SILGAN HOLDINGS INC 10-Q

Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Statements included in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and elsewhere in this Quarterly Report on Form 10-Q that 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 Securities Exchange Act of 1934, as amended. Such 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, including, but not limited to, those described in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and in our other filings with the Securities and Exchange Commission. As a result, the actual results of our operations or our financial condition could differ materially from those expressed or implied in these forward-looking statements. 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 in North America and Europe, and a leading manufacturer of custom containers in North 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 and 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 internal growth, and we continue to evaluate acquisition opportunities in the consumer goods packaging market. If acquisition opportunities are not identified over a longer 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. -18- RESULTS OF OPERATIONS The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the periods presented: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 Net sales Dispensing and Specialty Closures 39.3 % 39.0 % 40.1 % 40.2 % Metal Containers 49.8 48.9 48.5 47.1 Custom Containers 10.9 12.1 11.4 12.7 Consolidated 100.0 100.0 100.0 100.0 Cost of goods sold 82.5 82.3 82.8 83.0 Gross profit 17.5 17.7 17.2 17.0 Selling, general and administrative expenses 7.1 8.0 7.2 7.5 Rationalization charges 0.2 0.2 0.2 0.2 Other pension and postretirement expense (income) 0.1 (0.7) 0.1 (0.8) Income before interest and income taxes 10.1 10.2 9.7 10.1 Interest and other debt expense 3.3 1.8 3.0 2.0 Income before income taxes 6.8 8.4 6.7 8.1 Provision for income taxes 1.3 2.4 1.4 2.2 Net income 5.5 % 6.0 % 5.3 % 5.9 % Summary unaudited results of operations for the periods presented are provided below. Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (dollars in millions) Net sales Dispensing and Specialty Closures $ 560.1 $ 602.4 $ 1,140.0 $ 1,200.4 Metal Containers 710.8 754.4 1,381.0 1,405.1 Custom Containers 155.8 187.0 324.0 380.2 Consolidated $ 1,426.7 $ 1,543.8 $ 2,845.0 $ 2,985.7 Income before interest and income taxes Dispensing and Specialty Closures $ 63.7 $ 91.3 $ 134.7 $ 178.7 Metal Containers 73.6 66.4 121.4 104.4 Custom Containers 17.0 30.9 35.4 55.6 Corporate (10.3) (30.6) (16.3) (37.3) Consolidated $ 144.0 $ 158.0 $ 275.2 $ 301.4 Net Sales . In the second quarter of 2023, consolidated net sales were $1.43 billion, a decrease of $117.1 million, or 7.6 percent, as compared to the second quarter of 2022 primarily due to lower volumes across all segments, non-recurring net sales associated with Russia in the second quarter of 2022, a less favorable mix of products sold in the metal containers segment and lower average selling prices in the custom containers segment due primarily to the pass through of lower resin costs. These decreases were partially offset by higher selling prices in the metal containers segment primarily related to the pass through of inflation in labor and other manufacturing costs and the impact from favorable foreign currency translation. -19- In the first six months of 2023, consolidated net sales were $2.85 billion, a decrease of $140.7 million, or 4.7 percent, as compared to the first six months of 2022 primarily due to lower volumes across all segments, non-recurring net sales associated with Russia in the first six months of 2022, the impact from unfavorable foreign currency translation, a less favorable mix of products sold in the metal containers segment and lower average selling prices in the custom containers segment due primarily to the pass through of lower resin costs. These decreases were partially offset by price increases primarily related to inflation in other manufacturing costs and a more favorable mix of products sold in the dispensing and specialty closures segment. Gross Profit . Gross profit margin decreased 0.2 percentage points to 17.5 percent in the second quarter of 2023 and increased 0.2 percentage points to 17.2 percent in the first six months of 2023 as compared to the same periods in 2022 primarily for the reasons discussed below in "Income before Interest and Income Taxes." Selling, General and Administrative Expenses . In the second quarter of 2023, selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.1 percent as compared to 8.0 percent in the second quarter of 2022. For the second quarter of 2023, selling, general and administrative expenses decreased $21.6 million to $102.2 million as compared to the second quarter in 2022. In the first six months of 2023, selling, general and administrative expenses as a percentage of consolidated net sales decreased to 7.2 percent as compared to 7.5 percent in the first six months of 2022. For the first six months of 2023, selling, general and administrative expenses decreased $20.3 million to $203.5 million as compared to the first six months in 2022. The decrease in selling, general and administrative expenses for each of the second quarter and first six months of 2023 was primarily due to the charge of $25.2 million for the settlement with the European Commission in the second quarter of 