million , net repayments of revolving loans of$10.6 million , repurchases of our common stock of$8.6 million under our stock-based compensation plan and to increase cash and cash equivalents (including the negative effect of exchange rate changes of$7.5 million ) by$221.9 million . In 2020, we used net proceeds of$1.64 billion from the issuance of the 2¼% Notes and the additional 4?% Notes and from the incremental term loans borrowed under our Credit Agreement, cash provided by operating activities of$602.5 million and increases in outstanding checks of$5.2 million to fund the purchase price for the acquisitions of the Albéa Dispensing Business and Cobra Plastics for an aggregate$940.9 million , repayments of long-term debt of$766.2 million , net capital expenditures and other investing activities of$222.3 million , dividends paid on our common stock of$53.6 million , repurchases of our common stock of$42.1 million , net repayments of revolving loans of$12.8 million and debt issuance costs of$10.3 million and to increase cash and cash equivalents (including the positive effect of exchange rate changes of$6.5 million ) by$205.7 million . AtDecember 31, 2022 , we had$3.44 billion of total consolidated indebtedness and cash and cash equivalents on hand of$585.6 million . In addition, atDecember 31, 2022 , we had outstanding letters of credit of$20.4 million and no outstanding revolving loan borrowings under our Credit Agreement. 36 -------------------------------------------------------------------------------- Under our Credit Agreement, we have available to us$1.5 billion of revolving loans under a multi-currency revolving loan facility. Revolving loans under our Credit Agreement may be used for working capital and other general corporate purposes, including acquisitions, capital expenditures, dividends, stock repurchases and refinancings and repayments of other debt. Revolving loans may be borrowed, repaid and reborrowed under the revolving loan facilities from time to time untilNovember 9, 2026 . AtDecember 31, 2022 , after taking into account outstanding letters of credit of$20.4 million , borrowings available under the revolving loan facilities of our Credit Agreement were$1.48 billion . Under our Credit Agreement, we also have available to us an uncommitted multi-currency incremental loan facility in an amount of up to an additional$1.25 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 the revolving loan facilities 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. You should also read Notes 3 and 9 to our Consolidated Financial Statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report. Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the packaging industry, we must utilize working capital to build inventory and then carry accounts receivable for some customers beyond the end of the packing season. Due to our seasonal requirements, which generally peak sometime in the summer or early fall, we may incur short-term indebtedness to finance our working capital requirements. Our peak seasonal working capital requirements have historically averaged approximately$350.0 million and were generally funded with revolving loans under our senior secured credit facility, other foreign bank loans and cash on hand. For 2023, we expect to fund our seasonal working capital requirements with cash on hand, revolving loans under our Credit Agreement and foreign bank loans. We may use the available portion of revolving loans under our Credit Agreement, after taking into account our seasonal needs and outstanding letters of credit, for other general corporate purposes, including acquisitions, capital expenditures, dividends, stock repurchases and refinancing and repayments of other debt. We use a variety of working capital management strategies, including supply chain financing, or SCF, programs. In light of evolving market practices with respect to payment terms, we have entered into various SCF arrangements with financial institutions pursuant to which (i) we sell receivables of certain customers without recourse to such financial institutions and accelerate payment in respect of such receivables sooner than provided in the applicable supply agreements with such customers and (ii) we have effectively extended our payment terms on certain of our payables. For our customer-based SCF arrangements, we negotiate the terms of such SCF arrangements with the applicable financial institutions providing such SCF arrangements independent of our agreements with our customers. Under such SCF arrangements, we elect to sell our receivables for the applicable customer to the applicable financial institution on a non-recourse basis at a discount or credit spread based upon the creditworthiness of such customer. Such customer is then obligated to pay the applicable financial institution with respect to such receivables on their due date. Upon any such sale, we no longer have any credit risk with respect to such receivables, and we will have accelerated our receipt of cash in respect of such receivables thereby reducing our net working capital. Payments in respect of receivables sold under such SCF arrangements are reflected in net cash provided by operating activities in our Consolidated Statements of Cash Flows. Separate from such SCF arrangements, we generally maintain the contractual right with customers in respect of which we have entered into SCF arrangements to require shorter payment terms or require our customers to negotiate shorter payment terms as a result of changes in market conditions, including changes in interest rates and general market liquidity, or in some cases for any reason. Approximately 21 percent and 20 percent of our annual net sales for the years endedDecember 31, 2022 and 2021, respectively, were subject to customer-based SCF arrangements. Based on our estimate, we improved our days sales