Silgan Holdings Inc (SLGN) 2002 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen and welcome to the Silgan Holdings Year End Conference Call. From the company today with us, we have Mr Phil Silver, Chairman and co-CEO, Greg Horrigan, President and co-CEO, Tony Allott, Chief Financial Officer, Malcolm Miller, Treasurer. At this time I would like to hand the call over to Mr Miller. Please go ahead sir.

Thank you. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward looking statements. These forward looking statements are made based upon management expectations and beliefs concerning future events' impact on the company and therefore, involve a number of uncertainties and risks, including, but not limited to those described in the company's annual report on form 10-K for 2001 and other filings with the Securities and Exchange Commission. As a result the actual result of operations or financial condition of the company could differ materially from those expressed or implied in the forward looking statements. With that, let me turn it over to Tony.

Good morning everyone. Thank you for joining Silgan Holdings for our year end earnings conference call.

My plan is to make some comments for the results for 2002 and the recent business transactions in Q4. Then to provide some color on acquisitions announced earlier this month and finally to discuss our outlook for 2003. Afterwards, Phil, Greg and I will be pleased to take questions.

As this is our first conference call, I would start by reviewing Silgan's strategy for value creation. The company has followed the same strategic course for the past 15 years. The goals and the billed market leading possessions, or as we call them, franchise possessions, in relevant segments of the consumer goods packaging industry.

We believe this approach results in achieving of sustainable competitive advantage, generating solid cash flows and the creation of shareholder value. Investments have been made in light of this strategy and always with a focus on optimizing cash returns.

We view 2002 as a very successful year both financially and in terms of advancing this strategy. Not only did we enjoy record sales and earnings, but we continued to build in our franchise positions in both metal food cans and in plastic bottles for the personal care market. We continue to invest relatively higher levels of capital in the metal food container business, which we believe will position us well with an expanded offering of value added products.

We continue to win new business and expect that when the final industry data is calculated for 2002, Silgan will have gained several points of food can market share.

Silgan plastic continued its growth as well in 2002. While we began to experience more competitive pressures as some customers consolidated, and bid out larger blocks of volume, we also benefited from some smaller competitors being squeezed out by the same large national buyers.

We believe we have a strong franchise in plastic bottles and will continue to grow and prosper in this segment.

On the financial side, the company earned $2.93 per share in 2002, as compared with prior year earnings of $2.31. These numbers are on a GAAP basis. Consistent with new SEC rules, our [indecipherable] and our conversations today will focus on GAP income. However, as outlined in the press release, both 2001 and 2002 did include a variety of restructuring charges and credits, write-off of debt issue costs, and gains on offers from equity affiliates. Since we discussed our results for the first three quarters of the year, net of these items, other than the ordinary results of White Cap, we thought we would also provide this net information at the end of the year.

Excluding these items, the non-GAAP results would have been $2.85 per share in 2002. This compares with a street consensus of £2.76 and is at the high end of our expected range of between $2.70 and $2.90 that we gave in Q3.

While we are on non-GAAP numbers, our EBITDA for the year was $258.1m, calculated as adjusted operating profit, before the previously mentioned items, of $162.3m plus depreciation of $95.7m.

Sales for the year increased to just under $2b, an increase of 4.9% on the comparable businesses.

Operating income of $168m increased almost $16m from 2001, despite the inclusion of metal closures results for the first half of last year. This increase resulted from both the metal food container and plastic standard businesses, increasing sales, operating income and margins.

While 2001 included restructuring charges for several plant closures and 2002 had some credits and the benefit of no goodwill amortization, even excluding these items, earnings increased during the year.

More important was the success achieved in position to business for future value creation. In this regard, first of all we continued to make progress on expanding our convenience end business from metal food containers.

In 2002, we incurred capital expenditures and ramp up costs associated with this expansion, but anticipate beginning to feel the benefits of these expenditures in the last half of 2003.