2022, partially offset by the write-off of a tax indemnity from a historical acquisition and higher expense for corporate development activities. Other pension and postretirement expense (income) . Other pension and postretirement expense in the second quarter of 2023 was $1.3 million, while other pension and postretirement (income) in the second quarter of 2022 was $(11.3) million. Other pension and postretirement expense in the first six months of 2023 was $2.6 million, while other pension and postretirement (income) in the first six months of 2022 was $(22.7) million. These period-over-period changes in other pension and postretirement expense (income) were the result of a lower pension asset balance in 2023 due to a lower rate of return on assets in 2022, higher pension plan interest cost and a decrease in the expected long-term rate of return on U.S. pension plan assets in 2023 from 2022. The expected long-term rate of return on pension plan assets was decreased from 6.9 percent in 2022 to 5.5 percent in 2023 due to planned changes in investment allocations for our U.S. pension plans, which are overfunded with plan assets of approximately 129 percent of projected benefit obligations at December 31, 2022, to a liability driven investment strategy that more closely matches plan assets with plan liabilities primarily using long duration bonds. Income before Interest and Income Taxes . In the second quarter of 2023, income before interest and income taxes decreased by $14.0 million to $144.0 million as compared to $158.0 million in the second quarter of 2022, and margins decreased to 10.1 percent from 10.2 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of lower volumes across all segments, other pension and postretirement expense in the second quarter of 2023 as compared to other pension and postretirement income in the second quarter of 2022, the favorable impact in the second quarter of 2022 from an inventory management program and cost recovery of certain customer project expenditures in the dispensing and specialty closures segment, the unfavorable impact of higher costs related to labor challenges that impacted output at a U.S. food and beverage closures facility, the write-off of a tax indemnity from a historical acquisition and higher expense for corporate development activities. These decreases were partially offset by the charge of $25.2 million associated with the settlement with the European Commission in the second quarter of 2022, the favorable impact in the second quarter of 2023 from price increases primarily related to inflation in other manufacturing costs, a more favorable mix of products sold in the dispensing and specialty closures segment and lower rationalization charges. Rationalization charges were $2.7 million and $3.4 million in the second quarters of 2023 and 2022, respectively. In the first six months of 2023, income before interest and income taxes decreased by $26.2 million to $275.2 million as compared to $301.4 million in the first six months of 2022, and margins decreased to 9.7 percent from 10.1 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of lower volumes across all segments, other pension and postretirement expense in the first six months of 2023 as compared to other pension and postretirement income in the first six months of 2022, the favorable impact in the first six months of 2022 from an inventory management program and cost recovery of certain customer project expenditures in the dispensing and specialty closures segment, the unfavorable impact of higher costs related to labor challenges that impacted output at a U.S. food and beverage closures facility, higher corporate expense related to the write-off of a tax indemnity from a historical acquisition and corporate development activities, and higher rationalization charges. These decreases were partially offset by the $25.2 million charge for the settlement with the European Commission in the first six months of 2022, the favorable impact in the first six months of 2023 from price increases primarily related to inflation in other manufacturing costs and a more favorable mix of products sold -20- in the dispensing and specialty closures segment. Rationalization charges were $6.8 million and $4.8 million in the first six months of 2023 and 2022, respectively. Interest and Other Debt Expense . In the second quarter of 2023, interest and other debt expense increased $18.1 million to $46.8 million as compared to $28.7 million in the second quarter of 2022. In the first six months of 2023, interest and other debt expense increased $24.1 million to $83.6 million as compared to $59.5 million in the first six months of 2022. These increases were primarily due to higher weighted average interest rates and the write-off of $3.5 million of accrued interest income associated with a historical acquisition tax indemnity. The first six months of 2022 also included a loss on early extinguishment of debt of $1.5 million. Provision for Income Taxes . For the second quarters of 2023 and 2022, the effective tax rates were 18.8 percent and 28.4 percent, respectively. For the first six months of 2023 and 2022, the effective tax rates were 21.3 percent and 26.6 percent, respectively. The effective tax rates for the second quarter and first six months of 2023 were favorably impacted by the reversal of tax reserves associated with a historical acquisition indemnity which