Silgan Holdings Inc (SLGN) 2006 Q4 法說會逐字稿

Thank you for joining Silgan Holdings fourth-quarter 2006 earnings conference call. Today's call is being recorded. From the company today we have Tony 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 would like to turn the conference over to Mr. Miller. Please go ahead.

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 2005 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, our Chief Executive Officer.

Welcome, everyone, to Silgan's 2006 year-end earnings conference call. As usual, I will offer a few brief highlights of the year, then Bob will review the financial performance for the full year and fourth-quarter and discuss our outlook for 2007. Afterwards, Bob and I would be pleased to take any questions.

As you know, 2006 presented certain challenges for Silgan as we undertook multiple restructuring initiatives, concluded and integrated a sizable international acquisition, encountered significant manufacturing cost inflation, and faced poor growing conditions in the West Coast, which impacted our food can business.

In spite of these challenges, our management team did what they do best -- remain focused on the job at hand, and delivered strong financial results for the quarter and full year.

As you saw in our press release last evening, Silgan finished the year positively, significantly exceeding the high-end of our guidance for both the quarter and full year, delivering adjusted earnings per share of $0.66 for the fourth quarter and $2.88 for the full year.

More importantly, we achieved several important milestones during the year, which have positioned the Company well for the future. Among those successes we achieved record sales of $2.7 billion; earned record operating profit of $214.6 million; increased earnings per share by 14.7% on a comparative non-GAAP basis; completed the acquisition of the international White Cap closures business, which, in combination with our domestic closure business, created a third franchise business for the Company; became the largest non-beverage blowmolder in Canada, with the acquisition of Cousins-Currie; announced and began implementing three strategic cost-reduction initiatives with the closing of Valencia, California, in 2006, and the ultimate closing of St. Paul and Stockton facilities later in 2007. Finally, we increased our investment in growth capital in the area of quick-top easy-open ends,, additional plastic closure capacity, and state-of-the-art plastic container capacity.

In summary, the business has continued to demonstrate the value of our sustainable competitive positions in food cans, custom plastic bottles and vacuum closures. We remain committed to strengthening these market positions by investing to enhance our competitive advantages, working to provide best value to our customers, and ultimately delivering high returns on capital to our shareholders. We believe we're well-positioned to do so in 2007 and beyond.

With that said, I would like to turn it over to Bob to review the financial results in more detail and provide earnings estimates for 2007.

Thank you, Tony. Good morning, everyone. As Tony pointed out, 2006 was a year of changing market dynamics and incremental strategic investments, all making for cumbersome quarterly comparisons during the year. That said, each of our businesses embraced these changes and went about delivering very positive financial results for the year and positioning Silgan for future growth.

On a consolidated basis, net sales for the year were $2.7 billion, an increase of $171.9 million or 6.9%, resulting from increased net sales in both the metal food container and closure businesses, partially offset by a decline in the plastic container business.

We converted these sales to net income for the year of $104 million, or $2.74 per diluted share, compared to 2005 net income of $87.6 million or $2.33 per diluted share. In an effort to provide a comparison which we believe provides the best view of the current operating performance, it should be noted that 2006 includes rationalization charges of $0.29 per diluted share net of tax, which were partially offset by a benefit of $0.15 per diluted share net of fees attributable to certain tax initiatives undertaken and completed during the third quarter.

Similarly, 2005 included a non-cash loss on early extinguishment of debt of $11.2 million or $0.18 per diluted share. After adjusting for these items, comparable earnings per diluted share increased 14.7% from $2.51 per share to $2.88 per share.

Interest expense before the loss of early extinguishment was $59.2 million, increasing $9.8 million year over year. The primary drivers behind the increased expense were the higher average borrowings resulting from the 2006 acquisition activity and the impact of higher year-over-year interest rates.

As a result of the refinancing activity in 2005, we also recorded an $11.2 million loss on early extinguishment of debt during that period as compared to $200,000 in the current year, which was the result of the fourth quarter debt repayment activity.

As you have seen in the press release, our 2006 effective tax rate of 33% is considerably lower than the 41% rate recorded in 2005. The 2006 tax rate decline was largely attributable to the cumulative prior-year benefits of tax initiatives completed during the third quarter, as well as the benefit of a lower overall tax rate associated with the international operations. Keep in mind the 2005 rate of 41% was negatively impacted as we repatriated $64 million of cash from our Canadian operations under the American Jobs Creation Act, thereby incurring additional tax during the year.

Our year-end debt balance was $955.6 million, an increase of $255.2 million versus 2005 and right in line with our 2006 expectations after giving effect to the late December acquisition funding for Cousins-Currie and the White Cap operations in China and the Philippines. The increase versus the prior year is primarily a result of acquisitions, increased capital expenditures, higher cash taxes, and a build in working capital offset by cash flow of the business used to pay down debt. At year end, approximately 67% of our debt was fixed or covered by interest rate swaps. On a comparative basis, this is slightly lower than the prior-year fixed portion of 70%, but in line with our policy.

For those looking at cash liquidity metrics, depreciation and amortization for the quarter was $33.1 million versus $30.4 million in the fourth quarter of 2005. On a full-year basis, depreciation and amortization in 2006 was $126.2 million compared to $121.2 million in 2005.

Capital expenditures for the fourth quarter of 2006 totaled $35.7 million compared with $25.3 million in the prior-year quarter. Full-year capital expenditures totaled $121.7 million compared to $89.1 million in 2005, and slightly lower than our forecast, as spending on various projects will roll into 2007.

The year-over-year increase is primarily a result of additional investment in QuickTop easy-open end capacity, an increase in plastic closure capacity, increased spending in our plastics business, and the inclusion of the international closures business.

Additionally, we paid a quarterly cash dividend of $0.12 per share in December. The total cash cost of this dividend was $4.5 million.

