Silgan Holdings Inc (SLGN) 2004 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Silgan Holdings year-end conference call. My name is Minosha (ph) and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). I would now like to turn the presentation over to your host for today's call, Mr. Malcolm Miller, Treasurer.

Thank you. Also joining me from the Company today, we have Phil Silver and Greg Horrigan, co-Chairman and co-CEOs, Tony Allott, President, Bob Lewis, CFO.

I'd like to read some forward-looking statements, if I might, before we start. 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 and risks, including but not limited to those described in the Company's annual report on Form 10-K for 2003 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, Malcolm. Welcome, everyone, to Silgan's 2004 year-end earnings conference call. Our agenda for the call is to cover some brief highlights of the year, to review the financial performance for the year and the fourth quarter, to make some final other comments about the outlook for 2005 and then for Phil, Greg, Bob and I to take any questions that you might have.

Let me start by saying that we are extremely pleased with our 2004 performance. As you saw in the press release issued last evening, Silgan carried solid momentum out of the third quarter and finished the year strongly, earning 88 cents per diluted share for the fourth quarter to a total of $4.52 for the full year. This represents a substantial increase over the 2003 earnings.

Perhaps more importantly, we achieved several important milestones during the year which have positioned the Company well for the future. These include achieving record sales of over $2.42 billion, earning record operating profit of $199.6 million, which represents a 19 percent increase over 2003. While 2003 results did include rationalization and refinancing costs, the increase is dramatic even after adjusting for these items. We substantially exceeded our 2004 debt reduction target and paid down $161 million of debt during the year. On an enterprise-value basis, this represents as shift from debt-to-equity of nearly $9 per diluted share. We are well on our way toward the 200 to $300 million debt reduction goal for 2004 through 2006.

We had strong post-rationalization performance from our 2003 acquisitions, particularly in the Silgan Closures business. We continued to demonstrate the positive results of capital investments made over the past several years, in order to increase sales of value-added products, and we initiated a cash dividend during the year.

Again in 2004, we demonstrated our strong cash generation capabilities and continued to show the value of our business franchises in food cans, plastic bottles and vacuum closures. We remain committed to building franchises by focusing on markets where we have a competitive advantage, can develop strong customer relationships and earn high returns on capital.

With that said, I'd like to turn it over to Bob to review the financial results in more detail and provide earnings estimates for 2005.

thank you, Tony. Good morning, everyone.

As you have seen, we were able to capitalize on our strong third-quarter results and carry the momentum into year-end. As a result, we are pleased with our 2004 performance and encouraged by the outlook for 2005.

On a consolidate basis, net sales for the year were 2.420 billion, an increase of 108 million or 4.7 percent resulting from increased net sales in both the metal food container and the plastic container business. These sales translated to net income for the year of 84.2 million, or $4.52 cents per diluted share, compared to 2003 net income of 42 million or $2.28 per diluted share.

For comparative purposes, it's helpful to note that 2004 included a $3 million benefit from the litigation settlement, which was offset by rationalization charges of 2.1 million and a loss on early extinguishment of debt of 1.6 million, while 2003 was negatively impacted by rationalization charges of 9 million and a loss on early extinguishment of debt of 19.2 million.

Interest expense also provided a significant year-over-year benefit, decreasing $40.8 million to 57.2 million. The key drivers behind the expense reduction were the $19.2 million loss on early extinguishment of debt in 2003, lower average borrowings resulting from our debt-reduction program, and an overall lower cost of borrowing. We also recorded a $1.6 million loss on early extinction of debt in the fourth quarter to reflect the accelerated amortization of debt issuance costs as a result of our debt-reduction program.

2004 was a very successful first year of our debt reduction program in which we used cash flow from operations to pay down $161 million of debt against our 3-year target of 2 to $300 million. Key contributors to our cash flow generation were strong earnings, a reduction of working capital and low cash taxes. As a result, we had outstanding debt on the balance sheet of $842 million at year-end. Based on the structure of this debt as well as actual swaps that are in place, we owe approximately 77 percent of our debt with fixed rates, which is slightly higher than the prior year.

For those looking at cash liquidity metrics, depreciation and amortization for the quarter was 30.7 million versus 28.1 million in the fourth quarter of 2003. On a full-year basis, depreciation and amortization in '04 was 118.5 million compared to 111.3 million in 2003.

CapEx for the fourth quarter of 2004 totaled $30 million, compared with 26.8 million in the prior-year quarter. Full-year CapEx totaled 102.9 million, compared to 105.9 million in 2003.

