Silgan Holdings - 10-Q quarterly report FY2019 Q2

Silgan Holdings - 10-Q quarterly report FY2019 Q2

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



	☒		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019



	☐		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ________________ to ________________

Commission file number 000-22117

SILGAN HOLDINGS INC.

(Exact name of Registrant as specified in its charter)



Delaware		06-1269834
(State or other jurisdiction		(I.R.S. Employer
of incorporation or organization)		Identification No.)

4 Landmark Square
Stamford,	Connecticut	06901
(Address of principal executive offices)		(Zip Code)

(203) 975-7110

(Registrant's telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	SLGN	Nasdaq Global Select Market

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the Registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the Registrant has elected not to use the extended transition period for complying

with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 31, 2019, the number of shares outstanding of the Registrant’s common stock was 111,175,846.

-1-



SILGAN HOLDINGS INC.

TABLE OF CONTENTS

	Page No.


Part I. Financial Information	3

Item 1. Financial Statements	3

Condensed Consolidated Balance Sheets at June 30, 2019 and 2018 and December 31, 2018	3

Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018	4

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018	5

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018	6

Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018	7

Notes to Condensed Consolidated Financial Statements	8

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	20

Item 3. Quantitative and Qualitative Disclosures About Market Risk	26

Item 4. Controls and Procedures	26

Part II. Other Information	27

Item 6. Exhibits	27

Signatures	28

-2-

Part I. Financial Information

Item 1. Financial Statements

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



	June 30, 2019			June 30, 2018			Dec. 31, 2018
	(unaudited)			(unaudited)
Assets

Current assets:
Cash and cash equivalents	$	111,341		$	181,220		$	72,819
Trade accounts receivable, net	666,681			648,525			511,332
Inventories	822,584			833,719			634,806
Prepaid expenses and other current assets	59,245			63,361			71,177
Total current assets	1,659,851			1,726,825			1,290,134

Property, plant and equipment, net	1,523,850			1,480,390			1,517,510
Goodwill	1,146,363			1,158,910			1,148,302
Other intangible assets, net	369,210			399,590			383,448
Other assets, net	411,944			293,962			239,900
	$	5,111,218		$	5,059,677		$	4,579,294

Liabilities and Stockholders’ Equity

Current liabilities:
Revolving loans and current portion of long-term debt	$	886,458		$	788,731		$	170,214
Trade accounts payable	598,484			609,164			712,739
Accrued payroll and related costs	68,585			65,493			68,773
Accrued liabilities	143,360			90,360			127,342
Total current liabilities	1,696,887			1,553,748			1,079,068

Long-term debt	1,824,533			2,173,941			2,134,400
Deferred income taxes	270,430			274,086			268,036
Other liabilities	389,466			219,892			216,525

Stockholders’ equity:
Common stock	1,751			1,751			1,751
Paid-in capital	280,636			268,559			276,062
Retained earnings	2,049,995			1,897,417			1,997,785
Accumulated other comprehensive loss	(265,373		)	(208,963		)	(268,808		)
Treasury stock	(1,137,107		)	(1,120,754		)	(1,125,525		)
Total stockholders’ equity	929,902			838,010			881,265
	$	5,111,218		$	5,059,677		$	4,579,294

See accompanying notes.

-3-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the three and six months ended June 30, 2019 and 2018

(Dollars and shares in thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018

Net sales	$	1,093,163		$	1,059,103		$	2,120,294		$	2,071,385
Cost of goods sold	909,650			885,853			1,770,784			1,738,101
Gross profit	183,513			173,250			349,510			333,284
Selling, general and administrative expenses	80,087			78,253			157,749			154,998
Rationalization charges	39,317			492			45,400			1,195
Other pension and postretirement income	(4,490		)	(9,612		)	(8,980		)	(19,210		)
Income before interest and income taxes	68,599			104,117			155,341			196,301
Interest and other debt expense before loss on early extinguishment of debt	28,401			29,922			55,505			60,401
Loss on early extinguishment of debt	—			2,493			—			2,493
Interest and other debt expense	28,401			32,415			55,505			62,894
Income before income taxes	40,198			71,702			99,836			133,407
Provision for income taxes	9,243			16,359			22,140			32,340
Net income	$	30,955		$	55,343		$	77,696		$	101,067

Earnings per share:
Basic net income per share	$	0.28		$	0.50		$	0.70		$	0.91
Diluted net income per share	$	0.28		$	0.50		$	0.70		$	0.91

Weighted average number of shares:
Basic	111,185			110,645			110,945			110,566
Effect of dilutive securities	317			929			600			998
Diluted	111,502			111,574			111,545			111,564

See accompanying notes.

-4-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the three and six months ended June 30, 2019 and 2018

(Dollars in thousands)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018

Net income	$	30,955		$	55,343		$	77,696		$	101,067
Other comprehensive income (loss), net of tax:
Changes in net prior service credit and actuarial losses	2,614			778			5,120			1,634
Change in fair value of derivatives	(1,601		)	587			(2,488		)	197
Foreign currency translation	6,045			(35,621		)	803			(21,821		)
Other comprehensive income (loss)	7,058			(34,256		)	3,435			(19,990		)
Comprehensive income	$	38,013		$	21,087		$	81,131		$	81,077

See accompanying notes.

-5-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the six months ended June 30, 2019 and 2018

(Dollars in thousands)

(Unaudited)



	2019			2018
Cash flows provided by (used in) operating activities:
Net income	$	77,696		$	101,067
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization	104,102			97,903
Rationalization charges	45,400			1,195
Stock compensation expense	8,244			7,420
Loss on early extinguishment of debt	—			2,493
Other changes that provided (used) cash:
Trade accounts receivable, net	(155,198		)	(134,961		)
Inventories	(187,790		)	(176,222		)
Trade accounts payable	(19,421		)	45,232
Accrued liabilities	(22,875		)	(29,125		)
Other, net	20,764			(7,886		)
Net cash used in operating activities	(129,078		)	(92,884		)

Cash flows provided by (used in) investing activities:
Capital expenditures	(116,165		)	(91,278		)
Other, net	560			486
Net cash used in investing activities	(115,605		)	(90,792		)

Cash flows provided by (used in) financing activities:
Borrowings under revolving loans	703,359			848,686
Repayments under revolving loans	(287,368		)	(132,386		)
Repayments of long-term debt	(8,161		)	(284,638		)
Changes in outstanding checks - principally vendors	(83,670		)	(87,795		)
Dividends paid on common stock	(26,415		)	(22,417		)
Debt issuance costs	—			(2,866		)
Repurchase of common stock under stock plan	(15,252		)	(3,057		)
Net cash provided by financing activities	282,493			315,527

Effect of exchange rate changes on cash and cash equivalents	712			(4,164		)

Cash and cash equivalents:
Net increase	38,522			127,687
Balance at beginning of year	72,819			53,533
Balance at end of period	$	111,341		$	181,220

Interest paid, net	$	53,069		$	62,192
Income taxes paid, net	23,634			31,303

See accompanying notes.