I will now provide some specifics regarding the financial performance of our three business franchises. The metal food container business recorded net sales of $1,620,000,000, an increase of $15.1 million versus the prior year. This increase is primarily due to the effect of the pass-through of higher raw material and other inflationary costs, partially offset by a low single-digit decline in food can volumes, due primarily to poor growing conditions on the West Coast.

Income from operations in the metal food container business decreased $18 million to $133.4 million for the year. The decline in operating income was a result of the St. Paul and Stockton rationalization charges of $12.1 million, continued inflation in manufacturing costs, and lower can volumes versus the prior year. These declines were partially offset by a net inventory benefit as we built inventory during the year in preparation for an upcoming union negotiation affecting three ongoing metal food can facilities.

Net sales in the plastic container business decreased 2.9% or $17.8 million to $592.3 million in 2006, primarily due to a mid single digit decline in unit volumes, primarily as a result of the Valencia shutdown and tepid demand, partially attributable to midyear inventory corrections. These declines were partially offset by higher average selling prices as a result of the pass-through of higher resin costs.

Operating income increased $1.7 million to $42.5 million for the year as a result of the productivity improvements, headcount reductions, and the benefit of declining resin costs during the first quarter of 2006 due to the timing of raw material price pass-throughs, all of which were partially offset by lower unit volumes and rationalizations charges of $4.3 million related to the Valencia shutdown.

Net sales in the closures business increased $174.6 million to $450.3 million, driven primarily from the inclusion of the international acquisition for seven months, and the impact of higher average selling prices resulting from the pass-through of higher raw material costs. Income from operations in the closures business increased $22.5 million to $49.8 million in 2006, primarily due to the inclusion of the international acquisition and continued cost reductions in the domestic operations.

For the fourth quarter, the Company reported earnings per diluted share of $0.55 as compared to $0.37 in the prior-year quarter. The fourth quarter of 2006 includes rationalization charges which negatively impacted earnings per diluted share by $0.11. After excluding the effect of the rationalization charge, adjusted earnings per diluted share increased $0.29 to $0.66 as compared to $0.37 in the fourth quarter of 2005.

Sales for both the closure and metal food container businesses were up for the quarter versus prior year, driven primarily by the inclusion of the international closures acquisition and the effect of higher raw material costs that were passed through in each of these businesses. These benefits were partially offset by lower volumes in food cans and plastic containers.

Income from operations for the fourth quarter of 2006 benefited from the inclusion of the international closures business, a favorable mix of products sold and an inventory build in preparation for upcoming union negotiations in the food container business, and the benefit of cost reduction and productivity improvements in our plastics business.

As you know, we made significant investments in 2006, which provide incremental earnings opportunities for 2007. These include acquisitions of the international closures business in Cousins-Currie, the rationalization activities in Valencia, St. Paul and Stockton facilities, and the additional investment in capital expenditures. In addition to these benefits we anticipate a better growing season on the West Coast, and improved volumes in our plastics business.

These improvements are expected to be partly offset by the negative comparisons resulting from the benefit attributable to the lag of the resin pass-through recorded in the first quarter of 2006. As a result, we currently estimate adjusted earnings per diluted share for 2007 to be in the range of $3.10 to $3.20 per diluted share, which excludes the impact of rationalizations charges.

Also reflected in our estimates for 2007 are the following. We're forecasting and improved mix of products sold in the Metal Food Containers business. However, volumes are expected to be flat as and improved West Coast fruit and tomato pack are expected to be offset by a less favorable Midwest pack.

Net sales in the plastic business are projected to increase as a result of the Cousins-Currie acquisition and modest volume gains in our existing business. The closure business should benefit from the full-year inclusion of the international acquisition as well as from volume gains in our domestic business. There will be some negative impact from the reduction of inventories built during 2006. We expect continued benefit from cost reduction and productivity programs across each of our businesses, which we expect to offset continued inflation in manufacturing costs.

In addition, we expect interest expense to increase versus 2006 as a result of higher average outstanding borrowings resulting from the full year of expense related to the acquisition financing and anticipated interest rate increases.

Also, capital expenditures are estimated to be approximately 130 to $140 million for 2007. We're also providing a first quarter 2007 earnings estimate in the range of $0.40 to $0.50 per diluted share, excluding rationalization charges. Keep in mind that the first quarter of 2006 derived significant benefit from the lag effect of the resin pass-through.

Given our current outlook, we expect the business to generate approximately $150 million of cash that may be used to fund acquisitions or for other purposes. This cash generation reflects the benefit of improved earnings offset by higher cash interest costs, increased capital expenditures, and higher cash taxes. We continue to view reinvestment in the business through acquisition or capital expenditures as our preferred use of this cash flow. However, in the absence of compelling acquisitions at disciplined price levels, we will evaluate alternative uses of cash including continued debt reduction, share repurchases, or additional dividends.

That concludes our prepared comments, so we can open up for questions and answers. Amanda, would you kindly provide directions for the Q&A session?

(OPERATOR INSTRUCTIONS). Ghansham Panjabi, Wachovia Securities.

You mentioned that you built some inventory ahead of some union negotiations. Could you just give us some color on that? I'm not sure if you covered that earlier in the call.

Well, there was some talk of that in the call. Yes, as you probably know, about 50% of our hourly workforce are union. So we, as a kind of regular matter, go through the union negotiations. In this particular case it's our one master agreement, where it covers four plants -- in fact, really only three going forward, because one of those is the St. Paul facility.

So that's the negotiation that's being referred to there. In the interests of our customers, we thought it made sense to build some inventory ahead of that. The negotiation is scheduled for some time in the second quarter.

But with all that said, I would characterize our relationship with the employees and unions as quite positive. I think history has shown that we all understand the importance of protecting manufacturing jobs here in the U.S., and that in order to do that, you need to maintain a competitive cost structure. So I would read nothing more into it than we're doing what makes sense ahead of that negotiation.

