Silgan Holdings Inc (SLGN) 2007 Q4 法說會逐字稿

Thank you for joining the Silgan Holdings fourth-quarter and year-end earnings conference call. Today's call is being recorded. From the Company today we have Tony Allott, President and Chief Executive Officer; Bob Lewis, Executive Vice President and Chief Financial Officer; Adam Greenlee, Executive Vice President of Operations; and Malcolm Miller, Vice President and Treasurer. At this time I would like to turn the call over to Mr. Miller. Please go ahead, sir.

Thank you. 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 their or involve a number of uncertainties and risk including, but not limited to, those described in the Company's annual report on Form 10-K for 2006 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.

Thanks, Malcolm. Welcome, everyone, to our 2007 year-end earnings conference call. I want to start by making a few comments about the achievements that we accomplished during the year, Bob will then review the financial performance for the fourth quarter and the year, and afterwards Bob, Adam and I would be pleased to take any questions.

As you've seen in the press release, 2007 was another strong year for Silgan with record revenues and income. We again achieved double-digit earnings growth with adjusted net income up 15.3% to $3.32 per diluted share. As expected this earnings growth was front-end loaded as we incurred the overhead cost of reducing inventory late in 2007 as compared with building it late in 2006 and experienced lag issues associated with resin cost increases in late 2007.

Perhaps more importantly, we believe 2007 was another important year in achieving certain milestones which further position the business for continued strong performance. Specifically we increased income from operations in each other business segments. We successfully integrated our worldwide closures operations into a third sustainable business segment with sales of over $600 million and income from operations of $66.2 million in 2007. We invested over $150 million in capital to support growth and productivity improvements and maintained attractive returns on segment assets.

We increased the annual dividend by 33%. We continue to strengthen the balance sheet through positive cash flows and disciplined investment strategies. We renegotiated extensions on a variety of long-term contracts representing more than 35% of our food container business including one of its largest customers. We successfully negotiated new labor agreements for several facilities including our only multi-locational contract. We consolidated and focused our food can innovation activities into a new product development facility and we continue to implement our management succession plans.

On the last point I want to make a few more comments. Since 2004 we've been steadily working to ensure strong succession for each of our key executives. Evidence of that success and the effort is shown by having Adam Greenlee sitting here with us this morning. Adam was recently promoted to Executive Vice President of Operations in our corporate office. He had previously been very successful in leading the significant expansion of our domestic closures business as its president. Adam will work as part of the corporate team as we pursue our strategy of enhancing Silgan's position as a leading manufacturer of consumer goods packaging products.

Our succession planning also extends into our operating businesses as we've implemented a planned series of increasingly more responsible positions for certain executives. Most recently in October this resulted in the promotion of Tom Snyder to president of our food container business; Alan Koblin as president of our plastic container business; and Peter Konieczny as president of our world wide closures business. Tom, Alan and Peter were each fulfilling significant leadership positions in their respective businesses and this planned transition has been seamless to their organizations.

At the same time we continue to benefit from the efforts of the former presidents of these businesses, Jim Beam and Russ Gervais, in our important business development activities. I truly believe we have one of the strongest and most focused management teams in the industry, particularly when it comes to building sustainable competitive market positions and generating shareholder value.

So in summary, we believe the business continues to demonstrate the strength of its sustainable competitive positions, or what we call franchise positions, in food cans, plastic bottles and vacuum closures. We're committed to strengthening these businesses by investing to enhance our capabilities, relentlessly working to build the best value products and services for our customers, and ultimately to deliver high returns on capital for our shareholders. We believe we're well positioned to do so again in 2008 and beyond. With that I'd like to turn it over to Bob.

Thank you, Tony. Good morning, everyone. As Tony pointed out, 2007 was a pretty solid year as adjusted earnings outpaced 2006 by 15.3%. As in any year each of our businesses experienced a certain choppiness in their respective business dynamics. The containers business saw complicated quarterly comparisons and a difficult year-over-year comparison largely as a result of the decision last year to build inventory ahead of a significant union negotiation.

The plastics business experienced an escalating resin market which negatively impacted the last quarter and the closures business attended to the integration of the European operations. We also experienced significant inflation across each of these businesses. That said, each of our operating management teams rose to the challenge and proactively 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 $2.920 billion, an increase of $255.5 million or 9.6%, largely as a result of the acquired businesses, the pass-through of higher raw material and other costs, improved volumes and favorable foreign currency translation. Foreign currency benefited net sales by approximately $18 million for the year. We converted these sales to net income for the year of $122.8 million or $3.22 per diluted share compared to 2006 net income of $104 million or $2.74 per diluted share.

