Silgan Holdings Inc (SLGN) 2005 Q3 法說會逐字稿

Please stand by. We’re about to begin.

Good day everyone, and thank you for joining Silgan Holdings Third Quarter Earnings Conference Call. From the company today we have Phil Silver and Greg Horrigan, co-Chairman and co-CEOs; Anthony Allott, President and Chief Operating Officer; Bob Lewis, Executive Vice President and Chief Financial Officer; and Malcolm Miller, Vice President and Treasurer.

At this time, I’ll turn the call over to Mr. Miller. Sir, you may begin.

Thank you, Jamie.

Before we begin the call today, we’d 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 2004, and other filings with the Securities & 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. Good morning everyone, and welcome to Silgan’s Third Quarter 2005 Earnings Conference Call. Our agenda for this morning’s call is to provide a brief overview of the quarter, to review the financial performance for that quarter, and then a few comments about the outlook for our fourth quarter of 2005. After the formal remarks, we’d be pleased to take any questions.

After a very strong peak quarter, we moved to the home stretch of the year feeling very positive about our third quarter and nine-month financial performance. As you saw in this morning’s press release, Silgan earned $1.20 per diluted share for the third quarter, a 16.5% increase over the $1.03 reported in the third quarter of 2004. Our metal food container business performed well, exceeding the prior year as we continued to benefit from investments made over the past several years, and realized benefits from rationalization and integration activities, particularly in our metal closure facilities.

Our plastics business experienced softer demand and, by the end the quarter, was focused on dealing with the unusual activity in the resin markets resulting from the hurricanes in the Gulf Coast. As a result of this strong third quarter and year to date performance, we are reaffirming our full year estimate even in the face of these resin challenges. While we do consider the fourth quarter outlook as conservative, the results will depend on developments in the resin markets over the next month or so. With that said, I’d say that the news on material supply has been directionally positive in the recent days, and we’re encouraged by these developments.

Now, I’d like to turn it over to Bob to review the financial results in more detail and discuss the earnings estimates for 2005.

Thank you, Tony. Good morning, everyone.

As you know, the third quarter is seasonally our largest quarter, and this year was no exception. After completing our peak season, we are pleased with our financial performance for the quarter and nine months, particularly on the metal side. Strong volumes in our closures product line and positive manufacturing performance led to record financial results for the third quarter of 2005, which were above the top end of our original earnings estimates.

Consolidated net sales of 797.5 million for the quarter were up 12.7 million, or 1.6%, due to increased net sales in both the metal food container business and the plastic container business. Net income for the quarter was 45.2 million, or $1.20 per diluted share, compared to net income of 38.4 million, or $1.03 per diluted share, in the prior year quarter.

Our debt reduction initiative continued to provide savings, as interest expense for the quarter was down $1 million versus the third quarter last year. The twin benefits of lower average outstanding borrowings for the quarter and our second quarter refinancing, which resulted in lower interest rate spreads, were partially offset by the effect of higher interest rates versus the same period a year ago. Given that the third quarter is our seasonal peak, we continued to use our revolving credit facility to fund working capital requirements during the quarter.

As a result, we closed the third quarter of 2005 with outstanding debt on the balance sheet of 970.7 million compared to 1.0557 billion in September 2004. Based on the structure of our debt, as well as applicable swaps that are in place, we have approximately 57% of our debt in fixed rate.

For those looking at cash liquidity metrics, depreciation and amortization for the quarter was 31.2 million versus 30.9 million in the third quarter of 2004. On a full-year basis, we expect depreciation and amortization in 2005 to be roughly in line with the 125 million reported in the prior year. Third quarter capital expenditures totaled 19.5 million compared with 26.4 million in the same quarter last year. Here again, we expect our full year capital expenditures to be relatively consistent with the prior year level of about 100 million.

Additionally, we paid a quarterly cash dividend of $0.10 per share in September. The total cash cost of the dividend was 3.7 million.

I’ll now provide some specifics regarding the financial performance of each of our two businesses. Net sales in the metal food container business increased 1.3% to 651.1 million versus 642.7 million in the third quarter of 2004. Food can volumes were relatively stable versus the prior year quarter, and unit volumes in our closure product line were strong. Net sales for the quarter increased principally as a result of the impact of the pass-through of higher raw material and other inflationary costs.

The metal food container business converted very well, as operating margin in the third quarter of 2005 improved to 12.5%. Income from operations in the metal food container business increased 12 million to 81.2 million for the quarter. Contributing to the increase were continued strong performance in our closures product line, continued rationalization and integration benefits at our manufacturing facilities, and productivity benefits from higher capital investment over the last several years.