Additionally, we paid our third quarterly dividend of 15 cents per share in December, and the total cash cost of this dividend was $2.8 million. As indicated in our press release, the Board has approved a 33 percent increase to the quarterly dividend beginning in March. This increase is based on the Company's strong operating performance and cash flow generation.

I will now provide some specifics regarding the financial performance of each of our 2 business franchises.

The metal food container business recorded net sales of 1.840 billion, an increase of 91.6 million or 5.2 percent. This increase is primarily due to the performance and full-year inclusion of the Silgan Closures business, which was acquired in 2003, the effect of the pass-through of higher steel costs, and the continued conversion to Quick Top convenience ends. Income from operations in the metal food container business increased 28.7 million to $154.7 million for the year. The key drivers behind increase were the post-rationalization performance of Silgan Closures and the increased sale of Quick Top ends, offset by higher depreciation expense and increased manufacturing costs.

Net sales in the plastic container business increased 3 percent, or 16.7 million, to 578.4 million in 2004 due to the pass-through of higher resin costs, partially offset by price concessions and a less favorable mix resulting from lower demand by certain customers in the personal care market. Operating income increased 4.1 million to $52.1 million for the year. The year-over-year comparison benefited due to the inclusion of rationalization charges of $7.8 million in 2003, while the fourth quarter of 2004 benefited from the litigation settlement. Inflation in manufacturing costs, the effect of price concessions and a less favorable mix in the personal care market offset these gains. While the plastics market has undergone changes in the competitive landscape in the last several years, our business has been relatively stable during that time.

In terms of the fourth quarter, the Company reported earnings per diluted share of 88 cents versus a loss of 13 cents in the prior-year quarter. Sales for both the metal food container and the plastics business were up for the quarter versus the prior year, driven primarily by the effect of higher raw material costs that were passed through. Food container volumes were down slightly versus the prior year, as a result of reduced tax sales to West Coast customers and the Company not retaining low-margin business upon contract renewal.

Some of this anticipated decline was offset by better volumes in certain other categories. Other items of note in the quarter include lower employee health and welfare costs, a benefit from the litigation settlement, offset by increased manufacturing costs as well as an increase in our effective tax rate. The increase in the effective tax rate is due to increased state and local rates, as discussed in the press release.

Now, I'd like to turn your attention to 2005 and make a few comments about our outlook. Based on our 2004 performance and the positive momentum provided by our debt reduction program, acquisitions and contract renewals, we entered 2005 positive about the outlook across our businesses. Accordingly, we currently estimate earnings per diluted share for 2005 to be in the range of $4.50 to $4.80 per share. Reflected in our estimate for 2005 are the following -- continued benefit of cost-reduction and productivity programs, continued inflation in manufacturing costs and higher depreciation. In addition, we expect a slightly lower interest expense as lower average outstanding borrowings are largely offset by anticipated interest rate increases.

As we look at our effective tax with for 2005, we anticipate a slight decrease as we take advantage of the manufacturing credit afforded us under the Job Creation Act. Also, capital expenditures are estimated to be comparable to 2004 and lower than anticipated depreciation expense. We are also providing a first-quarter 2005 earnings estimate in the range of 50 to 70 cents per diluted share. This estimate reflects the potential negative impact on demand in the metal food container business due to the stronger-than-expected volume in the fourth quarter of 2004.

We are pleased with our debt-reduction performance to date and remain committed to optimizing our capital structure. As a result and given our forecasted cash generation, we anticipate that, in the absence of acquisitions, we will be able to pay down approximately $100 million during 2005.

While we believe we've taken into account all known factors that might impact the year, it has been consistently proven that ours is a business that is subject to a wide array of market dynamics. Therefore, we have provided a range of estimated earnings which attempt to allow for the impact of unforeseen events that may occur during the year.

Before we open up for questions and answers, I'd like to make these comments to deal preemptively with the issue of steel cost increases and our can price increases. 2004 was a difficult year with the steel industry providing the dual challenges of a ramp-up of steel prices concurrent with a tight supply, putting pressure on timely delivery and service. We did meet our customers' requirements in 2004 and anticipate 2005 will also be challenging on this steel issue, although once again we expect to successfully fulfill our customers' requirements.

As you may recall from earlier calls, more than 90 percent of our food can business is under contract and provides for the pass-through of metal. We also increased can price in the non-contract portion of our market to pass-through our metal inflation. We anticipate the same for 2005. While there may be other questions regarding steel costs, this is all we intend to say at this time.

That concludes our prepared comments. We can open it up for questions and answers. Would you kindly provide the directions for the Q&A session, please?

Absolutely. (OPERATOR INSTRUCTIONS)

Amanda Tepper of JP Morgan.

