Silgan Holdings Inc (SLGN) 2003 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the Silgan Holdings fourth quarter and full year results conference call. My name is Louise and I will be your coordinator for today. At this time all participants are in listen-only mode. We will be facilitating the question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS) From the company today I have Phil Silver, Chairman and CEO, Greg Horrigan, President and CEO, Tony Allott, CFO, and Malcolm Miller, Treasurer. I would now like to turn the presentation over to your host for today's call, Mr. Malcolm Miller.

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's expectations and beliefs concerning future events impacting the company. And therefore involve a number of uncertainties of risks including but not limited to those described in the Company's annual report on form 10-K for 2002 and other filings with the Securities and Exchange Commission. Therefore the actual results 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.

Thank you, and welcome everyone to Silgan Holdings year-end conference call. Our plan for this call is to briefly summarize the important strategic successes of the Company during 2003, then to review the financial results for the year and quarter, and finally to make a few comments about our expectations for 2004. Afterwards, Phil, Greg and I would be pleased to take any questions.

Let me start by saying that 2003 was an excellent year for the company. We achieved several important milestones and strategic successes during the year, which have positioned the company for an even stronger 2004. Those successes include achieving record sales of over $2.3 billion, an increase of 16 percent over 2002. We earned record operating profits of $168.1 million, exceeding 2002 levels despite the impact of $9 million of plant exit costs included in 2003. We established a multiyear debt reduction target of 270 to $370 million and then well exceeded our first-year commitment. We completed a very favorable refinancing of our debt, resulting in a substantial reduction in expected interest expense for the next few years. Not only will this new debt structure result in significantly lower interest costs, but it also provides more flexibility in terms of allowing future debt reduction.

We continue to build on our franchise position through the acquisition and integration of three businesses with annual sales in excess of $300 million. We commercialized new Quick Top convenience ends and capacity for metal food cans in support of the continued conversion of this value added packaging alternative. We increased volume and process in our plastic container business despite heightened competitive activity in that market. And finally through these and other activities we positioned the company for a sharp increase in earnings in 2004 over 2003 levels.

In terms of the financial results for the year, the company reported net income of $42 million or $2.28 per diluted share. These results were negatively impacted by 93 cents per share, comprising $19.2 million of losses on early extinguishment of debt and $9 million of plant closing costs, a majority of which were non-cash. These results compare with net income of $53.8 million or $2.93 per diluted share in 2002, and those results were positively impacted by 15 cents per share as a result of rationalization credit and losses on early extinguishment of debt in 2002. So exclude these specific identified items, operating earnings increased substantially in 2003 as compared with 2002.

The metal food container business reported sales of $1.75 billion for the year, an increase of $263.5 million or 17.7 percent, primarily as a result of the acquisitions of White Cap and Pacific Coast Producers can making assets during the year. Excluding the sales of the recently acquired Silgan Closures business, sales increased by 3.7 percent. Operating profit for the business was $126 million in 2003, increasing $5.4 million or 4.4 percent over 2002 levels. This increase would have been approximately 6.6 million or 5.2 percent more were it not for the previously discussed plant rationalization charges in 2003 versus the credits in 2002. The key drivers of this increase were the inclusion of the recently acquired businesses and improved sales mix. Offset in part by inflation of employee health and welfare cost and higher depreciation.

Operating margins were down for the year as a result of these restructuring costs versus the credits in 2002 and the inclusion of the Silgan Closures business. Excluding these items, margins increased as expected during the year, particularly in the last half, due primarily to improved sales mix and productivity gains. As expected, the Closures business negatively impacted margins in 2003. However, the business continued to implement a major restructuring program initiated in 2002 in which the largest and highest cost facility in Chicago is being closed and production is being absorbed into other facilities.

The plastic container business also expanded during 2003, reporting revenues of $561.7 million, an increase of $60.4 million or 12 percent. Approximately half of this increase was a result of the acquisition of the Thatcher Tubes business at the beginning of the year, with the rest coming from higher selling prices as resins were passed on to customers. Operating profit in the plastics business was $48 million as compared with 52.9 million in 2002. However this $4.9 million decrease is more than explained by the $8 million aggregate impact of restructuring charges in 2003 versus credits in 2002. If you excluded those items, operating profit increased as a result of higher volume and improved productivity partially offset by some selling price concessions, higher depreciation expense, and inflation of employee benefits. The majority of the $7.8 million rationalization charge in 2003 related to the closing of the Norwalk, Connecticut facility of which nearly 5.1 million represented non-cash write down of assets.

