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 health care, garden, personal care, home, beauty and food products. It operates a global network of thirteen facilities across North and South America, Europe 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 $1,023.8 million, net of cash acquired. We incurred acquisition related costs for SDS totaling $26.1 million, including $24.7 million and $1.4 million for the years ended December 31, 2017 and 2016, respectively, which are included in selling, general and administrative expenses in our 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 8 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 9). The purchase price allocation is preliminary and subject to change pending a final valuation of the assets and liabilities, primarily related to current and deferred income tax balances. 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 $12.0 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	40,647
Trade accounts payable and accrued liabilities	(86,699		)
Deferred income tax liabilities	(105,701		)
Other liabilities	(25,339		)
Total identifiable net assets	512,847
Goodwill	511,001
Cash paid, net of cash acquired	$	1,023,848

Goodwill of $511.0 million consists largely of our increased capacity to serve our global customers and achieve operational synergies and has been assigned to our closures segment. An insignificant portion of the goodwill is expected to be deductible for income tax purposes, although additional deductions may be available under the 2017 Tax Act. Additional work is necessary to complete the analysis of the portion of goodwill that is deductible for income tax purposes under the 2017 Tax Act. 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 year ended December 31, 2017 included the results for SDS since the acquisition date. Net sales and income from operations from the SDS operations of $445.6 million and $47.3 million, respectively, were included in our Consolidated Statements of Income for the year ended December 31, 2017. For the year ended December 31, 2017, SDS's income from operations included the pre-tax unfavorable impact of an $11.9 million charge related to the inventory write-up for SDS 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 years ended December 31, 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 for the year ended December 31, 2017 excludes the unfavorable impact of the initial inventory write-up and acquisition related costs of $11.9 million and $24.7 million before income taxes, respectively. Net income for the year ended December 31, 2016 includes the unfavorable impact of the initial inventory write-up and total acquisition related costs of $11.9 million and $26.1 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 to the extent not recognized in actual results.

The unaudited pro forma financial information for the years ended December 31, 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.



		2017		2016
	(Dollars in thousands, except per share data)
Net sales		$	4,243,432	$	4,184,239
Net income		$	300,414	$	150,652

Earnings per share:
Basic net income per share		$	2.72	$	1.26
Diluted net income per share		$	2.70	$	1.25