Good morning. This is actually Angela Levy on behalf of Amanda. Good morning. The first question is in terms of the dividend increase. It obviously indicates that the Board is confident in the free cash flow outlook, but I wanted to know and understand the metrics and the determination for the size and the timing of the increase.

This is Phil, Amanda. The timing of the increase was basically when we and the Board had full visibility on our year-end results. The metrics are not any lock-step formula to earnings or cash flow but influenced by both. So given that we had good earnings and strong cash flow, the Board considered what might be appropriate and arrived at the number they did.

Then just following up with use of cash flow, it seems that there's somewhat an implication through the press release that there is a continued focus on acquisition. We want to understand what would you consider as kind of a nirvana-type of acquisition, or what would be the perfect acquisition in this environment?

The kind we made in 2003! All 3 of them! Out of traffic, with the opportunity for us to add value by how we would run them, and of a nature that provided synergy with the businesses we have.

Okay. Then I guess just the final question is in terms of Q4 and understanding a little bit about the can volumes, just kind of trying to back into volumes, not quite understanding how it all flows through with some pre-buy volume in there from but some negative impact I guess from your non-contract renewal and some West Coast issues. Can you reconcile that for us?

Sure. This is Greg Horrigan. I thought I heard you say Angela.

We're both As, you know!

Well, good morning, Angela! To give you a little context on the can business, I want to get to your question but I want to come at it this way -- when we think about the container business (indiscernible) 2004, we start with the remarkable performance we had year-on-year in the closure business. As you know, when we acquired that business, it was in midstream on a very significant realignment. We suffered through the realignment, frankly, in 2003 and in the course of the year, we changed out some key positions there, the President, the head of Metal Operations, the Financial Officer, and then really just the combination of the effort of that team of people and being broadly supported by the containers organization -- they just really got that business completely realigned and now positioned, I think, on an ongoing basis to operate at a margin contribution level that is, well, (indiscernible) the kind of franchise that they have.

When we think about the volumes in the business, specifically in the fourth quarter, we were down a bit for the reasons cited. For the year, the CMI is down 1.8 percent. We were flat, year-on-year. Frankly, we've been flat in volume over the last 3 years, and we've marginally gained share obviously this past year. But in the fourth quarter, we just simply had some out-of-period changes in the food can business on the West Coast, in the West Coast PAC business that moved it from the third quarter this year out of the fourth quarter and it was the other way around a year ago.

Additionally, there was some low-margin business on a contract renewal, not one of our Big Three but another customer, where we retained a substantial portion of the business under a longer-term contract. But we gave up part of it; it just didn't work for us and we chose not to (indiscernible) compete aggressively. It is insignificant phone incumbent standpoint to us, and it will flow out of volume in the fourth quarter, as it did this year, and in the first 3 quarters of next year. So, we're looking at volume next year in our base plan will be marginally down but coupled with what's going on in the closures business, we've had this substantial investment that we've been making over the last 2 or 3 years in these Quick Top ends. In 2004, we moved the needle on being at about the mid-40 percent of our total cans manufactured with the Quick Top end -- we moved it up into the mid '50s, so it was a significant change. Now, we have more than half of our business with Quick Top ends.

As a result of making that investment, we just moved to a higher valued, higher margin-contributing mix of business (indiscernible) the closure business. So we have embedded, now, I think finally at year-end, in the containers business, a margin rate that is just something a bit different than where we have been in the past couple of years. It's a function of what we've done in both the closures business and with this additional investment in Quick Tops, and we would expect that (indiscernible) then and will be and -- the margin in this business going forward, so we had a much higher quality business, and we're going to get the benefit of that on a go-forward basis.

Super. I appreciate the detailed response.

Edings Thibault of Morgan Stanley.

Thank you and good morning, gentlemen. A few questions on this, just to follow up on maybe, Greg, your comments on Quick Top. You know, can we just talk about how that -- you talked about how that has resulted in a margin rate that's different from where it has been in the past. Is that because of the shift as you look at the types of cans that are taking the Quick Top on your overall product mix? Are those that -- less seasonal, less vegetable or can we read something into that that would tell us that the biggest impact on the margins would be felt perhaps in the Q1 and Q4 rather than perhaps in Q3, or would you expect that that margin difference will flow through for the full year?

Well, the 2 most notable conversions in the last couple of years have been in the soup category, so that does tend to -- soup flows kind of counter to the way the vegetable pack runs and so on, but we're getting conversions. You know, we continue to get conversions. We have some interesting research that we are getting out of the trade on IRI data that indicates that the first mover picks up significant market share and in one case, in the dog food business, these weren't even our ends; it's just data that we're looking at -- is that even a second mover gained market share against the remaining competitors in the market. So, we see a trendsetting out there that will continue to be supported by this kind of research.

