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 [ X ]   No [   ]

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, 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 [ X ]   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 [ X ]

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, 20172018 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, 2017.

We recognized total lease expense of $16.5 million for whichthe three months ended March 31, 2019 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 quarter ended March 31, 2019.

To a lesser extent, we have transferred control to customers. If the consideration agreed tocertain leases that qualify as finance leases. Finance lease right-of-use assets as of March 31, 2019 were recorded in a contract includes a variable amount,our Condensed Consolidated Balance Sheets as property, plant and equipment, net of $22.6 million. Finance lease liabilities of $22.2 million as of March 31, 2019 were recorded in our Condensed Consolidated Balance Sheets as revolving loans and current portion of long term-debt of $1.1 million and long-term debt of $21.1 million.

At March 31, 2019, we estimate the amount of consideration we expect to be entitled to in exchange for transferring the promised goods to the customer. Generally, revenue is recognizeddid not have any significant operating or finance leases that had not commenced.

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 for the three months ended March 31 were as follows:

Revenues by geography for the three months ended March 31 were as follows:

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 $75.3 million, $73.6 million, and $72.5 million as of March 31, 2018.2019 and 2018 and December 31, 2018, respectively. Unbilled receivables are included in trade accounts receivable, net on our Condensed Consolidated Balance Sheet. Had we not adopted the amended guidance for revenue recognition on January 1, 2018, our trade accounts receivable, net would have been $505.0 million and our inventories would have been $804.1 million as of March 31, 2018.

Rationalization reserves as of March 31, 20182019 were recorded in our Condensed Consolidated Balance Sheets as accrued liabilities of $3.5 million and other liabilities of $0.9 million and $1.1 million, respectively.$0.7 million. Remaining expenses for our rationalization plans of $1.4$4.1 million are expected primarily within the next twelve months.in 2019. Remaining cash expenditures for our rationalization plans of $3.4$8.3 million are expected through 2023.

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:

 

The amounts reclassified to earnings from the change in fair value of derivatives component of accumulated other comprehensive loss for the three months ended March 31, 20182019 were not significant.

Other comprehensive income before reclassifications related to foreign currency translation for the three months ended March 31, 20182019 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 $20.5$(11.3) million, (ii) foreign currency gains related to intra-entity foreign currency transactions that are of a long-term investment nature of $0.6$0.7 million and (iii) foreign currency (losses)gains related to our net investment hedges of $(9.6)$7.0 million, excluding an income tax benefitprovision of $2.3$(1.6) million. See Note 8 for further discussion.

Long-term debt consisted of the following:

 

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 March 31, 2018:2019:

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.

The financial assets and liabilities that were measured on a recurring basis at March 31, 20182019 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.

Our bank debt, 5% Notes, 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 5% Notes, 5½% Senior Notes, 4¾% Senior Notes and 3¼% Senior Notes were estimated based on quoted market prices, a Level 1 input.

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.

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.

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 become effective on March 29, 2019 and mature on March 24, 2023. The difference between amounts to be paid or received on our interest rate swap agreements will beis recorded in interest and other debt expense in our Condensed Consolidated Statements of Income.Income and was not significant for the quarter ended March 31, 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 March 31, 20182019 was not significant.

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 March 31, 2018.2019. 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 March 31, 20182019 was not significant.

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 months ended March 31, 20182019 were $(9.6)$7.0 million.

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.

The components of the net periodic pension benefit credit for the three months ended March 31 were as follows:

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, is completing its review of the 2017 tax year. We expect no material change to our filed federal income tax return for 2017. We have been accepted into the Compliance Assurance Program for the 20172018 and 20182019 tax years which provides for the review by the Internal Revenue ServiceIRS of tax matters relating to our tax return prior to filing. We do not expect a material change toIn the next twelve months, it is reasonably possible that our reserve for unrecognized tax benefits withinwill decrease by approximately $4.0 million primarily related to tax attributes acquired from and expenses related to certain acquisitions, as we anticipate the next twelve months.

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 $129.4$124.6 million remaining under this authorization for the repurchase of our common stock at March 31, 2018.2019. We did not repurchase any shares of our common stock under this authorization during the three months ended March 31, 2018.2019.

Reportable business segment information for the three months ended March 31 was as follows:

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

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.

Item 2.

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, 20172018 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.

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.

The following table sets forth certain unaudited income statement data expressed as a percentage of net sales for the three months ended March 31:

Summary unaudited results of operations for the three months ended March 31 are provided below.