-6-

SILGAN HOLDINGS INC.

CONDENSED CONSOLIDATED STATEMENTS OF

STOCKHOLDERS' EQUITY

For the three and six months ended June 30, 2019 and 2018

(Dollars and shares in thousands, except per share amounts)

(Unaudited)



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018

Common stock - shares outstanding
Balance at beginning of period	111,128			110,569			110,430			110,385
Net issuance of treasury stock for vested restricted stock units	48			49			746			233
Balance at end of period	111,176			110,618			111,176			110,618

Common stock - par value
Balance at beginning and end of period	$	1,751		$	1,751		$	1,751		$	1,751

Paid-in capital
Balance at beginning of period	276,435			265,022			276,062			262,201
Stock compensation expense	4,335			3,720			8,244			7,420
Net issuance of treasury stock for vested restricted stock units	(134		)	(183		)	(3,670		)	(1,062		)
Balance at end of period	280,636			268,559			280,636			268,559

Retained earnings
Balance at beginning of period	2,031,487			1,853,351			1,997,785			1,809,845
Net income	30,955			55,343			77,696			101,067
Dividends declared on common stock	(12,447		)	(11,277		)	(24,893		)	(22,556		)
Adoption of accounting standards updates related to leases in 2019 and revenue recognition in 2018	—			—			(593		)	9,061
Balance at end of period	2,049,995			1,897,417			2,049,995			1,897,417

Accumulated other comprehensive loss
Balance at beginning of period	(272,431		)	(174,707		)	(268,808		)	(188,973		)
Other comprehensive income (loss)	7,058			(34,256		)	3,435			(19,990		)
Balance at end of period	(265,373		)	(208,963		)	(265,373		)	(208,963		)

Treasury stock
Balance at beginning of period	(1,137,035		)	(1,120,626		)	(1,125,525		)	(1,118,759		)
Net issuance of treasury stock for vested restricted stock units	(72		)	(128		)	(11,582		)	(1,995		)
Balance at end of period	(1,137,107		)	(1,120,754		)	(1,137,107		)	(1,120,754		)
Total stockholders' equity	$	929,902		$	838,010		$	929,902		$	838,010

Dividends declared on common stock per share	$	0.11		$	0.10		$	0.22		$	0.20

See accompanying notes.

-7-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 1. Significant Accounting Policies

Basis of Presentation. The accompanying unaudited condensed consolidated financial statements of Silgan Holdings Inc., or Silgan, have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP, for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, the accompanying financial statements include all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation. The results of operations for any interim period are not necessarily indicative of the results of operations for the full year.

The Condensed Consolidated Balance Sheet at December 31, 2018 has been derived from our audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

You should read the accompanying condensed consolidated financial statements in conjunction with our consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018.

Recently Adopted Accounting Pronouncements. In February 2016, the Financial Accounting Standards Board, or FASB, issued an accounting standards update, or ASU, that amends existing guidance for certain leases by lessees. This amendment required us to recognize assets and liabilities on the balance sheet for the rights and obligations created by long-term leases and to disclose additional quantitative and qualitative information about leasing arrangements. We adopted this amendment on January 1, 2019 using the transition method, which allowed us to recognize the effects of applying this amendment as a cumulative effect to retained earnings as of January 1, 2019. We elected certain practical expedients permitted under the transition guidance for this amendment, which did not require us to reassess whether other contracts contain leases and allowed us to carryforward our lease classifications determined under the previous guidance. In addition, we elected to retain our previously determined assumptions concerning options to extend or terminate our leases. As a result of the adoption of this amendment, we recognized additional long-term assets of $160.8 million, additional related lease liabilities of $161.4 million and reduced retained earnings by $0.6 million all on January 1, 2019. The adoption of this amendment did not have a material impact on our results of operations or cash flows. See Note 2 for further information.

-8-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 2. Leases

We have noncancelable operating leases for office and plant facilities, equipment and automobiles that expire at various dates through 2040. Certain operating leases have renewal options and rent escalation clauses as well as various purchase options.

Lease right-of-use assets represent the right to use an underlying asset pursuant to the lease for the lease term, and lease liabilities represent the obligation to make lease payments arising from the lease. Lease right-of-use assets and lease liabilities are recognized at the commencement of an arrangement where it is determined at inception that a lease exists. These assets and liabilities are initially recognized based on the present value of lease payments over the lease term calculated using our incremental borrowing rate generally applicable to the location of the lease right-of-use asset, unless an implicit rate is readily determinable. We combine lease and certain non-lease components in determining the lease payments subject to the initial present value calculation. Lease right-of-use assets include upfront lease payments and exclude lease incentives, where applicable. Lease terms include options to extend or terminate the lease when it is reasonably certain that those options will be exercised.

Lease expense for operating leases consists of both fixed and variable components. Expense related to fixed lease payments are recognized on a straight-line basis over the lease term. Variable lease payments are generally expensed as incurred, where applicable, and include certain index-based changes in rent, certain non-lease components, such as maintenance and other services provided by the lessor, and other charges included in the lease. Leases with an initial term of twelve months or less are not recorded on the balance sheet. The depreciable life of lease right-of-use assets is generally the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise for such assets.

We recognized total lease expense of $17.3 million and $33.8 million for the three and six months ended June 30, 2019, respectively, primarily related to operating lease costs paid to lessors from operating cash flows. We did not recognize any new significant leases in our Condensed Consolidated Balance Sheet for the period ended June 30, 2019.

The aggregate annual maturities of operating lease liabilities are as follows (dollars in thousands):



Six months ended December 31, 2019	$	22,297
2020	41,237
2021	34,365
2022	26,734
2023	22,297
Thereafter	75,794
Total lease payments	222,724
Less imputed interest	(42,287		)
Total	$	180,437

Operating lease right-of-use assets as of June 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as other assets, net of $172.4 million. Operating lease liabilities of $180.4 million as of June 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $34.2 million and other liabilities of $146.2 million. At June 30, 2019, our operating leases had a weighted average discount rate of 5.7 percent and a weighted average remaining lease term of approximately seven years.