unfavorably impacted corporate and interest expense in both periods. The effective tax rate in the second quarter and first six months of 2022 was unfavorably impacted by the non-deductible settlement with the European Commission. Non-GAAP Measures Generally accepted accounting principles in the United States are commonly referred to as GAAP. A non-GAAP financial measure is generally defined as a financial measure that purports to measure financial performance, financial position or liquidity but excludes or includes amounts that could not be so adjusted in the most comparable GAAP measure. Adjusted EBIT and adjusted EBIT margin are unaudited supplemental measures of financial performance that the Company uses, which are not required by, or presented in accordance with, GAAP and therefore are non-GAAP financial measures. These non-GAAP financial measures should not be considered as alternatives to income before interest and income taxes or any other measures derived in accordance with GAAP. Such non-GAAP financial measures should not be considered in isolation or as a substitute for any financial data prepared in accordance with GAAP and may not be comparable to similarly titled measures used by other companies. The Company uses such non-GAAP financial measures because it considers them to be important and useful supplemental measures of its and its segments’ financial performance which provide a more complete understanding of the Company and its segments than could be obtained absent such non-GAAP financial measures. The Company believes that it is important and useful to present these non-GAAP financial measures because they allow for a better period-over-period comparison of results by removing the impact of items that, in management’s view, do not reflect the Company’s or its segments’ core operating performance. Management uses these non-GAAP financial measures to review and analyze the operating performance of the Company and its segments. Investors and others are urged to review and consider carefully the adjustments made by management to the most comparable GAAP financial measure to arrive at these non-GAAP financial measures. Adjusted EBIT, a non-GAAP financial measure, means income before interest and income taxes excluding, as applicable, acquired intangible asset amortization expense, other pension expense (income) for U.S. pension plans, rationalization charges, the impact from charges for the write-up of acquired inventory required under purchase accounting, the charge for the European Commission settlement and costs attributed to announced acquisitions. Adjusted EBIT margin, a non-GAAP financial measure, means adjusted EBIT divided by segment net sales. Acquired intangible asset amortization expense is a non-cash expense related to acquired operations that management believes is not indicative of the on-going performance of the acquired operations. Since the Company’s U.S. pension plans are significantly over funded and have no required cash contributions for the foreseeable future based on current regulations, management views other pension expense (income) from the Company’s U.S. pension plans, which excludes service costs, as not reflective of the operational performance of the Company or its segments. While rationalization costs are incurred on a regular basis, management views these costs more as an investment to generate savings rather than period costs. The write-up of acquired inventory required under purchase accounting is viewed by management as part of the acquisition and is a non-cash charge that is not considered to be indicative of the on-going performance of the acquired operations. The charge for the European Commission settlement is nonrecurring and non-operational and relates to prior years and is not indicative of the on-going cost structure of the Company or its segments. Costs attributed to announced acquisitions consist of third party fees and expenses that are viewed by management as part of the acquisition and not indicative of the on-going cost structure of the Company. -21- A reconciliation of such non-GAAP financial measures for the periods presented is provided below: Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in millions) Dispensing and Specialty Closures: Income before interest and income taxes (EBIT) $ 63.7 $ 91.3 $ 134.7 $ 178.7 Acquired intangible asset amortization expense 11.8 11.7 23.6 23.7 Other pension expense (income) for U.S. pension plans 0.2 (2.7) 0.3 (5.5) Rationalization charges 1.2 — 1.3 — Adjusted EBIT $ 76.9 $ 100.3 $ 159.9 $ 196.9 Metal Containers Income before interest and income taxes (EBIT) $ 73.6 $ 66.4 $ 121.4 $ 104.4 Acquired intangible asset amortization expense 0.3 0.3 0.6 0.6 Other pension expense (income) for U.S. pension plans 0.3 (6.6) 0.7 (13.3) Rationalization charges 1.5 3.4 5.4 4.7 Adjusted EBIT $ 75.7 $ 63.5 $ 128.1 $ 96.4 Custom Containers Income before interest and income taxes (EBIT) $ 17.0 $ 30.9 $ 35.4 $ 55.6 Acquired intangible asset amortization expense 1.2 1.2 2.3 2.3 Other pension expense (income) for U.S. pension plans 0.3 (2.6) 0.7 (5.1) Rationalization charges — — 0.1 0.1 Adjusted EBIT $ 18.5 $ 29.5 $ 38.5 $ 52.9 Corporate Loss before interest and income taxes (EBIT) $ (10.3) $ (30.6) $ (16.3) $ (37.3) European Commission settlement — 25.2 — 25.2 Adjusted EBIT $ (10.3) $ (5.4) $ (16.3) $ (12.1) Total adjusted EBIT $ 160.8 $ 187.9 $ 310.2 $ 334.1 -22- Dispensing