After netting out rationalization charges and certain other one-time benefits which we believe the best comparison of the operating results, comparable adjusted earnings per diluted share increased 15.3% from $2.88 to $3.32. I'd also point out that foreign currency translation had very little impact on net income as we finance the international businesses in their local currencies.

Interest expense increased $6.6 million due to the impact of the acquisition borrowings and foreign currency translation. Our 2007 effective tax rate of 36.5% is generally in line with expectations, but 350 basis points higher than the previous year. Keep in mind that 2006 benefited from tax initiatives related to research and development credits which were completed during the third quarter of 2006.

The current year benefited from lower statutory rates in certain jurisdictions. Capital expenditures for the fourth quarter of 2007 totaled $42.3 million compared with $34.5 million in the prior year quarter. Full-year capital expenditures totaled $155 million which is slightly higher than our previous forecast. Comparatively we invested $121.7 million in 2006. Our 2007 capital spend was distributed across each of our businesses as we invested in a combination of growth opportunities and cost reduction initiatives. Additionally, we paid a quarterly cash dividend of $0.16 per share in December, the total cost of which was $6.1 million.

In an effort to provide better detail and clarity around the cash generation of the business we have now included a statement of cash flows and a reconciliation to free cash flow in the press release. Despite a significant increase in capital expenditures we had solid year-over-year improvement in our net cash provided from operating activities and our free cash flow.

Our free cash flow for 2007 increased $25 million to $124.7 million before dividends. In fact, this increase would have been even more significant had we not used roughly $50 million more than previously forecast in working capital. The majority of this difference is attributable to inventory management primarily as we decided to purchase raw materials ahead of price increases at year-end. In addition, we built inventory in response to mix changes in our can business resulting from our customers' projected requirements for 2008 as well as we decided to keep running our plants despite slightly lower December sales.

In addition, we ended the year with a lower payables balance due to the timing of payments including decisions to take advantage of favorable payment terms. I'll point out that the free cash flow that was not used to pay down debt or fund acquisitions was held on the balance sheet. As the balance sheet indicates, we ended the year with $95.9 million of cash on hand. Given the volatility and tightening of the credit markets we took a conservative view and chose not to permanently pay down low-cost debt.

I'll now provide some specifics regarding the financial performance of each of the three businesses. The metal food container business reported net sales of $1.680 billion, an increase of $55.5 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 as well as slightly higher unit volumes.

Income from operations in the metal food container business increased $17.9 million to $151.3 million for the year. The increase in operating income was a result of lower year-over-year rationalization charges, benefits from ongoing cost reduction initiatives, slightly higher unit volumes and improved manufacturing performance. These benefits were partially offset by a negative cost impact as we reduced provisional inventories built in the prior year.

Net sales in the plastics business increased 5.9% or $35.1 million to $627.4 million in 2007 primarily due to the effect of the Cousins-Currie correct acquisition, improved unit volumes in the pass-through of higher raw material costs. We experienced a less favorable mix of product sold which offset the above benefit. Operating income increased $7.7 million to $50.2 million for the year as a result of the Cousins-Currie acquisition, improved unit volumes and the pass through of higher raw material cost. We experienced a less favorable mix of products sold which offsets the above benefit.

Operating income increased $7.7 million to $50.2 million for the year as a result of the Cousins-Currie acquisition, lower rationalization charges versus the prior year, volume improvements as well as productivity improvements and cost reductions. Resin headwinds offset these benefits as a result of the timing of escalating resin costs and the timing of the corresponding customer pass-through. A less favorable mix also negatively impacted income from operations.

Net sales in the closures business increased $164.9 million to $615.2 million driven primarily from the inclusion of the international acquisition for the full year, favorable foreign currency translation of approximately $15 million, strong unit volumes 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 $16.4 million to $66.2 million in 2007 primarily due to the inclusion of the international acquisition for the full year, solid volume improvement and continued cost reductions.

For the fourth quarter the Company reported earnings per diluted share of $0.52 as compared to $0.55 in the prior year quarter. Both the fourth quarter of 2007 and 2006 includes rationalization charges which negatively impacted earnings per diluted share by $0.03 and $0.11 respectively. After excluding the effects of the rationalization charge adjusted earnings per diluted share decreased $0.11 to $0.55 as compared to $0.66 in the fourth quarter of 2006.