To a lesser extent, we have certain leases that qualify as finance leases. Finance lease right-of-use assets as of June 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as property, plant and equipment, net of $22.6 million. Finance lease liabilities of $22.2 million as of June 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as revolving loans and current portion of long term-debt of $1.2 million and long-term debt of $21.0 million.

At June 30, 2019, we did not have any significant operating or finance leases that had not commenced.

-9-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 3. Revenue

The following tables present our revenues disaggregated by reportable business segment and geography as they best depict how the nature, amount, timing and uncertainty of revenue and cash flows are affected by economic factors.

Revenues by business segment were as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(Dollars in thousands)
Metal containers	$	575,618	$	524,863	$	1,082,680	$	1,010,818
Closures	363,344		378,762		719,543		749,108
Plastics	154,201		155,478		318,071		311,459
	$	1,093,163	$	1,059,103	$	2,120,294	$	2,071,385

Revenues by geography were as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(Dollars in thousands)
North America	$	858,565	$	815,337	$	1,669,332	$	1,595,127
Europe and other	234,598		243,766		450,962		476,258
	$	1,093,163	$	1,059,103	$	2,120,294	$	2,071,385

Our contracts generally include standard commercial payment terms generally acceptable in each region. We do not provide financing with extended payment terms beyond generally standard commercial payment terms for the applicable industry. We have no significant obligations for refunds, warranties or similar obligations.

Trade accounts receivable, net are shown separately on our Condensed Consolidated Balance Sheet. Contract assets are the result of the timing of revenue recognition, billings and cash collections. Our contract assets primarily consist of unbilled accounts receivable related to over time revenue recognition and were $77.2 million, $76.7 million, and $72.5 million as of June 30, 2019 and 2018 and December 31, 2018, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheet.

-10-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 4. Rationalization Charges



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(Dollars in thousands)
Metal containers	$	39,023	$	258	$	39,245	$	740
Closures	248		—		5,908		39
Plastic containers	46		234		247		416
	$	39,317	$	492	$	45,400	$	1,195

In June 2019, we announced a footprint optimization plan for our metal container business, which includes the closing of our metal container manufacturing facilities in Mt. Vernon, Missouri and Waupun, Wisconsin anticipated to occur in the fourth quarter of 2019. These plant closings, in conjunction with the prior ratification of a new labor agreement at our Menomonee Falls, Wisconsin metal container manufacturing facility that provided for the withdrawal for that facility from the Central States, Southeast and Southwest Areas Pension Plan, or the Central States Pension Plan, will result in our complete withdrawal from the Central States Pension Plan. We estimate net rationalization charges for this plan of $3.7 million for the plant closings and $56.4 million for the withdrawal from the Central States Pension Plan. We recorded total rationalization charges for this plan of $38.7 million in the second quarter of 2019, consisting of $2.5 million for the plant closings and $36.2 million to recognize the present value of the estimated withdrawal liability related to the Central States Pension Plan. Remaining expenses and cash expenditures for the plant closings are $1.2 million and $2.9 million, respectively, and are expected through 2021. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.0 million per year and be recognized annually for the next twenty years, and remaining cash expenditures related to the withdrawal from the Central States Pension Plan are expected to be approximately $2.8 million annually for the next twenty years.

Rationalization charges in the first six months of 2019 for the closures business were primarily related to the announced shutdown in the first quarter of 2019 of the Torello, Spain metal closures manufacturing facility.

Activity in reserves for our rationalization plans were as follows:



	Employee Severance and Benefits			Plant Exit Costs			Non-Cash Asset Write-Down			Total
	(Dollars in thousands)
Balance at December 31, 2018	$	130		$	1,482		$	—		$	1,612
Charged to expense	41,661			437			3,302			45,400
Utilized and currency translation	(1,146		)	(723		)	(3,302		)	(5,171		)
Balance at June 30, 2019	$	40,645		$	1,196		$	—		$	41,841

Rationalization reserves as of June 30, 2019 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $5.5 million and other liabilities of $36.3 million. Exclusive of the footprint optimization plan for our metal container business and withdrawal from the Central States Pension Plan discussed above, remaining expenses for our rationalization plans of $4.2 million are expected primarily through 2019 and remaining cash expenditures for our rationalization plans of $4.7 million are expected through 2023.

-11-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 5. Accumulated Other Comprehensive Loss

Accumulated other comprehensive loss is reported in our Condensed Consolidated Statements of Stockholders’ Equity. Amounts included in accumulated other comprehensive loss, net of tax, were as follows:



	Unrecognized Net Defined Benefit Plan Costs			Change in Fair Value of Derivatives			Foreign Currency Translation			Total
	(Dollars in thousands)
Balance at December 31, 2018	$	(154,466	)	$	(1,008	)	$	(113,334	)	$	(268,808	)
Other comprehensive loss before reclassifications	—			(2,557		)	803			(1,754		)
Amounts reclassified from accumulated other comprehensive loss	5,120			69			—			5,189
Other comprehensive income	5,120			(2,488		)	803			3,435
Balance at June 30, 2019	$	(149,346	)	$	(3,496	)	$	(112,531	)	$	(265,373	)

The amounts reclassified to earnings from the unrecognized net defined benefit plan costs component of accumulated other comprehensive loss for the three and six months ended June 30, 2019 were net (losses) of $(3.4) million and $(6.8) million, respectively, excluding income tax benefits of $0.8 million and $1.7 million, respectively. For the three and six months ended June 30, 2019, these net (losses) consisted of amortization of net actuarial (losses) of $(4.0) million and $(7.9) million and amortization of net prior service credit of $0.6 million and $1.1 million, respectively. Amortization of net actuarial losses and net prior service credit was recorded in other pension and postretirement income in our Condensed Consolidated Statements of Income. See Note 10 for further information.

The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three and six months ended June 30, 2019 were not significant.

Other comprehensive income before reclassifications related to foreign currency translation for the three and six months ended June 30, 2019 consisted of (i) foreign currency gains (losses) related to translation of quarter end financial statements of foreign subsidiaries utilizing a functional currency other than the U.S. dollar of $9.7 million and $(1.6) million, respectively, (ii) foreign currency (losses) gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $(0.1) million and $0.6 million, respectively, and (iii) foreign currency (losses) gains related to our net investment hedges of $(4.7) million and $2.4 million, respectively, excluding income tax benefits (provisions) of $1.1 million and $(0.6) million, respectively. See Note 8 for further discussion.