Net sales in the plastic container business increased 3% to 146.4 million in 2005 due to the pass-through of higher resin costs and improved mix of products sold, partially offset by lower volumes. The impact of volume declines and increased employee benefit costs adversely affected the quarter, as income from operations decreased 2.4 million to 7.4 million in 2005.

The third quarter saw significant resin volatility, as price escalations took hold and availability tightened as Hurricanes Katrina and Rita forced a number of petrochemical plants in the Gulf Coast to temporarily shut our capacity. While these natural disasters contributed to the inflationary pressure late in the quarter, we were successful in meeting our customer obligations for the quarter. An early October explosion in one of our supplier’s ethylene cracking facilities further compounded the resin supply issue.

The next few months will be challenging as we work through the uncertainty regarding resin supply and continue to experience inflationary pressure on the raw materials supply. We are currently working closely with our customers to meet their requirements. Therefore, we have a conservative outlook for the fourth quarter earnings estimates. As a result, we are reaffirming and narrowing our earnings estimate for 2005 in a range of $2.22 to $2.32 per diluted share. Keep in mind that these estimates include the $0.18 per share charge for the loss on early extinguishment of debt in the second quarter of 2005, which the Street excludes. This affirmation translates to fourth quarter 2005 earning estimates in the range of $0.26 to $0.36 per diluted share. These estimates do not include the impact of potential rationalization charges.

We continue to evaluate potential rationalization plans submitted by our operations. If we choose to move forward on any of these plans, they are expected to yield compelling cash-on-cash returns. As you know, the fourth quarter is the period in which we recognize significant cash from our working capital. Consistent with our prior guidance, we remain committed to optimizing our capital structure, and thereby completing our debt reduction initiative.

Based on our earnings outlook and expected cash generation, our debt reduction target is unchanged from the prior quarter. We anticipate, in the absence of compelling acquisitions, we will be able to pay down approximately $125 million during 2005 versus the 2004 year-end balance. This will bring our two-year debt reduction amount to approximately 287 million, thereby delivering the high end of our debt reduction target one year earlier than planned.

That concludes our prepared comments, so we can now open it up for Q&A. Jamie, would you kindly provide the directions for the Q&A session?

Thank you.

[OPERATOR INSTRUCTIONS.]

George Staphos with Bank of America Securities.

Hey, I didn’t catch, if you mentioned it, what the plastic volume was in the quarter. I know you said down slightly or down, but could you give us the number? And in turn, what was behind that? Are customers de-stocking, or are they waiting out the resin volatility before they buy more? Not the biggest piece of your business, but curious here nonetheless.

George, we did not give a percentage. I don’t know that we have been doing that typically. But, it is down mid-single digit percentage in the quarter. The primary reason for that is basically tepid demand levels in-- primarily in our personal care side of our business, and we have talked in previous calls about how much of this is driven by high raw materials and, therefore, less restaging of product, et cetera. It’s obviously pretty hard for us to gauge that, but we would assume that there is some of that impact, that the fact that the plastics are higher and the containers more expensive. It’s just kind of slowing the restaging effort in the marketplace. But again, our view is that this is more or less across that marketplace. We may have been more impacted by the results of some of our specific customers’ performance, but that’s kind of the main driver in it.

I understand, Tony. I mean, do you get the sense that your customers-- and this is more of a macro question than one specific to Silgan-- do you get the sense that customers are becoming even more reluctant on new product introductions and stagings, given whatever they’re looking at in the financial press or their own survey work?

I would say-- and I think that they-- certainly there’s a recent run-up has, I think, probably got everybody a little bit slow to think about restaging.

Right.

Our view in this has been, over a long term in personal care particularly, differentiated packages are pretty important for growth. And so, you might temporarily go through a period where you don’t want to make that investment, make the change, but our view is that can’t be a long-term sustainable trend, that you would expect to see that kind of reverse in time. I’m not sure the next quarter is the right time for that, given what else is going on.

Now, when we look at the outlook for ’06 in food cans, and obviously you haven’t really provided much review right now-- and we understand that-- do you think there’s a chance that, with industry comparisons being somewhat easy this year versus-- or next year being easy versus this year’s year to date industry shipments, perhaps again the consumer retrenching [inaudible] is something we’ve talked about, that you might see a comparative improvement in food can volumes next year, or is it really not a needle-mover at this juncture, from what you see, and why either way?

Does your question kind of go to reverse substitution with the high raw materials, or more broadly?

That, but more broadly from a standpoint of, if consumers are being pinched, all else equal, they’re maybe more likely to stay at home and open up a can of soup as opposed to going out. Maybe so, maybe not, but what are your thoughts?