Sales for each business were up for the quarter versus prior year driven primarily by the inclusion of acquisitions, the effect of higher raw material costs that were passed through in each business, favorable foreign currency translation of $10.4 million and increased volumes in each business. These benefits were partially offset by less favorable mix of products sold in the metal food container business.

Income from operations for the fourth quarter of 2007 declined $2.2 million primarily as a result of income items in 2006 which did not repeat. These include a favorable mix in metal food containers due to the delayed tomato pack in 2006, the benefits associated with the fourth-quarter 2006 provisional inventory build, and a onetime management fee related to the delayed acquisition of certain international closure operations. Additionally, we suffered a negative lag effect related to rising resin costs in the fourth quarter of 2007. These items were somewhat offset by a reduction in rationalization charges versus the prior year period.

Turning now to our outlook for 2008, while it is early, we currently estimate adjusted earnings per diluted share for 2008 to be in the range of $3.45 to $3.65 per share which does exclude the impact of rationalization charges. The midpoint of the range represents a 6.9% increase in adjusted earnings year-over-year. Reflected in our estimate for 2008 are the following -- we're forecasting a similar mix of products sold in the metal container business with volume expected to be flat to slightly improving.

Net sales in the plastic business are projected to increase as a result of the raw material pass-through and modest volume gains. The closures business should benefits from continued volume gains particularly in our domestic business. We expect continued benefit from cost reduction and productivity programs across each of our businesses which we expect to largely offset continued inflation in manufacturing and other costs. In addition, we expect interest expense to decline modestly versus 2007 primarily as a result of lower interest rates.

We currently expect our book tax to be consistent with 2007 and that our cash tax rate will generally be in parity with our book rate. Also we expect lower capital expenditures in 2007 as we return to a more normal level of spending. As you know, we've previously indicated our normal range to be $110 million to $140 million. We're also providing a first-quarter 2008 estimate of adjusted earnings in the range of $0.45 to $0.55 per diluted share also excluding rationalization charges.

Keep in mind that the first quarter of 2007 derives significant benefit as we built provisional inventories and we benefited from a favorable lag effect in resin costs which briefly declined in early 2007. Given our current outlook for 2008 we expect free cash flow to grow in 2008 versus 2007. The primary drivers are lower capital spending, a modest reduction of working capital and improved earnings. We continue to view reinvestment in the business through acquisition or capital expenditures as a preferred use of this free cash flow.

That concludes our prepared comments, so we can now open it for questions and answers. Patrick, would you please provide directions for the Q&A sessions?

(OPERATOR INSTRUCTIONS). George Staphos, Banc of America Securities.

I guess the first question I had was -- we appreciate the detail, first of all, on the free cash flow for this year because it did look a little bit light to us as well and it looks like a lot of that was working capital. You mentioned that you ran your facilities it sounded like in the fourth quarter a little bit ahead of what demand was running at, and I guess the question is why? Is that again to get ahead of some of the input cost increases?

George, Tony. First of all, that's the smallest element of the items Bob went through, so it's not a big item. The point there is that essentially December sales were a little bit softer and particularly in the can business. And so you face a decision -- do you try to quickly make a reaction to your production or do you run more efficiently and it would have been pretty inefficient for us to have done anything other than what we did.

And I realize January food can sales are not the world's greatest barometer for the whole of the year, but what's been the tone in business or from your customers early on in the first quarter?

The first quarter is a little tougher for us to talk about, except I'd say there's nothing really there that seems too interesting either way. I would say that in the third quarter we were talking a bit about the warm weather and soup, etc., and so I would just comment that it definitely got colder as the fourth quarter went on, so soup really kind of recovered a bit. But usually that's the one we kind of talk about around Q4 and Q1. And again I'd say there there's really nothing much interesting to say about that, so it seems okay.

Okay. We'll do what we can to help consumption. Margin (multiple speakers) closures in particular dropped more than we were expecting them to -- doesn't mean that it was below your expectations. But what was going on there in terms of margins? And would you expect that margins in closures in 2008, holding in from cost, in line with your assumptions, what should they do in 2008, up or down?