Secondly, we successfully absorbed new volume awarded on the West Coast to our metal food container business. While we were disappointed in our ability to absorb this volume in desired profitability levels in the first year, we believe we will be better positioned in the future to convert these sales more profitably.

Thirdly, we successfully reached the [indecipherable] bank facility, increasing liquidity for future growth opportunities and providing for limited amortization for the next five years.

We continued to generate strong cash flows, reducing that debt by $28m during the year, despite capital spending $119m which was increased to support future earnings growth opportunities, and despite $22m spent in fees to re-finance the debt.

Finally, in January we announced two acquisitions that meet our value creation criteria and which fall right on to our existing businesses. I will discuss these transactions in more detail shortly, but the key points are that we believe these acquisitions will generate free cash flow, be immediately created earnings and represent good opportunities to create value in the future.

Now moving from the total business to the metal food container business, where we reported sales of just under $1.5b for the year, an increase of 6.1%. This increase was driven by volume growth of 7.6%, resulting from new business in California and a better fruit and vegetable pack season than in 2001.

Operating profit for the business was approximately $121m an increase of 11.4% over 2001. They key drivers of this increase were higher volumes, the elimination of goodwill amortization and the fact that we have restructure in credit in 2002, rather than charges in 2001.

Remember that we decided not to close our Kingsburg, California facility this year, given the strong volumes on the west coast. These factors were partially offset by price adjustments on certain contract negotiations, higher manufacturing costs absorbed in new volume awarded during the year and to wrap up new value added capacity, and finally, higher depreciation costs in employee health and welfare.

The plastic containers business capped a $0.5b sales level this year, driven by 4.9% increase in volume. This increase was partially offset by lower selling prices due to lower [indecipherable] costs passed on to customers and a less favorable product mix.

Income from operations increased 15% to $53m as a result of the higher sales volume, restructuring charges recorded in 2001, the elimination of goodwill amortization and improved operational efficiencies. These were partially offset by higher depreciation, commercial development expense and employee health and welfare costs.

While we did see increased competition of some customers, we continue to focus on a more customs value added segment, allowing customers to better differentiate their products.

In total SG&A was reduced, both on an absolute basis and as a percentage of sales, running at a level 3.8% of sales in 2002. As a result of all these factors, operating profit for the year was $168m or 8.4% of sales. That is a 10.2% increase from 2001. Additionally the company did benefit from $4.3m or $0.23 a share in lower after tax interest costs, primarily during the first half of the year as a result of a lower interest rate environment.

Finally, the company reported losses in equities from the White Cap business of $2.6m or $0.14 per share, as a result of the significant restructuring activities during the year. That compares with $0.2 pull-offs per share in 2001.

In terms of current business term, let me make a few comments about Q4. As you have seen, the company reported earnings of $0.34 per share, exceeding both our internal expectations and street consensus. The Q4 did include a $0.3 rationalization credit for assets placed back in service due to continued strong business levels. On a non-GAP basis this results in $0.31 per share, compared with $0.47 per share in the fourth quarter of 2001 before a restructuring charge in that year of $0.21 per share.

These results are the high end of our $0.17 to $0.37 per share estimate. Once again we have experienced solid volume growth in both the metal food container and plastics business. Metal food container volume increased 3.7% over a historically strong fourth quarter in 2001 and plastic containers increased 5.7%. Margins in both businesses also increased over fourth quarter in 2001.

However, were it not for the restructuring charge included in the fourth quarter of 2001 versus a small credit in 2002 and the elimination of goodwill amortization, we would have experienced lower margins in the metal food container business in the quarter. This margin decline resulted from a less favorable sales mix than had been experienced in the post 9/11 2001 period. The effect of certain price concessions during the year, higher depreciation and other costs incurred to ramp up convenience and production.

Margins improved in the plastics business as a result of increased operating efficiencies, the elimination of goodwill amortization and benefits of higher volumes. As expected White Cap joint venture reported losses as a result of the continuing restructuring activity during the quarter.

