Ball Corp (BALL) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by and welcome to the Ball Corporation fourth quarter 2007 earnings conference call.

During this presentation, all participants are in a listen-only mode.

Afterwards, we will conduct a question-and-answer session.

As a reminder, this conference is recorded on Thursday, January 24th, 2008.

It's my pleasure to turn the conference over to Dave Hoover, Chief Executive Officer at Ball Corporation.

Please go ahead, sir.

Thanks, Pamela.

Good morning everyone, this is Ball Corporation's conference call regarding the company's fourth quarter and full year 2007 results.

The information provided during this call will contain forward-looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause the results or outcomes to differ are in the company's second quarter 10-Q and in other company SEC filings, as well as company news releases.

If you don't already have our Earnings Release, it is available on our website at ball.com.

Further information regarding the use of non-GAAP financial measures may also be found on our website.

So with me today on today's call are Ray Seabrook, Executive Vice President and Chief Financial Officer and John Hayes, Executive Vice President and Chief Operating Officer of Ball Corporation.

Yesterday, we announced John Hayes' promotion in a news release.

John did an excellent job running our European business and we look forward to having him as Chief Operating Officer for all of our businesses.

Bringing John here was the first of several steps which together strengthened our overall management team.

Mike Herdman who has been President of our metal beverage packaging Americas business is now head of our European beverage canned business.

Mike has extensive experience in the beverage can industry and the European market.

And John Friedery is taking on responsibility for both our Americas and Asian beverage can operations.

John came up through our North American beverage can business and he knows it inside and out.

The end result is an excellent management team with people in positions where their experience and skills can best help us.

Now, turning back to 2007 results on a comparable basis, our diluted earnings per share were 350 in 2007, up 21% from our previous record of $2.90 in 2006.

This came despite a difficult fourth quarter comparison.

While we're generally pleased with our results, we're taking steps that we believe will lead to further improvement in 2008.

I'll talk more about that later.

But first, Ray will discuss our financial performance and then John Hayes is going to make a few comments.

Ray?

Thanks, Dave.

Overall the fourth quarter numbers came in pretty much as expected.

North American beverage can fourth quarter earnings were lower than last year, due to non-recurring inventory gains earned in 2006.

Aerospace quarterly earnings were lower, primarily due to unabsorbed labor and higher proposal costs in the quarter.

Corporate costs were down in the quarter, also due to lower employee costs.

That being said, both North America beverage cans and aerospace produced record earnings for the full year.

Comparable diluted earnings per share of $0.60 was the company's second best ever for the fourth quarter.

Full year comparable diluted earnings per share of 350 is up $0.60 compared to last year, and that's better than our long-term goal of 10 to 15% improvement annually over time.

Higher margins in North America beverage cans and strong sales volumes in aerospace and international beverage cans resulted in record full year earnings for all of those businesses.

Continued strong sales growth in Europe and China, including growth in custom can volumes in Europe and the strength of the Euro were the primary factors of high international beverage can earnings in the quarter.

The higher Euro added $0.02 per diluted share in the quarter and $0.11 for the full year compared to last year.

Comparable fourth quarter and full year operating results in the food and household segment were flat with last year, and we believe we have hit the bottom in this business.

We are assertively pursuing price in this marketplace and are implementing numerous cost reduction initiatives.

We expect considerable earnings improvement in this segment in 2008, but will still be a long way from being finished.

On our third quarter conference call, we announced the plant rationalization plan to address some of the performance issues in this segment.

We will close two aerosol plants and exit the decorative tin plate can business.

That resulted in a fourth quarter after charge of 27 million and was recorded to reduce this action.

Once completed, this capacity reduction will result in the elimination of 10 manufacturing lines and yield annualized cost savings in excess of 15 million.

The cash cost of these actions are expected to be offset by proceeds on asset dispositions and tax recoveries.

We're not satisfied with the results in either the food and household or plastic segments and anticipate further actions which could include more capacity reductions or additional value creating measures.