I would look to closures more as look at the full year performance of the business and think from that. First of all, the fourth quarter tends to be kind of a weaker quarter and so small moves of various items really affect that. In this case we said in the release there were two of those. One was in -- and really both affected last year, not this year. Last year had the benefit of a management fee associated with the international operations that we had been running but didn't own until the very end of the year. And then there was -- we had gone through an inventory build also in that business so it benefited in the fourth quarter last year. So if you take those --

(multiple speakers) 2006 fourth quarter.

Excuse me?

When you say last year you mean 2006 fourth quarter?

That's correct. Sorry, that's correct. So on a comparative basis you had a benefit in the fourth quarter 2006 that you didn't have in 2007.

Understand. And you're not seeing any signs of weakness in Europe at this juncture, correct?

That's correct. I think what I would say about Europe is that it was strong in the first half of 2007, it was more normal'ish in the back half let's say with perhaps even a little bit choppier export business as we got to the end of the year, nothing alarming out of any of that.

So I think everything I read about the economy in Europe seems to kind of jive with what we saw in the business, very strong front half, a little less so in the back half, but none of that leaves us concerned particularly about the business. Remember that again, this is like most of our businesses, it's not terribly economically sensitive.

Understand. If I could ask one more question I'll turn it over. In terms of the use of cash flow for 2008, the stock to some degree has hit a bit of a ceiling here in the last couple, three quarters. And I think maybe we talked about it last quarter. It suggests that maybe your investors are requiring a higher return on your investments -- not saying that your returns haven't been very, very good over the years.

Do you think perhaps more than maybe a quarter or two ago that as you did say five years ago when you had a similar period, that maybe it's time to throttle back even more on the investments and try to generate a bit more free cash flow to reduce invested capital? If not necessarily Plan A, do you think it's higher up on the priorities on a going forward basis than maybe would have been the case a couple quarters ago? Thanks, guys.

Thanks, George. Bob and I will work through this together, but you've asked a lot of questions there. I would say that, first of all, as you kind of heard in here, we are throttling back CapEx a little bit, maybe a little more than that. But I would say that has as much to do with the -- we did so much in 2007, the businesses need to absorb that. And so it's still a meaningful investment in capital but less. So that's part of it.

I think you know us well enough to know that of course we're always thinking about what's happening out in the market in terms of cost of capital, etc., what's the best deployment of the cash of the business -- it's something that we think about all the time, we talk with our Board about all the time. So a broad answer to that question is sure, we're always looking at it and thinking about it. And to the CapEx I've answered and to the other uses of cash we'll keep watching what our alternatives are.

You know that we really believe that value gets created here where we can find smart acquisitions that either build our franchises or, perhaps in the case of closures, really help us build out a new franchise. That's where we think you really get the biggest homerun to shareholder value. But short of that, there definitely are things we can do with the cash to help generate returns.

Understand. I think there are some lessons in '02 and '03 though that, again, I know you guys will reflect on. Thanks, I'll turn it over.

Chris Manuel, Keybanc Capital Markets.

Good morning, gentlemen. A couple questions for you. First, I think in response to George's question you talked through a little bit of the can build issue and how that impacted you from fourth quarter to first quarter. Could you touch a little bit on the resin side, the other thing you talked about that was going to essentially probably hurt guidance a little into be first quarter and maybe help us somehow quantify what the year-over-year swing might be?

Sure. The year-over-year -- so Q1, I guess the key here is to understand that if you look at what happened in resins in 2006, going into the beginning of 2007, essentially you had resins that had spiked early in the fourth quarter of 2006, were already on the decline by the end of 2006. So we had in our pricing to our customers, if you will, a higher price and we were already beginning to experience the lower cost of resin coming in. So that gave us a sizable benefit in the first quarter of 2007. The magnitude of that is something like a $5 million impact.

If you compare that to what's going on coming into this year essentially we had inflation that started -- meaningful inflation that started in mid fourth quarter, so we took that inflation in our cost, really essentially none of that yet has passed through our lag mechanisms to our customers, so that's probably slightly overstated but not much.

And then as you got right around the beginning of the year there were sizable spikes again and increases of cost and so that further drives up our cost and there's a lag to pass that through. So if you compare first quarter to first quarter, there's a sizable -- probably roughly equal magnitude, although it hasn't played out yet for the first quarter of course, of a positive in '07 to a negative in the first quarter of '08.

Okay. So probably five'ish from the too much through the first quarter last year and what you're kind of incorporating with resin increases and such probably five'ish for the year. So directionally 10'ish in total?

As of first quarter. I think it is important that we note that this has a lot to with the volatility around resins at the end of the year and how that affects the first quarter. I don't want anyone to get confused, we suffered, and have for several years now, on balance a negative of the general increasing cost of resin.