Well, on that note, though, would you expect that production sort of gets curtailed throughout the year as you work through that inventory, assuming nothing happens with the negotiations -- nothing unfavorable, anyway?

Yes, we would.

And when should we expect that -- in the back end of the year?

Probably, yes. And that's in the outlook that we put out there.

And also the expected tinplate cost increases for '07, please?

Well, we haven't gotten into the specifics on that. I think what we have said in the past -- and there's really no change to this -- is that the steel manufacturers have been out pushing a 5 to 10% increase in North America. So that's -- there's really no new update to that. As you know, our can business is 90% under contract. Those contracts allow pass-through, so we would anticipate a direct pass-through of the inflation that we see on the steel side -- not more, not less, by the way.

Christopher Manuel, KeyBanc.

Congratulation on an outstanding quarter and an outstanding year. I have a whole laundry list of questions; I'm only going to ask you a couple, and I will jump back in the queue. But first one, can we get a more color on the Cousins-Currie acquisition -- maybe either a multiple you paid for it, last 12 months EBITDA, something of that nature?

Sure. I think -- I'll go backwards, the question you are asking -- with synergies, we look at this as being something like a six times deal. But I think more importantly is kind of strategically, why do we do it. You can't get away without me answering that part, even though you didn't ask it.

Really, we view it as two opportunities for us. The first one is that makes us kind of the clear market leader in the Canadian market, in the non-beverage blow-molded containers. We think that's pretty important. Canada has been an important market for us in the past. Canadian companies seem to have a preference to buy from Canadian manufacturers. So our view is that it's a strategically good effort for us to strengthen our position there.

Secondly, as I think we said in the release, Cousins-Currie is highly respected on the large container design, decorating -- very technical, very customer focused, which is something we like a lot.

And so essentially what it does is it gives us kind of an opportunity to expand our breadth of product, if you will, more into larger sizes -- still custom, of course. We do do some of those in our current business, but not to the degree Cousins-Currie does. And so we also look favorably on the opportunity to expand the product line.

Would you characterize that as -- if it has 50-ish million of revenue largely in Canada, as you would expand that to North America, that over a period of a few years, it would have potential to double?

No, you're getting ahead of us. You know how we think. We're going to look at each of those opportunities on a cash-on-cash return. So if the opportunities look good to us, then maybe that opportunity fits out there. But we don't go into it, necessarily, with a clear answer. We think it's a good deal, nice bolt-on for us at a good multiple.

But yes, we do think that there will be some opportunities to look at growth coming from it.

Then the second question I had was, with your competitive landscape in the plastics business, does the landscape improve such that that's why you are getting your growth back now with all competitors sort of filled up on capacity? What's the outlook there, both on -- you mentioned volume is up a bit, but pricing is starting to improve as well?

I'm not sure we exactly said that. But I think you're right in that we certainly did say we saw volumes improving. I think the rest of what you heard is some advancement of margins because of the cost opportunity. This is taking away the --

That's what I'm asking you is how do you anticipate that's going to help you on the -- do you think it will have a price and margin benefit as well?

Well, certainly growth does. But not so much on price. I think that's a slightly different point.

Let me go back to your first question. We have been saying for some time that the competitive situation in plastics has been much quieter than it had been, so I would say about the same thing. That continues to be the case. There is competition out there, of course, but it's not what we saw several years ago. So I think you, rightly so, are hearing from us that we are more constructive on growth in that business than we were over the last couple of years. And I think we have said it quite clearly, and you can see in CapEx, that we are finding opportunities to spend on growth in plastics.

So there is volume growth we're talking about. I would not read that as being a strengthening price over cost situation; I'm not sure that's the scenario. It's more opportunity to grow and at returns that makes sense to us.

And then, of course, what we have been talking about all year long, and in many ways it's been sort of hidden by the can business and the issues it was going through in the first three quarters of the year. But we have done a lot to take cost out of that plastics business. And so the business today sits in a much more competitive cost situation. We are looking for opportunities to invest. And I would call it quiet, relatively quiet competitive environment.

Thank you much, and congratulations again.

Edings Thibault, Morgan Stanley.

A couple of questions for you as you begin to think about the next year, can you try and maybe isolate the impact you expect in the first and second quarters or, really, the first quarter, from the White Cap business?

Well, I think we -- on the top line, obviously, you're going to see growth over the first two quarters. Remember, that business is seasonally [to] late second quarter and third quarter. So we got more than seven-twelfths, if you will, of the business. And the revenue I would expect to be something like up $130 million, something in that kind of a range.

In general, what I would -- maybe I will answer on more kind of a full-year basis. If you look at the margins, our expectation for closures as a global business is probably for margins to be, perhaps, down modestly. And the reason for that is just the higher SG&A component of the international operation. Again, you have a multiple-country structure, et cetera. And expectation across the total business would be more of pretty good top-line growth, a little bit of margin pullback because of the combination of the two.

But didn't you highlight last year that -- I mean, I guess I'm a little bit surprised on the margin commentary just because, historically, when you guys have done acquisitions, you have written up the inventory. And as a result, you have temporarily depressed the margins early in the first quarter or two quarters of reporting.

That's true. That's true. I'm talking more broadly, because you're adding a lot of business onto here. So if your question is, do we pick up the benefit year over year of that inventory charge in 2006, the answer is yes, we do. But I am going to say you're adding now another 130-ish million of sales on the business that has generally run at a slightly lower margin rate.

Let me just -- 130 is the first two quarters that you didn't have last year, right?

Yes, except, remember, we said we had one month in the second quarter, which was a big month.

And then just sort of following up on that -- I don't mean to pin you down too, too much. But obviously, the White Caps business has almost been a rolling acquisition, if you will, with some of the smaller countries being tucked in. I think largely -- you are complete with that, am I right?