In addition to enhancing the margin contribution for us, importantly -- and maybe most importantly for us -- it enhances the product offering that our customers are taking on through to the ultimate consumer. We like that. If you've been -- forever we've seen that, with cans, if you can make it more convenient, easier to use, then you've buttressed the demand and that just helps (indiscernible).

One point on the margin rate -- the easy open or Quick Top end require a great deal more capital per dollar of sales than our average business, so naturally the margin rate on those will be higher to recover that investment.

Right, but that investment is now primarily behind you or are you still ramping that up as you move from this mid 40s rate to mid '50s? Then I guess it doesn't sound as if your CapEx budget is increasing by any great amount. In fact, it's lower than it's been over the last couple of years as a result of --.

We read through a period where we were deploying a lot of capital to get the range of sizes needed by our customers that took care of those requirements but also had excess capacity available. We still have some of the excess capacity available to us, although we expect that a resumption of some spending on easy open ends, or Quick Top as we call it, is ahead of us. We hope so!

Amen to that! Can we just talk about -- I know you guys are sort of reluctant to talk about the steel issue, but maybe we can put it in context. Number one, you know, why -- just understand very quickly why you are so reluctant to talk about it in the near term. Are you still in the midst of receiving price increases or new pricing mechanisms on steel and therefore, in the process of trying to understand what the impact will be to your customers on these pass-throughs? Could you talk about what your steel costs rose in 2004? Because I think, as I look at your business, the lesson was that you were able to absorb significant steel price increases in 2004 and that your contract structure worked just as you said it would in that you would be able to largely past these through. So could you comment on whether or not that is true, in 2004, and then maybe some additional clarity on the sensitivity here at present?

Let me just confirm that the contracts worked as we reported they do, you know, in 2004. The statement that Bob read at the outset -- it really clarifies where we are. From the day we started this business, we didn't want to be in the position of speculating on metal frankly because we've seen an -- we've had an experience in our prior company where prices had ramped up in steel 40 percent one year and starting as a highly leveraged entity, we didn't want to be in a position where we could possibly absorb that. So we've baked that into everything that we've done in a contract form in the can business and largely have operated at the same way in the plastics business as well.

As a matter of force, we are on the same side as our customer all the time on this issue, in terms of trying to constrain costs and ensure that we have the most competitive offering, that we can take the market. It's gotten a little more challenging these last 2 years with what's going on in the industry. Just suffice it, Edings, to say that we think specific discussion about prices, either that we receive on goods we buy or on prices on goods that we sell to our customers, is confidential information and should just not be bannered about in this kind of a call. We just generally don't disclose it.

So, we want an investor to understand that we have inoculated ourselves from the risk of not being able to -- of the vagaries of inflation. But on the other side of it, you know, we would say that we are not looking to make out because we pass it along, so --.

Right, but maybe just looking at -- as you look at your revenue increase in the metal containers business, year-over-year, you cited 3 primary drivers from that, the closures business, the impact of higher steel costs, and the impact of the Quick Top end. Would there be a way of ball-parking the impact of each of those?

No.

There would be, but we don't want to!

Okay, understood. The final question is on the plastics business, and that is a business where, despite having made some acquisitions, it sort of stands a little bit in contrast to some of the significant progress you've made on the metal containers. I was wondering if you could just talk about the outlook for that business, the challenges that it's been under and sort of your plans to restore, if possible -- when do you think you'll be able to get back to the sort of mid '50s profit levels?

It's Tony. I will take that one. I think it's a pretty important question and we want to be very clear about it in terms of how we view that business and its performance. I think, to start with, if you think about it on a relevant basis against other plastic container businesses in the markets we serve, our plastics team has done an excellent job in terms of the performance they've done. I would cover that over the 17 years that the business was built over. Equally, I'd say, over the last 2 to 3 years during the kind of intense competitive activities that we've talked quite a bit about on these calls.

You know, perhaps more important to relative performance is the absolute performance. I think it is important for everyone to keep a focus on how strong the cash flows have continued to be from this business during that entire time. In fact, the cash from operations from the plastics business this year was stronger than it was before all of the competitive activities that we've talked about for the last couple of years.

Equally, if you look on returns on capital, we've had very high return on capital from the business, well in excess of our weighted cost of capital and frankly in line with the rest of the business. So we spent a lot of time talking about it but in fact, the performance has been quite good. Now, we've strategically kept the business very focused on returns rather than pursuing growth, and so you can see that, frankly, in the numbers and that's been the effort and focus on the business.