and Specialty Closures Segment Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in millions) Net sales $ 560.1 $ 602.4 $ 1,140.0 $ 1,200.4 Income before interest and income taxes (EBIT) 63.7 91.3 134.7 178.7 Income before interest and income taxes margin (EBIT margin) 11.4 % 15.2 % 11.8 % 14.9 % Adjusted EBIT $ 76.9 $ 100.3 $ 159.9 $ 196.9 Adjusted EBIT margin 13.7 % 16.7 % 14.0 % 16.4 % In the second quarter of 2023, net sales for the dispensing and specialty closures segment decreased $42.3 million, or 7.0 percent, as compared to the second quarter of 2022. This decrease was primarily the result of lower unit volumes of approximately eight percent, including non-recurring net sales associated with Russia in the second quarter of 2022 of $5.4 million, partially offset by the impact of favorable foreign currency translation of approximately $3 million. The decrease in unit volumes was principally the result of lower volumes for closures for food and beverage markets and non-recurring volumes associated with Russia, partially offset by volume growth in higher margin dispensing products. In the first six months of 2023, net sales for the dispensing and specialty closures segment decreased $60.4 million, or 5.0 percent, as compared to the first six months of 2022. This decrease was primarily the result of lower unit volumes of approximately seven percent, including non-recurring net sales associated with Russia in the first six months of 2022 of $9.4 million, and the impact of unfavorable foreign currency translation of approximately $9 million, partially offset by a more favorable mix of products sold and higher selling prices primarily related to inflation in other manufacturing costs. The decrease in unit volumes was principally the result of lower volumes for closures for food and beverage markets and non-recurring volumes associated with Russia, partially offset by volume growth in higher margin dispensing products. In the second quarter of 2023, adjusted EBIT of the dispensing and specialty closures segment decreased $23.4 million as compared to the second quarter of 2022, and adjusted EBIT margin decreased to 13.7 percent from 16.7 percent over the same periods. The decrease in adjusted EBIT was primarily due to the favorable impact in the second quarter of 2022 from an inventory management program and cost recovery for certain customer project expenditures, lower unit volumes and the unfavorable impact of higher costs related to labor challenges that impacted output at a U.S. food and beverage closures facility, partially offset by higher selling prices primarily related to inflation in other manufacturing costs and a more favorable mix of products sold. In the first six months of 2023, adjusted EBIT of the dispensing and specialty closures segment decreased $37.0 million as compared to the first six months of 2022, and adjusted EBIT margin decreased to 14.0 percent from 16.4 percent over the same periods. The decrease in adjusted EBIT was primarily due to the favorable impact in the first six months of 2022 from an inventory management program and cost recovery for certain customer project expenditures, lower unit volumes, the unfavorable impact of higher costs related to labor challenges that impacted output at a U.S. food and beverage closures facility and the impact of unfavorable foreign currency translation, partially offset by higher selling prices primarily related to inflation in other manufacturing costs and a more favorable mix of products sold. -23- Metal Containers Segment Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in millions) Net sales $ 710.8 $ 754.4 $ 1,381.0 $ 1,405.1 Income before interest and income taxes (EBIT) 73.6 66.4 121.4 104.4 Income before interest and income taxes margin (EBIT margin) 10.4 % 8.8 % 8.8 % 7.4 % Adjusted EBIT $ 75.7 $ 63.5 $ 128.1 $ 96.4 Adjusted EBIT margin 10.6 % 8.4 % 9.3 % 6.9 % In the second quarter of 2023, net sales for the metal containers segment decreased $43.6 million, or 5.8 percent, as compared to the second quarter of 2022. This decrease was primarily the result of lower unit volumes of approximately seven percent, including non-recurring net sales associated with Russia in the second quarter of 2022 of $20.1 million, and a less favorable mix of products sold, partially offset by higher average selling prices due to the lagged contractual pass through of inflation in labor and other manufacturing costs and the impact of favorable foreign currency translation of approximately $2 million. The decrease in unit volumes was principally the result of non-recurring volumes associated with Russia and lower soup volumes due to a return to a more seasonal buying pattern. In the first six months of 2023, net sales for the metal containers segment decreased $24.1 million, or 1.7 percent, as compared to the first six months of 2022. This decrease was primarily the result of lower unit volumes of approximately three percent, including non-recurring net sales associated with Russia in the first six months of 2022 of $25.6 million, a less favorable mix of products sold and the impact of unfavorable foreign currency translation of approximately $2 million, partially offset by higher average selling prices due to the lagged contractual pass through of inflation in labor and other manufacturing costs. The decrease in unit volumes was principally the result of non-recurring volumes associated with Russia