And number two, in broad numbers, what percentage of the business did you add here late in the fourth quarter that you perhaps didn't have? Is that 5%, 10%, by adding some of the Asian countries?

Well, we did -- 87% is my memory on this, was in the first deal, closed June 1. So the bulk was in -- to answer your other question, we essentially, by the end of the year, had closed on China, the Philippines, and Venezuela. The only element that's not there right now is Brazil, which -- we don't really know when that will happen. There are still conditions to be met on that side. So everything is in but Brazil, at this point.

Is that, order of magnitude, 5%, 2%? That's a bigger one (multiple speakers) what I'm asking.

(multiple speakers) it's a few percent.

And then finally, I just want to make it absolutely clear I understand some of the verbiage in the press release -- $150 million of cash in 2007. That's over and above, obviously, CapEx but also dividends as well, correct?

That's correct.

Christopher Butler, Sidoti & Company.

Now that you have had a chance to take a look back over 2006, I was wondering if you could give us an idea of what you think you've lost with the harvest on the metal containers business.

Sure. I'll take a swipe at that. First of all, as you probably picked up from the fourth quarter and the strong results, we did, in fact, see the recovery of tomato that we had been hoping for and expecting -- in fact, a little bit better than that.

So if you look at tomatoes, for example, we ended up something like 90%. So, as you are thinking forward to next year, despite what we may have said in Q2 and Q3, by the end of the year, tomatoes were not great, but not a disaster.

Fruit, as we had talked about, was a much bigger issue. Broad numbers here is something like 20% decline on the fruit business. Roughly half of that comes from the pulling of trees out of the West Coast, and roughly half of that is a growing condition on the West Coast. So you don't recover all of that, I guess, for next year is kind of the only point out of that. So there, you had business down 20, 20 plus percent.

And the other one that we have -- and then the West Coast, of course, was positive, as Bob pointed out in the script. So we did have a very good -- sorry, the Midwest -- excuse me. The Midwest was a good harvest. So, again, as you look forward to next year, our assumption is that you're going to give back a little bit on that.

So that's essentially what happened on the harvest. And the big point, I would say -- not quite as bad as we were thinking as we came through Q3. And you can see that in our Q4 results. But still, the West Coast has room to improve.

And the comment that you made on the Midwest [pack] in your discussion -- is that more of a difficult year-over-year comparison as opposed to something that is going on there, that you're expecting a poor harvest?

No, no, no. That's strictly that it was a very good harvest, and we usually come into these years not expecting to be an outlier either way on the harvest.

And in your third quarter conference call, you had said that 2007 CapEx you are looking at probably 110 to 120 -- with some of the expenditures that are pushed out from 2006, should we assume that that's a higher number, maybe, and add another $10 million to that?

What we said was that you can expect, now, '07 to be something like 130 to 140. You are right; we had previously said that the new sort of baseline run rate after adding the White Cap acquisition, we would be about 110 to 120. Keep in mind that our actual CapEx for '06 came in below what we were forecasting, primarily just because projects that got approved, spending didn't get finalized in '06, and will roll into '07. And that's really the difference there, moving the CapEx up for '07. So across the two years, we would be right where we expected to be.

And I may have missed this, but did you provide the working capital numbers?

We did, and I guess you can get to get in broad strokes in the balance sheet that's provided in the press release.

Okay, I must have missed it.

But keep in mind, I will point out that it will be up as a result that we did talk about the inventory build ahead of the union negotiations. So there's some influence there, as well as having the international business now included.

Tim Thein, Citigroup.

Congrats on a good quarter. Two questions -- first, on your volume assumption in the food can business for this year, what -- I guess you said you expect to be flattish to maybe down some?

Yes.

Is that stripping out the impact of not having the St. Paul and Stockton facilities for the full year, or is that inclusive of that?

That's inclusive of that. In other words, that's what we anticipate being full volumes for the year, everything considered. But to a large extent, what's happening in those two situations is we are essentially moving assets and production to other plants. That really shouldn't have any meaningful impact.

And then on the mix that you commented on there, there was a rather significant product category or part of it, recently, at least the major producer that switched -- converted into -- out of the competing substrate into easy-open. I'm curious if you saw that benefit. I guess it has been ongoing for some time. But I'm curious if you benefited from that, and if you see potential for further conversions going forward and, hence, your increased CapEx in that area?

Sure. I think what you're referring to is Hormel had --

Sorry, yes.

-- had made [a look] with their [snack] product to move into a [returnable] box. And what essentially -- of course, that got launched. You may well have heard of it. Essentially, what I understand is that the customers preferred the product in a can, which is something that, obviously, we're happy to hear. We are not happy that Hormel went through that process.

But the net of that is that our conviction that the can is a superior packaging in that case seemed to bear out. And so Hormel is moving that back, or has moved that back into cans with easy-open ends on those. So -- and yes, that's essentially our business.

So is there a benefit from that to us, specifically? Yes, but it's not going to be a huge item to discuss. I think, more importantly, it's a reverse substitution situation that we are always happy to see. And then, of course, it does use some of the capacity for our QuickTop easy-open ends, which I think you will know we are essentially getting near capacity-constrained on that.

So that is what -- excuse me, the fact [we got up to] capacity is why we're investing capital in easy-open ends going forward. It's not Hormel specifically by any means. But again, we see continued strong results of brands that move to QuickTop easy-open ends and customer, consumer feedback on that. So we are investing more to increase our capacity to try to support that growth going forward.

Good luck in the quarter.

Claudia Shank, JPMorgan.

When I look at 2006 results, the rationalization programs really seen to have helped the margin. Is there any way to quantify that benefit? And then as we think to 2007, how should we think about rationalization gains? Have we lapped most of them, I guess, in '06, or is there still more to come?