SG&A costs were lower in the quarter as the result of the bad debt charge in 2001 and net benefits of litigation, insurance settlements in 2002, all of which were partially offset by higher insurance and employee health and welfare costs.

So all in all we are pleased with Q4 and the annual performance, but in fairness we believe opportunities do exist to improve the results.

Turning our attention now to acquisitions. As you know we recently announced two acquisitions. The first that we acquired the remaining 65% interest in White Cap joint venture from Amcor. In order to understand why we did this as a value adding acquisition, I think it is important to understand the history of this venture.

Prior to 2001, Silgan had a position in the vacuum metal closures business. This business provided vacuum closures to the food and beverage markets for products such as baby food, pickles, juices and other beverages. We were a number 3 player in the market and were exclusively on the metal closures side, therefore we offered no plastic alternatives to customers considering moving from a glass to a plastic container.

As a result, we did not believe that we had franchise position in this market at the time. During 2001 however, we saw an opportunity to combine forces with Schmalbach, who was the original venture partner before Amcor acquired their interest and to form the leader in both the metal and plastic closures market.

In our opinion this combination created a franchise position in the market and we were able to keep a 35% position in the new venture, along with the possibility of acquiring the entire venture in the future. With 7 facilities in the US and Mexico, the business had annual sales of approximately $250m in 2002. The venture combination plan called for immediate cost cutting in the business by discontinuing production of closures in higher cost facilities and redistributing these volumes to lower cost plants. The charges of facilitating this restructure negatively impacted our earnings in 2002, but are now nearing completion. Given the significant benefits of this restructuring we view the price as attractive and we anticipate the business being increased in earnings and cash flow in 2003.

We know this business well, having owned part of it before and having since been on its Board. Therefore we view the acquisition as relatively low risk and a good cash on cash return.

Additionally we announced last week that we had acquired the plastic tube business of Thatcher Tubes. This business is a relatively small addition, but offers an idea extension of the products our plastics business can offer to the personal care market. Many of the same customers that use our plastic bottles also use plastic tubes for the same or similar product, such as moisturizers, suntan lotions or cosmetics. We believe that this extension of product offering will add value to both businesses. Additionally will not materially agreeable due to the size of the business, this acquisition does offer a platform for both organic growth and has potential for consolidation of the tube market.

The management team from whom we bought the business and who had a very successful track record of building the business in the target markets will be staying with Silgen.

Both of these transactions met the same stringent valuation criteria the previous 17 acquisitions made by the company including an expectation of attractive cash on cash returns. The acquisitions will be financed in part through the incremental terms facility of our bank credit agreement.

Deutsche Bank has committed to at least $100m of these loans at the same pricing as our current agreement which is currently at LIBOR plus 200 basis points and we anticipate completing the financing during the quarter.

Finally, I would like to make a few comments about our outlook on 2003. We have indicated in our release our earnings expectations of $2.85 to $3.15 per share. First of all, you should expect these earnings will be back end unloaded as we go up to our reduced finished goods inventory levels, incur start-up costs on convenience end metal food container basis, and realize the remaining restructure costs of the closure business. Therefore, earnings per share in the first quarter is expected in the range of $0.20 to $0.30 per share.

While this level is well below last year's $0.62 per share, in addition to factors I just mentioned, $0.7 of the difference is due to rationalization credits and $0.8 is due to lower expense in 2002.

The key drivers for the full year outlook are first, the base metal food container sales are expected to be comparable with 2002. But margins should increase in the second half of the year as we begin to see the benefits from the increased capital spending in the business.

Additionally, we have implemented a finished goods inventory reduction program for the metal food container business that is expected to generate approximately $15m of pre-cash flow but negatively impact earnings in the first quarter, due to lower absorption of fixed costs.

In the plastic container business, we anticipate higher volumes, but lower margins as we experience increased competitive activity in some of the markets we serve. As previously stated, we do believe our strategy in providing more custom value added alternatives does mitigate this competitive environment, but we do expect some negative impact in 2003.

We expect to close on the acquisition of the remaining White Cap interests during the first quarter and expect it to begin to be accretive in the second quarter of 2003.