Turning to taxes, our full year tax rate of 30% on comparable earnings was slightly higher than last year's rate of 29% due to primarily earnings mix.

Our initial estimate for the full year 2008 effective tax rate is in the 33% range.

Turning to full year free cash flow, even with some year end build-up in food and household inventory levels, 2007 adjusted free cash flow of 440 million was better than expected, primarily due to lower capital spending in the fourth quarter.

As discussed on previous calls, we made a 45 million, 27 million after tax, incremental pension plan [claimant] in the fourth quarter, mainly to fund our North American pension plan obligations to a 95% level or higher.

This incremental after tax payment is effectively debt pay down and has been treated as such in our free cash flow computation.

Full year 2008 free cash flow is still a bit of a moving target, due to capital spending and year-end 2008 working capital levels not being fully locked in as we speak.

Notable 2008 free cash flow reductions from this -- from 2007 levels will be higher capital expenditures, higher cash taxes, and a one-time after tax payment of $42 million related to a customer settlement reached in the third quarter of 2007.

These 2008 free cash flow reductions will be partially offset by lower working capital levels at the end of 2008.

2008 capital spending will exceed 300 million.

We have a number of good growth opportunities in front of us.

Approximately 75% of the capital spending will be in our worldwide beverage can business and more than 50% of the spending will be for new top line growth projects, primarily in Europe.

Cost reduction and maintenance capital spending is forecast at 60% of depreciation expense.

As credit profile of the company remains strong with net debt at the end of 2007 of $2.2 billion, the 2007 rolling four quarters adjusted EBIT to interest coverage is 4.3 times and net debt to adjusted EBITDA is at 2.4 times.

The solid credit profile and continued strong free cash flow will allow for an increase in our stock Buyback Program to around $300 million for 2008.

Including the accelerated stock Buyback announced in December.

We expect our 2008 credit ratios to be unchanged or slightly better as we get to the end of 2008.

With that, I'll turn it over to John Hayes.

Thanks, Ray.

I'm obviously excited about this new opportunity and I'm honored to be given the responsibility of Chief Operating Officer of Ball Corporation.

Over the past three or so years, it's been gratifying to play a role in the success we've had in Europe.

I'm proud of what our team there has accomplished, making money and having some fun along the way.

I look forward to working more closely was Dave, Ray and the rest of the Ball senior management at the corporate level, as well as our individual operating units throughout the world.

This morning's Earnings Release announced Ball's plan to build a metal beverage can plant in Lublin, Poland.

Polish can market continues to experience significant growth, up more than 30% in 2007.

We sell significantly more cans in the Polish market than we produce locally, particularly on the beer side of our business.

While our existing plants in Hernsdorf, Germany and Radomsko, Poland serve us well for Western Poland and central and southern Poland respectively.

The Lublin plant will provide us with good geographic coverage in eastern Poland and position us to serve even better our customers there, as well as those in countries further to the east, Ukraine, Belarus, some of the Baltic states and even the Western part of Russia.

It is important to note that 2007 was a milestone year for the overall European beverage can market.

Which for the first time, overall volumes exceeded 50 billion units.

Equally important, the overall market grew by nearly 10%, representing volume growth of nearly 5 billion cans [finance].

I know that several investors and analysts have inquired about our views of the over all supply demand situation in Europe.

I can assure you that this is a critical issue for us in our growth plan and we believe strongly that the continued growth expected in the European market place will more than compensate the additional capacity coming on stream.

I'm confident that the totality of our European business is in good hand under Mike Herdman's leadership and the leadership of others at Ball in Europe.

Similarly, we are also fortunate to be able to draw on John Friedery's experience and skills to add to a strong North American beverage can management team.

We have high expectations for both of them in their new roles.

My focus is to improve the growth and operational performance, the execution across all of our businesses and I'm eager to dive in deeply in to this immediately in order to meet our goals and objectives as a company.

With that, I'll turn it over to Dave.

Thanks, John and thank you, Ray, for your comments.