So to answer your question kind of globally, we feel quite optimistic about the position that we have, particularly the team we have in place there and the relative position in the marketplace. So, we look at it and see, on a long-term basis, opportunities here, and we really think the way through that is to be patient in these kind of market conditions and disciplined. That is what you've seen us do thus far and you'll see us do and you can read into what we are saying about the earnings next year. That's the best way I would characterize kind of where we are and how we are looking at it.

Okay. I will jump back in line.

George Staphos of Banc of America Securities.

Good morning. You know, you should take your press releases and kind of strike the date and the quarter you say you are referring to and just write in the new one every 3 months or so. You know, congratulations on a very, very good year, guys.

I guess the first question I had -- I had to jump on and off the call before. Did you mention what your volumes were for plastics and food cans in the quarter?

We did. For the food cans, they were slightly down in the quarter.

Phil, what's slightly?

That's as far as we will go, George. We don't get into specific numbers.

They are flat for the year, George.

Flat for the year and slightly down in the quarter. And the plastic volumes were basically also flattish in the quarter and for the year, for that matter.

As we look out into 2005, obviously you have been managing well. There's been a little bit of a pre-buy, I guess, yet your volumes were down slightly. Now again, if you've covered this ground before on the call I apologize for going over it again -- but if I'm hearing your comments correctly about the market challenges, why wouldn't we've seen better volumes in the fourth quarter, year-on-year?

We frankly saw no discernible pre-price in the fourth quarter.

Okay, so the cushion you're building into the first quarter is just -- (multiple speakers).

It's really against some stronger than expected. When we put out the pre-announcement, we had demand that was in excess of what we had estimated for the quarter, and we really had 2 different segments that were surprisingly strong to us in the fourth quarter. We're just being cautious in the first quarter that some of that might not come back out -- but they may have been building their inventory, quite apart from any pre-price buying. So, we didn't -- we've looked very carefully across the business and can discern no pre-price buying.

Fair enough. Now, guys, in terms of your structural costs for labor and health care and the like, how would you have us think about it? Are there some numbers or just broad parameters you could share with us, in terms of what the typical year-on-year increase might look like and what '05 looks like perhaps versus '04?

Well, on the raw material side, George, it's anyone's guess and -- (multiple speakers).

I wasn't referring to that. I was talking more structural, you know, kind of overhead labor -- (multiple speakers).

(Multiple Speakers) -- I think if you speak about people costs, I think that, on the structural side, that we're not going to be coming in dramatically below what's going on in our national kind of average. But we certainly aren't going to the leading the way, so I think you can see our people costs as being sort of reflective of the Company tightly controlled but sensible against whatever rate of inflation is going on out there.

Not much more than plus 2 percent?

I don't want to get specific about it. I think that, if you look at the rate of wage inflation in the country generally, we would expect to be on the south side of that.

We have no control over energy, to speak of, so as has happened in the past year, oil and gas have both gone up, therefore gasoline has gone up. It's been a big inflationary factor in our business as well as our customers. It will run through our business I think just like our competitors, so we don't think we have any advantage or disadvantage there.

The other elements of cost, other than people costs, which I just referred to, I don't think that you could look to have a discernible difference between us and our competitor.

Now, with the performance of the Company over the last several years and the stock to boot, are you getting any inquiries from your customers kind of to the effect "Look guys, we know that there are some costs that are out of your control --" and here I'm not talking about steel, by the way -- energy, labor, etc., but nonetheless you seem to be doing a pretty good job and there are other industries where, in fact, there is investment being made to either minimize energy consumption or some other factor that one would consider typically out of your control. Are you getting that type of inquiry from your customers, given the way the performance of the business has been?

I think that kind of discussion goes on all the time between our customers, because they are quite like a partnership. We've dealt with them for so long and will continue to. We work on ways to reduce the cost of the effect of inflation all the time. It has been more challenging in the last couple of years than it's been for awhile, and so the level of discussion has gone up, but I don't think it's a finger-pointing kind of discussion. It's trying to work together to figure out how to deal with it, and there are opportunities. They can change the way they do business; we can change the way we do business. We can agree on some capital to be spent that make sense, that will increase productivity. We are sort of in it together and work with each other to try to figure out how to offset the costs, because we both know that neither one of us is going to change our control of the cost or gasoline or natural gas and the like. So this heightens dialogue, I suppose, but it's not something different; it's just the cost we're trying to overcome is a bit different right now.

Last question guys and I will turn it over -- are there any contract renewals of any size that we need to be aware of for 2005? I didn't recall that there were but just wanted an update and similarly for '06. Thanks.