While the heightened competitive activity in the plastics markets had some impact on our results, the strategy of our plastic container business of focusing on selling value added solutions appears to have mitigated much of the impact. The historical results of the business as well as the 2003 performance continue to support the soundness of this strategy. While margins in plastics did decline in 2003 versus 2002, this was a result of the rationalization charges versus credits and the impact on margins of directly passing through resin increases where revenue is higher but profit is unaffected.

Selling, general, administrative costs increased by $32.1 million, and increased from 3.8 percent of sales in 2002, to 4.7 percent in 2003. This increase was primarily due to the addition of Closures and Thatcher Tubes businesses, both of which historically operated with SG&A levels higher than the rest of Silgan. We expect some of this increase to be mitigated by the integration of the Closures business into our metal containers infrastructure, which is currently being implemented. Having said that, we have experienced real increases in employee benefits, insurance, and regulatory compliance costs.

Interest expense increased by $23.3 million, due primarily to the $19.2 million loss on early extinguishment of debt in the 2003. As most of you know, during the fourth quarter the Company elected to refinance its outstanding 9 percent senior subordinated debentures. The reasons for this were our opinion that the coupon rate on these notes was well above market for Silgan's credit characteristics and the challenge this structure presented in executing our stated debt reduction targets. Therefore we replaced $500 million, 9 percent debentures with only 200 million of new ten-year bonds at 6.75 percent. We understand this to be one of the lowest coupon rates for our credit rating and believe that is further evidence of the strong reputation Silgan enjoys in the debt market due to our consistent financial performance and cash generation.

We also increased our senior credit facility by $200 million to allow us to repay the remainder of the 9 percent debentures with lower-cost debt that we can repay as we choose. The remainder of the redemption came from free cash flow. This successful refinancing will be both accretive to earnings and be NTV (ph) positive over the next few years. Related to this transaction, in the fourth quarter of 2003 we also entered into $200 million of three-year interest rate swaps. Therefore, the floating portion of our debt will range between 25 percent early in the year to 40 percent of the total debt in 2004, excluding the seasonal working capital requirements. This is consistent with the level we had in 2003.

We ended the year with $1 billion of outstanding debts, 200 million of which is in ten-year 6.75 notes and the remaining $802.6 million is principally borrowings under our senior bank facility. The outstanding revolver on December 31, 2003 was $25 million, and our total availability was approximately $350 million. We had a target for 2003 not to allow our debt to increase by more than $100 million despite our having spent approximately $175 million on acquisitions early in the year. Our end result was an increase in total debt of $45.8 million, despite also spending an additional $16.9 million on premiums to refinance the bonds.

In terms of the fourth quarter, the Company reported a loss of 13 cents per share, driven by the cost of the refinancing and the rationalization costs, which combined for a negative impact of 64 cents per share in the quarter. These results are at the high-end of our estimated range and exceeded Street consensus. Both the Metal Food Container and Plastic Container businesses exceeded sales levels from 2002, while the volume of food cans excluding Closures was down, the mix of business was significantly better than in the fourth quarter of 2002. The improved mix drove an increase in margins in food cans over 2002 despite the impact of significantly lower Closures margins due both to the restructuring still underway, and the fact that the fourth quarter is Closures' seasonally slowest quarter.

In plastics, as we have seen throughout the year, volume was up 3.5 percent, largely due to Thatcher Tubes, and revenues were up even more, due primarily to pass-through of higher revenue costs. Operating profit was down due to the impact of rationalization charges in 2003 as compared to credits in 2002, higher depreciation expense, and inflation in employee health and welfare costs. So in summary the fourth quarter looked a lot like the entire year.