I'm glad you asked that question. I had been kind of reading stuff over the wire this morning. I noticed that that was out there.

The rationalization programs -- the two big ones that drive bottom-line improvement, being St. Paul and Stockton, are essentially -- they are still ongoing, because we're moving capacity from those locations to other locations. So, really, the benefits of those are not until the plants get shut down. And that is going to be well into probably the third quarter of 2007.

So the rationalizations really did not drive what you're seeing in 2006 results. What you're seeing there, depending on what business we're talking about, but on the can business, you are really not seeing a big shift in the operations side, in general. So that's kind of looking forward a bit in 2007 and even more in 2008, frankly.

I can give you a little more clarity on the early part of your question in terms of just what we expected to benefit to be. I think what we said about the St. Paul rationalization is that we expected the total cost, total charge to be about $14 million, and that we spent most of that -- or recorded most of that charge in '06, with about $3.5 million or so coming in 2007.

The cash piece of that was about $5.5 million, and we expected to get annualized savings, now, after the facility is completely shut, of about $4 million.

And then on the Stockton side, the total charge would have been about $5.5 million, the largest portion being cash, with about $1.8 million to go, spread pretty evenly across '07. And then we would expect a few million dollars in cost savings there on an annual basis -- keeping in mind not all of that will we get in 2007.

I think you mentioned on the third-quarter call that you were looking at a possible food can plant rationalization?

That was the Stockton facility. At the time of the third-quarter call we had not yet made a decision -- (multiple speakers)

Okay, that's what I thought. Perfect. I think that's it. Thanks.

Robert Skloff, [J.L. Kaplan Associates].

You guys have talked about the lag effect of the price increases. Is there a way to quantify that for 2007 -- what percentage of the EPS guidance that represents?

Lag effect of price increases --? If we are talking about plastics, which is really where we generally talk about this -- again, on the can side, we pass through our raw material inflation, effectively, on an efficient basis, so no lag to that. There is some other inflation that gets passed through. And depending on the contract, there can be some lag to that. But in terms of quantifying it, there's not a lot to be able to quantify on that; it's contract by contract.

On the plastics side, if that may be more -- and certainly, in our previous conversations, that where we talked about the lag. The issue there, essentially, is that we have contract with our customers that allow pass-through on moves of market on raw materials, et cetera. And those have a certain amount of lag from when it happens to when we pass it through. So you get -- it depends, again, on contract.

Usually the lag is not a big discussion item for us. The reason you're hearing about it now is you may recall, in the first quarter of this year, we had kind of the anomaly of a big run-up in cost in Q4 of 2005 because of the hurricanes that essentially we couldn't pass-through in that quarter, and we suffered from that. And we came in in the first quarter of 2006, with then getting the [still in the] price, and the costs had come down. So we got sort of a one-time benefit of that.

And again, I think if you look at it in the quarter, you can see pretty easily the significance of that item.

As far as acquisitions, could you talk a little about the pipeline and the pricing environment?

Sure. Probably not much different than we have talked about before. There seem to be a fair amount of properties, none of which we would want to talk about in specific, but they are out and available, it would appear. I don't have the facts on that, but that's what it sounds like, at least.

There is still an environment where sponsors, financial sponsors seem to be the higher-priced buyers, I assume because of the costs of capital difference. So multiples -- if you're talking about an auction process, multiples seem to still be pretty high. But that isn't really -- if you look at Silgan's history, that's not typically the acquisitions that we have done, anyhow. We are more likely to be, because of where our business sits, relationships, et cetera, they are more likely to kind of off-radar screen.

So that has been the example, White Cap being the most recent of that. And in those cases, there's not, at least, this direct impact of a bid process and what the sponsors are willing to pay.

So I would just say there are properties out there. We do intend to look and be acquisitive where it makes sense, but we'll be disciplined in that. Right now, that does mean in some cases, if it's out in the broad public auction opportunity, that sponsors may be more likely to be the winners in those cases.

[Mike Marianacchi], [Ragnar Rock].

I'm not sure you guys actually gave the accounts receivable and inventory at year end. Could you start off with that, please?

That will be all the detail of the -- (multiple speakers) --

This is a $2 billion corporation. What is the mystery? Do you have the accounts receivable and inventory at year end or not?

Sure. The question is what level of detail we're going to get into on all of the balance sheet items. I think we've answered the working capital question pretty [heavily].

Okay. So it looks like, sequentially, you grew inventories by about $125 million. Can you just give us a little guidance as to how much of that increased gross margins in the quarter?

No, no, no. The working capital increase that Bob talked about is -- the lion's share of the increase, which is something a little north of $100 million -- the lion's share, more than half of that, comes from the acquisition of the White Cap business.

Why can't you just give us the numbers? What is the mystery here? You have the numbers in front of you.

We'll give full balance sheet with the Q.

That's ridiculous, absolutely ridiculous. What was the pro forma revenue number for the December '05 quarter?

Pro forma for what?

You know what pro forma means?

If you will let me finished, on the inventory side, I think, if the question is around the inventory build that we talked about, the inventory build ahead of the union negotiation was about $20 million.

But you're saying the inventory at year end is $400 million and change?

That makes logical sense, yes.

And so the accounts receivable is $270 million?

Look, we come out with the press release as quickly as we can to talk to everybody (multiple speakers) --

So you basically do not have the numbers.

No, that's not accurate. It's the question of, are we going to talk about every line item of the balance sheet --

The inventory and receivables -- what other line items in the balance sheet are important?

Here is the change year over year. The net receivables is 232 versus 154. And the inventory is 426 versus 318.

Now, was that difficult?

Not until the next caller asks for something else that's not on the [public market].

Most public companies, those with $2 billion market caps, happen to give the inventory and receivables in the balance sheet. I don't know what planet Stanford, Connecticut is on.