At this time we do not have any specific plant rationalizations anticipated in any of our businesses. However we do have a couple of plants that we will continue to evaluate.

Excluding acquisitions, interest would be expected to be consistent with 2002 levels as the increased levels, subordinated notes in the new bank facility are offset by lower borrowing levels and lower LIBOR rates.

Interest expense in the first quarter however, will be significantly higher than in 2002 since the additional [indecipherable] notes and bank refinancing were completed in the second quarter of 2002.

If you include the costs of borrowings related to acquisitions interest is expected to increase approximately $5m. At December 31 approximately half of our debt was at fixed rate with another 20% under fixed slot agreements, leaving only 30% subject to market rest during the year.

In terms of the balance sheet, cash flow from new acquisitions will more than fund the CAPEX of working capital requirement. The base business is expected to spend approximately $105m on CAPEX, which includes more convenience in capacity and automation to reduce operating costs.

Despite the higher than normal capital spending, we anticipate another year of solid cash generation from operations. Our focus will continue to be on optimizing free cash flow from the business and investing or acquiring only when we believe the cash returns are compelling.

That concludes our prepared comments. We would now like to turn it over to questions and answers if you are ready?

Good afternoon, ladies and gentlemen. At this time if you do have any questions or comments, please key '*1' on your keypad. '*2' will withdraw that question and all questions will be taken in the order in which they were received. So once again '*1' for questions. Thank you.

We have the first question from George Staffos from Salomon Smith Barney. Please go ahead sir.

Thanks, operator. How are you guys? Good morning.

Good morning, George. Thanks for doing the conference call. Tony, did I hear you say base business CAPEX would be $105m?

Yes, you did.

So that suggests there is an increment to the new acquisitions or somewhere? Can you tell us what the full CAPEX is going to be? Have I misinterpreted?

I think the full year CAPEX will still below the 2002 level, even with the acquisitions.

Okay. And overall, you have this program going on, the [indecipherable] program, you should have improving earnings over the course of the year. What level of free cash flow would you guide investors and analysts to at this juncture?

First of all let's talk about 2002 for a minute. If you go back and look at 2002 and you take the numbers I said, it was in excess of $50m. I am ignoring the costs of the re-financing. We would certainly expect to be in excess of that number in 2003.

Well, I mean the company, you know where I stand on this point. Obviously over time you have done a good job with return on capital. But by the same entry cash flow, by the same token the ratios and free cash generation have been relatively constant at $50m or so in free cash flow. So is in excess $60m - $70m, or are we still talking low fifties at this juncture and I realize there is a fair amount of granularity.

George, we haven't in our press release disclosed an estimate of free cash flow for the year and I am concerned about doing it in this conference call. That could lead to a need to put out another release. I think in excess is the farthest we want to go here. But I think you can pretty much get to the number yourself if you just look at, and you would get pretty close to EBITDA CAPEX. We have given you CAPEX, we have given you interest and then we are telling you that acquisitions are cash flow positive. I think you could get pretty close to the number. But not just marginally in excess of 2002, but significantly in excess.

Last question. I will turn it over to the other guys. The acquisitions are accretive to free cash flow, but are they accretive to free cash flow yield initially? My sense is probably not.

How do you define that, George?

Just free cash to sales.

Free cash to sales. Free cash from operations, is that what you mean?

Yes, that's right.

No. There will be.

Okay. So, I'll turn it over to the other guys. But after free cash flow which includes CAPEX for the new acquisitions they will be accretive to your free cash of sales ratio.

Yes.

Thanks, guys.

Now we have the next question from Dan Koshaba of Deutsche Bank. Please go ahead.

Good morning, guys.

Good morning.

If I heard you guys correctly, it sounds like there is five or six things that are going to impact earnings in Q1 versus a year ago. Some of them perhaps positive, maybe some of them not so positive, but it sounds like you closed debt, is that correct?

Yes.