outstanding by approximately sixteen days for 2022 as a result of such customer-based SCF arrangements. For our suppliers, we believe that we negotiate the best terms possible, including payment terms. In connection therewith, we initiated a SCF program with a major global financial institution. Under this SCF program, a qualifying supplier may elect, but is not obligated, to sell its receivables from us to such financial institution. A participating supplier negotiates its receivables sale arrangements directly with the financial institution under this SCF program. While we are not party to, and do not participate in the negotiation of, such arrangements, such financial institution allows a participating supplier to utilize our creditworthiness in establishing a credit spread in respect of the sale of its receivables from us as well as other applicable terms. This may provide a supplier with more favorable terms than it would be able to secure on its own. We have no economic interest in a supplier's decision to sell a receivable. Once a qualifying supplier elects to participate in this SCF program and reaches an agreement with the financial institution, the supplier independently elects which individual invoices to us that they 37 -------------------------------------------------------------------------------- sell to the financial institution. All of our payments to a participating supplier are paid to the financial institution on the invoice due date under our agreement with such supplier, regardless of whether the individual invoice was sold by the supplier to the financial institution. The financial institution then pays the supplier on the invoice due date under our agreement with such supplier for any invoices not previously sold by the supplier to the financial institution. Amounts due to a supplier that elects to participate in this SCF program are included in accounts payable in our Consolidated Balance Sheet, and the associated payments are reflected in net cash provided by operating activities in our Consolidated Statements of Cash Flows. Separate from this SCF program, we and suppliers who participate in this SCF program generally maintain the contractual right to require the other party to negotiate in good faith the existing payment terms as a result of changes in market conditions, including changes in interest rates and general market liquidity, or in some cases for any reason. Approximately 12 percent of our Cost of Goods Sold in our Consolidated Statements of Income for the years endedDecember 31, 2022 and 2021 were subject to this SCF program. AtDecember 31, 2022 , outstanding trade accounts payables subject to this SCF program were approximately$346.8 million . Certain economic developments such as changes in interest rates, general market liquidity or the creditworthiness of customers relative to us could impact our participation in customer-based SCF arrangements. Future changes in our suppliers' financing policies or certain economic developments, such as changes in interest rates, general market conditions or liquidity or our creditworthiness relative to a supplier could impact a supplier's participation in our supplier SCF program and/or our ability to negotiate favorable payment terms with suppliers. However, any such impacts are difficult to predict. If such supply chain financing arrangements ended or suppliers otherwise change their payment terms, our net working capital would likely increase, although because of numerous variables we cannot predict the amount of any such increase, and it would be necessary for us to fund such net working capital increase using cash on hand or revolving loans under our Credit Agreement or other indebtedness. OnMarch 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 includingDecember 31, 2026 . In 2022, we repurchased an aggregate of 786,235 shares of our common stock at an average price per share of$40.80 , for a total purchase price approximately$32.1 million , leaving approximately$267.9 million remaining for the repurchase of our common stock pursuant to this authorization.
In 2021, we did not repurchase any shares of our common stock. Pursuant to a
prior authorization, we repurchased an aggregate of 1,088,263 shares of our
common stock in 2020 at an average price per share of
In addition to our operating cash needs and excluding any impact from acquisitions, we believe our cash requirements over the next few years will consist primarily of:
•capital expenditures of approximately$250.0 million in 2023, and thereafter annual capital expenditures of approximately$250 million to$280 million which may increase as a result of specific growth or specific cost savings projects; •principal payments of bank term loans and revolving loans under our Credit Agreement and other outstanding debt agreements and obligations (excluding finance leases) of$77.3 million in 2023,$104.9 million in 2024,$797.6 million in 2025,$603.1 million in 2026, and$1.79 billion thereafter;
•cash payments for quarterly dividends on our common stock as approved by our Board of Directors;
•annual payments to satisfy employee withholding tax requirements resulting from certain restricted stock units becoming vested, which payments are dependent upon the price of our common stock at the time of vesting and the number of restricted stock units that vest, none of which is estimable at this time (payments in 2022 were not significant); •our interest requirements, including interest on revolving loans (the principal amount of which will vary depending upon seasonal requirements) and term loans under our Credit Agreement, which bear fluctuating rates of interest, the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the 1.4% Notes;
•payments of approximately
•payments for postretirement benefit and foreign pension benefit plan obligations, which are not expected to be significant.