Okay. So can you explain the big increase in the receivables year-to-year, the 232 versus the 155?

Yes. The largest piece of all of that increase are the two things we talked about. It's the incremental accounts for White Cap, and it's the build of inventory associated with the union negotiations. I think that information was included in the press release.

There were no numbers in the press release. As far as the pro forma revenues for December '05, do you have those? It looks like, on a pro forma basis, sales were down 3% in the fourth quarter. Is that accurate?

You're talking about on our [base] closures business?

No; I'm talking about on the Company as a whole. Assuming you owned White Cap for the entire fourth quarter of '05, what were the revenues, 666? December '05.

It's just not a number we have here. Those are not numbers that are part of our -- (multiple speakers)

They're not important. They're not important. The pro forma revenue growth year over year is not important --

We're going to move on on the call. The only point I was making is our job is not to report Amcore's numbers on this stuff. We gave full pro forma filing, and the information is here.

Well, you see if the SEC doesn't ask for it for the fourth quarter of '05. Congratulations on the quarter. Thanks.

Richard Skidmore, Goldman Sachs.

Just to talk about your priorities for free cash flow, can you just help me understand this? As you think through acquisitions, where did debt reduction and increased dividends fit into the priorities?

Sure. I guess what I would say, as I pointed out in the prepared comments, that our preferred use of that cash flow would be to find further acquisitions or to find opportunities to invest in CapEx that allows us to improve the productivity and performance of the business.

In the absence of those two things being out there for us, we would fall back, particularly if we viewed it as a long-term -- what I will call [drought] around those two areas, we would look at alternative uses, whether that's in the near-term to pay down debt or to return cash to the shareholders through some other form of the dividend. I would say those are priority 1A or 2. The preference is certainly to find opportunities to continue to grow the business and earn our kind of returns, which we have historically proven to be pretty proficient at.

As you think about leverage that you are willing to carry, any metrics on the high end that we should think about in terms of balance sheet?

Well, I guess what we said is when we initially started the debt reduction program, we were probably in the high 3s, and that came all the way down to about 2.1 times at the bottom of the debt reduction program. The White Cap acquisition took us back up to about 2.5 times. The business delevers at about 0.5 turns a year. So I would say that, as we sat here today, I would say that 3 times is not troubling, maybe even slightly higher than that.

But all of that said that, if the right deal came along that made good sense for the business and fit in pretty tightly with our franchise view, that we would take the leverage beyond that, because we think the cash flow of the business certainly can support it.

George Staphos, Banc of America Securities.

Quick question for you, or a few that are left. One, have you announced any price hikes yet on food cans that are not part of your long-term arrangement? In other words, what is your spot, if you will, price hike that you have announced if you could share it here?

Sure. If I don't know -- I'll give you the exact number but you can deduce it. As I said, the steel is bounding something like 5 to 10% kind of range. And we have gone to market with an increase to cover that inflation.

Okay. And you will finalize that sometime in the next couple of months, probably before April. Would that be probably right?

Yes.

Yes.

Secondly, on volumes for the fourth quarter, I think you said you were down low single digits for the year in food cans, and you were mid single digits, I think, to the downside in plastics. If you had mentioned it, I missed it. But what was your fourth-quarter trend, round numbers? I am guessing maybe fourth quarter maybe you were even up in food cans but --

No, actually, the fourth quarter in cans is down a little bit more than the year -- not a lot more, but a little bit more. Part of the reasons for that we really haven't gotten onto yet on the call. But essentially, as we've said, you got the benefit of tomato coming in. But you did have some inventory -- very specific customers that seem to be doing some inventory management at the end of the year.

So that was the mix effect. You might have seen fewer units per se in soup and elsewhere?

That's right, George. It's -- and I just want to be clear -- when we talk about mix, primarily we are talking about here is just kind of the dollar price of the item and therefore the dollar contribution of one unit.

Understand.

So not so much a margin perspective on those units, but rather, just getting more dollar contribution over the fixed costs of the (multiple speakers).

We understood that.

Yes.

And in plastics?

Oh, plastics were still down kind of mid single digits -- a little bit better, closer on improving over the year average -- definitely improving over Q2 and Q3 but still down mid single digits.

Okay. Now, I had a question on easy-open end. And you went into some detail on what is been going on with Hormel, I guess. The vendor took the machinery back on the re-torque carton. Are there any other sectors that are closer to tipping over now in a significant way a la soup two, three years ago?

Yes, what we talked about last quarter, as well. But I think the most likely one, because one of the big categories left frankly, is the vegetable category. And we had said that there is quite a bit of testing going on right now. So many different brands have some easy-open end out in vegetables. That might be corn, might be tomato in some cases. I know someone on the call will tell me tomato is not a vegetable.

So most categories are at least testing it. Our view again is for revenue we have seen so far leads us to believe that when they finish looking at that, which takes a while -- of course, you can only do it once a year to get the pack in and then you sell it over the course of that next year. But our view is that we are pretty confident they are going to see positive consumer response to those easy-open ends.

Are you in a position to meet demand if you did have something significant tip over in easy open? Are you covered for the next couple of years, or would you need to ramp your CapEx if we heard that from you on the next conference call?

We would have to spend more. Essentially, for 2007, we are very near to capacity. So there is not a lot more we can do in 2007. The capacity that we are putting in right now, which represents something like another 10, 12% of our can capability, will not really be helpful at least to a seasonal pack until 2008. We will not make the pack this year.

But again, that would take us from mid 50s to mid 60 kind of percent. What we said before is if -- essentially the entire market tips over, there probably would have been something like $100 million of capital to spend to support that. So this is a first slug against that $100 million. But there would certainly be more to go.