Yeah. I think-- well, and you and I have talked about it before-- I think we would probably say that there would be some of that, but I don’t think we’d call that a major needle-mover on trends in terms of just more consumption of canned goods. Likewise, to the question of reverse substitution, I think the-- as you know, the can is the most cost-effective package out there, so kind of the question ever to restage into something else has more to do with kind of market perception and whether you need to restage that product, and that has generally always meant higher cost.

And so, I think it is fair to say, with the high raw material on the plastic side, that becomes a harder decision. And so, we would say it’s likely you’ll see less of the substitution affect away from the can over a period of time, assuming you’d continue to see high petrochemical and raw material prices on the plastic side.

Okay, last question, I’ll turn it over. Realizing you’re maybe not going to get into the specific ideas here or goals, you’re, as you pointed out, a year early on your debt reduction target. You’re going to, one would think, continue to build cash. Will there be a point in time in the next quarter, next five quarters, whatever, where you’ll give us the next milepost for what you’re going to do with your cash flow, and when would you expect to have that to investors?

George, this is Phil. I think we’ve answered that question sort of in the pro forma as to when we got to the end of our debt reduction target. As you pointed out, we are pretty much there now. As we have said, our first priority is growth of the business, and our primary method of achieving that is, we think, through acquisitions that we’ve done in the past, and been successful at it. We’ll take a look to do it. But, we also put the bar up that they have to be compelling. It does actually need to say that it’s a good business, it fits what we do, and the price is right.

In the absence of finding those acquisitions, it’s easy to see that we haven’t seen those in the last couple of years. We have on the table the standard tools of continued debt reduction, although we’re going to be somewhat reluctant if we start to get an inefficient capital structure. And then, you have returning money to the shareholders through share buybacks or dividends. Obviously, our first choice is to find good businesses to buy and grow the business.

Edings Thibault of Morgan Stanley.

I’d like to sort of separate perhaps your outlook and some of your comments on outlook into your two businesses, metal containers and the plastics business, because looking at your-- you said your guidance for the fourth quarter is conservative. Without harping too much on the fourth quarter, is there any reason why food can profits or metal can profits should be lower than a year ago?

No, no. I think your question-- we’ve had now three quarters of reasonably good cost-comparable margin performance out of the metal side of the business that the main drivers there again have been around the productivity that we’ve put into that business, the new-- strong performance of the new assets, like our Quick Top assets in the business, rationalization, et cetera. So, our expectation would be kind of the continuing trend on that side of the business. So, the conservatism that you’re hearing about is very much directed at the plastics business. And I want to-- I think the-- we’ll see what comes of that, and that’s why we keep point out that we’re being what we consider conservative on it. We’ll have to see how it shakes out. It would seem to me, in either case, this is kind of one-time stuff we’re talking about. I think you know, in our business in the plastic side, about 60, 65% of it is under contract. We pass through our raw material inflation under those contracts, and the market has traditionally done that anyhow. So, a big part of what we’re talking about is just the rapid rate of increasing cost and the impact of that through-- as we lag that through our pass-throughs.

I’d like to make the point that the conservatism that we’re trying to evidence here in the fourth quarter relating to plastics has to do with the availability. We have some suppliers who have declared force majeure, did that two or three weeks ago. It has affected us in terms of availability. So far, we have not had problems with meeting our customers’ requirements, but the supply line is tenuous. And so, we’re just being cautious about anything further happening that could pop up here.

As Tony says, the news has gotten better as we move along, and our expectation is that this would get behind us by the end of the year, and so it shouldn’t have much effect next year, although, like I say, we’d have to look at the next year’s hurricane season and hold our breath.

Well, that’s exactly it. I mean, I’m trying to perhaps drill down a little bit. It seems to me there are three problems, some of which may be temporary, some of which may not be. You seem to have some weakness on the personal care market. You have difficulties in getting a hold of plastic, and then, finally, you have significant cost inflation on the plastic resin side. I guess, as you look at the outlook for the fourth quarter, it seems like some of these supply issues hopefully resolve themselves, or the availability issues, by that fourth quarter. So, let me see if-- I mean, are you getting resistance from your customers as you are passing through the non-contract versions, as you pass through the price increases for per-volumes that are not under contract?

I think that, at these high levels of resin, the pushback is more than normal, but I’d say also the market is-- the industry is very resolved. They really have no choice but to achieve the pass-through. Can’t do it differently. So, I don’t think anything’s changed fundamentally in the business as it relates to demand or pass-through of resin prices than where we’ve been for the past couple-three years. What is different about this quarter is the question of availability, and that’s what we’re focused on.