Perhaps it a positive, maybe it's a neutral, but yes Thatcher, in the west coast can business that you are working through and you have got interest expense, Schmalbach, perhaps some competitors pressures in plastic and this effort to reduce finished goods. What I would like you to try to do is just give us a feel for how much of these various factors are effecting Q1 earnings. In other words if you hit, let's say the top of the range, which is about $0.30 versus the $0.62 you did a year ago, how do these factors play into those for that difference?

Let me walk you through it, Dan. We start off with $0.62 last year. $0.7 of that was a one time credit for bringing equipment back in service because of the increased demand, which takes you to $0.55. Our interest costs in the first quarter last year, versus what we expect this year is another $0.8. That takes you to $0.47. The impact of the inventory reduction that we are undertaking in the first quarter is -- let me digress a bit -- the inventory reduction is a consequence of us getting our system pretty well balanced now after taking on the new business, whereas last year we were building inventory early on, just to be sure we could handle it. But we think that will add another $0.7 or $0.8 or subtract another $0.7 or $0.8 so that takes us down to $0.39 - I am adjusting from last year. Then last year's first quarter was a strong quarter in the plastics business in particular, because the rebound of the economy from the weak fourth quarter and we didn't have any start-up costs in the first quarter of last year for this new capital investment coming on. Those two combined make it $0.9 so that takes you to the $0.30 that I think you are searching for. The $0.20 is simply our attempt to try and put in place the vagaries of what can happen to the bottom line in a particular quarter.

Right. When will the west coast business be profitable for you guys at the EBIT level?

It was profitable last year. It is just that we feel like we did not convert it as well as we think we will this year.

Okay.

But it was never unprofitable.

That has more to do with the margins than it has to do with the actual profit out.

Okay. And Thatcher is what? I mean it is relatively small, it's neutral, modestly accretive. How is that going to impact?

It is so small, Dan, that it can't have much impact either way. We believe it will be accretive, but it is just too small to have much impact.

Okay. Good.

Then lastly, if I could, could you just expand a little bit on this whole finished inventories program? What kind of products are they? Why were the inventories perhaps higher than they should have been in the first place? And where do you need to take them?

Well last year, late in fourth quarter of 2001 and early in 2002 we were able to secure business that we simply hadn't anticipated and to take care of that business, we had to start building inventory early into the system. One, just because we didn't have the capacity to produce at end season, and we wanted to be sure that we could meet the requirements that we were taking on. We couldn't let the customers down. So we started early last year and we went through the whole year with more finished inventory in our system than would be normal.

We now have the equipment in place and capacity in place where it should be. We are simply going to go through and take the opportunity to reduce our finished goods inventory and we are going to start right away in the first quarter.

Okay. Good explanation. Thanks Phil.

Now we have the next question coming from Maureen Delaber of Morgan Stanley.

Good morning. Just a couple of follow up questions. First with regard to the inventory move that we are looking for. Can you quantify what the impact would be from a cash flow perspective from lowering your finished goods inventory?

We are talking between $10m and $20m.

Great. And then on the CAPEX side, just to reiterate. You had indicated that it was $105m for the base business so when we include the acquisitions you expect it to stay below the $119m that you posted last year. Is that correct?

Correct.

So therefore for the acquisitions, incrementally it may be another $10m.

Right.

And then with the metal food can business, can you just give us a sense -- obviously it did a great job last year capturing market share on the west coast, but two questions with metal food can is, are there further opportunities that you see this year for volume gains in that business? Then the second question would be on the price concessions that you ran into this year, do you envision further erosion in place because of contracts that you have in place for 2003.

Maureen, this is Greg. What we are forecasting is reflected in our $2.85 - $3.15 earnings per share forecast for the year is the assumption that our buy-in will be relatively steady, year on year. So we are really not assuming additional share gain. We are getting very close to 50% of the market and I would say our volume movement around that would be as much a function of how our customers do, and what happens on the perishable pack and that type of thing as any particular share gain. But we are always poised to move off optimistically to whatever might come our way. We were a bit surprised, happily this year, or in 2002 I should say, when we had the opportunity to pick up this business in California.