I understand.

I know you do, I just want to be sure that we're clear.

The cycle -- your mechanisms keep you whole, it's just short swings.

That's right.

Chris, the other thing that I would add to that and this is getting a little bit off the resin point, but it does speak right to the reconciliation year-over-year. You may recall we called out in the prior year that we had a benefit of a one time equipment sale in the closures business. Remember that that business typically leases some of the equipment and we had customers buy it out. So we have a onetime pull ahead of that lease income, if you will, into the first quarter of last year and that's not repeating as well.

Can you quantify that for us as well, Bob?

Yes, I think that's something like $0.02 or $0.03.

Okay, that's helpful. And then the working capital swing you talked about towards the end of the year and I think you also alluded to potentially some changes in mix that took place through the fourth quarter in both your food can business and your plastics business. Will that also play out similarly in '08 that we may have some -- a little change in the typical earnings pattern throughout 2008 versus '07? Essentially what I'm saying is your earnings appear kind of more back-end loaded versus first quarter than normal. Is there any other change as we go through the year that we need to think about as well?

No, Chris, I think that's more about a comparative year-to-year. In fact, if you look at first quarter in 2005 we did $0.34 on an adjusted basis in the first quarter. In 2006 we did $0.48, in 2007 we expected to do -- our guidance was $0.40 to $0.50, we actually did $0.77. So I would tell you that it has a lot more to do with what was unusual about the first quarter of 2007 -- by the way, I can explain a little bit about '06 if we wanted to which had to do with the same kind of benefit of resin in '06.

So I don't think the guidance we said about the first quarter is unusual. And therefore I think if you look at the year, the expectation is that you had a very strong front half to the year, primarily in the first quarter, and we've just got to cycle against that with what is a more typical 2008 we believe.

Okay, that's helpful. And then the last question I had is when you talked about volumes being up modestly in the plastics and in the closure business, are we talking low single-digits, is that a fair assessment?

You're talking in the fourth quarter now?

No, no, when you talked about embedded into your guidance for 2008.

I think if you're talking on the food can business you're talking about very modest, you're talking about 8% or -- in fact I think we said flattish to up a little bit.

Right, right. But primarily in your plastics and in your closures, when you said up modestly are we talking back to historic range for plastics of being up 2 to 5%?

Yes.

Yes.

Okay, that's perfect. Thank you, gentlemen.

Closures would be even a little bit stronger than that because we've been making investments into the closures business, particularly in the U.S., for growth of the what I would call the New Age noncarbonated beverage market. So we would expect even higher than that on the closures side domestically.

Thank you.

Oh, by the way, I just want to make one clarification. I think I said on resin 5 million first quarter on first quarter. I kind of got a 5 on my mind. What I was really thinking about is $0.05 a share. So it's actually a little bit less to the benefit we got in the first quarter of 2007 and the detriment in the first quarter of 2008, just clarifying.

Christopher Butler, Sidoti & Co.

Good morning, guys. Just wanted to get back to the resin question a little bit and the 2008 guidance. Am I correct in saying that with the run-up in resins here over the last quarter or two that this lag factor is going to be more of a first, maybe second-quarter issue and possibly less of an issue later in the year. Is that sort of how you're looking at it with your guidance?

Yes, Chris, this is Adam. We do see that as primarily a first-quarter issue. As Tony had mentioned, resin has been very volatile here the last several months and some of the forecasts that we've seen out there are for a potential abatement of the volatility in the back half of the year. We're taking a very conservative approach at this point with our guidance in our view on resin, but we do view this as a first-quarter activity.

And touching on the inventory build in the fourth quarter, did you specify where the demand was a little bit soft, did I miss that?

We had just said in the food can business. We wouldn't get any more detail than that. But again, that has more to do with just kind of the trailing off of the year. If you look at food cans for the quarter, they were actually up very modestly. So I wouldn't read a lot into that, it's sort of the timing of when things came and then the choices we made about running our plants. In fact it even has to do a little bit with the schedule of when the holidays are at the end of the year frankly.

And similarly, looking at the harvest from the fourth quarter, was there anything unusual that we need to be aware of there?