And I’d add the rate of climb on the rates. So, the lag is more of a meaningful point this quarter than it has been certainly in my experience here.

Okay. And that sort of brings me-- I mean, because you also mention rationalization potential, which doesn’t speak-- speaks to sort of a little bit more of a longer-term issue. Is that because you’re sort of reserving judgment on this personal care volume issues to see if those resolve themselves?

No. Let’s be clear. The rationalization point I was making is that’s one of the drivers on the metal side of the business for its performance. That was not a comment around the plastic side. Our view on plastics-- I mean, take away this question of availability of raw material and the rapid inflation of it. What you left, as you point out, is that we’ve had some weakness in volume in the marketplace. That is not new news. In fact, if you look back Q2, we were all positively surprised by the plastic business performance. This quarter it was off a little bit more.

So, I think, more generally, this has been a conversation we’ve had for a while, and our view is unchanged, that we still believe that business is performing very well on a relative basis to other plastic container packages or packaging companies, and on an absolute basis in terms of the cash generation and the returns of it. So, we are not changing at all our opinion about the business. What has happened is, for the reasons we’ve talked about on the demand side-- and somewhat on the competition side, if you look back a few years-- is we’re being patient about the business, and we’re watching it and we’re making sure that the investments make sense, and we can see the opportunities for a good return on our investment. But, that’s not new news.

So, when you’re talking about rationalization, then you’re referring to-- you’re just sort of scouring around the metals business for sort of the next step in cost reduction?

That’s correct. Talking about the same old stuff we always do, which is finding-- can we consolidate plants, can we-- some of the big ones where you’ll recall on closure business, when-- at the time we moved into the joint venture of that business, they’d had a very high-cost plant. So, in that particular case, we shut down that highest cost facility to a fair amount of pain through that process, and one of the things we’re seeing as benefits coming from that one as one specific point.

Also, if you look just on kind of headcount in our can business, you look at third quarter this year versus the third quarter a year ago, there’s 200 less people in the operation in the can business. So, it’s that kind of just constantly investing in productivity and consolidating and integrating wherever we can.

Chris Manuel of Key Banc Capital Markets

At the expense of beating this plastics issue to death, if I could focus on two pieces of it. First of all, the OI-- selling the gram-- has there been any impact you think that may have contributed to some of the volume down, or is it just simply that there isn’t as much demand for the end product right now, given consumer ability to purchase, or something of that nature?

The answer-- it sounds like you have another question coming-- but the answer to that question is, no, there’s no connection to OI going to ground. Our belief is what we’re talking about is just basically what’s happening in the consumer-- the personal care market, and perhaps specifically the performance of our individual customers against other customers in the marketplace. But, this is-- we’re not talking about share moves here.

Okay. Well, that sort of answers the second question, then, with that.

Along the lines of your metal business, is there any reason-- I’m starting to see some more of the Del Monte products coming through the larger size cans now with Quick Top. Would we expect to see another wave of, call it conversion, from the sanitary end to the easy-open end coming in the next year or so?

We believe the answer to that is yes. To go back for a minute, about-- just a little bit over half of our cans today have what we call a Quick Top, a family of convenience ends. A little over 50% today of our business has those ends on them. And I should point out, by the way, that in 2005 versus 2004, the numbers of those ends we sold is fairly comparable. So, one of the things that’s not really driving the numbers that much in ’05 is growth in those ends. And the reason for that is we had gone through a major conversion of the soup category, you may recall. So, you went through that major conversion of the soup can, and we’re basically absorbing that at this point in time, and, in fact, would need capacity to have an incremental growth on the Quick Top ends.

So, it’s-- but to draw back to your question, the-- what is clear to us is that the consumers have a strong preference for these ends, and we have case after case when a customer of ours moves into a Quick Top end, they see market share gains if-- the first one in. Even the second player into a market tends to see market share gains, as well, and in fact the course of that overall market gets reversed. And so, we are doing everything we can to help share that with our customers because we think it’s important that they understand kind of what the experience has been out there. And so, our view is that the market will continue to move, and that, if everything were to go that we think conceivably could at food cans, it would probably be something like another $100 million of investment opportunity for us in order to kind of get the capacity behind that.

Finally, I’ll say that we have-- and sent-- last quarter, we announced that we are investing in some more capacity right now, based on our conviction that this will happen. so, you can call it speculative if you will, which is not something we typically do. But, in this case, we’re putting a couple million dollars forward to continue to grow the-- our capacity in the Quick Top penetration.

One last question for you. On the acquisition side, given everyone’s having so much difficulty in the plastic space, yourselves included, are you finding it more difficult to find acquisitions right now? Can you talk a little bit about the-- what you’re seeing in the market?