-12-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 6. Inventories

Inventories consisted of the following:



	June 30, 2019			June 30, 2018			Dec. 31, 2018
	(Dollars in thousands)
Raw materials	$	271,396		$	252,792		$	288,860
Work-in-process	141,268			136,210			123,574
Finished goods	523,145			514,911			335,180
Other	12,658			12,629			13,075
	948,467			916,542			760,689
Adjustment to value inventory at cost on the LIFO method	(125,883		)	(82,823		)	(125,883		)
	$	822,584		$	833,719		$	634,806

Note 7. Long-Term Debt

Long-term debt consisted of the following:



	June 30, 2019		June 30, 2018		Dec. 31, 2018
	(Dollars in thousands)
Bank debt
Bank revolving loans	$	506,000	$	760,000	$	—
U.S. term loans	800,000		800,000		800,000
Canadian term loans	16,133		22,937		22,103
Other foreign bank revolving and term loans	39,269		34,914		129,697
Total bank debt	1,361,402		1,617,851		951,800
5½% Senior Notes	300,000		300,000		300,000
4¾% Senior Notes	300,000		300,000		300,000
3¼% Senior Notes	739,245		759,460		744,380
Finance leases	22,219		—		21,543
Total debt - principal	2,722,866		2,977,311		2,317,723
Less unamortized debt issuance costs	11,875		14,639		13,109
Total debt	2,710,991		2,962,672		2,304,614
Less current portion	886,458		788,731		170,214
	$	1,824,533	$	2,173,941	$	2,134,400

On August 1, 2019, we redeemed all $300 million aggregate principal amount of our outstanding 5½% Senior Notes. See Note 15 for more information on this redemption.

At June 30, 2019, the current portion of long-term debt consisted of $506.0 million of bank revolving loans under our amended and restated senior secured credit facility, as amended, or the Credit Agreement, $40.0 million of term loans under the Credit Agreement, $39.3 million of foreign bank revolving and term loans, $1.2 million of finance leases and $300.0 million of our 5½% Senior Notes which were redeemed on August 1, 2019.

-13-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 8. Financial Instruments

The financial instruments recorded in our Condensed Consolidated Balance Sheets include cash and cash equivalents, trade accounts receivable, trade accounts payable, debt obligations and swap agreements. Due to their short-term maturity, the carrying amounts of trade accounts receivable and trade accounts payable approximate their fair market values. The following table summarizes the carrying amounts and estimated fair values of our other financial instruments at June 30, 2019:



	Carrying Amount		Fair Value
	(Dollars in thousands)
Assets:
Cash and cash equivalents	$	111,341	$	111,341

Liabilities:
Bank debt	$	1,361,402	$	1,361,402
5½% Senior Notes	300,000		301,404
4¾% Senior Notes	300,000		303,672
3¼% Senior Notes	739,245		766,841
Derivative instruments (accrued and other liabilities)	4,571		4,571

Fair Value Measurements

GAAP defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). GAAP classifies the inputs used to measure fair value into a hierarchy consisting of three levels. Level 1 inputs represent unadjusted quoted prices in active markets for identical assets or liabilities. Level 2 inputs represent unadjusted quoted prices in active markets for similar assets or liabilities, or unadjusted quoted prices for identical or similar assets or liabilities in markets that are not active, or inputs other than quoted prices that are observable for the asset or liability. Level 3 inputs represent unobservable inputs for the asset or liability. Financial assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

Financial Instruments Measured at Fair Value

The financial assets and liabilities that were measured on a recurring basis at June 30, 2019 consisted of our cash and cash equivalents and derivative instruments. We measured the fair value of cash and cash equivalents using Level 1 inputs. We measured the fair value of our derivative instruments using the income approach. The fair value of our derivative instruments reflects the estimated amounts that we would pay or receive based on the present value of the expected cash flows derived from market interest rates and prices. As such, these derivative instruments were classified within Level 2.

Financial Instruments Not Measured at Fair Value

Our bank debt, 5½% Senior Notes, 4¾% Senior Notes and 3¼% Senior Notes were recorded at historical amounts in our Condensed Consolidated Balance Sheets, as we have not elected to measure them at fair value. We measured the fair value of our variable rate bank debt using the market approach based on Level 2 inputs. Fair values of the 5½% Senior Notes, 4¾% Senior Notes and 3¼% Senior Notes were estimated based on quoted market prices, a Level 1 input.

Derivative Instruments and Hedging Activities

Our derivative financial instruments were recorded in the Condensed Consolidated Balance Sheets at their fair values. Changes in fair values of derivatives are recorded in each period in earnings or comprehensive income, depending on whether a derivative is designated as part of a hedge transaction and, if it is, the type of hedge transaction.

-14-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

We utilize certain derivative financial instruments to manage a portion of our interest rate and natural gas cost exposures. We generally limit our use of derivative financial instruments to interest rate and natural gas swap agreements. We do not engage in trading or other speculative uses of these financial instruments. For a financial instrument to qualify as a hedge, we must be exposed to interest rate or price risk, and the financial instrument must reduce the exposure and be designated as a hedge. Financial instruments qualifying for hedge accounting must maintain a high correlation between the hedging instrument and the item being hedged, both at inception and throughout the hedged period.

We utilize certain internal hedging strategies to minimize our foreign currency exchange rate risk. Net investment hedges that qualify for hedge accounting result in the recognition of foreign currency gains or losses, net of tax, in accumulated other comprehensive loss. We generally do not utilize external derivative financial instruments to manage our foreign currency exchange rate risk.

Interest Rate Swap Agreements

We have entered into two U.S. dollar interest rate swap agreements, each for $50.0 million notional principal amount, to manage a portion of our exposure to interest rate fluctuations. These agreements have a fixed rate of 2.878 percent and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements is recorded in interest and other debt expense in our Condensed Consolidated Statements of Income and was not significant for the three and six month periods ended June 30, 2019. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our interest rate swap agreements in effect at June 30, 2019 was not significant.

Natural Gas Swap Agreements

We have entered into natural gas swap agreements with a major financial institution to manage a portion of our exposure to fluctuations in natural gas prices. The difference between amounts to be paid or received on our natural gas swap agreements is recorded in cost of goods sold in our Condensed Consolidated Statements of Income and was not significant for the quarter ended June 30, 2019. These agreements are with financial institutions which are expected to fully perform under the terms thereof. The total fair value of our natural gas swap agreements in effect at June 30, 2019 was not significant.