We believe that cash generated from operations and funds from borrowings available under our Credit Agreement will be sufficient to meet our expected operating needs, planned capital expenditures, debt service
38
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requirements (both principal and interest), tax obligations, pension benefit
plan contributions, share repurchases required under our Amended and Restated
2004 Stock Incentive Plan and common stock dividends for the foreseeable future.
We continue to evaluate acquisition opportunities in the consumer goods
packaging market and may incur additional indebtedness, including indebtedness
under our Credit Agreement, to finance any such acquisition.
Our Credit Agreement contains restrictive covenants that, among other things,
limit our ability to incur debt, sell assets and engage in certain transactions.
The indentures governing the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the
1.4% Notes contain certain covenants that generally restrict our ability to
create liens, engage in sale and leaseback transactions, issue guarantees and
consolidate, merge or sell assets. We do not expect these limitations to have a
material effect on our business or our results of operations. We are in
compliance with all financial and operating covenants contained in our financing
agreements and believe that we will continue to be in compliance during 2023
with all of these covenants.
CONTRACTUAL OBLIGATIONS
Our contractual cash obligations at
Payment due by period
Less than 1-3 3-5 More than
Total 1 year years years 5 years
(Dollars in millions)
Long-term debt obligations
267.9 67.1 116.0 76.1 8.7
Interest on variable rate debt(1) 213.1 56.8 89.1 67.2 -
Operating lease obligations(2) 257.7 51.5 81.6 47.9 76.7
Finance lease obligations(2) 83.9 5.9 32.4 6.0 39.6
Purchase obligations(3) 24.2 24.2 - - -
Other pension and postretirement
benefit obligations(4)(5) 96.5 5.1 14.3 15.7 61.4
Total $ 4,320.3 $ 287.9 $ 1,235.9 $ 1,468.6 $ 1,327.9
______________________
(1)These amounts represent expected cash payments of interest on our variable
rate long-term debt under our Credit Agreement, after taking into consideration
our interest rate swap agreements, at prevailing interest rates and foreign
currency exchange rates at December 31, 2022 .
(2)Operating and finance lease obligations include imputed interest.
(3)Purchase obligations represent commitments for capital expenditures of $24.2
million . Obligations that are cancellable without penalty are excluded.
(4)Other pension obligations consist of annual cash expenditures for the
withdrawal liability related to the Central States Pension Plan through 2040 and
the UFCW Local One Pension Fund through 2042 and for foreign pension plan and
other postretirement benefit obligations which have been actuarially determined
through the year 2031.
(5)Based on current legislation and the current funded status of our domestic
pension benefit plans, there are no minimum required contributions to our
pension benefit plans in 2023.
At
You should also read Notes 4, 9, 10, 11 and 12 to our Consolidated Financial
Statements for the year ended
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements.
EFFECT OF INFLATION AND INTEREST RATE FLUCTUATIONS
Historically, inflation has not had a material effect on us, other than to
increase our cost of borrowing. In general, we have been able to increase the
sales prices of our products to reflect any increases in the prices of raw
materials (subject to contractual lag periods) and to significantly reduce the
exposure of our results of operations to increases in other costs, such as labor
and other manufacturing costs.
39
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Because we have indebtedness which bears interest at floating rates, our
financial results will be sensitive to changes in prevailing market rates of
interest. As of December 31, 2022 , we had $3.44 billion of indebtedness
outstanding, of which $1.02 billion bore interest at floating rates.
Historically, we have entered into interest rate swap agreements to mitigate the
effect of interest rate fluctuations. As of December 31, 2022 , we have two U.S.
dollar interest rate swap agreements outstanding, each for $50.0 million
notional principal amount, which mature in 2023. Depending upon future market
conditions and our level of outstanding variable rate debt, we may enter into
additional interest rate swap or hedge agreements (with counterparties that, in
our judgment, have sufficient creditworthiness) to hedge our exposure against
interest rate volatility.
GUARANTEED SECURITIES
Each of the 3¼% Notes, the 4?% Notes, the 2¼% Notes and the 1.4% Notes were
issued by us and are guaranteed by our U.S. subsidiaries that also guarantee our
obligations under our Credit Agreement, collectively the Obligor Group .
The following summarized financial information relates to the Obligor Group as
of and for the year ended December 31, 2022 . Intercompany transactions, equity
investments and other intercompany activity within the Obligor Group have been
eliminated from the summarized financial information. Investments in our
subsidiaries that are not part of the Obligor Group of $1.4 billion as of
December 31, 2022 are not included in noncurrent assets in the table below.