Obviously we wouldn’t get into any specifics, but generally, if you talk to the market, I think we would say there are quite a few properties that are available right now. I think we’ve talked before that the challenge is more around price, that the financial sponsors still seem to be pretty interested in paying hefty multiples and levering those businesses up to pretty high capital structures. So, I think it’s much more around the question of can you buy right. And as you know, we have a lot of experience doing acquisitions and integrating them. And one of the experiences we have is sometimes the best deals you do are-- the best deals are the ones you don’t do because the price gets so high.

Chris, I do think that the bloom is somewhat off the rose of the multiples that were being paid for plastics business a couple of years ago.

And so, you are seeing a little bit of improvement, but still not back to where your-- ?

-- No, not to the good old five times all excited again.

Amanda Tepper of JP Morgan.

On the core food can volumes in the quarter, you said they were relatively stable. One of your-- one of the other players in the U.S. food can market explicitly said that volumes were down in the quarter, and that the market data, which they’ve seen but isn’t out yet, was negative. Were you down a little bit, and what are you seeing for the year just for U.S. food can volumes?

We were basically flat. We were down just a hair, but you’ll recall that there was a-- there was one customer that we did not renew with at the end of last year. So, if you factor that one point out, in fact, we were up a hair on the quarter.

So, I think what we’re seeing in the market in general, as you know, the can market was down I think through August, about 4% is what CMI showed. And we had said at the end of the second quarter we thought part of hat was driven by the lateness of the fruit and vegetable pack, that you would have typically seen some of that in those numbers at the second quarter we were talking about. That is also true of the August numbers. Our view is that, as the full pack comes in and comes in later, that you’ll see some recovery of the total market number of cans.

But, that said, it sounds like you’re outperforming the market. Are your customers gaining share?

Well, yes, that’s certainly how we always look to grow. I think that is happening. I think the-- this was a reasonably good pack this year. We have a little bit more canned in that game, so we get some more of the benefit on that side.

Amanda, I think we were less impacted this year by the buy-ahead in ’04 than perhaps our competitors. We didn’t see [inaudible] much at all. And I think, at least I’ve heard our competitors thought it was a fair amount in ’04. So, there’s also that.

Okay, that’s very helpful. And then, you had an interesting comment earlier that your units of Easy-Open end is roughly flat year-over-year?

That’s correct.

So, just to clarify then, this very nice margin expansion and profit growth that you’re seeing in food cans is really all self-generated from efficiencies that you found?

That’s correct. Don’t ignore the closure business as being part of that. We had very strong performance in the closure business in there, both on the top line as they saw nice growth on--primarily beverage market, and strong operating results on their side. And then, beyond that on the food can side, we have had good strong performance from our operating facilities. We’ve run those Quick Top assets and other new assets we put in place very well during the time, and we’ve been making investment, as we’ve talked about, on productivity. And so, we’re taking headcount out and getting the benefit of that. And so, that-- and then, kind of the net of price pass-through, product mix and volume was basically sufficient to cover the inflation that was experienced in the marketplace.

So, if we look at this quarter-- and granted, it’s your seasonal peak quarter, as well-- but still, was this one of those quarters where everything went right and maybe it’s not repeatable, or is this the kind of performance you think is sustainable in the metal food container business?

I would describe this as a good quarter. I’m not sure there’s anything about it I would say couldn’t be sustained. Obviously, remember, third quarter always gets a spike in-- up in margins and performance because of the higher volume over the fixed costs.

Right, but this could be a sustainable third quarter rate, theoretically?

Yeah, yeah. That’s right, sorry, yeah.

Okay. And then on plastics, just first off, just doing some rough math and making some assumptions, it looks like embedded in your guidance, especially on the low end is that, if there really is a volume outage, you could end up generating an operating loss in plastics in the fourth quarter?

No.

No?

No, no.

Okay. We’ll re-check that. And just strategically, so multiples are coming down in plastics in general. That’s understandable. Customers’ volumes turning down even before the force majeure, and I’m just wondering if there will be a shift away from plastics over time. So, all that said, do you still like the plastics business strategically? Do you think, long-term, this is a place where you still want to be? So, if there was something out there at five times, would you be excited about growing your plastics business long-term?

Yes. As we’ve said over and over, we definitely do-- we think we’ve got a very good team in the plastics side. We think the business will perform well. There’s no doubt, as you point out regularly in your writings, the market has gone through a tough spell. But, that could mean as much opportunity as negative for-- as well. So, we still are very interested in the plastic market, and what we’re doing is kind of assessing the situation and trying to be pretty disciplined through that process.