and lower volumes for soup, partially offset by higher volumes for pet food. In the second quarter of 2023, adjusted EBIT of the metal containers segment increased $12.2 million as compared to the second quarter of 2022, and adjusted EBIT margin increased to 10.6 from 8.4 percent for the same periods. The increase in adjusted EBIT was primarily due to higher average selling prices due to the lagged contractual pass through of inflation in labor and other manufacturing costs, partially offset by lower unit volumes and a less favorable mix of products sold. In the first six months of 2023, adjusted EBIT of the metal containers segment increased $31.7 million as compared to the first six months of 2022, and adjusted EBIT margin increased to 9.3 percent from 6.9 percent for the same periods. The increase in adjusted EBIT was primarily due to higher average selling prices due to the lagged contractual pass through of inflation in labor and other manufacturing costs, partially offset by a less favorable mix of products sold and lower unit volumes. -24- Custom Containers Segment Three Months Ended Six Months Ended June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022 (Dollars in millions) Net sales $ 155.8 $ 187.0 $ 324.0 $ 380.2 Income before interest and income taxes (EBIT) 17.0 30.9 35.4 55.6 Income before interest and income taxes margin (EBIT margin) 10.9 % 16.5 % 10.9 % 14.6 % Adjusted EBIT $ 18.5 $ 29.5 $ 38.5 $ 52.9 Adjusted EBIT margin 11.9 % 15.8 % 11.9 % 13.9 % In the second quarter of 2023, net sales for the custom containers segment decreased $31.2 million, or 16.7 percent, as compared to the second quarter of 2022. This decrease was principally due to lower volumes of approximately fourteen percent, the unfavorable impact from the pass through of lower resin costs and the impact of unfavorable foreign currency translation of approximately $2 million. The decline in volumes was primarily due to the exiting of lower margin business that did not meet reinvestment criteria and lower demand for the personal care and food markets. In the first six months of 2023, net sales for the custom containers segment decreased $56.2 million, or 14.8 percent, as compared to the first six months of 2022. This decrease was principally due to lower volumes of approximately twelve percent, the unfavorable impact from the pass through of lower resin costs and the impact of unfavorable foreign currency translation of approximately $4 million, partially offset by price increases primarily related to inflation in other manufacturing costs. The decline in volumes was primarily due to the exiting of lower margin business that did not meet reinvestment criteria. In the second quarter of 2023, adjusted EBIT of the custom containers segment decreased $11.0 million as compared to the second quarter of 2022, and adjusted EBIT margin decreased to 11.9 percent from 15.8 percent over the same periods. The decrease in adjusted EBIT was primarily attributable to lower volumes, partially offset by cost savings and higher prices primarily related to inflation in other manufacturing costs. In the first six months of 2023, adjusted EBIT of the custom containers segment decreased $14.4 million as compared to the first six months of 2022, and adjusted EBIT margin decreased to 11.9 percent from 13.9 percent over the same periods. The decrease in adjusted EBIT was primarily attributable to lower volumes, partially offset by cost savings and higher prices primarily related to inflation in other manufacturing costs. CAPITAL RESOURCES AND LIQUIDITY Our principal sources of liquidity have been net cash from operating activities and borrowings under our debt instruments, including our senior secured credit facility. Our liquidity requirements arise 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, the funding of our seasonal working capital needs and other general corporate uses. On June 22, 2023, we and certain of our subsidiaries entered into the Fourth Amendment with the lenders party to the Credit Agreement and Wells Fargo Bank, National Association, as administrative agent under the Credit Agreement. The Fourth Amendment amended the Credit Agreement to provide for the transition from LIBOR based interest rates to SOFR (Secured Overnight Financing Rates) and SONIA (Sterling Overnight Index Average) based interest rates and to provide for standard interest rate benchmark replacement language. The Fourth Amendment also reduced the spread adjustments for Term SOFR borrowings. For the six months ended June 30, 2023, we used net borrowings of revolving loans and proceeds from other foreign long-term debt of an aggregate of $758.7 million and cash and cash equivalents of $349.0 million (including the positive effect of exchange rate changes of $5.7 million) to fund cash used in operations of $811.7 million, net capital expenditures and other investing activities of $117.0 million, decreases in outstanding checks of $61.4 million, the repayment of long-term debt of $51.9 million, dividends paid on our common stock of $40.4 million and repurchases of our common stock of $31.0 million. -25- For the six months ended June 30, 2022, we used net borrowings of revolving loans of $698.9 million and cash and cash equivalents of $383.6 million to fund the redemption of our 4¾% Senior Notes for $300.0 million, cash used in operations of $351.9 million, decreases in outstanding checks of $225.9 