Our aerospace and technologies segment is coming off a remarkable record year that will be difficult to duplicate, still, we expect strong results in 2008.

Last year, if you recall, we enjoyed an exceptionally strong first quarter in aerospace and in the metal beverage Americas segment.

This year, we expect them to be a little lower.

But we're also working hard throughout the rest of the company where operations are expected to perform better.

And that will partially offset, we believe, a challenging first quarter.

I think the organizational changes that we've just made really position us to get the most out of our businesses.

John Hayes has been working at Ball now for more than nine years, but he and I have actually worked together for more than 15 years.

The first six of those or so were back in the '90s when he was a banker and I was CFO at Ball.

We made substantial and significant change in the company during those years and it really changed the game around our company.

And he was heavily involved in the acquisition of our European business, and he and I together basically worked that.

So, I've got great confidence in his abilities and I know him.

And I know his character, and I know his energy level, and I know he's going to do a wonderful job for the company.

Our Board carefully considered this.

We spent time, energy and effort on succession planning around here.

We actually do it.

We don't just write about it.

And I had the pleasure really of meeting one on one with each director last summer, through 2007, to consider what should we do in this regard.

And we're all delighted and we have great expectations.

One of our investors, I think, asked Ann Scott yesterday if I was sick and there are probably a lot of different opinions about that, but I don't think I am.

And I'm not planning to do anything, but continue working here and trying to build Ball.

I am, as I said earlier, delighted with John Hayes' new role.

And I think with Mike and John Friedery and their roles, we're going to make some noise.

As we said in 2007 while we believe achieving last year's first quarter results would be difficult, I believe we have the opportunity to exceed the full year earnings of 2007 this year.

We've hit the ground running this month.

I am very excited about this year and what we can accomplish.

And with that, Pamela, I think we're ready for questions.

Thank you, sir.

Ladies and gentlemen, we'll now proceed to the question-and-answer session.

(OPERATOR INSTRUCTIONS).

I'm pleased to state that our first question comes from the line of George Staphos, Banc of America Securities.

Please go ahead, sir.

Thanks.

Hi, everyone.

Good morning.

I guess to start, congratulations to John, John, and Mike in their new roles and you know, good luck in the upcoming years.

The first question I had, maybe for John.

John, what do you think you and the team will be able to do most quickly in terms of improving the performance in the business that had been struggling a bit over the last several years, food and household, and PET obviously have restructuring program.

What else could you fill in around that program that you haven't already discussed that you could discuss and around the businesses in general?

Thanks.

Well, let me start with food and household products.

I think we have a very clear line of sight what needs to be done.

We need to be looking at pricing.

We need to be looking at product mix.

We need to be looking at costs.

And we need to be looking at purchasing.

We have specific plans focussed on all four of those activities.

And if we're able to execute successfully on that, it's going to take a little bit of time.

But we feel confident that we'll be able to significantly improve the performance of that business.

On the PET side, we all know it's been difficult over the years.

We have a very large customer.

We have contract negotiations ongoing with them and we have to get price.

And that's the near term objective on that.

Once we get through these contract negotiations, we'll have a much better sense of where we stand.

And from there, we'll be looking at various things to make sure that we're, in the short and long-term, maximizing the opportunity for Ball.

John, on the contract negotiations, those could be concluded in one way or another sometime this year, but they also could extend into '09, from what I recall.

You know, aside from a press release, which I'm not sure necessarily you'd put out, what else should we be looking for in terms of you reaching that mile post with those contract negotiations?

Well, I think, we have quarterly earnings calls.

And I think, it's over a generally just providing an update on where we stand relative to that.

But this is no -- we have contracts coming up for renewal all the time in all of our businesses, so I don't think we would expect to have any special press release.

Well, no, I understand.

That's why I asked the question.

So, when do you think these larger contracts should be addressed one way or another?

Is it an '08 event?

I think it is an '08 event, yes.

Okay.

All right.

One quick one for Ray and I'll turn it over.