Alton Stump of Longbow Research.

Quick question looking at next year in terms of your metal food can business and pricing. I know there’s been, as I’m sure you know, some pretty good cyclical pricing power over in that segment in Europe this year, and it looks like we could see the same thing next year. do you think there’s any opportunity to achieve real pricing power here in your North American business, or is it probably just going to be a simple pass-through?

Well, remember that 90% of our business is under long-term contract, and those contracts call for basically pass-through of our cost inflation. So, that’s the nature of how we go to market, and all of that business is a pass-through of our costs. And then, 10% is not under contract, and that is subject to kind of what the market rate is.

Okay, thanks. And then, I guess sort of on that topic, are you seeing any market share shifts at all among the top three suppliers in the food can business? And do you think there might be any opportunity for any market share shifts I guess looking ahead into next year?

No. We would describe the market as pretty quiet in that regard, so there’s not been moves in market share. And nor do we expect there would be.

[Inaudible.]

Yes, right, Greg points out except for indirect, meaning if our customers grow at a faster rate that they pick up share, which is, again, how we look to grow.

Robert Kirkpatrick with Cardinal Capital.

Came home last night and popped open a can of soup, so I appreciate the fact that I could do that quickly and easily, and didn’t cut my fingers, so that was all good.

Could you go in a little bit more detail onto the force majeure? I mean, you seem to be talking about two different things with the restriction in supply. One is a force majeure declared by some suppliers relative to hurricanes and shutting down of capacity, and then you mentioned also an explosion at one of your ethylene resin suppliers. So, could you kind of expand upon that for a minute?

Sure. Let’s go back on a little more granularity. As everybody knows, the two hurricanes that hit the Gulf Coast have severely impacted capacity of kind of speed stocks throughout the whole chemical sector. The primary materials that we consumer are PET, high-density polyethylene, and then polypropylene. So, a little more color for you. On the PET side, basically what happened there is that there were force majeures declared by the parazylene suppliers, which is a feed material into PET, and the reason for that was that it also gets used to boost octane in gas production. So, as there was an increased gas production, that pulled away supply. And so, that created a kind of force majeure to the stream, but primarily that was around price, so it could be cured with price in many cases, at least. For us, that’s what it amounted to, is we got basically an immediate increase in price in September, and our contracts don’t allow immediate pass-through, so there was some lag in that process. But, our suppliers have been able to get us materials, so, in the PET case today, we’re primarily talking about price issues.

The second one, and our largest material, is high-density polyethylene. In that case, what basically happened again is the storms impacted, and then, as Bob pointed out, subsequently you had a-- one of our suppliers, a major supplier in the stream, had an explosion and a fire in their cracking facility, so compounding the issue. So, really, the polyethylene market is just tight on supply throughout. There’s been force majeures by most suppliers in that marketplace. So there, the issue is primarily around supply. It has been primarily around supply, and then obviously cost is up, as well. But, the much bigger issue there is just getting availability of material.

So, we’ve been in constant communication with our suppliers and our customers about that situation. As I said in the opening remarks, while we’re still very focused on this and it’s an important situation, the recent news has been better on that. But, it appears capacity is coming on stream a little more quickly than originally thought, so there’s-- again, we’ll watch it, but the immediate recent news is to the more positive side of that.

And finally, polypropylene supplies look okay in polypropylene, at least for now, so that’s more just about price increases in the marketplace.

And in the fourth quarter year-ago metal food business, were there any one-time types of boost to earnings there in the fourth quarter?

No.

No.

No. That’s pretty pure (ph).

And then, finally, a little bit of better commentary or enhanced commentary on the pack as it’s coming in this year.

Yeah. Sure, I was hoping somebody was going to ask that. We would describe it as a reasonably good pack year. You’ll recall from my comments on the second quarter that it was a very wet beginning of the season, which put most crops late, and then it got very hot through kind of the main growing part of the season. So, that is true across all the crops. But, with that said, really we had two down crops, and everything else looked pretty good. The peaches, which we talked about, were-- definitely had a down year, and so that one was pretty much already factored into our comments after the second quarter.

Peas were the other one. Again, they were running a little late and it got too hot, and so the yields weren’t as good. So, peas were probably a bit off-target for the year. And then really, again as I said, everything else looked pretty good. Green beans ended up on or about target levels. Corn we had talked a lot about in the second quarter. Again, it was wet, then it was very dry in Wisconsin, Illinois areas, and so it was some concern about that running late. And what the risk is when corn runs late is, if you get a frost, basically that’s it. The corn is done. And so, in fact that is what happened is we ran late, particularly in the more southern Wisconsin/Illinois sweet corn growing areas. The good news is that there was no frost during that time, so all that turned out well, and the corn looks to be pretty good to target.