Yes, and we've been talking about this quite a bit. But on a year-on-year comparative basis you had a tomato pack in 2006 fourth quarter, got pushed more later, so more into the fourth quarter. So when you compare the fourth quarter of 2007 to the fourth quarter of 2006 you actually have a slightly worse mix because the tomato cans tend to be larger cans and higher dollar contributions. So there is that as a headwind, if you will, against the Q4 2007 numbers.

Right. But Chris, as to the 2007 pack related issues, we'd say that '07 was kind of a normal period.

That was sort of what I was looking for. And finally, you had made mention of holding onto cash instead of paying down debt due to tightening credit markets. Just wondering is there any impact there on your acquisition strategy as far as being able to line up the credit to make acquisitions?

No, not at all. I think where we are is, as you know, this business requires the use of working capital to build to its peak demand. And so we chose the view of why pay down inexpensive or lower cost permanent debt in the face of that. As to our ability to gain access to capital, we feel like the strength of our balance sheet keeps us in the game there from an acquisition stand point and now it's a matter of finding an acquisition that meets our return hurdles and meets our strategic objectives here but well positioned to be able to fund an acquisition when and if we find one.

To be clear, I think Bob is going there, but we view really the general credit situation out in the broader market as an opportunity for us that our balance sheet, our cash generation capabilities, it really puts us in a much stronger position than we were against private equity competitors if you will properties in the past.

Are you finding that the credit market is -- well it sounded like you were saying the credit market is helping. Is that helping more than possibly a desire to get into the more stable businesses and valuations increasing from that standpoint?

I believe so. If I understand your question it's clear to me that the packaging is a good example of a fairly economic resistant industry, high cash generation has been very attractive to equity investors for the last couple of years. If I understand the question, that had already happened to drive the valuations up in our sector. The only thing I think has happened since then is that it's gotten harder for those buyers to be able to get cheap money and so the numbers get harder for them.

You had my question right. Thank you, guys, for your time.

Ghansham Panjabi, Wachovia Securities.

Good morning, guys. This is actually Phil calling in for Ghansham. A quick question. I think we noticed in an 8-K filed by Del Monte the contract extension that they had with Empress Packaging no longer had a minimum volume purchase requirement or guaranteed return clause. Are you seeing that trend pick up in your discussions with your customers?

I'm going to try to answer to our world and not try to answer too much to our competitor's world. Our contract never had any kind of a guaranteed return in it, we have to be really clear about that. I think the way we always went about negotiating a contract is we looked to the capital investment that we had to make and we negotiated from the position of we have to get a reasonable return on the investment that we're making or an attractive return on the investment we're making. But that was never built into the contracts nor would we have wanted it to be built into the contract.

Okay, but you would have a volume clause, right?

If you mean by volume clause that the price goes up if volume falls off, the answer is no, we don't.

But a minimum volume purchase requirement I would imagine, right?

No, our contracts tend to be requirement contracts, so what our customers need to buy.

Okay, that's fair enough. As for CapEx I believe, you built up some capacity last year in anticipation of -- for adoption of the easy open ends, have you seen that demand materialize?

We did invest in our easy open end capacity last year in advance of potential market shifts. And while we did have significant testing in 2007, we'll see continued testing in 2008 with products on the shelf. We have not seen a major category shift in 2007 nor do we expect one at this point for 2008.

Okay. And in terms of -- given that the easy open ends are more commonly used now are you seeing any pricing or margin pressure relative to when you first launched?

No, not particularly. I think like we do in all of our businesses, we're always looking to take cost out to deliver a competitively advantaged product to the market. So there's no difference there than there is across our broad markets that we sell.

The other thing I would just say as an add-on to Adam's point is that we always said, first of all, we needed to put this capacity in place so that we could support any future growth. We continue to believe that that's going to happen. Consumers have a strong preference for it.

And we also said that we could deploy the asset and the capacity in a more efficient manner as we look across our system. So some of the return can come just from being more efficient in the way we use the capacity.

And again to be clear, we do see growth in easy open ends as we go into 2008. It's just as Adam said, right at this moment we can't tell you there's a major category shift happening, which would have been the perfect culmination of events if we had actually gotten it in and had a full conversion that very next year. We weren't necessarily banking on that.

Okay, thank you, guys.

Robert Kirkpatrick, Cardinal Capital.

Thank you. Could you talk a little bit about what raw materials you see rising here early in '07, and the activity that you did to buy in advance of that?