Foreign Currency Exchange Rate Risk

In an effort to minimize foreign currency exchange rate risk, we have financed acquisitions of foreign operations primarily with borrowings denominated in Euros and Canadian dollars. In addition, where available, we have borrowed funds in local currency or implemented certain internal hedging strategies to minimize our foreign currency exchange rate risk related to foreign operations. We have designated the 3¼% Senior Notes, which are Euro denominated, as net investment hedges. Foreign currency (losses) gains related to our net investment hedges included in accumulated other comprehensive loss for the three and six months ended June 30, 2019 were $(4.7) million and $2.4 million, respectively.

-15-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 9. Commitments and Contingencies

A competition authority in Germany commenced an antitrust investigation in 2015 involving the industry association for metal packaging in Germany and its members, including our metal container and closures subsidiaries in Germany. At the end of April 2018, the European Commission commenced an antitrust investigation involving the metal packaging industry in Europe including our metal container and closures subsidiaries, which should effectively close out the investigation in Germany. Given the continued early stage of the investigation, we cannot reasonably assess what actions may result from these investigations or estimate what costs we may incur as a result thereof.

We are a party to other legal proceedings, contract disputes and claims arising in the ordinary course of our business. We are not a party to, and none of our properties are subject to, any pending legal proceedings which could have a material adverse effect on our business or financial condition.

Note 10. Retirement Benefits

The components of the net periodic pension benefit credit were as follows:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(Dollars in thousands)
Service cost	$	3,254		$	3,710		$	6,512		$	7,431
Interest cost	7,043			6,296			14,092			12,605
Expected return on plan assets	(15,112		)	(17,122		)	(30,225		)	(34,245		)
Amortization of prior service cost	21			34			40			69
Amortization of actuarial losses	4,121			1,787			8,240			3,573
Net periodic benefit credit	$	(673	)	$	(5,295	)	$	(1,341	)	$	(10,567	)

The components of the net periodic other postretirement benefit credit were as follows:



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(Dollars in thousands)
Service cost	$	22		$	32		$	44		$	63
Interest cost	184			162			369			325
Amortization of prior service credit	(581		)	(650		)	(1,163		)	(1,299		)
Amortization of actuarial gains	(166		)	(119		)	(333		)	(238		)
Net periodic benefit credit	$	(541	)	$	(575	)	$	(1,083	)	$	(1,149	)

-16-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 11. Income Taxes

Silgan and its subsidiaries file U.S. Federal income tax returns, as well as income tax returns in various states and foreign jurisdictions. The Internal Revenue Service, or IRS, has completed its review of the 2017 tax year with no material change to our filed federal income tax return. We have been accepted into the Compliance Assurance Program for the 2018 and 2019 tax years which provides for the review by the IRS of tax matters relating to our tax return prior to filing.

Note 12. Treasury Stock

On October 17, 2016, 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 including December 31, 2021, of which we had approximately $124.6 million remaining under this authorization for the repurchase of our common stock at June 30, 2019. We did not repurchase any shares of our common stock under this authorization during the six months ended June 30, 2019.

During the first six months of 2019, we issued 1,281,777 treasury shares which had an average cost of $2.86 per share for restricted stock units that vested during the period. In accordance with the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan, we repurchased 535,527 shares of our common stock at an average cost of $28.48 to satisfy minimum employee withholding tax requirements resulting from the vesting of such restricted stock units.

We account for treasury shares using the first-in, first-out (FIFO) cost method. As of June 30, 2019, 63,936,650 shares of our common stock were held in treasury.

Note 13. Stock-Based Compensation

We currently have one stock-based compensation plan in effect under which we have issued options and restricted stock units to our officers, other key employees and outside directors. During the first six months of 2019, 1,079,504 restricted stock units were granted to certain of our officers, other key employees and outside directors. The fair value of these restricted stock units at the grant date was $30.8 million, which is being amortized ratably over the respective vesting period from the grant date.

-17-

SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Note 14. Business Segment Information

Reportable business segment information was as follows:



	Metal Containers		Closures		Plastic Containers		Corporate			Total
	(Dollars in thousands)
Three Months Ended June 30, 2019
Net sales	$	575,618	$	363,344	$	154,201	$	—		$	1,093,163
Depreciation and amortization⁽¹⁾	21,437		21,145		9,336		39			51,957
Rationalization charges	39,023		248		46		—			39,317
Segment income	14,029		46,857		13,410		(5,697		)	68,599

Three Months Ended June 30, 2018
Net sales	$	524,863	$	378,762	$	155,478	$	—		$	1,059,103
Depreciation and amortization⁽¹⁾	20,423		18,758		8,854		43			48,078
Rationalization charges	258		—		234		—			492
Segment income	48,248		47,702		13,160		(4,993		)	104,117

Six Months Ended June 30, 2019
Net sales	$	1,082,680	$	719,543	$	318,071	$	—		$	2,120,294
Depreciation and amortization⁽¹⁾	42,543		41,498		18,153		80			102,274
Rationalization charges	39,245		5,908		247		—			45,400
Segment income	52,926		87,113		25,476		(10,174		)	155,341

Six Months Ended June 30, 2018
Net sales	$	1,010,818	$	749,108	$	311,459	$	—		$	2,071,385
Depreciation and amortization⁽¹⁾	40,676		37,408		17,804		64			95,952
Rationalization charges	740		39		416		—			1,195
Segment income	85,341		95,927		24,242		(9,209		)	196,301

_____________


⁽¹⁾	Depreciation and amortization excludes amortization of debt issuance costs of $0.9 million for each of the three months ended June 30, 2019 and 2018 and $1.8 million and $2.0 million for the six months ended June 30, 2019 and 2018, respectively.

Total segment income is reconciled to income before income taxes as follows:



	Three Months Ended				Six Months Ended
	June 30, 2019		June 30, 2018		June 30, 2019		June 30, 2018
	(Dollars in thousands)
Total segment income	$	68,599	$	104,117	$	155,341	$	196,301
Interest and other debt expense	28,401		32,415		55,505		62,894
Income before income taxes	$	40,198	$	71,702	$	99,836	$	133,407

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SILGAN HOLDINGS INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Information at June 30, 2019 and 2018 and for the

three and six months then ended is unaudited)

Sales and segment income of our metal container business and part of our closures business are dependent, in part, upon fruit and vegetable 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 segment income during that quarter.

Note 15. Subsequent Event

On August 1, 2019, we redeemed all $300.0 million aggregate principal amount of our outstanding 5½% Senior Notes at a redemption price of 100 percent of their principal amount plus accrued and unpaid interest up to the redemption date. We funded this redemption with revolving loan borrowings under the Credit Agreement and cash on hand.