For those interested in EBITDA depreciation for the quarter was $28.1 million, as compared with 24.6 million in the fourth quarter of 2002. For the year depreciation aggregated $111.3 million as compared to 95.7 million in 2002. Now I would like to make a few comments about our outlook for 2004. We entered the year having just completed a very successful 2003 with our franchise position strong in both Metal Food Containers and Plastic Containers, and we believe poised for a strong 2004. Accordingly we anticipate earnings in 2004 to be in the range of $3.70 to $4 per share and for the first quarter to be between 30 cents and 50 cents per share. This represents a significant increase in 2004 even after considering the unusual items in 2003, and is being driven by several key factors including significantly lower interest expense as a result of the recent debt refinancing, continued conversion to our family of Quick Top convenience ends for metal food cans. Price increases implemented on noncontract food can business, and cost pass-throughs on our contract business. Completion of the restructuring of the Closures business, continued growth of the plastics business as a focus on selling value added solutions is expected to present continued opportunities. Implementation or completion of cost reduction or productivity programs, and offsetting these factors we do anticipate continued inflation in manufacturing costs, higher depreciation, and insurance expenses.

While these are the main factors that we currently expect to impact the year, I thing that we have learned over the years is that our business operates in a very dynamic market. Over the course of the year, the business will be impacted by events that we are currently not aware. And therefore we have offered a range of possible results which we believe is a balanced representation of what we do know and what we don't. As always, our intention is to update our opinion on this as the year progresses.

Finally turning to the balance sheet, we continue to expect to reduce debt by 200 to $300 million over the next three years. Our estimate for 2004 is for debt to be reduced by at least $75 million. The capital expenditures included in this estimate are approximately $105 million, which is well below our anticipated depreciation level. That concludes our prepared remarks. We will now turn it over for questions. Louise, if you would give the information.

(OPERATOR INSTRUCTIONS) Edings Thilbault from Morgan Stanley.

Just a couple questions. I was wondering if you could talk about the food can business in a little bit of detail. We got the industry information today. Volume is a little bit soft for the year, in particular in dairy and pet food. I was wondering if you could talk about your exposure to that, what your own volumes look like in that business? And what the view is going forward, and if you could also discuss pricing. I heard you mention pricing in the noncontract business. If you could remind me how much of your business that is, I would appreciate it.

Edings, this is Greg Horrigan. The industry data that you are referring to just for the benefit of the other listeners, let me just recap. The Can Manufacturers Institute puts out data for the entire food can industry and we received it quite recently as well. It says that for the year the food can, the total food can market was just under 30,500,000,000 cans, down 2.5 percent or just under 800 million cans from the prior year. A big element of that, almost three-quarters of the year-to-year change, was in pet food. We think that principally -- we do have exposure to it, not surprising given our 50 percent share of the entire market, our share in the pet food market is a bit higher actually than what we have for the total market. And there were significant adjustments being made to an inventory position, one of the major marketers of pet food year-on-year. I think accounting for a good bit of that change.

In terms of the fruit and vegetable market, it represents about 40 percent of the total. Vegetable cans were up for the year 2.3 percent. We were up a little bit more than that, but just marginally so. Fruit was down for the year about 6 percent. We were a little better than that. In addition to that we gained share in fruit because of the acquisition of Pacific Coast Producers. So still a good volume. Year-on-year was approximately even with prior. I think we marginally gained share. We are just over 50 percent of the total market.

Moving from the volume circumstance to pricing, this is a market that is characterized in a word I would say stable or stability. We have had something North or South of 30 billion units for the last 25 or 30 years. We have been losing share stomach (ph) to other forms of packages over time, but on the other hand we have enough vitality within the segment that we have remarkable stability in terms of total volume. We have really three suppliers of any consequence in the United States. We have half the market. There is just under 10 percent that is left in salt manufacture, Crown and Ball are the two major suppliers of the balance of the market. That in itself I think produces some stability. Supplying to us is a concentrated market in the steel side from what it's been over the years. I think that produces stability. And going forward we are selling to ever larger customers, so that produces stability. So it is a market that is characterized by slow growth, a mature market with a pretty concentrated group of suppliers through the whole supply chain.

The result of that is that we announced we received a price increase in the steel industry of about 3 percent effective in January of this year. We put forward a price increase to the noncontract customers which represents only 10 percent of our total, we are about 90 percent contract. We put through a price increase in about the same amount and expect to fully recover all costs. Thee result of that price increase, everything seems to be going through on that basis. In terms of our contract accounts, an important element of that is, we said in all these calls and we've been out talking to all the investors is that we don't speculate on raw materials. We pass through costs and we have that provision in all our contracts, as well as provisions to pass along the other costs as we experience them. So any follow-up to that end, Edings?