George, we're pleased to -- and in fact, we did report this out -- that our 3 largest contracts were renewed over the last year and we now have -- we are looking at new contract terminations that vary from 2008 to 2011. So, we don't have anything of any particular consequence coming up this year. It's kind of unusual, so --.

Well, it's a good unusual! Thanks, good luck on the quarter.

Christopher Miller of JP Morgan.

Good Morning. I don't want you to forget about us bond investors as well. (LAUGHTER). Obviously, a great quarter;. I wanted to follow-up. First, have had any discussions with the rating agencies? Your current ratings seem a little incongruent with the recent financial performance and where you are from a leverage perspective. Any thoughts there? Any discussions?

Well, what I would just say on that is we regularly talk to rating agencies, so I mean, that's -- we keep them informed of kind of every quarter; when we report, we make sure they know and have all of that information.

Any thoughts on what the hesitation has been on your ratings?

I don't know that there has been hesitation. I think the Company -- frankly the Company has moved a long way on kind of the balance sheet and towards the optimal. Obviously, this release shows a lot of that. So, I think probably the rating agencies get paid to sit back and wait and be sure. I think they may well have been doing that, but time will tell on that.

Just so I know, with -- obviously you have been very conservative and very successful with the acquisitions you've done. Do you view it as you go out and you look at these possible acquisitions -- obviously you might consider putting additional leverage on the business, but is there a range of leverage that you're comfortable running this business? I mean, is it 3 times? Are you willing to go above 3 times again? Give us -- (multiple speakers).

I think -- (Multiple Speakers) -- as we see the capital markets today and how we have come to understand them, we think that leverage in the 2 to 3 times is kind of compatible with the markets out there and what we do. Looking forward, the acquisitions opportunities could potentially drive us to go 2 or 3 three times if we saw our way back to it pretty quickly. The financial markets could change their point of view, which would also influence that. So, I don't think we want to try to draw any lines in the sand here about set ratios. It's a function of a dynamic financial market and we want to stay in tune with it.

Just the last question -- as you look at 2005, from working capital perspective, do you see additional improvements that you can make there? Do you think you can get additional cash out of working capital in '05 versus what we saw in '04?

Chris, this is Bob. What I would say is that while our working capital reduction was a driver for the cash in '04, primarily on the AR side, as our guys continue to do a great job in the collections effort, some of that, quite frankly, was acceleration of cash from our customers coming in. So I think we don't expect that there is significant improvement on a year-over-year basis, primarily because we think we've been doing a good job throughout.

The other thing on the cash basis I think you want to be in tune to it is that we also benefited from the fact that we had very low cash taxes in this year, and '05 is kind of the tipping point for us to become a pretty significant cash taxpayer.

Can you give us kind of a general range on what your thoughts are on what those cash taxes will be?

Yes. I think you can probably expect a number that's going to plus or minus like 30, $35 million.

Okay, great. That's very helpful. Thanks so much. Good luck!

Robert Kirkpatrick of Cardinal Capital.

Now getting over to the shareholders.

(LAUGHTER).

To follow-up on the cash taxes, what level of cash taxes did you pay in '04?

In '04?

Right.

Our net cash taxes was somewhere between, call it, 3 and $7 million. (multiple speakers).

So you got a decent headwind on that part in the coming year?

Yes, right.

I also noticed, in your press release, that, in talking about your fourth-quarter operations, you talked about lower employee health and welfare costs. That's not something I've seen a lot of. Can you explain that to me?

You know it's in the quarter; you don't (indiscernible) the year, so I think the point is that it's not a lower for the year. What ends up happening is you make estimates as go through the year best as you can of your experience. In essence, by the end of the year -- and by the end of the year, you kind of have to true that out. What was unusual this year is we went through a carrier change with one of our businesses, and so we had less data as we went through the year, basically. So all you're seeing is kind of a catch-up in Q4 against a full-year number.

Okay, so it wasn't as though we are suddenly seeing deflation in health and welfare?

Don't I wish!?

I thought so.

We would have to go to Washington to get that!

You also had a litigation settlement with an equipment supplier, which obviously boosted the operating income in the quarter, especially in the plastics area. Was that recorded as an offset to SG&A?

Yes, that's where it's recorded, in the plastics segment, offsetting the G&A.

Okay, great. You also mentioned, during the quarter, that you had some better volumes in other categories of the food can business, not the vegetable packing. Can you kind of break those out and tell us what particular areas of strength you did see?

Well, (indiscernible) our expectations, it came in soup and pet food.

Okay. Then, are there additional capital steps that you need to take in the plastics business to fix the manufacturing problems that you have cited in previous calls? How far along the way are you to fixing those previous problems?