million, net capital expenditures and other investing activities of $120.4 million, repurchases of our common stock of $39.4 million, dividends paid on our common stock of $36.7 million and the negative effect of exchange rate changes on cash and cash equivalents of $8.2 million. At June 30, 2023, we had $738.0 million of revolving loans outstanding under the Credit Agreement. After taking into account outstanding letters of credit, the available portion of revolving loans under the Credit Agreement at June 30, 2023 was $741.5 million. Because we sell metal containers and closures used in fruit and vegetable pack processing, we have seasonal sales. As is common in the 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 million. We fund seasonal working capital requirements through revolving loans under the Credit Agreement, other foreign bank loans and cash on hand. We may use the available portion of revolving loans under the 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 to refinance or repurchase other debt. We believe that cash generated from operations and funds from borrowings available under the Credit Agreement and other foreign bank loans will be sufficient to meet our expected operating needs, planned capital expenditures, debt service, tax obligations, pension benefit plan contributions, share repurchases 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 the Credit Agreement, to finance any such acquisition. 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. Supply Chain Finance Program We believe that we negotiate the best terms possible with our suppliers, including payment terms. In connection therewith, we initiated a SCF program with a major global financial institution. Under this SCF program, qualifying suppliers may elect, but are not obligated, to sell their 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 receivables sale 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 in establishing 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 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 Condensed Consolidated Balance Sheet, and the associated payments are reflected in net cash provided by operating activities in our Condensed 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. Outstanding trade accounts payables subject to this SCF program were approximately $321.9 million, $369.5 million and $346.8 million at June 30, 2023 and 2022 and December 31, 2022, respectively. Guaranteed Securities Each of the 3¼% Senior Notes, the 4⅛% Senior Notes, the 2¼% Senior Notes and the 1.4% Senior Secured Notes were issued by Silgan and are guaranteed by our U.S. subsidiaries that also guarantee our obligations under the Credit Agreement, collectively the Obligor Group. -26- The following summarized financial information relates to the Obligor Group as of June 30, 2023 and December 31, 2022 and for the six months ended June 30, 2023. Intercompany transactions, equity investments and other intercompany activity within the Obligor Group have been eliminated from the summarized financial information. Investments in subsidiaries of Silgan that are not part of the Obligor Group of $1.5 billion and $1.4 billion as of June 30, 2023 and December 31, 2022 are not included in noncurrent assets in the table below. June 30, 2023 Dec. 31, 2022 (Dollars in millions) Current assets $1,768.3 $1,247.4 Noncurrent assets 4,011.1 4,028.4 Current liabilities 1,521.7 1,077.7 Noncurrent liabilities 3,896.3 3,911.4 At June 30, 2023 and December 31, 2022, the Obligor Group held current receivables due from other subsidiary companies of $49.3 million and $72.4 million, respectively; long-term notes receivable due from other subsidiary companies of $757.6 million and $730.0 million, respectively; and current payables due to other subsidiary companies of $4.1 million and $7.9 million, respectively. Six Months Ended June 30, 2023 (Dollars in millions) Net sales $2,046.7 Gross profit 302.6 Net income 99.4 For the six months ended June 30, 2023, net income in the table above excludes income from equity method investments of other subsidiary companies of $51.5 million. For the six months ended June 30, 2023, the Obligor Group recorded the following transactions with other subsidiary companies: sales to such other subsidiary companies of $25.8 million; net credits from such other subsidiary companies of $16.5 million; and net interest income from such other subsidiary companies of $17.7 million. For the six months ended June 30, 2023, the Obligor Group received dividends from other subsidiary companies of $15.8 million. Rationalization Charges 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 $8.9 million and $4.3 million for the six months ended June 30, 2023 and 2022, respectively. Excluding the impact of our withdrawal from the Central States Pension Plan in 2019, remaining expenses and cash expenditures for our rationalization plans are expected to be $1.0 million and $3.3 million, respectively. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $0.9 million per year and be recognized annually through 2040, and remaining cash expenditures for the withdrawal liability related to the Central States Pension Plan are expected to be approximately $0.8 million in 2023 and $2.6 million annually thereafter through 2040. You should also read Note 3 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2023 included elsewhere in this Quarterly Report. -27-