I would just maybe touching on that comment about a major customer balancing inventory in the year, so you would not see that kind of pet food decline as indicative of perhaps a trend, a temporary trend or extended trend towards the standup pouches in the pet food market?

I wouldn't attribute it to that at all. It was up somewhat in 2002 for the same reason that I think there was a surge in inventories and this year we are down a bit. But some further adjustment beyond that, certainly there is activity with pouches and so on but I cannot say that we felt the pinch of that yet.

Great, I will jump back in line. Thanks very much.

George Staphos of Bank of America.

Good morning. Congratulations on a great year, by the way. I guess on the question of food profitability, you have talked a number of times this year about some of the factories that were weighing on your margins this year. Nonetheless your profits were up, and in dollar terms are up over the last couple of years, which is better than what has been reported by some of the other food can companies that are publicly traded. What do you think the single biggest reason why you have actually been able to grow your profits in dollar terms, relative to your competition who probably has not been? What do you think that factor has been?

George, I'm not sure I can speak to what our competition -- I don't even want to try that. Our point of view is that we have unrelenting attention to the effectiveness of our manufacturing system all the way from how we buy things, how we make it, how we distribute it. And we have consistently eliminated excess capacity in overhead centers as soon as they appeared, so we have seldom carried excess cost in our system beyond what we needed. And because of the productivity curve in containers where we continually are making more cans through the same real estate, if you will, the opportunity has presented itself and I think to some extent will continue to eliminate your least effective plants and take the product through the more effective. I suspect because we have a broader spread of those plants geographically our opportunities are probably somewhat more than our other competition might be, although I can't be sure of that. But that's how we did it and that is how I think we have achieved what we have.

I was going to add to that an important element of what has been going on with our margins as well as just our absolute income dollars is we have been spending at putting capital in this business at a rate higher than depreciation the last few years and have been talking about it for some time. We are getting the benefit of that now, George. It is coming home. We are bringing it home. You see particularly starting in the second half of 2003. It is a little hard to see in terms of the margin rate because of the inclusion of the Closures business in the second half, as well as these plant closings and so on. But Tony's comments and I think our release as well or I guess just your comments said that our margin improvement was right on schedule in the food can business. And it is a result primarily of the investments that we have been making. We are going to continue to experience that as we move into 2004. Taken together, then, spending at a relatively high rate and having the benefit of that in 2003 and ahead of us in 2004 coupled with the very close cost management that Phil was describing, I would say is maybe what set us apart a little bit.

Two following questions then to that. One, Phil, where you alluding to making more plant closings this year? And then secondly, Greg or Bill or Tony, could you give us maybe not the absolute level of percentage change or level of margin I should say, but could you give us some idea if we take away the factors like PCP and Closures, what kind of expansion have you seen in your base facilities in food cans?

I think, George, we do not see anything on the horizon in 2004 in the food can business or for that matter the plastics business. That is a bit unusual for us because, as I said, we have been pretty aggressive here. But because we have been aggressive, particularly last year, we shuttered seven plants last year. That was a big year for us and so I think that there is nothing we see on the horizon. And to the margin, I don't want to get specific about it other than to say that the improvement Greg spoke of is significant. And we would not mention it if we did not think it was and I don't want to get specific about it.

Okay, last question, actually two last questions. I will ask them in sequence so as not to take up too much time. One, the marketing trends and strategies of your customers in soup, how is that playing out in terms of your volume as you enter '04 and what kind of soup season has it been so far? Tony, what kind of interest expense is envisioned in your guidance? Thanks.

It's been a good soup season. The weather that has bedeviled us all particularly in this region of the country is positive for sales of soup cans, and generally the attention that our customers are spending to marketing their product is just being positive by us in terms of positioning soup generally and soup cans specifically.

Greg, are you indifferent in terms of who picks up share in any one quarter or year?

Yes, by and large. We have an extremely high share of the total soup can market.