Ray, if I heard you right, you said the leverage ratios should be relatively unchanged or improved as we look out to 2008.

You also mentioned in total the company hopes earnings per share, anyway, to be in line or better than the 2007 level.

Realizing that your purchase has a little bit of a role there.

Do you expect that you'll be able to pay down any debt in terms of improving those leverage ratios or is it purely just the earnings and EBITDA growing that will allow those ratios to come lower?

We've looked at our capital structure.

We always do that, as you know.

We've taken a strong look at our capital structure.

We think we're about where we want to be.

So, we think the improvement comes from what's the improvement in EBIT and EBITDA.

And we're not looking for a lot of debt pay down this year.

Remember, some of that depends on the Euro.

If the Euro loses a little bit of its strength, then we're going to get some debt pay down.

If we still got $600 million of debt denominated in Euro.

So, I'm not looking for a lot of debt pay down in 2008.

We're going to use the money and we're going to go buy back our stock.

But that suggests that you'll get free cash flow then even after the settlement payment of 300 million.

Is that right?

Yeah, we're looking to have free cash flow around the same amount as or stock buy back, give or take.

Okay.

Thanks.

That's excellent.

Turn it over.

Thank you, sir.

Continuing on, our next question comes from the line of Ghansham Panjabi of Wachovia securities.

Please go ahead, sir.

Hey, guys, good morning.

Good morning.

Congrats to everyone and more importantly Dave, I'm glad you're feeling okay.

Thanks a lot.

I knew you'd be worried.

On the European beverage can side, I was hoping you could give us a breakdown of volumes.

I guess I'm a little bit surprised because in the margins seemed to have tracked quite a bit lower than last year.

Could you just give us some color on that, please?

Actually, the fourth quarter started off slow.

Remember, in the third quarter I talked about a horrible summer and it was catching up.

I think overall, though, it did finish strong.

The overall market was up about 10%.

We were right in that range as well.

I think on a margin basis, I wouldn't read into that too much.

We, similar to what we did in North America, we took some maintenance.

Because remember, we had been running flat out for about 18 months or 20 months after the fire.

And we need to prepare for what we think is going to be a very strong 2008.

We've got the European cup coming, we've got the Olympics.

Hopefully, we'll have a more normalized summer and all the trends we see in growth in the European market place continue.

So, we took a little bit of down time in terms of maintenance over the Christmas holiday, so we didn't have to pay additional labor to run it and that's what partially looked at lower margins.

But again, I wouldn't worry that going forward.

Just to clarify, the 10% was the fourth quarter, year-over-year or was the full year, '07 number for volumes?

It was out look.

Good point.

It was both.

It was both.

Fourth quarter finished just about 10% and the full year was just under 10%.

Okay.

And just in terms of Americas bev, looking at the margins for Q3 and Q4, is there any reason to expect significant improvement beyond those levels in 2008?

Because the reason I'm asking is the first half of '07 obviously benefited significantly from some of the aluminum impact.

Yeah, I think that what I was trying to say, what Ray was trying to say is that we did have that benefit in the first quarter of '07.

And what our game plan is is to offset part of it, probably not all of that.

But if you look at what we recorded last year, I think we were up in EBIT $100 million.

You know, a chunk of that was in these areas that I mentioned including some metal gains and aerospace having an exceptionally strong first quarter and so on.

If you integrate two years here, you know, technically we're up 21%.

Last year, that's enough -- we don't have to be up this year to hit our long-term bottom end goal.

But we're trying to convey is it's really early in the year.

But we've got a good shot, we think, of having a full year better than last year.

From all factors, including stock buy and improvement in performance.

So, it looks pretty good in here from where we are.

Okay.

Great, thanks so much.

Thank you, sir.

Continuing on, our next question comes from the line of Claudia Hueston of JP Morgan.

Please go ahead, ma'am.

Your line is open.

Hi, thanks very much.

Good morning.

Good morning.

I was hoping you could just talk a little bit about the aerospace business.

There was a little bit of a down shift in the margins in that business in the fourth quarter.