And then finally, tomatoes, all the same issues came up. And right now, it appears as tomatoes have ended just about on target, as well. So, overall, good pack year. Not a barn-burner, but a solid year.

[OPERATOR INSTRUCTIONS.]

Ashlan Krishnan (ph) of Morgan Stanley.

On the steel side of things, are you seeing signs of increases going to the end of this year, the beginning of next year?

Yes. You’ll recall that, typically, what steel does is one increase late in the year, and it covers the following year. that has not happened in the U.S. yet. There is no official word on what the expectation is on steel. What we know is there’s been-- like every other industry, there’s been significant inflation for the steel companies, as well. So, our expectation is it will be up. I don’t know that it’ll be up as much as last year, but that it would be up. We’ve heard in Europe that there’s announced increases in the 10 percent range, so that’s kind of the news we have so far. And then, to remind everybody that 90% of our business is on a contract, and those do have pass-throughs. So, it’s important in terms of what customers are going to see and the competitiveness of the can, but to our bottom line it would be pass-through.

Okay, understand. And I don’t know if I missed this, but did you give us the CapEx budget for ’06 yet?

CapEx budget?

Yes.

Oh, I’m sorry. For ’06 we’re in the middle of the budget cycle now, so I don’t have an exact number. But I’d kind of point you back to history as the proxy, and if you look over the last few years, we’ve been somewhere between 100 and about 110 million on an annualized basis.

Okay. And finally, what was the balance in the revolver at quarter’s end?

We’ve got about 200 of availability in the revolver, so that leaves you with a revolver balance of about 218.

You may want to comment on the cash [inaudible].

Yes. The other thing that I’ll point out along those lines is there’s about an incremental $40 million of cash on the balance sheet which you didn’t see on the summary balance sheet with the release on a year-over-year basis, and that’s really just a direct result of timing of cash receipts coming in late in the quarter that weren’t available to pay down debt.

Timothy Byrnes with Cranial Capital.

Tony, tell me what percentage of your metal food can business is under long-term contract? Just kidding. Hey, one thing that I was thinking about today as I dropped my kids off at school is, all across the country, you’ve got these canned food banks underway for people to drop off donations for the hurricane and other victims. And I’m just wondering, I mean, is there some creep-up where, if things get worse here in terms of people’s psychology, that they replenish the pantries with a lot more canned food than high-end gourmet stuff from the Meals Ready to Eat section.

Yeah, I think we-- anecdotally, I know myself I’m getting ready to do one, so, for what that’s worth. I don’t know that we would really know yet whether that’s happening. There are some products we sell that look like volume’s increased a little bit that could be replenishing of that kind of use of cans. It certainly doesn’t hurt. It highlights to everyone the fact that the differentiating capability of the cans, and that it’s-- that’s why it’s the best package. It’s safe. It’s [inaudible] cubically (sp) efficient, and that’s why it’s being sent down into disaster zones. So, I think it’s positive on that side, as well as perhaps we’ll see some volume bump from that, but we have not seen that notably yet.

Because I guess what I wander is some of it’s processed, and it’s processed daily or whatever. Some of it’s fresh and packed right out of the fields. Clearly, the fresh stuff, you sell the cans when you sell the cans, right?

Yeah.

And they’re filled. They could pull that out of inventory, but, as far as processed foods, I mean, if people-- you might get a kick there as people start to look at their heating bills and start to look at maybe this kind of hunker-down attitude. I just think that, for some reason, the metal can seems to be a thing that people do when they feel under stress.

Yeah, it’s possible.

Okay. Well, hopefully, it will help your first quarter, right?

There you go.

The other question I had for you was what are you going to use instead of a shampoo bottle or a skin cream bottle or a tube or what have you to pack their products going to market?

You mean what’s the substitution against the plastic bottle?

Yeah.

I don’t think there will be, Tim. I think it’s more a question of the amount of money spent on restaging, kind of the oomph in the market, and that’s just very marginal. Like you, it’s hard to imagine something that’s going to substitute for that use. It’s not going to go back, with all due respect, to our glass [inaudible]. It’s not going to go back to glass. You’re not going to take a glass bottle into the shower. This is very marginal stuff that’s going on.

What I’m wondering is you might see-- I mean, one way to look at it is-- and we’re seeing this in milk packaging, for instance, where there’s virtually no margin in the product to begin with, so, if your gallon jug goes up 20% or whatever, the co-op’s profit is wiped away. What they’re doing is using liquid packaging paperboard for virtually all the small sizes. You’ll see everything under a gallon go to liquid paperboard and utilize the plastic where it’s kind of amortized over the most ounces served, if you will. So, what I wonder is why wouldn’t they do shampoo that way, and would that be a more profitable pack? I don’t know. Just thinking out loud.