To your question on interest expense, George, obviously we didn't put anything specific in here but the last release we had out when we did the refinancing put an interest target number out there. We would not expect anything different from that of 62 to 66, but we are more focused on what the final bottom line of the business in that specific element.

No, I know but I wanted to see if there is any change relative to your (indiscernible) guidance, but there is not. Okay, thanks very much.

Amanda Tepper of J.P. Morgan.

I wanted to ask on the cash flow side and your acquisition outlook in the press release with the debt repayment guidance that you repeated just now on the call, you said barring any or something like this compelling acquisition, so what is a compelling acquisition from your standpoint? What does the pipeline look like? And then again if there is nothing compelling out there, what is the ultimate right debt level for Silgan?

I think I will start with what is a compelling acquisition. It will always be built around our belief that it adds to the franchise that we have in the packaging business or that it can lead to a comparable franchise in an adjoining segment or another segment. It also will need to have a characteristic that it will be very quickly accretive and that is not so much because we are driven to what I call artificial measure of accretion, but because you need to pay a decent price or the right kind of price for an acquisition and if you do that the accretion follows. That is what we call a compelling acquisition. We as a practical matter I think we said last year, with our food can business and our plastics business we're very well-positioned. There is nothing that we feel we need to do to add to those franchises to exploit the opportunity. Therefore, what we may look at would be I think most likely what I call bolt-on acquisitions to those kinds of businesses where we're even strengthening them, but we don't need to do that.

Finally when we look at the debt-to-equity, more important debt to coverage, I think when we talked about reducing the debt from 270 million to 370 million from our current levels, so that would be 2 to 300 million from where we are today, of about $1 billion at the end of the year. I think you can see that would take our coverage on EBITDA down in the mid twos, and that is pretty much what we're shooting at and that is where we would be comfortable. We think that is where the world is nowadays in terms of efficient capital structure.

So just looking forward a couple years, is it primarily small little bolt-on for food cans and plastics and you get your debt rate down nicely, is it more likely we're having a conversation a year or two from now about dividends and buybacks? Or are you going to look for some other kind of platform to build a new packaging area business or line or geography or product that gives more earnings growth?

You sound like a White House reporter asking six or seven tough questions at once.

Sorry, I am trying to be efficient.

No problem. I think the bolt-on are the highest probability but I will never rule out than an opportunity could come along that we felt was so attractive that we would move on it. That is just the nature of -- I think our view of the future. I think I lost your next couple questions.

Basically once you get to your debt run rate, then we could be talking about dividends or something else?

I think that is a logical question given that if we took our debt much below the mid twos in terms of coverage I think we enter the inefficient capital structure in terms of not leveraging the equity enough. And given what has happened with the tax provisions on dividends, dividends or stock repurchase are pretty much the same now. And I think both of those would be in play at the point in time we felt comfortable about that debt level.

Sure, great. Thank you very much.

Dan Khoshaba from KSA Capital.

It is nice to ask these questions from the other side.

You got your first report out?

Have I got my first report out?

How did you do the first quarter, the first month?

Oh, we are doing okay, we are doing okay. I got a couple of plastic related questions. Has the more intensified kind of price competition that the industry in general has seen in the plastic bottle business over the last couple years, whether it is been due to customer consolidation or other factors, has that begun to stabilize or is it your view that that will stabilize in '04? And the second part of that question has OI's decision to evaluate their plastic bottle business, it has been well-publicized, what it keeps, what it sells, that kind of thing created any market opportunities for you to either gain share or somehow just take advantage of that situation?

I think, Dan, to the first point about the price competition, it was at a reduced level in 2003 versus 2001 and 2. So it has already dropped off some. I think that's likely that the future will be seeing it not flare back up, but I can't be sure. The source of that price competition was a bit out of left field and because of that I find it hard to predict. Secondly, OI's announced strategic review is unsettling to some extent in the marketplace, but I can't say that there has been any direct benefit to us of that, and whether it would be in the future has a lot to do with exactly what they might do. And so I don't think it hurts us. I think would be best I could put it.

I know you have given a CAPEX number for '04, but does that number change relative to how much is going to be spent in plastics versus metals from previous years? Are you focusing on one business a little bit more than others in terms of what you're going to actually invest?