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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, 2018 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 rigid packaging for consumer goods products. We currently produce steel and aluminum containers for human and pet food and general line products; metal and plastic closures and dispensing systems for food, beverage, health care, garden, personal care, home and beauty 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 manufacturer of metal containers in North America and Europe, a leading worldwide manufacturer of metal and plastic closures and dispensing systems and a leading manufacturer of plastic containers in North America for a variety of markets, including the personal care, food, health care and household and industrial chemical 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.

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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, 2019		June 30, 2018		June 30, 2019		June 30, 2018
Net sales
Metal containers	52.7	%	49.5	%	51.1	%	48.8	%
Closures	33.2		35.8		33.9		36.2
Plastic containers	14.1		14.7		15.0		15.0
Consolidated	100.0		100.0		100.0		100.0
Cost of goods sold	83.2		83.6		83.5		83.9
Gross profit	16.8		16.4		16.5		16.1
Selling, general and administrative expenses	7.3		7.4		7.4		7.5
Rationalization charges	3.6		0.1		2.2		0.1
Other pension and postretirement income	(0.4	)	(0.9	)	(0.4	)	(1.0	)
Income before interest and income taxes	6.3		9.8		7.3		9.5
Interest and other debt expense	2.6		3.1		2.6		3.0
Income before income taxes	3.7		6.7		4.7		6.5
Provision for income taxes	0.9		1.5		1.0		1.6
Net income	2.8	%	5.2	%	3.7	%	4.9	%

Summary unaudited results of operations for the periods presented are provided below.



	Three Months Ended						Six Months Ended
	June 30, 2019			June 30, 2018			June 30, 2019			June 30, 2018
	(dollars in millions)
Net sales
Metal containers	$	575.6		$	524.9		$	1,082.7		$	1,010.8
Closures	363.4			378.8			719.5			749.1
Plastic containers	154.2			155.4			318.1			311.5
Consolidated	$	1,093.2		$	1,059.1		$	2,120.3		$	2,071.4

Segment income
Metal containers⁽¹⁾	$	14.0		$	48.2		$	52.9		$	85.3
Closures ⁽²⁾	46.9			47.7			87.1			96.0
Plastic containers ⁽³⁾	13.4			13.2			25.5			24.2
Corporate	(5.7		)	(5.0		)	(10.2		)	(9.2		)
Consolidated	$	68.6		$	104.1		$	155.3		$	196.3

⁽¹⁾Includes rationalization charges of $39.0 million and $0.3 million for the three months ended June 30, 2019 and 2018, respectively, and $39.3 million and $0.8 million for the six months ended June 30, 2019 and 2018, respectively.

⁽²⁾Includes rationalization charges of $0.2 million and $5.9 million for the three and six months ended June 30, 2019, respectively.

⁽³⁾Includes rationalization charges of $0.1 million and $0.2 million for the three months ended June 30, 2019 and 2018, respectively, and $0.2 million and $0.4 million for the six months ended June 30, 2019 and 2018, respectively.

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Three Months Ended June 30, 2019 Compared with Three Months Ended June 30, 2018

Overview. Consolidated net sales were $1.09 billion in the second quarter of 2019, a 3.2 percent increase as compared to the second quarter of 2018 primarily due to the pass through of higher raw material and other manufacturing costs in the metal container business and higher volumes in the metal and plastic container businesses, partially offset by the impact from unfavorable foreign currency translation, a less favorable mix of products sold in the closures business and the pass through of lower raw material costs in the plastic container business. Income before interest and income taxes for the second quarter of 2019 was $68.6 million, a $35.5 million decrease as compared to the same period in 2018 primarily due to $38.8 million of higher rationalization charges incurred primarily in connection with the footprint optimization plan for the metal container business and the withdrawal from the Central States Pension Plan, lower pension income in each of the businesses, the impact of unfavorable foreign currency translation and a less favorable mix of products sold in the closures business. These decreases were partially offset by higher volumes in the metal and plastic container businesses and strong operating performance in all businesses. Results for the second quarters of 2019 and 2018 included rationalization charges of $39.3 million and $0.5 million, respectively. Results for the second quarters of 2019 and 2018 included other pension and postretirement income of $4.5 million and $9.6 million, respectively. Results for the second quarter of 2018 also included a loss on early extinguishment of debt of $2.5 million. Net income for the second quarter of 2019 was $31.0 million as compared to $55.3 million for the same period in 2018. Net income per diluted share for the second quarter of 2019 was $0.28 as compared to $0.50 for the same period in 2018.

Net Sales. The $34.1 million increase in consolidated net sales in the second quarter of 2019 as compared to the second quarter of 2018 was the result of higher net sales in the metal container business, partially offset by lower net sales in the closures and plastic container businesses.

Net sales for the metal container business increased $50.7 million, or 9.7 percent, in the second quarter of 2019 as compared to the same period in 2018. This increase was primarily the result of the pass through of higher raw material and other manufacturing costs and higher unit volumes of approximately six percent, partially offset by the impact of unfavorable foreign currency translation of approximately $5 million. The increase in unit volumes was primarily as a result of higher volumes for a seasonal customer that had been destocking inventory in the prior year period as well as continued growth in pet food volumes.

Net sales for the closures business decreased $15.4 million, or 4.1 percent, in the second quarter of 2019 as compared to the same period in 2018. This decrease was primarily the result of the impact of unfavorable foreign currency translation of approximately $9 million and a less favorable mix of products sold. Unit volumes were up slightly in the second quarter of 2019 as compared to the prior year quarter, with higher volume demand in the U.S. beverage markets largely offset by lower unit volumes in international markets primarily attributable to weather challenges.

Net sales for the plastic container business decreased $1.2 million, or 0.8 percent, in the second quarter of 2019 as compared to the same period in 2018. This decrease was primarily due to the pass through of lower raw material costs and the impact of unfavorable foreign currency translation of approximately $1 million, partially offset by higher volumes of approximately one percent.

Gross Profit. Gross profit margin increased 0.4 percentage points to 16.8 percent in the second quarter of 2019 as compared to the same period in 2018 for the reasons discussed below in "Income before Interest and Income Taxes".

Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased slightly to 7.3 percent in the second quarter of 2019 as compared to the same period in 2018. Selling, general and administrative expenses increased $1.8 million to $80.1 million for the second quarter of 2019 as compared to $78.3 million for the same period in 2018.

Income before Interest and Income Taxes. Income before interest and income taxes for the second quarter of 2019 decreased by $35.5 million as compared to the second quarter of 2018, and margins decreased to 6.3 percent from 9.8 percent over the same periods. The decrease in income before interest and income taxes and margins was primarily the result higher rationalization charges. In addition, each of the businesses was unfavorably impacted by the reduction in pension income. Rationalization charges were $39.3 million and $0.5 million in the second quarters of 2019 and 2018, respectively.