2022
(Dollars in millions)
Current assets $ 1,247.4
Noncurrent assets 4,028.4
Current liabilities 1,077.7
Noncurrent liabilities 3,911.4
At December 31, 2022 , the Obligor Group held current receivables due from other
subsidiary companies of $72.4 million ; long-term notes receivable due from other
subsidiary companies of $730.0 million ; and current payables due to other
subsidiary companies of $7.9 million .
Year ended
December 31, 2022
(Dollars in millions)
Net sales $ 4,806.0
Gross profit 680.4
Net income 288.6
For the year ended December 31, 2022 , net income in the table above excludes
income from equity method investments of other subsidiary companies of
$52.2 million . For the year ended December 31, 2022 , the Obligor Group recorded
the following transactions with other subsidiary companies: sales to such other
subsidiary companies of $40.3 million ; net credits from such other subsidiary
companies of $48.7 million ; and net interest income from such other subsidiary
companies of $23.1 million . For the year ended December 31, 2022 , the Obligor
Group received dividends from other subsidiary companies of $9.7 million .
RATIONALIZATION CHARGES
In the fourth quarter of 2022, we recognized a rationalization charge of$73.8 million in the metal containers segment related to the write-off of net assets to service the Russian market. We are in the process of shutting down our two metal container manufacturing facilities inRussia . In 2019, we withdrew from the Central States Pension Plan, and estimated total rationalization expenses and cash expenditures from such withdrawal of$62.0 million at that time. In addition, we estimated our annual expense and cash expenditures related to such withdrawal to be approximately$1.1 million and$3.1 million , respectively, which we expected to continue through 2040. ThroughSeptember 30, 2022 , we recognized 40 --------------------------------------------------------------------------------$46.0 million of rationalization charges for the present value of the withdrawal liability and annual accretion of interest and expended$8.3 million of cash in respect of such withdrawal. In the fourth quarter of 2022, we finalized the calculation of the withdrawal liability with the Central States Pension Plan and revised the total expected costs of the withdrawal liability as of the withdrawal date to be$51.1 million , with total expected future cash expenditures of$41.9 million . Accordingly, the fourth quarter of 2022 includes a rationalization credit of$8.5 million in the metal containers segment for the adjustment to the withdrawal liability for the Central States Pension Plan as finalized. Remaining expenses related to the accretion of interest for the withdrawal liability for the Central States Pension Plan are expected to be approximately$0.9 million per year to 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 per year thereafter through 2040. 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. Under our rationalization plans, we made cash payments of$9.0 million ,$9.9 million and$13.0 million in 2022, 2021 and 2020, respectively. Excluding the impact of our withdrawal from the Central States Pension Plan discussed above, remaining cash expenditures for our rationalization plans are expected to be$6.8 million . You should also read Note 4 to our Consolidated Financial Statements for the year endedDecember 31, 2022 included elsewhere in this Annual Report.
CRITICAL ACCOUNTING ESTIMATES
U.S. generally accepted accounting principles require estimates and assumptions that affect the reported amounts in our consolidated financial statements and the accompanying notes. Some of these estimates and assumptions require difficult, subjective and/or complex judgments. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. We believe that our accounting policies for pension expense and obligations and rationalization charges and testing goodwill and other intangible assets with indefinite lives for impairment reflect the more significant judgments and estimates in our consolidated financial statements. You should also read our Consolidated Financial Statements for the year endedDecember 31, 2022 and the accompanying notes included elsewhere in this Annual Report. Our pension expense and obligations are developed from actuarial valuations. Two critical assumptions in determining pension expense and obligations are the discount rate and expected long-term return on plan assets. We evaluate these assumptions at least annually. Other assumptions reflect demographic factors such as retirement, mortality and turnover and are evaluated periodically and updated to reflect our actual experience. Actual results may differ from actuarial assumptions. The discount rate represents the market rate for non-callable high-quality fixed income investments and is used to calculate the present value of the expected future cash flows for benefit obligations under our pension benefit plans. A decrease in the discount rate increases the present value of benefit obligations and increases pension expense, while an increase in the discount rate decreases the present value of benefit obligations and decreases pension expense. A 25 basis point change in the discount rate would have a countervailing impact on our annual pension expense by approximately$1.3 million . For 2022, we increased our domestic discount rate to 5.6 percent from 2.9 percent to reflect market interest rate conditions. We consider the current and expected asset allocations of ourU.S. pension benefit plans, as well as historical and expected long-term rates of return on those types of plan assets, in determining the expected long-term rate of return on plan assets. A 25 basis point change in the expected long-term rate of return on plan assets would have a countervailing impact on our annual