Plastics spending will be up year-on-year significantly, and metal spending will be down. And the metal spending -- we spent so much money on easy open ends (multiple speakers) for the last three or four years and that is just a natural (inaudible).

Okay, great. Thanks.

Edings Thibault from Morgan Stanley.

I actually didn't catch that CAPEX number for '04. Would you mind repeating it?

Basically it will be around 105 million.

Okay, and just thinking about and maybe spending a little more time on the hedge you have in place, you went over it pretty quickly, is it 200 million? And can you talk about the type of rate sensitivity within those hedges? Is it fixed for three years or what kind of band is applied there?

It is fixed for three years and we did a couple different tranches but we did 200 million aggregate at the tail end of the year, which more or less picked up -- the bulk of the difference from moving at that time 475 million fixed-rate bonds down to 200 million, so we basically picked up the relative change and a three-year swap.

Okay, and just a question on the Chicago facility. Is that now fully closed?

It is. There are very few people there right now. We are operating literally one line. As we have a replacement line coming up at another plant and it started up about a week ago, coming up fine. So we are operating one line and we expect that to shut down this month, so we cross our fingers we think we're on schedule here to be out by the end of the first quarter, which is what the current plan is.

Are all of the cash costs of that exit captured to date, or are there going to be some small charges there?

Net small charges and the sale of the building will (ph) actually be a cash generator to us.

Okay and I feel like if people are asking White House questions, I should ask the prospective father-in-law question. Probably worth just touching on can Phil and Greg, can you talk about your intentions? I gather they are honorable, but can you talk about your future with the Company and what you foresee at least as far as you are willing to give us some guidance?

We've been talking about this for sometime. It's appropriate. I'm 60. Phil 61. We've been around here for a while and increasingly over the last several years have concentrated a fair amount of our time and energy on the issue of succession not just here but through the businesses. Obviously very important that we have succession lined up as well in the two subsidiary operations. So I am pleased to report that we have got a great group of younger executives who are poised to assume our responsibility in each of the businesses, each of the subsidiaries as well as here in our holding company headquarters. And Phil and I are looking at the next four to five years figuring out what we want to do in terms of the transition from us to this next group of executives. And the same would be true in the subsidiary operations.

Right, so nothing near term? No near term plans for either the two of you? And I would define that sort of the next eighteen months.

I thought you were going to say the next quarter. Certainly we have identified nothing and we think it would be material and it has been our view that one of the most important responsibilities we have is to ensure that this transition is done properly. And an important element of that I think is not to surprise any of our investors or an organization or suppliers, customers, or anyone else. So we have been talking about it for a while. We will continue to talk about it, and I think it is fair to say that Phil and I, feel deeply the responsibility we have and will be nothing that would be precipitous and would not be understood well in advance by the market and so on.

Great, that's good news. One final question, Tony. Can you just give us the pension costs in 2003 on the income statement and perhaps what may or may not have been contributed on the cash flow? And then your outlook for 2004?

I will answer that slightly different than what you asked it, but what I would start by saying is just a reminder that we have always had pension expense not pension income in the past. That continued to be true this year. Without giving you the exact numbers because we haven't in the past, we certainly had higher pension costs this year as I think most companies did. We increased our cash funding, so if you look at -- we have traditionally been underfunded, and if you look '02 as an example we were about 83 percent, low 80 percent of the ABO obligation. We ended this year at closer to 86 percent, so we made headway against the obligation and obviously that gives us some ability to absorb some of the pension increase next year. But again we did have increase this year in pension expense; next year the expectation is up a bit but not much.

Thanks very much and good luck with the quarter.

Bala Ramakrishnan of Morgan Stanley.

Just a couple of quick questions. First is we are hearing reports from steel producers that they are in the process of putting through not only price increases for noncontract stuff, but also price increases for contracts customers through surcharges and these charges seem to be going one way which almost virtually every couple of months they have been putting through price increases. We wanted to understand from your perspective is your cost of raw material, has that been locked for this year? And second, how would you respond if any surcharges are put through?