Just wondered sort of what was going on there and how we should think about them going forward into 2008.

Obviously '07 was a really good year in that business.

Yeah.

Two or three things in the fourth quarter.

One, we've just raised to reality or to actuals after the government's fiscal year starts or at the conclusion of it in September.

In the fourth quarter, that contributed to some of the decline.

Technically, that was a part of it.

The other part is, these programs run at different rates when you're doing them in the fourth quarter, just slowed down a little bit.

We also had higher than normal unreimbursed bid proposal costs that we took in the fourth quarter.

So, those were the things that occurred.

By the way, congratulations on --

Thanks very much.

Becoming -- congratulations.

I did read your piece.

You used the words that you heard us use, that the business is somewhat lumpy.

You know, we get large programs.

They run at different rates and we're sort of in that mode.

We've just completed reviewing our business plans with our Board yesterday.

And as we look out over the next few years, we see substantial opportunity in this part of our business.

But we, as I alluded to earlier, think this year of '08 might be a little softer than last year.

So that's where we are.

Okay.

That's really helpful.

And then I maybe missed it, but did you give any guidance around pension for 2008?

Sorry if I missed it.

So, are you talking about P&L or talking about cash?

Both.

I would like, actually.

P&L will be slightly lower, because obviously we've got our pension plans funded up, so that helps the P&L charge.

Let's say the P&L pension expense will be 5 or $6 million lower and the cash excluding the one-time payment, will also be probably 6 or $7 million lower.

Okay.

That's great.

Thank you.

Thank you.

Continuing on, our next question comes from the line of Chris Manuel and he's from KeyBanc Capital Markets .

Please go ahead,

Good morning, gentlemen.

Good morning.

Good morning.

First, let me echo earlier response, David, we're excited to hear that you're not sick.

[ LAUGHTER ] I'm never going to get over that one, I can tell.

I'm glad to hear that.

Congratulations to all on your promotions.

Thank you.

Couple questions for you.

First, when we think about the extra capacity that's coming on in Europe, John Hayes, I know you mentioned that the growth will be more than there to offset extra capacity and it looks like even for this year, the markets will be extremely tight.

Has there been any preselling of that extra capacity coming online or anything of that nature that might impact yours or the industry's ability to get some sizable net price increases this year, in relation to the fact that the market is still so, so tight for '08?

No is the short answer.

We've seen -- obviously, when -- I'll speak only on behalf of Ball, but when we go out there, we know very clearly with our customers and working core customers but there's no prebuying ahead.

And so, we had plans in place to get recover our costs through price increases and net price increases in 2008.

And again, our sales job has done a very good job of meeting the targets we set for ourselves.

Okay.

Very good.

So, I'm going to go back to a question that I know nobody likes.

But when we think about 2008 versus 2007 and normalized or your long-term goal being 10 to 15% improvement, and we kind of think through the pluses and minuses, '07 going into '08, you've got pluses of, again, a very tight market, potentially some upside in Europe.

You've got, I think, you just mentioned earlier some lower pension expense.

You talked about pretty explicitly some improvements in metal, food and aerosol.

What would be some of the puts and takes that might help or prohibit you from in fact being able to do a normalized 10 to 15% year, looking into '08?

Well, what we said here, Chris, is that the first quarter and we've been saying this for a year, the fourth quarter of last year, the first quarter of this year are going to be tough comps.

We still feel that way.

We're also implying that.

We think we've got a real shot at exceeding last year's earnings per share.

So for the full year of '08, which would mean that we would overcome sort of one time good guys by some amount.

It's the 24th of January.

You've heard me say that before, so it's early days.

But what we've been discussing the last couple days here with our Board and so forth would indicate that we think we can do that.

So, that's where you find us.

Okay.

Thank you very much.

Thank you, sir.

Continuing on, our next question comes from the line of Alton Stump, Longbow Research -- I believe it's Longbow Research.

I apologize for that, sir.

Yes.

That's right.

Thank you.