Yes, we have already hit resin pretty clearly, right, so we have got -- a sizable increase is happening in resin. It's -- a broad proxy for that is what is happening in oil, which has been driving it up, but also there is capacity issues and a lot of demand draw from developing markets, etc. So again, there is pretty sizable increases on the plastic resin category. And then we've talked in previous calls about steel. Of course, there has been consolidation in the steel market. There has also been a lot of inflation of late on some of the input costs to the steel industry. So there are sizable increases coming for steel, call it in the U.S. kind midteen type numbers of increases out there. It's a little bit less in Europe, maybe single digits, but probably upper single digits. So very meaningful increases in all of our primary raw materials.

Then did Bob give a number for CapEx for '08 or not?

I did not give a specific number.

Would you care to?

I basically guided to a more normal range.

So somewhere around -- more closer to $100 million?

That is probably a bit on the low side.

Great. Thank you so much.

Richard Skidmore, Goldman Sachs.

Just a couple of clarification questions if I might. Just your view specifically on resin; is your view that it stays flat from current levels through 2008, or do you anticipate that it comes off in the back half of '08?

Essentially, our view at this point is the back half of '08 will be flat. So when we say we are taking a somewhat conservative approach, that is where the comment comes from.

Then just with regards to your pass-throughs on resin, is it 65% of your business is on contractual pass-throughs with a one-month lag; is that how we should think about it?

No, I would say more like 65% of our business is on contractual pass-throughs, but they vary in terms of how they do it. Some might be a month, some might be something longer than that. And don't get confused, even though the rest isn't under a contractual, the market does pass through -- has traditionally passed through raw material increases. But they are not all monthly; they vary in terms of the mechanism.

So in that remaining 35% that is not on contract, does that get repriced pretty quickly?

It varies, it varies. Some of it would happen very quickly, and some of it would take a bit longer.

So to that point, is there any rethinking on how to reprice the pass-throughs such that you shorten the lag, given the volatility in resin, or do something different with how you're negotiating on the resin pass-through front?

Well, I would say that it is always looked at, thought about, considered. It is always hard when you've suffered all of the negatives as you go up, it is hard to then want to be the one who says, okay, now let's stop doing this when you are really owed all of the money of that lag that has happened to you in the past.

Likewise, if you flip that over, you'd get the same issue from customers. So I would say it is ongoing dialogue. I don't know that there will be any kind of major change to it.

Then just to clarify the inventory build in the fourth quarter, was that just on finished can inventory or was that on tin plate inventory?

Well, there's a combination. Basically, what we said is the inventory was largely a result of buy ahead, ahead of raw material price increases. And that is both in the metal businesses and the plastic businesses, and then the other piece of it was in the can business.

So that component is tin essentially.

Right.

So as you think about -- because I think you made the comment that your steel prices are going up significantly. Have they gone up and, therefore, your pricing is going up at the current time, or does that lag into the second quarter so we see a big bump because you're selling lower-priced inventory into a higher price for your cans?

No, is not that easy. Essentially, what happens is we pass through on the tin plate. And by the way, this comment deals with more than just those. It also deals with coatings, compounds, etc. So if your question is specifically on the tin, what essentially happens there is we estimate what we believe is going to be the total inflation to tin in the year; we pass that through to our customers, and essentially, that one ends up being trued out to what actually occurs.

Thank you.

(OPERATOR INSTRUCTIONS) Chris Manuel, Keybanc Capital Market.

Another question with respect to timing of payback on some of your projects. I know traditionally your growth in productivity sort of projects have paid back, usually it is within a 12-month period. Has there been any shift to the type of more productivity or growth-oriented projects that you have been doing the last year or so that may have caused or may be causing some of that payback to move out to more of a 12 to 18 or 24-month period?

I'm going to start with the end in that and say that I think if you look at the returns on asset of the business, they have improved this year. And that includes -- that's taking -- using an ending balance sheet kind of a number of assets. So I would just start by saying the returns in the business are high and actually improved.

Now I hesitate to even say that, because we don't necessarily want to keep improving them. There is plenty of projects that are right around that level, maybe even a hair below, that would be very attractive for us.

Tony, I mean, you guys have done a terrific job with the return on capital. I am just thinking from a more perspective of, are the projects -- you've taken a lot of cost out the business, so are the projects getting incrementally more challenging from here that maybe some of the low-hanging stuff is kind of done and we are pushing back to some more challenging projects that have a little longer payback?

No, I would say not. That is why I started with that end point, because certainly you wouldn't think that as you look at the numbers, and I don't believe that to be the case. I think you're right, though, there has been some shift in the kind of capital. There has been a little bit more if I look to the 155 we spent in 2007, it was a little bit more to growth.