That's right. That's right. A couple of last questions. I think you mentioned -- I have been jumping around on calls today -- but you mentioned something about a lagged effect of some factor in the plastics business. Can you remind me anyway what that was about?

Yes, again, what we are just reminding you is we talked about plastics year-over-year and the results. We just wanted everyone to remember that the first quarter of 2006 benefited from the fact that we were essentially collecting the -- in price collecting the cost that we absorbed in the fourth quarter of 2005. So you got kind of an unusual benefit in that first quarter.

Okay, so tough comparison for this quarter coming up.

That's correct. That's correct.

Last couple of questions -- in terms of the pack and the outlook for '07, obviously, you can't ever guarantee what your expectations are going to be, being realized. We have obviously seen, and I think perhaps you have alluded to it, that you are looking at decent-sized acreage increases and positive commentary coming out of the processors and growers on the West Coast.

Any read in terms of realizing that your comparison is difficult? Any read yet in terms of what the acreage might look like for the Midwest this year, realizing that you are expected to be down in terms of overall production year-on-year -- that is clear -- but have you heard anything on acreage yet?

No, really, I haven't heard much. And it is so early, I'm not sure what -- even if I had, I am not sure what to make of it at this point.

I understand. I guess last point -- congratulations on the year. And towards that other gentlemen's question, obviously, we would not suspect anything on torque, but it would be helpful you know at some point down the road to have a full balance sheet.

Okay, that's fine for someone to consider.

Robert Kirkpatrick, Cardinal Capital.

I will add my congratulations as well. Tax rate, you have had a couple of moving parts the last couple of years. Has there been a permanent reduction in the booked tax rate that we should expect from Silgan going forward?

Yes, I guess what I would say is if you looked back prior to the international acquisition, our full rate over the last few years has probably been something that looks like 41%. And if you looked at the fourth-quarter rate, we were at about 35.5%, which is obviously a bit lower than that historical rate. I would not say that the 35.5 is the appropriate rate; although, I would say it is directionally correct.

Given the impact of the White Cap acquisition, having just generally overall lower rates in many of the foreign jurisdictions and the annual benefit of the ongoing R&D, I would probably come in thinking that it is a 38, 38.5% ongoing rate. The reason for that difference, the 38.5 versus the 35.5 is partly a result of generating additional income in the higher cash jurisdictions, particularly as we have now added Cousins-Currie and have more Canadian income that is at a higher rate, and now annualizing the White Cap business, which is going to be spread into some other higher tax jurisdictions as well. But I do think it is down off of the 41.

And has all this changed your cash tax rate as well?

Well, actually, what is happening -- our cash tax rate is increasing, and it has been over the last couple of years. If you might remember, we have had pretty significant -- had the benefit of pretty significant NOLs and AMT tax credits over the years. And we are now kind of burning through them. So we're seeing an increment certainly in '06, and we will see an increment again in '07.

But I think -- correct me if I am right -- but the impact of the acquisition is lowering the cash tax rate as well.

That's correct.

What Bob's saying is behind that, however, our cash tax rate was on the rise, because of the consumption of the NOLs.

That's right.

So it mutes it somewhat.

That's right.

Okay. And then given your cash flow targets, I would expect that Bob is going to be busy liquidating some working capital in '07.

There is some expectation of that, primarily because of what we talked about on the deals that we had had.

Then, what was your total acquisition spend for the year with all the pieces that you moved?

It would have been about 440; is that right? I'm sorry, 340.

I was going to say -- it got a little bigger than I thought.

Yes, no 340.

There was one we didn't tell you about. In the interest of time, maybe we could just do three more?

Chris Manuel, KeyBanc Capital Markets.

I was calling for the most obscure number I could find, but I am at a loss here. So what I did want to understand though is -- we've had a little discussion around how you think about acquisitions. And when you look going forward from here, do you think that the franchise position you have established now in closures -- do think that there is some more work that you would like to do there? I guess what I'm asking in a different way is are there certain areas you would like to target, number one?

And then number two, are there certain businesses that you think -- adding more into plastics right now might be overtaxing to the staff or something of that nature. So are there certain areas where you'd be more willing or less willing to look?

That is a good question. Those are the kinds of things we think about. To start with closures, I would say that again, if you look in the back-end closure business that we are in, the business we acquired in our business share have very strong market positions. So I would not say that there is things that need to be done to strengthen those franchises, necessarily.

On the other hand, I would say that Europe is as -- the rest of the market is not as consolidated as it is here. So I think there would be some benefit if we could see some further consolidation, either by us or others in the market in Europe. So that would be one.

I think beyond that, there is also an opportunity of kind of a broader closure definition, if you will. So rather than just back-end closures, there may be some other opportunities around that that are closure that are interesting for us. So it is more expansion then of a franchise necessarily than the need to build out that particular franchise.

As to overtaxing, that is definitely something we think a lot about. There have been times in the past where we have decided that was a problem. As I look at the three businesses right now, there is nowhere that I have that particular sense. It would depend on the acquisition and what the management challenge was associated with it. But right now, I would say each of our three business units have -- they have got work to do, but they have got the resources I think to handle more beyond that.

That's fair. From a debt side, I think Bob gave a little color as to where you feel comfortable. But something in the neighborhood of 4 times levered would not be an issue, as you consider it?

No, again, for us, the whole question is about optimal capital structure. I went through the debt reduction to try to seek optimal, if you will. And I think that in doing that, we probably did find optimal for -- it was a couple of years ago. I think we also showed the cash generation power of the business.

My guess is that optimal has moved somewhat in that, and that the [aftermarket] probably would accept a higher amount of debt today than it probably would have three years ago. So one is we would assume it could take a little bit more debt. Two is we always had the right strategic acquisition, and we would move outside of that optimal range if necessary.

So there is no question that in the right deal, four times is something we would do if we thought it made sense from the kind of sustainable market position side.