Segment income of the metal container business for the second quarter of 2019 decreased $34.2 million as compared to the same period in 2018, and segment income margin decreased to 2.4 percent from 9.2 percent over the same periods. The decrease in segment income and segment income margin was principally due to $38.7 million of higher rationalization charges and lower pension income, partially offset by higher unit volumes and strong operating performance. Rationalization charges were $39.0 million and $0.3 million in the second quarters of 2019 and 2018, respectively. Rationalization charges in the second quarter of 2019 were primarily a result of the recently announced footprint optimization plan and the withdrawal from the Central States Pension Plan.

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Segment income of the closures business for the second quarter of 2019 decreased $0.8 million as compared to the same period in 2018, while segment income margin increased to 12.9 percent from 12.6 percent over the same periods. The decrease in segment income was primarily due to the impact of unfavorable foreign currency translation, lower pension income and a less favorable mix of products sold, partially offset by strong operating performance.

Segment income of the plastic container business for the second quarter of 2019 increased $0.2 million as compared to the same period in 2018, and segment income margin increased to 8.7 percent from 8.5 percent over the same periods. The increase in segment income was primarily attributable to higher volumes, partially offset by lower pension income.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the second quarter of 2019 decreased $1.5 million to $28.4 million as compared to $29.9 million in the same period in 2018 primarily due to lower average outstanding borrowings as a result of the repayment of debt at the end of 2018. Loss on early extinguishment of debt of $2.5 million in the second quarter of 2018 was the result of the redemption of all remaining 5% Senior Notes in April 2018 and the completion of an amendment to the Credit Agreement in May 2018.

Provision for Income Taxes. The effective tax rates were 23.0 percent and 22.8 percent for the second quarters of 2019 and 2018, respectively. The effective tax rate in the second quarter of 2019 was favorably impacted by the resolution of a prior year tax audit. The effective tax rate in the second quarter of 2018 benefitted from the timing of certain state tax rate changes.

Six Months Ended June 30, 2019 Compared with Six Months Ended June, 2018

Overview. Consolidated net sales were $2.12 billion in the first six months of 2019, a 2.4 percent increase as compared to the first six months of 2018 primarily as a result of the pass through of higher raw material costs in each of our businesses and higher volumes in the metal and plastic container businesses, partially offset by the impact of unfavorable foreign currency translation and lower unit volumes in the closures business. Income before interest and income taxes for the first six months of 2019 decreased by $41.0 million as compared to the same period in 2018 primarily due to $44.2 million of higher rationalization charges incurred primarily in connection with the footprint optimization plan for the metal container business and the withdrawal from the Central States Pension Plan, lower pension income across all businesses, the impact of unfavorable foreign currency translation and slightly lower unit volumes in the closures business. These decreases were partially offset by strong operating performance in all businesses, a larger seasonal inventory build in the metal container business in the current year period as compared to the same period in 2018, the favorable impact from the lagged pass through of lower resin costs in the closures business and higher volumes in the metal and plastic container businesses. Results for the first six months of 2019 and 2018 included rationalization charges of $45.4 million and $1.2 million, respectively. Results for the first six months of 2019 and 2018 also included other pension and postretirement income of $9.0 million and $19.2 million, respectively. Results for the first six months of 2018 also included a loss on early extinguishment of debt of $2.5 million. Net income for the first six months of 2019 was $77.7 million as compared to $101.1 million for the same period in 2018. Net income per diluted share for the first six months of 2019 was $0.70 as compared to $0.91 for the same period in 2018.

Net Sales. The $48.9 million increase in consolidated net sales in the first six months of 2019 as compared to the first six months of 2018 was the result of higher net sales in the metal and plastic container businesses, partially offset by lower net sales in the closures business.

Net sales for the metal container business increased $71.9 million, or 7.1 percent, in the first six months of 2019 as compared to the same period in 2018. This increase was primarily the result of the pass through of higher raw material and other manufacturing costs and higher unit volumes of approximately one percent, partially offset by the impact of unfavorable foreign currency translation of approximately $10 million. The increase in unit volumes was primarily the result of higher volumes for a seasonal customer that had been destocking inventory in the prior year period as well as continued growth in pet food volumes, partially offset by the unfavorable impact from customers who bought ahead of 2019 steel inflation in the fourth quarter of 2018 and the prior year loss of a smaller customer.

Net sales for the closures business decreased $29.6 million, or 4.0 percent, in the first six months of 2019 as compared to the same period in 2018. This decrease was primarily the result of the impact of unfavorable foreign currency translation of approximately $22 million and lower unit volumes of approximately one percent, partially offset by the pass through of higher raw material costs.

Net sales for the plastic container business increased $6.6 million, or 2.1 percent, in the first six months of 2019 as compared to the same period in 2018. This increase was primarily due to the pass through of higher raw material costs and higher volumes of approximately two percent, partially offset by the impact of unfavorable foreign currency translation of approximately $2 million.

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Gross Profit. Gross profit margin increased 0.4 percentage points to 16.5 percent in the first six months of 2019 as compared to the same period in 2018 for the reasons discussed below in "Income before Interest and Income Taxes".

Selling, General and Administrative Expenses. Selling, general and administrative expenses as a percentage of consolidated net sales decreased slightly to 7.4 percent for the first six months of 2019 as compared to the same period in 2018. Selling, general and administrative expenses increased $2.8 million to $157.8 million for the first six months of 2019 as compared to $155.0 million for the same period in 2018.

Income before Interest and Income Taxes. Income before interest and income taxes for the first six months of 2019 decreased by $41.0 million as compared to the first six months of 2018, and margins decreased to 7.3 percent from 9.5 percent over the same periods. The decrease in income before interest and income taxes was primarily the result of higher rationalization charges. Rationalization charges were $45.4 million and $1.2 million for the first six months of 2019 and 2018, respectively.

Segment income of the metal container business for the first six months of 2019 decreased $32.4 million as compared to the same period in 2018, and segment income margin decreased to 4.9 percent from 8.4 percent over the same periods. The decrease in segment income and segment income margin was primarily attributable to $38.5 million of higher rationalization charges and lower pension income, partially offset by the favorable impact from a larger seasonal inventory build in the current year period as compared to the same period in 2018, strong operating performance and higher unit volumes. Rationalization charges were $39.3 million and $0.8 million in the first six months of 2019 and 2018, respectively. Rationalization charges in the first six months of 2019 were principally related to the recently announced footprint optimization plan and the withdrawal from the Central States Pension Plan.