Some of that is because the plastics business you'll recall we were really holding back and letting the market go through the gyrations over the last five years it went through. And we kind of released it for a bit of growth because we felt better about the market. So I think on balance, there is a little more growth to it, but we hold ourselves still to a pretty rigorous standard in terms of the return we believe we are going to get from those investments, and I don't see any meaningful shift to that.

Okay, that's helpful. Bob, actually a question for you with regard to the working capital. It looks like in the fourth quarter it was up about -- or full year up about 20'ish million. Is that a similar sort of impact that we could anticipate? You said working capital down in '08. Should we anticipate something similar coming back out in '08?

Yes, I think what we've said is kind of a modest improvement in working capital. I would also point out when you are looking at that change in working capital there, you have to factor in there is kind of a LIFO adjustment in there, particularly on the inventory, that is kind of a non-cash move, if you will.

So essentially, what you have got is we would look at working capital as kind of being flat for the year as opposed to where you are seeing a cash generator. But a modest improvement in the working capital is what we are forecasting.

Okay. So I'm just kind of coming at this then thinking about your free cash number for next year that working capital won't be a use of cash from a balance sheet or a cash flow perspective, higher earnings and lower CapEx. Could 2008 be something more like a 175 to 200'ish sort of range for free cash next year? Can you give us maybe some sort of range?

Well, I think we will let you do the math. I would say that I think your directional points are all correct.

Okay, that is good. Thank you much.

Roger Harris, Porter Orlin.

Good afternoon. I guess when we look at the adjustment with Q1 and we compare that year-over-year with '05 and '06 in that trend, and do a similar thing for Q4, and we probably should have seen more of an adjustment upfront in that. But when you move beyond Q1, what it then implies to the midpoint is significant strength the remaining part of the year.

And again, based on the cash flow that was just touched upon, you seem like you'll be in an incredibly strong position, and I know I would certainly like to see those proceeds first go to a potential acquisition. We have talked about that for nine months. So two things; one, can we get a little more color on that pipeline, where you are seeing the opportunities, domestic, international, Europe, Asia, U.S.?

Then secondly, at what point during the year if you're not able to buy something at the right price, at your price, given that we are almost at two times on the leverage [combinant] as it is, at what point do you begin having a more serious discussion as to what we do with that free cash flow? Obviously, debt paydown then isn't as high a priority because you are already in your target range, sort of speak. At what point, Tony, do you begin to address potential stock buybacks or increases in dividend, things of that nature?

First of all, Roger, I just want to say I think we need to bring you onto our communication staff, because it's a pretty good synopsis of how we see it. We look at next year's outlook and we think it is a pretty bullish outlook for the business. You didn't say that, so I will. That is coming off of a 15% plus growth year this year, a 14% plus growth last year. So I would echo the points that you make.

To the question -- first of all, in terms of pipeline of acquisitions, we have said for a while there is quite a bit out there. There is no question that as the debt markets pulled back a bit, I think that probably slowed sellers' interests. So I am not sure there is quite as much out there as there was six months ago, but I still think there are properties available.

Our interest is really around our franchises, so it is going to be certainly strongly domestic to the can and the plastic business, but certainly international interest around the closures. That would be kind of if I could prioritize that, and then we would look at other opportunities beyond that. But we would not say it wouldn't be international. In fact, we'd look at the closure business and think that we could have a very strong franchise and market position there and see a market that really could get consolidated up more.

So we do view that as one of the possibilities for us. Again, I'd say I think you communicate exactly right. I think there is no question that we would like to do acquisitions first. We think that the history of the business is that that is where value has been created over time, but that we are getting to a point where leverage levels are getting inefficient, if you will, in terms of optimal capital structures.

And so we agree that if good acquisitions aren't available to us over the course of the year, we will have to really think harder and harder about the other uses of our cash. As to when that happens because the cash flow comes in so much at the end of the year, I think really we have the bulk of the year to think and talk about that. We don't necessarily have to do a lot of action around that until at the end of the year or perhaps even into early '09.

Thank you.

How was that for a comprehensive answer to a question?

We have no additional question at this time. I would like to turn the call back over to Mr. Allott for any closing remarks.

Great. Just want to thank everybody for your time. We look forward to talking to you all after the first quarter. Thank you.

This concludes today's conference. We thank everyone for their participation and you may disconnect your lines.