But at this point we are not planning anything like that, or assuming anything like that for 2003.

The second part of the question was price concessions?

That is always problematic. We are in a very competitive industry. No surprise to you and others who follow our industry and have for a long time and virtually every segment of the packaging business is quite competitive. Our view is starts with Wallmark - the pressure comes through the consumer goods companies and lands back on all of us. So we are always doing everything we can to get our costs in line and to manage this for our own benefit and as well as positioning our product offering so that our customers can, to compete most effectively. Having said that we pretty consistently in the food can businesses have more stability of volume, and stability of supply over long haul, traded price for volume, price for term from time to time, to extend our contracts.

I did a fair amount of that in 2002. 2003 we will have some effect of some of what we did at the end of 2002 is reflected in our forecast for the year. The activity on that front just by virtue of a number of contracts that we have and what could be up. It looks like it will be more modest this year than last year and that's our hope and we will see how we work it through the year.

Great. Just before I turn it over, just one last housekeeping question. Do you have liquidity at the end of the year? I mean in bank line availability at the end of the year?

Our revolver is fully paid down to zero and we ended at $58m of cash on the balance sheet.

Great. Thank you.

The next question now comes from Tim Burns of [indecipherable] Capital. Please go ahead sir.

Good morning gentlemen.

Good morning Tim.

Hey, this is like unbelievable. In terms of the plastics business, it is obvious there some consolidation among customers. Walking through a Dwayne Reed yesterday and just looking around, I mean strategically has your positioning changed from focusing on niches where you had value, whether it is mouthwash or shampoo or what have you, in this transition or is it more of the same and just backfilling where you have lost business competitively with smaller accounts.

What we are doing Tim, is basically focusing on that custom bible value added usually to decoration and speed and service to market. While it has got a bit more competitive in the past couple of years, it has not changed our fundamental strategy which we think is working well. We are not having any difficulty with our share in our volumes. We are conceding some price for term because the consolidators here have baulked up their purchasing and offered to the markets some price or some term, and they want price to do that which is somewhat a departure from the past. We participated in that. We have been by and large successful in holding and extending our business.

We have walked away from some volume where we thought the margin level was not attractive versus the alternatives we had and those alternatives tend to be right in the same market place, just with different customers, albeit it tends to be smaller customers that we suit up well with. So we haven't changed our focus. Our share mix between everything we do in terms of personal care and others is not much different. We have some good niches in the food area and in the PET side, but there are niche positions particularly wrapped up with certain customers. So it hasn't cost any shift in our focus.

The food niches Phil, are you talking about the multi-layer for shelves label?

No they are proprietary custom designed bottles for the likes of barbeque sauce, salad dressing and the like.

Did your customers - I mean how do the customers respond to the Thatcher 2 business acquisition? In some cases there is encouragement and in other cases they can only go 'well, okay, you are in tubes now, give us a quote'. How did that work through with your customers? Were they appreciative? Are they going to be supportive?

Yes. We actually in fact talked with the customers that were the primary customers of this business that we bought. They also are all customers that we sell bottles. Most brands, if you look through the stores, you will see that most brands are put on the shelf with a blow-molded bottle and the tube is part of the offering. So the general reactions with the customers were that they were pleased to see somebody with financial muscle become a supplier and our reputation was good with those companies and they were pleased.

From the companies that were not being served by this tube business, but we sell bottles to, I can't really tell you that I have got a comprehensive response from our guys around the business whether it is positive or negative. I can't imagine how it would be negative.

It's that killer year, I would assume for soup, at least it has been in my household. Is that true?

I think it is too early for us to know, if because what happens here is that the product is still pre-season. It has to be because of the seasonality and taken out through the distribution in the retail system and then we start seeing it in about now - February and even March - whether it has been a good year or a bad year by whether the demand from us persists on through those periods or whether they start correcting. I guess we haven't heard of any correction in inventory, so we should be optimistic that it has been a good soup season and we will go right on through the rest of the season in better shape than last year.