pension expense by approximately$1.9 million . Our expected long-term rate of return on plan assets will decrease from 6.9 percent to 5.5 percent in 2023 due to changes we are making in early 2023 in the investment allocations for ourU.S. pension plans, which are overfunded with plan assets of approximately 129 percent of projected benefit obligations atDecember 31, 2022 , to a liability driven investment strategy that more closely matches plan assets with plan liabilities primarily using long duration bonds. Historically, we have maintained a strategy of acquiring businesses and enhancing profitability through productivity and cost reduction opportunities. Acquisitions require us to estimate the fair value of the assets acquired and liabilities assumed in the transactions. These estimates of fair value are based on market participant perspectives when available and our business plans for the acquired entities, which include eliminating operating redundancies, facility closings and rationalizations and assumptions as to the ultimate resolution of liabilities assumed. We also continually evaluate the operating performance of our existing facilities and our business requirements and, when deemed appropriate, we exit or rationalize existing operating facilities. Establishing reserves for acquisition plans and facility rationalizations requires the use of estimates. Although we believe that these estimates accurately reflect the costs of these plans, actual costs incurred may differ from these estimates. 41 --------------------------------------------------------------------------------Goodwill and other intangible assets with indefinite lives are reviewed for impairment each year and more frequently if circumstances indicate a possible impairment. Our tests for goodwill impairment require us to make certain assumptions to determine the fair value of our reporting units. In 2022, we calculated the fair value of our reporting units using the market approach, which required us to estimate future expected earnings before interest, income taxes, depreciation and amortization, or EBITDA, and estimate EBITDA market multiples using publicly available information for each of our reporting units. Developing these assumptions requires the use of significant judgment and estimates. Actual results may differ from these forecasts. If an impairment were to be identified, it could result in additional expense recorded in our consolidated statements of income.
FORWARD-LOOKING STATEMENTS
The statements we have made in "Risk Factors" and "Management's Discussion and Analysis of Results of Operations and Financial Condition" and elsewhere in this Annual Report which are not historical facts are "forward-looking statements" made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and the Securities Exchange Act of 1934, as amended, or the Exchange Act. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting us and therefore involve a number of uncertainties and risks. Therefore, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements. The discussion in our "Risk Factors" and our "Management's Discussion and Analysis of Results of Operations and Financial Condition" sections highlight some of the more important risks identified by our management, but should not be assumed to be the only factors that could affect future performance. Other factors that could cause the actual results of our operations or our financial condition to differ from those expressed or implied in these forward-looking statements include, but are not necessarily limited to, our ability to satisfy our obligations under our contracts; the impact of customer claims and disputes; compliance by our suppliers with the terms of our arrangements with them; changes in consumer preferences for different packaging products; changes in general economic conditions; the idling or loss of one or more of our significant manufacturing facilities; our ability to finance any increase in our net working capital in the event that our supply chain financing arrangements end; the adoption of, or changes in, new accounting standards or interpretations; changes in tax rates in any jurisdiction where we conduct business; changes to trade policies, including new tariffs or changes to trade agreements or treaties; and other factors described elsewhere in this Annual Report or in our other filings with theSEC . Except to the extent required by the federal securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The foregoing review of factors pursuant to the Private Securities Litigation Reform Act of 1995 should not be construed as exhaustive or as any admission regarding the adequacy of our disclosures. Certain risk factors are detailed from time to time in our various public filings. You are advised, however, to consult any further disclosures we make on related subjects in our filings with theSEC . You can identify forward-looking statements by the fact that they do not relate strictly to historic or current facts. Forward-looking statements use terms such as "anticipates," "believes," "continues," "could," "estimates," "expects," "intends," "may," "plans," "potential," "predicts," "will," "should," "seeks," "pro forma" or similar expressions in connection with any disclosure of future operating or financial performance. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks described under "Risk Factors," that may cause our actual results of operations, financial condition, levels of activity, performance or achievements to be materially different from any future results of operations, financial condition, levels of activity, performance or achievements expressed or implied by such forward-looking statements. You should not place undue reliance on these forward-looking statements.
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