Acquisition

Dispensing Systems Acquisition

On April 6, 2017, we acquired the specialty closures and dispensing systems operations of WestRock Company, now operating under the name Silgan Dispensing Systems, or SDS. SDS is a leading global supplier of highly engineered triggers, pumps, sprayers and dispensing closure solutions for food, health care, garden, home and beauty products. It operates a global network of thirteen facilities across North America, Europe, South America and Asia. SDS represents a strategically important acquisition for us, providing us with an opportunity to expand our closures franchise. SDS is included in our Closures segment as of the acquisition date.

For the year ended December 31, 2016, SDS generated net sales of approximately $570 million. We acquired SDS for a purchase price in cash of $1.029 billion, net of cash acquired. We incurred acquisition related costs for SDS totaling $25.2 million, including $0.8 million and $23.8 million for the three and nine months ended September 30, 2017, respectively, which are included in selling, general and administrative expenses in our Condensed Consolidated Statements of Income. We funded the purchase price for this acquisition through term and revolving loan borrowings under our amended and restated senior secured credit facility. See Note 7 for further information.

The initial purchase price has been allocated to assets acquired and liabilities assumed based on estimated fair values at the date of acquisition using valuation techniques including the income, cost and market approaches, primarily using Level 3 inputs (as defined in Note 8). The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, including property, plant and equipment and intangible assets, and the related tax impact of any adjustments to such valuations. Based upon revised estimates of fair value of certain assets and liabilities from our preliminary purchase price allocation presented in our Quarterly Report on Form 10-Q for the period ended June 30, 2017, we decreased goodwill by $17.6 million, primarily related to a decrease in deferred income tax liabilities.

The allocated fair value of assets acquired and liabilities assumed are summarized as follows (in thousands):



Trade accounts receivable	$	109,565
Inventories	79,758
Property, plant and equipment	255,616
Other intangible assets	245,000
Other assets	40,577
Trade accounts payable and accrued liabilities	(77,807		)
Deferred income taxes	(105,167		)
Other liabilities	(24,697		)
Total identifiable net assets	522,845
Goodwill	505,884
Cash paid at closing, net of cash acquired	$	1,028,729

Goodwill of $505.9 million consists largely of our increased capacity to serve our global customers and achieve operational synergies and has been assigned to our closures segment. A portion of the goodwill is expected to be deductible for income tax purposes. Other intangible assets consist of customer relationships of $220.0 million with an estimated remaining life of 22 years and technology know-how of $25.0 million with an estimated remaining life of 7 years. Acquired property, plant and equipment are being depreciated on a straight-line basis with estimated remaining lives of up to 35 years.

Our consolidated results of operations for the nine months ended September 30, 2017 included the results for SDS since the acquisition date. Net sales from the SDS operations of $149.8 million and $292.5 million were included in our Condensed Consolidated Statements of Income for the three and nine months ended September 30, 2017, respectively. SDS's income from operations was $21.0 million and $28.7 million for the three and nine months ended September 30, 2017, respectively. For the nine months ended September 30, 2017, SDS's income from operations included the pre-tax unfavorable impact of an $11.9 million charge related to the inventory write-up as a result of purchase accounting in connection with the acquisition.

Pro Forma Information

The following unaudited pro forma financial information includes our historical results of operations for the three and nine months ended September 30, 2017 and 2016 and gives pro forma effect to the SDS acquisition as if it had been completed as of January 1, 2016. The pro forma results of operations include interest expense related to incremental borrowings used to finance the acquisition and adjustments to depreciation and amortization expense for the valuation of property, plant and equipment and intangible assets. Net income excludes the unfavorable impact of the initial inventory write-up of $11.9 million before income taxes for the nine months ended September 30, 2017 and acquisition related costs of $0.8 million and $23.8 million before income taxes for the three and nine months ended September 30, 2017, respectively. Net income for the nine months ended September 30, 2016 includes the unfavorable impact of the initial inventory write-up and acquisition related costs of $11.9 million and $25.2 million before income taxes, respectively. The pro forma results of operations do not give effect to potential synergies or additional costs resulting from the integration of SDS with our existing operations.

The unaudited pro forma financial information for the three and nine months ended September 30, 2017 and 2016 is not intended to represent or be indicative of our consolidated results of operations or financial condition that would have been reported had the SDS acquisition been completed as of the beginning of the periods presented, nor should it be taken as indicative of our future consolidated results of operations or financial condition.



	Three Months Ended				Nine Months Ended
	Sept. 30, 2017		Sept. 30, 2016		Sept. 30, 2017		Sept. 30, 2016
	(Dollars in thousands, except per share data)

Net sales	$	1,266,930	$	1,272,237	$	3,247,728	$	3,235,248
Net income	$	72,964	$	71,933	$	153,482	$	120,251

Earnings per share:
Basic net income per share	$	0.66	$	0.60	$	1.39	$	0.99
Diluted net income per share	$	0.65	$	0.59	$	1.38	$	0.99