Yeah. Little hard to imagine in that kind of wet, hostile environment, but we certainly-- I can’t come up with an example where we’ve heard or seen that.

I think that’s different than milk. The price of milk in a container and the container’s cost is quite different than the cost of-- the price of the shampoo bottle versus the milk.

Right, the shampoo in the bottle.

Right. Well, yeah. I mean, their cost structure, there’s a lot more room for package cost in shampoo and some of the personal care items you package.

And need to differentiate.

Exactly. Milk is just milk, right? Or at least it will be for a little while longer.

Right.

The other question I had for you was you mentioned closures growing in the hot-fill beverage market. Are those plastic closures?

Yes. Primarily that’s on the plastics side.

Right, because if I recall White Cap, most of their plastics were in the North American division. And so, these are for, like, isotonics and juices?

Yeah, and teas, that area.

Okay. And is there any improvement on the metal side?

Actually, metal had a good year, too. I mean, in some of those cases, some of that is still in glass, those same drinks, teas, et cetera.

Right.

And then, just generally, the metal side had a reasonably good year, as well.

Gotcha. So, you guys are sitting here really kind of on the top of your game in metal. You’re going through kind of an unprecedented crisis in some of your costs in plastics. And your meeting your debt reduction goals, and you’ve got some high-class problems to have in terms of what to do with the cash. And you’ve always said buy below replacement costs. I mean, can you continue to grow the business through external means at the kind of multiples you need, or do we just do more value-add on metal? I’m kind of curious where you guys want to go next.

Well, Tim, we don’t need to do anything in terms of growing the business. We do this to make money. And when we get the opportunity to put money to work and good-- get returns on it, we’ll do it anywhere where we’re comfortable with the market we’re serving. So, if we’re unable to find the acquisition opportunities, then we just won’t, and we’ll continue to work on improving the sharpness and the quality of the business as we have, which will have its own reward as well as the rewards of paying down debt or using the money elsewhere. All of it is going to be good for the shareholder, and so you can say there’s two-- look at it several different ways, but I can’t find the negatives of this as long as our base business is continuing to perform well and we continue improving them.

And there are--not to look by organic growth opportunities, too. There are opportunities where we can get good return on organic growth, as well.

Sure. And listen, I’m not being critical. I mean, I would much rather hear what you guys just said than-- I know several companies out there who are desperate to buy something because their core business is a real mess, and they can’t go on the way they are. So, it’s refreshing to say, “Hey, we don’t really need to do anything, and we’ll use the capital the best way we know how.” So, more power to you.

Thanks, Tim.

George Staphos with Bank of America Securities for a follow-up.

We have a question maybe seguewaying on what Tim was talking about, as well, and taking it a level further. You were talking about the fact that acquisitions in plastics, the multiples remain high. They’ve come in a bit. Having said that, when we look at Silgan, certainly your multiple is relatively lower than a lot of the other peers within packaging, and it’s actually come in a bit in the last couple of weeks basically in plastic. It’s due to plastics, where it’s 15% of your profits and probably 0% right now of your economic profit. You’re one of the few companies who could actually consider going private here, and I think-- in your most profit business, your food can franchise.

So, aside from having the privilege of doing quarterly conference calls with the analysts, which is clearly in a positive-- let’s not mistake that-- what are the advantages of staying public at this juncture for the company?

George, that’s a third rail. I hear you [inaudible]. I mean, there’s no way to respond to that question.

Well, I asked what are the advantages.

Well, I don’t want to-- we don’t want to get into that discussion.

Edings Thibault with Morgan Stanley.

Thanks. Just a quick question on closures, and particularly the plastics closures business. We’ve heard stories about some suppliers of closures not getting the plastic pass-throughs that some of the large beverage producers are, in fact, holding the line. Is that your experience?

No. Well, what I would say is that we have a longer lab process on the closure side, so it takes a little bit longer to get it in, but that’s the only experience we’ve seen.

And those profits, those plastics closures reported in your metals-- containers business?

That’s correct.

[OPERATOR INSTRUCTIONS.]

Sound like that’s it?

There are no questions standing by at this time, management. I’ll turn it back over to you.

Great. Just want to thank everyone for the time, and we look forward to having a conversation after our year-end results. Thank you.

Once again, ladies and gentlemen, that concludes today’s call. Thank you for your participation. You may disconnect at this time.