There are some capital -- there is some capital to be spent on those issues. It's not a big number, but it will perhaps take more of the capital in our plan than, say, in the last 4 or 5 years. It has to do with some new technology on one type of equipment we have. But it's not a big number. It's not kind of a game-changer at all.

Okay. How far along to fixing those problems do you think you've come in the last 90 days?

In the last 90 days, we're feeling pretty good about it. The fourth-quarter operating performance across the business was decidedly better than the 2 quarters before that. We are hopeful that that continues into the fourth quarter. We will just have to see -- I mean in the first quarter of this year. We will just have to see.

Great. Well, again, congratulations and from the shareholders, thank you.

Matt Moss (ph) of Vasenius (ph) Investments.

Good quarter, guys. You used the term -- you said that you were inoculated from price increases, or that you worked hard to inoculate yourself from price increases. I guess what my question is -- how much did you benefit in your earnings from the increase of steel prices throughout the year from either existing inventory or as you order stuff from the mills -- the price that you passed along to your customers was constantly going up but you were purchasing it weeks or months before?

There's not much of that at all in the metals side. The way the arrangements work with our customers, that's taken into account, so we neither look to lose or gain significantly when prices move.

In the plastics side, there's a bit more of that affect where, when resins are moving up, we do take some penalty because there is more delay. On the downside of course, it's a benefit. But again, it's not an important number.

When you say not important, are we talking about a nickel or -- (Multiple Speakers)?

(LAUGHTER) -- I haven't tried to do it, but I certainly -- I'd call a nickel not important, so maybe that would give you a sense. It's not a big deal or we would have difficulty with arrangements with customers that would cause that to happen. Other words, we wouldn't want to do that.

So you guys don't carry inventory on spec, for customers?

No. You mean finished inventory?

No, raw materials -- (Multiple Speakers).

No, it's just pipeline.

(OPERATOR INSTRUCTIONS). A follow-up Edings Thibault of Morgan Stanley.

Quick questions on pension costs, just as a refresher, if you could remind us what your pension expense was in 2004 and any contributions and then sort of the outlook for 2005 as well.

Sure, Ed. This is Bob again. Our '04 pension was, on a gross basis, about $19.8 million. That includes the contributions that we make to union-sponsored plans as well.

We would expect, for '05, that we will be reasonably flat to that number, based on where we are with our funding performance. If you look at the funding levels today, we've been trending positively; we've moved from somewhere in the mid-70 percent funded against the PVO (ph) to ending the year at about 83 percent funded.

That 19.8 was the income impact or the cash impact?

That is the P&L impact.

Okay. Did you fund the pension plan at all in 2004?

Yes, we did. We funded I guess it was probably about $39 million.

Again, are you anticipating any funding in '05, given the performance of the assets there?

Yes. I think, that one, we're going to just kind of wait and go through the year and see. The minimum will be pretty low for next year, so what we tend to do and our stated policy is to move somewhere between the minimum and optimizing the tax deduction for pension. We kind of play that as we go through the year.

Presumably you are also adjusting your discount rate down, etc., so --?

We did do that, yes.

Okay, I will look for all of that. Then finally, you know, just wanting to understand -- if you could just walk very quickly through -- I think one of the real standout performances this year was the debt paydown, $161 million. You know, you didn't release a summary cash-flow statement, so I was just hoping you could walk through a couple of the big contributors, either working capital gains -- it sounded like you didn't have huge working capital gains -- but if you could just sort of walk down -- we have net income, obviously, depreciation and deferred taxes -- (multiple speakers)?

I will do that. I will make it even easier for you. The big drivers are, A, the -- you know, we had strong operating performance obviously, which generated more cash out of the business. The tax -- I don't know if you heard Bob before, but we had a very favorable tax situation this year as we kind of burned off much of the end of our NOLs and alternative minimum NOLs. So it was very low cash tax year this year. Then working capital was somewhat helpful against that, although when you consider -- okay, there was some increase in cash, too. If you consider that as well, working capital is not a huge component of it. Then you know the CapEx, which was around about $100 million, kind of an ordinary level.

Right. Then just turning sort of to uses of cash in 2005, getting back to this issue of acquisitions, I mean, you know, you guys have basically taken -- I won't say -- you know, seemingly taken a year off from some of these acquisitions, obviously some pretty substantial moves in 2003 and a commitment to pay down debt. Given the progress you've made, you know, as you've looked on those individual businesses, maybe it's sort of obvious that that you would look for anything that made sense on the can side, but are there areas on the plastics side where you would be attracted? Do you feel like you need to build up your tubes business? Or would you be more looking on some of the traditional plastic container businesses as well? Then do you have an update on just sort of level of interest, activity, you know, in that market as a whole?