The other thing I would add to that is as we close out the year, we are going to be something just north of 2.5 times levered. If you think about -- assuming that we continue to buy in a disciplined fashion, the amount of runway that is out in front of us, it would be a very sizable deal that would take us to that kind of leverage anyway.

Just as example, the White Cap business only moved it by about 0.5 turn. There is plenty of room out in front of us.

Tim Burns, Cranial Capital.

I would just like to announce that I have taken my medication; I might be a little bit groggy. But let me try to --

We are happy to hear that, Tim.

Let me try to get a few off here. Bob, just one quick thing, I did not hear it well. The Stockton facility rationalization, the charge was 5.8. 1.8 was going to roll into '07. I did not get the cash component or the cost savings.

Basically, the large portion of the $5.5 million is cash.

Okay. The cost savings for the program?

It's a couple of million bucks for that one. Again, we will not see all of that in '07.

Tony, kind of following onto Chris's question, there is a plastic component to the White Cap business. You also have a plastic component I guess in part of your metal can business. I don't know where that resides actually. But it is not as if it is not core, but it is also just totally overshadowed by the metal component. But are those businesses you can and want to grow?

Yes, let me clarify, perhaps. There is, on the closures business, there is a big plastic component. In fact, in the U.S., half of the closures we sell are plastic. So it is an integral part of our closures business.

Interestingly, if you look at the international closure business, it is a relatively small part of that business. So I would put it the other side and say if anything, there is probably opportunities, if you will, on the plastic side there.

I think what you are referring to on the -- one in the can business may be the plastic -- the soup and hand bowl. We consider that business very core. When you think about it, it is a food container. And we are probably the premier food packaging -- processed food packaging company out there, so [retorit]. It fits perfectly into our business franchise.

The plastic component of 50%, is that including like shells on metal blanks?

Yes.

Like their composite --

Actually, no. In the way I just said that, no it is not. But we do do some of that too if you're talking about what we call composites.

Yes.

Yes, yes. But that is not a big item. But that was not even in the 50% that I mentioned to you.

That is what I wanted to understand. Now that you guys have a little more international profile, do you feel strong enough given your experience in managing an European and international business with Brazil to maybe move along into other areas from an M&A standpoint? Or are you still going to be cautious?

Well, you kind of [wowed] that one up for us. I think we are -- hopefully, we will always be cautious and disciplined and careful in the moves we make.

But I think more seriously, there is no question that now we have infrastructure that makes international acquisitions a little more plausible. Again, that is not saying that was our idea here. This was not the beginning of an international strategy, and I would not want anybody to think that is the case.

But the fact is now you do have some infrastructure. You do have a bit of focus. And we need to have good market focus where we are. So it certainly increases the chances of something international. But there is plenty domestically too. It is not that we did not see opportunities here.

Got you. And is there more to the metal food can innovation portfolio than just easy-open ends? Or is that stuff longer-legged and slower to come to market?

You are saying are there other innovative opportunities within cans?

Yes, I mean shaping stuff, adding ridges, RFID placement, whatever.

Sure, and this is a good question. It's one that we have mentioned somewhere back along the way. That again, it was not -- for a long time, that was not a major focus for us. And it is becoming more so. The easy-open end was really a great way to prove the power of the kind of consumer -- how much consumer likes the can and how much a little bit of a change to that can really go a long way.

And again, as you know, the can is the -- economically one of the lowest-cost packages out there. Its food safety is kind of unparalleled. It is just such a great container in so many different ways that sometimes, just freshening it up a little bit makes a big difference to the consumer just rediscovering it.

So yes, we certainly do look at -- and QuickTop, of course, is a whole family of easy-open ends. So that is one item. But then there is definitely shaping. There is labeling. There is lots of different things that we are looking at and investing in to innovate it and to be a little bit different.

Great. Well, I am looking at my watch, and it is time for another round of medication. So I wish you guys a good first quarter.

Dan Khoshaba, KSA Capital Partners.

Just for the record, I love Stamford, Connecticut.

We are happy to hear that.

I think it is a great place. Great job. Let me ask you a question. If you guys expand the definition of your metal closure business to include all kinds of metal caps, perhaps some aluminum rollout closures -- I don't know if they still make them -- how fragmented/concentrated is that market kind of domestically? And does this -- it seemed like this White Cap acquisition was not only a good acquisition, but it also gives you some momentum in terms of perhaps addressing that market. Could you talk a little bit about that?

Yes, I would say -- first of all, we do do aluminum roll-on, so it is a fairly consolidated market. There are some continuous thread businesses out there in metal that we do not do. But by and large, if you look at the metal closure business on food products in markets we serve, we are a pretty sizable share of that overall market.

So I think that there is not huge opportunities necessarily domestically on the metal side in that case. But I do think that the combination gives us -- I might use a different word. It gives us a critical mass where there is more opportunity I think in combination to think a little bit more broadly around what other closure opportunities are there in expanding the franchise.

There is also, again, as I said earlier, the sharing of the plastic know-how here in the U.S. and a very strong metal know-how in Europe. And so I would say yes to your -- it is a critical mass that does make us interested in the opportunities to see where we can go from here with closures.

So there are other types of closures other than the -- I know of in the metals segment, I know the food can closure, obviously, and then the aluminum roll-on and I guess the vacuum-type metal log closure, right?

Yes.

That's all I can think about.

Yes, on the metal side, that is right. But again, remember that our business in the U.S. is 50% plastic.

Okay, yes, I am aware of that. (multiple speakers) thank you.

Again, I think just to finish the point that I think the opportunities probably sit a little bit more on the plastic side. Thanks, Dan.

We are all set, Amanda. That concludes our end-of-year conference call. Hopefully, we will speak with all of you at the end of our first quarter. Thank you.

That does conclude the conference. We thank you for your participation. Please have a good day.