We never speak to any specific pricing that we get into other than generally announced price increases that the steel industry has talked about. And then very orderly over the years they typically put out something in the fourth quarter and it is something that for the most part we have keyed off as a converter and with their material accounting for the biggest fraction of our cost of goods sold. So steel is very important to us. We're the largest tinplate buyer in the United States if not the world. I said at the top of the question-and-answer session here that our industry, our segment particularly is extremely stable and as a consequence we have had a lot more stability I think in terms of pricing and demand that has been placed on the steel industry than have other segments, industry that clearly are more cyclical, like automotive (indiscernible) up-and-down and their pricing cycle will have more volatility than what we have experienced in the tinplate industry. Having said that, we understand the situation, that there has been a problem with a major coal mine that U.S. Steel is operating as a large producer of coke, not only for their requirements but for others in the industry supplying tinplate. We have been all over this in terms of communication with the steel industry, and those who supply us. And I would say at this time we are given full confidence that our requirements are being met and that we have a very stable supply situation. Beyond that I would just say to the extent that there is a price change, our contracts obviously provide for passing along price changes as we experience them, up or down.

Even if the industry were to turn around and put any surcharges, for arguments sake, you can pretty much during the same quarter pass those through to your customers?

As we experience inflation or deflation, it gets passed along.

Real-time, there's no lag.

Okay, and just for our own reference purposes, the price increases you put through for the noncontract stuff, what is the magnitude of that? Is that 4 percent?

It was a little over 4 percent.

So we shouldn't see any margin impact because of the rising price on the steel industry on your numbers for this year at least?

We do not think so.

The second question was with regards to your capital structure you mentioned you are embarking on this debt reduction plan and at the end of it your leverage could be as low as 2.5 times. Now obviously that has a lot of implications for your rating. Is your goal to remain as a high yield Company and keep the flexibility to make additional acquisitions? Or is the goal to get the investment-grade at some stage?

I think rather than have an objective of a rating we think we want to assess what is the most efficient capital structure in terms of return to the equity risk-adjusted, so sitting here as a rather large equity beholder of this business I know that too much debt is not efficient and too little is also not efficient, and at this point we've decided that around 2.5 is the right place to be in the financial market. And it is not because we do not want to go to investment-grade or want to go investment-grade. We just want to be in the most efficient place. And I would say that going to investment-grade is a pretty big step for us from where we have been and it would take some time, so that is not where we are headed as an objective. We might get there just as a consequence of our cash flow, but that is not an objective.

Thanks very much.

George Jonas (ph) from David L. Bobson (ph).

Despite your age you don't look a day over 35 first of all. Just answered my question actually in reference to raw materials; I guess my only question otherwise would be could you possibly give me EBITDA for the quarter and for the year versus last year?

We don't because it is considered a non-GAAP number but I have given is depreciation.

I did not, I had to jump off the call for a minute or so, can I get that again?

Yes, depreciation for the year I guess is what you're particularly concerned with was $111.3 million this year, versus 95.7 million in '02.

And what was cash flow from operations this year?

You'll have to wait for the statement cash flow for that.

Okay, thank you.

George Staphos of Bank of America.

Two last questions. Number one, you have talked about it being a stable market over the years and it has been, nevertheless you have gained market share over time. Do you think that either because of opportunities in (indiscernible) or with customers or for that matter from a customer standpoint, you still have opportunity to gain market share within the food cans sector in North America?

The best way to gain share and we have said this forever, is to gain it indirectly because you are aligned with the right kind of account, so we have been proud of our account lineup from day one, going back to 87 and we have taken some care in terms of how we got in position there. And I think that when you look at the roster of customers that we serve, we are extremely pleased to be able to report that they are one and two in almost every category as you go down through the subsegments of the food can industry, so yes, George, that is a wonderful way for us to gain share is for them to gain share.

And George, 100 percent of our share gain has come from the acquisition of (indiscernible) manufacturers.

But nonetheless you have gained share. Can the industry sustain three merchant suppliers? In your assessment?

It could go down to two. There is the issue of substitution, I talk about the stability in our industry but there has been a share of stomach (ph) loss over the year so substitution sits there and it is viable and I think would be a factor in terms of antitrust authorities looking at the industry and saying what is relevant and what is competitive and that type of thing, but beyond that we think that the market is reasonably concentrated now and very stable.

Okay, good luck in the year.

You have no more questions at this time.

Thank you, everyone, for your time and we look forward to seeing you in April and talking about the first quarter.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.