Good morning, guys.

Good morning.

Just had a quick question, to go back to the European bev can business.

Obviously, you have already discussed the fact that there were some maintenance in the last part of the fourth quarter that caused margins to be so low.

I guess just looking at that performance, looks like it's about as low as it's been in several years, you know, on the margin side.

Is there anything else going on there or is there anything that might be at all something that might pop up over the first couple quarters in '08 in that segment?

We don't see that.

You know, we obviously all of our business continued to have higher costs related to that, but nothing material happened in the fourth quarter that should concern any of us.

As I said, I think the month of October was pretty slow in terms of volume.

We did pick it up in the late November and December, started picking up again.

I think all of that just was a washout of the summer.

And we took some down time and really that's the only differences that has been occurring.

Okay.

Thank you.

And then just one other question.

Here in the U.S.

on the bev can side, just wanted to get maybe your overall take in terms of market demand for soft drinks, had been difficult year this year on the can side.

Looks like we're going to have some pretty hefty beer cost increases heading into '08.

Just wanted to get an idea how you think the overall market demand might shake out over the next 12 or 18 months in bev cans in the U.S.

Well, I think you should look forward.

Let's first quickly review 2007, the overall market was down a little over 1%.

Beer was up.

Soft drink was down.

And as you go -- take those and you're looking to going into 2008, the question is what's going to happen.

I do think and I think all of us believe that the economy will play an impact in to this and it actually goes well for the can because it's much more of a value pack in North America, both on the beer and soft drink side.

I think with recessions, people generally stay at home more, which is take home packages which is the can.

So, we haven't heard anything explicit from our customer base that says there's a meaningful change.

But I think at the end of the day, it will be driven by consumer demand.

I would just add that specialty can business, so-called or sizes other than the standard 12-ounce continue to grow at good rates.

You know, we have a large position in that market and we're about equal parts beer and soft drinks even though the market is two-thirds soft drink and one-third beer in North America.

Those are other things to keep in mind.

Okay.

Great.

Thanks, guys.

Thank you very much.

Continuing on, our next question comes from the line of Richard Skidmore of Goldman Sachs.

Please go ahead, sir.

Good morning.

Thank you.

First question, just for John Hayes, with regards to Europe, can you just elaborate a little bit more on the confidence with towards the growth in the European bev can market in 2008 and looking forward and specifically in which region you're seeing the growth?

Okay.

Well, we expect the growth to continue.

You know, I think 10% is a a very strong growth.

It was the strongest growth in Europe in a while.

So, we're not anticipating that.

But I think over the next several years, we have pretty good visibility in 6 to 8% growth across Europe.

Obviously, you break that down and a lot of that growth is coming from eastern Europe.

Western Europe, which is much more of a quote, mature market was still up 4.5% however in 2007.

The can is -- you are seeing a shift from 2A refillable bottles to the can on the beer side.

You're seeing some shifts, I believe, from PET to the can.

As some of the major soft drink customers have done a very good job of executing, it's been helping us.

Southern Europe continues to grow quite nicely.

As you go even further to the east in terms of Russia, places like that on the base of 5 billion cans is growing 30% per year as well.

So, there's a variety of factors that are affecting this.

But we see the fundamentals being pretty robust over the -- at least as far as we can see, which is probably two to three years.

Okay.

And would you expect that if the European economy slows down generally, that it's the same phenomenon that you would expect in North America, that it wouldn't impact the can market and more people would stay home and consume more cans?

I think the outcome would probably be the same.

The reasons might be a little different, because refillable bottles are take-home as well.

What people are looking for is becoming more Western, becoming more convenient and at a price that isn't taking more out of their pocket.

So, I think all of those things combine and we could talk country by country, because it does vary so much by country.

But overall, a decline in the economies in Europe should not have a significant negative impact on us.

Okay.

Anything new happening in Germany?

Is Germany just gradually coming back still?

Yeah, you know, consumption within Germany, consumption within Germany grew at double digits.