Edings, I don't think that -- we feel like, in our plastics business, that the platform -- the franchise we have there is really well filled out and it does not have weaknesses that we feel compelled to fill in.

So what we're looking at are both on acquisitions to that franchise and from an opportunistic point of view. By opportunistic, I mean just that -- that we either can flush something out that makes sense or something comes to our attention, and then it's sort of the standard way we go about it. We try to find a way that we buy that X times cash flow and we do something and believe we can do something with it that buys it down to Y times cash flow that creates value for ourselves.

It's hard to predict this. We've gone, in the past, a year or two without acquisitions. In this case, we made 3 acquisitions in '03; 1 of them took a lot of effort to get integrated and rationalized and, as I've said, very successfully. Certainly, we are in the market. It's a question of whether we can find the right thing that creates value. If we can't, we won't do it, and we are looking hard.

Are there -- and I don't mean this to be specific to you guys, you guys have strong track record. Do you see a lot of stuff come over the transom?

Well, with the private equity funds now, they are attracting a lot of people to the proposition of selling their business right now. So yes, (LAUGHTER) the answer is yes! There's a lot floating around out there now.

Good to know. Thanks very much -- (Multiple Speakers) -- a lot of what, I won't say!

George Staphos of Banc of America Securities.

Guys, just a couple of last follow-ons, hopefully quick. The Company again -- performance has been terrific; you are looking to possibly over time fill in a bit but no great -- if I heard correctly from what you're saying -- no real gaps that you need to fill in from a portfolio standpoint. Where do you see the Company 3 years from now? Will it be pretty much as it is constructed right now, or do you think that perhaps you will have a chance to buildout another leg?

Secondly, what would be the positives, perhaps, of being part of a larger organization, or do you think that the fact that Silgan has been so focused over the years and independent that that's really how you've developed your edge within the food can sector and your other markets?

Yes! (LAUGHTER). We have a point of view about building franchises that we have probably gone through to the -- ad nauseum to the audience and so on, but you know, as we approach any thought of a third leg with the idea of can we build it to a franchise position -- we have provided, in the capital structure that we have now and our plan to pay down debt and so on, the opportunity, if something makes sense, to do a bolt-on acquisitions. When we talk about strategic acquisitions, we want it to be bolt-on. Obviously, it would have to go under the closures, the food can or the plastic bottle business in some way, and all the elements of those businesses which provide us I think a lot of bolt-on opportunities to think about over the next year or two, as we finish up this -- hitting this target of paying down 2 to $300 million a debt.

Beyond that, I would envision that there will be a third leg in this business someplace down the road and that, if the Company can continue to be successful in following the wealth creation, the path that we've been on, building franchises and being very focused on the end result of that -- is creating shareholder wealth -- then we would be an independent company that will be larger and have more components to it. There is really no end to that if you just -- you know, we've gotten here with plenty of acquisitions over 18 years, and I would think, we look back 18 years out, and would be thinking about something that would have 20 more added to it.

That's helpful. Again, having jumped on and off, I don't know if this had come up earlier and this question was asked; I think I asked it the last conference call. I think I know the answer. Nonetheless, some of your peers in other markets and other materials are saying they've never seen a more opportune time to be competing against metal in some of your end markets. Now, numbers speak louder than talk, so to speak. Have you seen a lot of movement or customer inquiries looking to maybe switch out of metal into paper, other than normal, traditional discussion that's been going on forever?

No, the interesting thing in that regard is that -- you know, what's occurred with resin pricing and so on -- the basis of competition here is principally I think, from plastic -- there was one move into the market this year with the recard (ph) and early market data on that. I would say that the bloom is off that rose a bit. We hear a lot less about it these days, so we think they have had some market reaction, negative news to deal with and that's kind of slowed that whole thing down. So it's really on the plastics side -- and plastic has their own issues with inflation, so I think we continue to be -- in our product offerings across the business, we continue to have a competitive offering in the broadest sense, but we are very careful to continue to watch this and work on what happens, in our own interests and our customers' interests, to ensure that that's the case. It's not to say it couldn't get away from us down the road. If we had 4 or 5 years of this ramp -up in resin prices and metal prices, it could be problematic, but at this point, I would say no.

Greg, thanks very much. Good luck, guys.

Ladies and gentlemen, this concludes your question-and-answer session. I would now like to turn the presentation over to your host for closing remarks.

Thank you, everyone, for the time. We look forward to talking after our first quarter. We appreciate all the time you spent.

Ladies and gentlemen, this concludes your presentation. You may now disconnect. Have a great day.