Net sales for the metal container business increased $19.8$21.0 million, or 4.24.3 percent, in the first quarter of 20182019 as compared to the same period in 2017.2018.  This increase was primarily the result of the pass through of higher raw material and other manufacturing costs, partially offset by lower unit volumes of approximately four percent and the impact of favorableunfavorable foreign currency translation of approximately $9.0 million, partially offset by a less favorable mix of products sold and lower unit volumes of approximately two percent.$5 million. The decrease in unit volumes was primarily the result of lower volumes with certain customers who bought ahead of 2019 steel inflation in the fourth quarter of 2017, the carry-over impact from a customer loss in2018 and the prior year andloss of a smaller customer, plant shutdown in the fruit market, partially offset by continued growth in volumes for pet food.

Net sales for the closures business increased $172.6decreased $14.1 million, or 87.33.8 percent, in the first quarter of 20182019 as compared to the same period in 2017.2018.  This increasedecrease was primarily the result of the inclusion of net sales from the SDS operations, the impact of favorableunfavorable foreign currency translation of approximately $11.0$13 million and lower unit volumes of approximately two percent, partially offset by the pass through of higher raw material costs partially offset by lowerand a more favorable mix of products sold. The decrease in unit volumes of approximately four percent in the legacy closures operations principally as a result ofwas primarily due to the timing of certain customer purchases, particularly for metal closures in Europe and the single-serve beverage market.U.S. as customers likely timed purchases around steel cost inflation.

Net sales for the plastic container business increased $14.5$7.9 million, or 10.25.1 percent, in the first quarter of 20182019 as compared to the same period in 2017.2018. This increase was primarily due to the pass through of higher raw material costs and higher volumes of approximately fivetwo percent, andpartially offset by the impact of favorableunfavorable foreign currency translation of approximately $1.0$1 million.

Segment income of the metal container business for the first quarter of 2018 decreased $6.82019 increased $1.8 million, or 15.54.9 percent, as compared to the same period in 2017,2018, and segment income margin decreasedincreased to 7.67.7 percent from 9.47.6 percent over the same periods.  The decreaseincrease in segment income was primarily attributable to the unfavorablefavorable impact from the planned lowera larger seasonal inventory build in the first quarter of 20182019 as compared to the prior year period a less favorable mix of products sold,and improved manufacturing efficiencies, partially offset by lower unit volumes and lower pension income. Segment margin increased despite the negative impact on margin of higher sales as a result of the contractual pass through of significantly higher raw material costs.

Segment income of the closures business for the first quarter of 2018 increased $24.42019 decreased $8.0 million, or 102.516.6 percent, as compared to the same period in 2017,2018, and segment income margin increaseddecreased to 13.011.3 percent from 12.013.0 percent over the same periods.  The increasedecrease in segment income was primarily due to rationalization charges of $5.7 million principally related to the inclusionannounced shutdown of segment income from the SDS operations and continued strong operating performance despitea metal closures manufacturing facility in Spain, lower unit volumes, in the legacy closures operations.impact of unfavorable foreign currency translation and lower pension income, partially offset by the favorable impact from the lagged pass through to customers of lower raw material costs and a more favorable mix of products sold.

Segment income of the plastic container business for the first quarter of 20182019 increased $4.3$1.0 million, or 63.29.0 percent, as compared to the same period in 2017,2018, and segment income margin increased to 7.17.4 percent from 4.87.1 percent over the same periods.  The increase in segment income was primarily attributable to higher volumes and lower manufacturing costs. Rationalization charges were $0.2 million and $0.1 million in the first quarters of 2018 and 2017, respectively.costs, partially offset by lower pension income.

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 three months ended March 31, 2018, we used net borrowings of revolving loans of $364.8 million to fund cash used in operations of $90.1 million, decreases in outstanding checks of $87.9 million, net capital expenditures and other investing activities of $48.4 million, dividends paid on our common stock of $11.3 million, repayments of long-term debt of $4.6 million and repurchases of our common stock of $2.8 million and to increase cash and cash equivalents (including the positive effect of exchange rate changes)changes of $1.3 million) by $121.0 million.

At March 31, 2018,2019, we had $415.0$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 March 31, 20182019 was $755.5$664.5 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 20182019 with all of these covenants.

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, 2017.2018.  Since such filing other than the changes discussed in Note 8 to our Condensed Consolidated Financial Statements for the three months ended March 31, 2018 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.

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.

Part II.  Other Information

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.