Segment income of the closures business for the first six months of 2019 decreased $8.9 million, as compared to the same period in 2018, and segment income margin decreased to 12.1 percent from 12.8 percent over the same periods. The decrease in segment income was primarily due to rationalization charges of $5.9 million principally related to the announced shutdown of a metal closures manufacturing facility in Spain, the impact of unfavorable foreign currency translation, lower pension income and lower unit volumes, partially offset by strong operating performance and the favorable impact from the lagged pass through of lower resin costs.

Segment income of the plastic container business for the first six months of 2019 increased $1.3 million as compared to the same period in 2018, and segment income margin increased to 8.0 percent from 7.8 percent over the same periods. The increase in segment income was primarily attributable to higher volumes and lower manufacturing costs, partially offset by lower pension income.

Interest and Other Debt Expense. Interest and other debt expense before loss on early extinguishment of debt for the first six months of 2019 decreased $4.9 million to $55.5 million as compared to $60.4 million in the same period in 2018 primarily due to lower average outstanding borrowings. Loss on early extinguishment of debt of $2.5 million in the first six months of 2018 was primarily a result of the redemption of all remaining outstanding 5% Senior Notes in April 2018 and the completion of an amendment to the Credit Agreement in May 2018.

Provision for Income Taxes. The effective tax rates were 22.2 percent and 24.2 percent for the first six months of 2019 and 2018, respectively. The effective tax rate in the first six months of 2019 benefitted from the timing of certain tax deductions recognized in such period and the resolution of a prior year tax audit.

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.

For the six months ended June 30, 2019, we used net borrowings of revolving loans of $416.0 million to fund cash used in operations of $129.1 million, decreases in outstanding checks of $83.7 million, net capital expenditures and other investing activities of $115.6 million, dividends paid on our common stock of $26.4 million, repayments of long-term debt of $8.2 million and repurchases of

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our common stock of $15.2 million and to increase cash and cash equivalents (including the positive effect of exchange rate changes of $0.7 million) by $38.5 million.

For the six months ended June 30, 2018, we used net borrowings of revolving loans of $716.3 million to fund repayments of long-term debt of $284.6 million, cash used in operations of $92.9 million, decreases in outstanding checks of $87.8 million, net capital expenditures and other investing activities of $90.8 million, dividends paid on our common stock of $22.4 million, repurchases of our common stock of $3.0 million and debt issuance costs of $2.9 million and to increase cash and cash equivalents (including the negative effect of exchange rate changes of $4.2 million) by $127.7 million.

At June 30, 2019, we had $506.0 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, 2019 was $667.3 million and Cdn $15.0 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 2019 with all of these covenants.

Rationalization Charges

In June 2019, we announced a footprint optimization plan for our metal container business, which includes the closing of our metal container manufacturing facilities in Mt. Vernon, Missouri and Waupun, Wisconsin anticipated to occur in the fourth quarter of 2019. These plant closings, in conjunction with the prior ratification of a new labor agreement at our Menomonee Falls, Wisconsin metal container manufacturing facility that provided for the withdrawal for that facility from the Central States Pension Plan, will result in our complete withdrawal from the Central States Pension Plan. We estimate net rationalization charges for this plan of $3.7 million for the plant closings and $56.4 million for the withdrawal from the Central States Pension Plan. We recorded total rationalization charges for this plan of $38.7 million in the second quarter of 2019, consisting of $2.5 million for the plant closings and $36.2 million to recognize the present value of the estimated withdrawal liability related to the Central States Pension Plan. Remaining expenses and cash expenditures for the plant closings are $1.2 million and $2.9 million, respectively, and are expected through 2021. Remaining expenses for the accretion of interest for the withdrawal liability related to the Central States Pension Plan are expected to average approximately $1.0 million per year and be recognized annually for the next twenty years, and remaining cash expenditures related to the withdrawal from the Central States Pension Plan are expected to be approximately $2.8 million annually for the next twenty years. Cost savings from this footprint optimization plan are not expected to be material to our results of operations or cash flows.

We continually evaluate cost reduction opportunities across each of our businesses, 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 $1.9 million and $1.3 million for the six months ended June 30, 2019 and 2018, respectively. Exclusive of the footprint optimization plan for our metal container business and withdrawal from the Central States Pension Plan discussed above, remaining expenses for our rationalization plans of $4.2 million are expected primarily through 2019 and remaining cash expenditures for our rationalization plans of $4.7 million are expected through 2023.

You should also read Note 4 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2019 included elsewhere in this Quarterly Report.

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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risks relating to our operations result primarily from changes in interest rates and, with respect to our international metal container and closures operations and our Canadian plastic container operations, from foreign currency exchange rates. In the normal course of business, we also have risk related to commodity price changes for items such as natural gas. We employ established policies and procedures to manage our exposure to these risks. Interest rate, foreign currency and commodity pricing transactions are used only to the extent considered necessary to meet our objectives. We do not utilize derivative financial instruments for trading or other speculative purposes.

Information regarding our interest rate risk, foreign currency exchange rate risk and commodity pricing risk has been disclosed in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. Since such filing, other than the changes discussed in Notes 7 and 15 to our Condensed Consolidated Financial Statements for the three and six months ended June 30, 2019 included elsewhere in this Quarterly Report, there has not been a material change to our interest rate risk, foreign currency exchange rate risk or commodity pricing risk or to our policies and procedures to manage our exposure to these risks.

Item 4. CONTROLS AND PROCEDURES

As required by Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended, or the Exchange Act, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures. Based upon that evaluation, as of the end of the period covered by this Quarterly Report, our Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that our disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including the Principal Executive Officer and the Principal Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

There were no changes in our internal controls over financial reporting during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, these internal controls.

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Part II. Other Information

Item 6. Exhibits



Exhibit Number		Description

10.1		Amendment to the Silgan Holdings Inc. Amended and Restated 2004 Stock Incentive Plan

31.1		Certification by the Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

31.2		Certification by the Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act.

32.1		Certification by the Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

32.2		Certification by the Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act.

101.INS		XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH		Inline XBRL Taxonomy Extension Schema Document.

101.CAL		Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE		Inline XBRL Taxonomy Extension Presentation Linkbase Document.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this Quarterly Report to be signed on its behalf by the undersigned thereunto duly authorized.



	SILGAN HOLDINGS INC.



Dated: August 8, 2019	/s/ Robert B. Lewis
	Robert B. Lewis
	Executive Vice President and
	Chief Financial Officer
	(Principal Financial and
	Accounting Officer)

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Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company