I don't have the exact number, but 10 to 15% in 2007.

So again, it's a step by step.

We've talked about this marathon versus Sprint in the past and it indeed is.

I think 2008, I know that a lot of European customers and those in Germany are going to be doing a lot of promotions around particularly the European cup and to a lesser extent, the Olympics.

So, it's just getting the consumer re-educated about the can that was off the shelves for a while in Germany.

And I think all the signs we point to say it's going to continue to move forward.

Okay.

And then just a quick question for Ray with regards to the 300 million in share repurchase in '08.

Would you expect that to be back end loaded or can you be participating in the market currently and taking advantage of the current share price?

You may have missed it, but we in December or early January, we announced an accelerated share repurchase program we put in place.

I think it was the seventh of January.

And that was 100 million program.

So in the seventh of January, we purchased 100 million of the 300 million shares.

So, it's front end loaded.

Okay.

Great.

Thank you.

Thank you very much.

Continuing on, our next question comes from the line of Andy Fineman of Iridian Asset Management.

Please go ahead, sir.

Your line is open.

Thanks.

The press release here says that all five of Balls operating units will report to Hayes.

He will report to Hoover.

Who is Ray going to report to?

[ LAUGHTER ] That's a good question, Andy.

I'm not sure who he reports to now.

I think it's me, Andy, but not all the time.

Okay.

Well, I'm a big fan of them both.

So --

They've told me they like you too, Andy.

Thanks.

So the CapEx, would you care to -- I mean, it's going to be over 300 million.

Does that mean it's going to be 400 million?

No.

I mean, can you narrow that down at all?

Well, you know, the reason I didn't want to get too specific, because we're going to relocate some equipment.

The timing of that could be -- could change the number.

We also -- you know, the timing can also change the number.

We decided to do something in March versus July.

You're going to get a different CapEx number.

But it's not a huge secret.

Fundamentally, it should be give or take around 350 million, give or take.

When we get to the first quarter, I'll refine that number for you.

Andy, I think we exceeded even our estimates of last year's free cash flow, 20 or 25 million of that was money that didn't get spent last year that will be spent this year.

So if you look at the two years together, that's probably a good way to do it too, Andy.

Okay.

Andy, the important part of the capital spending as we tried to indicate, it's all going for top line stuff.

This isn't sort of cost reduction plans and stuff.

This is for top line stuff that's got 10 to 15% margins on it.

So it's, it's to follow the growth that John's been talking about.

Right.

Okay.

Can you say -- can you give us an idea what depreciation and amortization will be for next year?

I guess it will be up a little, so just as long as I'm doing CapEx.

Let's just see.

It was like -- what was it this year?

It was.

281, I think.

Yeah, 281 and it's going to be up about $10 million.

Okay.

And the -- my favorite question, I recall, at the end of the year, can you tell me how much the securitized receivables were?

You're talking or have that number, Andy.

I'm glad you ask that.

They're down $33 million from where they were last year.

Last year, we finished the 203 million and this year, they're at 170.

Okay.

And that's flat with the third quarter.

So that's good.

I guess the last question I have is when you look at this capital spending, I understand these markets are growing so you are going to make 10 to 15% margins on the growth.

The -- but is there anything -- I mean, the stock market's been down lately, so you know, is there anything you could buy that might be even better?

Possibly.

You know, I think we look all the time, as you know.

We don't often do things.

We're conscious of the change in the credit markets and sometimes sellers don't understand that valuations have changed, as fast as buyers.

Right.

But I think you'll see a more rational marketplace for those kind of things.

You know, we aren't -- we don't have a long shopping list but there are a few things that we continue to follow and look at that might make sense.

Okay.

Doesn't sound like there's anything imminent.

Doesn't sound like this decline in the market has necessarily brought any of these things into active mode yet, anyway.

Yeah, Of course, I couldn't say one way or the other.

One of the things, Andy, that I will say.

We made some acquisitions 18 months or so ago.

We need to make sure those are operating correctly.