Yes, because I was wondering in terms of your working capital program, how much of it was metal and soup is certainly not all the cans you make, but I think you are going to be light on cans in the soup area based on what I have seen.

Yes but all those as a practical matter the way we suit up most of the can belt, there is very little finished inventory, no matter what.

Okay. I was going to ask Tony one follow-up. White Cap you said is - it had $250m in sales for 2002 and how do we capture that in 2003?

Call it 80% of it. The plan is some time in the quarter at close is probably [indecipherable] and you will get probably three quarters of it from there.

80% new, and Thatcher was what, $35m revenue.

$28m - $29m.

About $30m right?

Right.

And you will get all of that?

That's correct.

And then the core other plastic business non-acquisition related, what kind of growth rate should we use for a top line?

Well I think in terms of units we will have a positive growth rate in line with what we have had. All ranges because to 3% to 5% unit growth. The revenue will be affected by resin prices and they are on the uptake now so if that persists, that will contribute to the revenue. I don't think the mix will be dramatically impacted. So it will be up in revenue because the units are going to be up and as we have talked about some of the price concessions that will go the other way. But we expect the revenues to be up. We haven't given a specific number and I don't want to do it here. It won't be dramatic but it will be pretty much in line with what we have done year to year, adjusted to resin.

Well, if you can get anything that grows hair in those tubes, you are going to have a big business, especially in Ohio. Thanks guys. I appreciate the conference call.

Thanks Tim.

Our next question now comes from Rob Horowitz of R H Capital Associates. Please go ahead sir.

Yes, my questions have been answered, but I appreciate the conference call. Hopefully this going to be an ongoing event for you guys.

Thanks Rob.

I think we have time for one more, I guess.

Our last question of the day is a follow up from George Staffos. Please go ahead, sir.

Thanks. First of all, in terms of plastics and the price competition that you have seen there, it is our understanding that earlier in the year there are one or two companies who tried to make a bigger mark in your targeted sectors. We have also heard more recently that they have at least for now subsided in their competitive activity. I don't know if you would have said that is accurate or inconsistent with what you are seeing, but would appreciate a comment either way.

George, we don't know what's in everybody's mind, but --

The particular competitor I think you are referring to was a new entrant at least to our targeted market. Had some pretty clear objectives. They succeeded in securing volume enough to establish three plants. The activity from them seems to be that they are trying, and I say that advisedly, trying to absorb what they have bitten off here and are having some difficulties with that. So I can't say that we have seen anything from them recently, but I can't project what's in their mind.

Second question. I believe Del Monte stated that they are looking to increase their soup production. I believe they are moving some volume around. That was on a press release that hit the news wires today. I only saw it with half an eye. Does that affect you in any way at this juncture?

I don't think so. They are putting the soup, pasty and the doughnut in Illinois. We currently supply those cans anyway and the supply point was pretty much in the place in the mid-west, so it shouldn't have any impact.

Last thing. I don't remember the specifics. Management organizational changes lower down the level in the food in 2002 - correct me if I am wrong there - have those been resolved and how do you feel about the team in place as you go into 2003? Thanks guys.

In that regard, George, we restructured the selling organizational bit. We have talked about this quite a lot but Phil and I and Jim Beam and Russ Gervais - who are running the can business and plastic business respectively, have increasingly turned our time and attention to ensuring that we have the next generation of executives to come down to run the business - witness Tony and Malcolm sitting with us today here. Similarly we have similar circumstance on through the containers and plastics business. This was all part of that. We promoted a very high potential young man to be sales and marketing out there and what I think you saw in the press release was just really a reflection of the change that came from Tom Sneider moving up and then putting in place the people behind him.

We are enthusiastic about it and we know that the organization is too and we believe the market is.

All right, guys. Good luck in the quarter.

I think that is all the time there is. Thank you everyone for listening in.

Thank you ladies and gentlemen, this concludes your call for today. You may now disconnect.