A lot of what you're going to hear this year, particularly from me, is about execution.

And I making sure we have a strong backbone.

Because from there, you can grow.

Right.

Thank you very much.

Thank you, sir.

[OPERATOR INSTRUCTIONS].

We now have a follow-up from the line of Mr.

George Staphos of Banc of America Securities.

Please go ahead, sir.

Thanks.

Hey, guys.

Three questions.

First of all, with aerospace, from the last quarter it was pretty clear there was going to be a bit of a down shift, fourth quarter into the first quarter, as you said I think earlier in the call, not absorbing as quickly some of the fixed costs that are inherent in the business.

My take-away, perhaps incorrect, though, was that '08 would be an up year.

Has anything else fundamentally changed in terms of the timing of the programs or is the outlook the same as it would have been a couple quarters ago?

No, I think as we assess the marketplace, you know, we have bids outstanding on programs.

One did is going to be delayed and its award by a couple of months.

That's not helpful, necessarily, but necessarily.

But I think we heard in our plan review, George, we have 500 active contracts in aerospace.

Many of them are fairly small, but they're solid and they good of the business.

You win a $200 million job that you spend 100 million all in one year and it taper off and you spend 25 for two years and then you deliver it kind of thing.

There's more of that that ratchets around.

I think you saw a nice improvement overall, full year, in margins in the business.

Practically, when you understand how these rates are adjusted, one time a year, you know, I think we -- some of the -- well, I don't want to say that that way.

You know, you're accumulating this variance and then you make an adjustment in the fourth quarter.

Theoretically, some of that really happened in the first three quarters, almost, not exactly.

We did the accounting correctly.

But I won't overdo the negative message that you see in the fourth quarter results.

But I would say, again, that temper your -- I don't necessarily expect aerospace to be up in '08 versus '07, which was just a remarkably good year.

A lot of it had to do with a large fixed price WorldView-2 spacecraft that they were building for additional [globe].

And by the way, the WorldView-1 that was launch, I think in fourth quarter, is just performing in an exceptionally fine manner.

The images are great.

This is an area that we've developed over the years that we're hoping gets traction, not only on the civil side, but also within the DOD and national security markets.

Certainly makes sense.

Yeah.

All right.

That's helpful, Dave.

Now, in terms of the question on '08 and how it might progress and obviously the difficult first quarter comparison, to the extent that I can try to frame this question such that you'll comment on it, you know, this year you did 350.

If we assume first quarter is your only down quarter and the subsequent quarters grow more or less in line with your tradition traditional target, which is 10% or better.

It would suggest that first quarter could be down anywhere from -- pick a number, $0.15 to $0.25.

Is that the type of message you want us to take away?

I realize I have just -- but help us think about the progression.

No, I didn't say that.

Anywhere near that much, George.

It's going to be down.

The wheels aren't coming off here.

Well, I understand.

I went through my methodology.

That's all we can go off of.

But that's very helpful as well.

That was Ray who answered that question.

Yeah, I understand.

Okay.

And then last, can you remind us, what kind of performance threshold do you have to hit for the cliff vest restricted stock that you granted last year to actually be vested by your employees?

I know it's over a couple of years, three years, but what kind of performance would you have to see?

We have to earn our cost to capital or better, and of course that changes over time.

Currently I think it's running a little over 6% weighted average cost to capital.

But that's -- so that's the -- you know, we think we add value when we earn in excess of our cost to capital.

We can pretty much demonstrate that historically.

That's the performance criteria that was sister associated with those restricted stock unit grants.

Okay.

Thanks, guys.

Good luck in the quarter.

Thank you.

Thank you, sir.

Sir, it appears that there are no further questions from our audience.

I will turn it back to you, Mr.

Hoover, to continue and for your concluding remarks.

Thank you.

Well, thank you very much and thanks everyone for joining us today.

We'll look forward to speaking with you again in April.

Thank you, sir.

Thank you.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you all for your participation.

And ask that you please disconnect.

Thank you once again.

And have a wonderful day.