Silgan Holdings Inc (SLGN) 2008 Q3 法說會逐字稿

Thank you for joining the Silgan Holdings third quarter 2008 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'd like to turn the conference over to Mr. Miller. Please go ahead.

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, 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 2007 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. Good morning everyone, and welcome to our third quarter 2008 earnings conference call.

As usual, I'm joined by Bob and Adam for the call, and we'll review the financial performance for the third quarter, and make a few comments about our outlook for the fourth quarter of 2008. Afterwards, we'll be pleased to take any questions.

As outlined in this morning's press release, our third quarter earnings hit a new high water mark for the company, culminating in adjusted earnings per diluted share of $1.45, a year-over-year improvement in earnings of 15%, with the food can business leading the way. This strong performance was accomplished despite a weakening economic environment, as consumer spending patterns remained soft in certain of our business areas, and we experienced continued inflation in certain raw materials and other manufacturing costs. While these challenges are significant, we continue to improve our manufacturing performance and focus on cost control. This focus was a large driver in the third quarter, and will be even more critical as we progress through the fourth quarter.

As mentioned in this morning's press release, we decided to September to pre-emptively borrow under our revolving credit facility, based upon concerns about the health of the banking industry. Accordingly, we borrowed $200 million of our available revolving credit facility, and ended the quarter with $290 million of cash and equivalents on the balance sheet. Given the negative arbitrage of holding this cash, we have modified our full-year outlook by $0.05 back to a range of $3.45 to $3.65 per diluted share.

On the operating side, while we do believe significant uncertainties exist around certain of our customers' end markets and year-end inventory decisions, we are confident in our ability to react to those and, therefore, have not changed our operational outlook.

I'll now turn it over to Bob to review the financial results in more detail, and provide additional explanation around the earnings estimates for 2008.

Thank you, Tony. Good morning everyone.

As you have seen, despite the economic turmoil, volatile raw material markets, general inflation and softer demand as a result of the continued consumer pullback in this market quarter, we delivered record results for the third quarter of 2008, outpacing the prior-year quarter by 15%, delivering adjusted earnings per diluted share of $1.45. Consolidated net sales of $964.3 million for the quarter were up $59.5 million or 6.6%, due to the pass-through of higher raw materials and other manufacturing costs, the impact from closure operations acquired during the first half of 2008, a favorable foreign currency impact on revenue of $8 million, and modestly higher unit volumes in the metal food can business. These gains were partially offset by slightly lower unit volumes in both the plastic and closures businesses.

Net income for the quarter was $52.8 million or $1.38 per diluted share, compared to net income of $47.6 million, or $1.25 per diluted share in the prior-year quarter. Foreign currency was neutral to the bottom line for the quarter, as a result of our natural hedged position. After excluding rationalization charges, adjusted net income per diluted share was $1.45 versus $1.26 in the prior-year period. The third quarter included rationalization charges of $2.4 million or $0.07 per diluted share net of tax in 2008, versus $700,000 or $0.01 per diluted share in 2007. I will also point out the quarter was negatively impacted by nearly $0.03 per diluted share, which was attributable to the combination of the incremental interest costs of our balance sheet position, and the impact of Hurricane Ike on our plastics business.

The third quarter tax rate of 37.5% included the negative impact of a $1.2 million tax valuation allowance against tax positions in Turkey, as a result of our decision to close a manufacturing facility. This impact is shown as part of the rationalization charge net of tax on Table A of the press release. As a result, we expect the projected tax rate for the year to be approximately 36.5%, which assumes the recently-approved R&D credit for 2008 will offset a portion of the Turkey valuation allowance.

Interest expense for the third quarter was down $2.2 million versus the third quarter of last year. This reduction in interest expense is attributable to lower market interest rates, which more than offset the impact from incremental outstanding borrowings. However, relative to our forecast, we did experience higher than anticipated interest expense as we made the decision to borrow an incremental $200 million on our revolver in response to the ongoing credit market turmoil, and as a result of higher LIBOR rates. As a result, our year-over-year cash position improved $263.6 million to $290.4 million for the third quarter, which also includes the impact of the cash we held at year-end.

As a result, we closed the third quarter of 2008 with outstanding debt on the balance sheet of $1,303,000,000 versus $1,173,000,000 at the end of the prior-year quarter. Our fixed rate debt ratio at the end of the third quarter was 41%, down versus the prior quarter of this year, as a result of the incremental revolver borrowings. Capital expenditures for the nine months totaled $87.7 million compared to 112.6 million in the same period last year. We continue to forecast full year capital spending in the range of $120 million to $130 million, in line with normal levels for the business. Additionally, we paid a quarterly cash dividend of $0.17 per share in September; the total cash cost of this dividend was $6.5 million.

I'll now provide some details for each of the three business franchises. Net sales in the metal food container business were $617.4 million for the third quarter, up $32.3 million versus the same period a year ago, due to the impact of the pass-through of higher raw materials and other manufacturing costs, and modest unit volume increases. Good cost control, improved manufacturing efficiencies, higher unit volumes, and the net impact of a larger inventory reduction in 2007, versus a continued inventory decline in the current year, benefited the third quarter 2008 operating results. On a comparative basis, income from operations for the third quarter of 2008 improved to $76.6 million, up from $62.7 million in the prior-year quarter, which also includes a $1.2 million positive swing in rationalization charges period-over-period.

Our plastics business continued to field the effects of the soft macroeconomic environment, as unit volumes declined slightly for the quarter while the pass-through of higher raw material costs benefited the quarter as net sales increased $9.5 million to $162.6 million. Income from operations in the plastic container business for the third quarter of 2008 was $9.1 million versus $10.3 million in the same period a year ago. This decline was a result of the lag in passing through resin cost increases, inflation and other manufacturing costs, and slightly lower unit volumes, partially offset by the benefit of ongoing cost reduction initiatives.

Additionally, the plastics business incurred additional costs of approximately $1 million in the quarter as a result of the damage from Hurricane Ike, which impacted our Houston facility in the form of structural damage, production inefficiencies and outages, as well as cleanup costs. The closure segment of our business increased net sales in the third quarter of 2008 by $17.7 million to $184.3 million. This growth was attributable to additional sales from operations acquired earlier in 2008, favorable foreign currency translation of $8 million, and the pass-through of higher raw material costs, partially offset by a slight decline in unit volumes resulting from softer beverage demand.

During the third quarter of 2008, we approved a plan to cease the manufacturing operations of our closures plant in Turkey, which resulted in net rationalization charges of $2.8 million for the closures business. Inflation and manufacturing and other costs, including the delay in passing through resin price escalations, and the impact of lower volumes also negatively impacted the quarter, as operating income of $17.1 million decreased 4.7 versus the prior-year quarter.

As we come into the final quarter of 2008, each of the businesses focused on cost controls and making manufacturing performance improvements to offset macroeconomic concerns, cost inflation, and continued caution regarding the credit markets. While we are confident our businesses will respond accordingly, we know for certain we will have to continue to incur incremental borrowing costs associated with our balance sheet position.

As a result, as you saw in this morning of press release, we have modified our full year earnings estimate to a range of $3.45 to $3.65 per diluted share, which excludes rationalization charges for previously announced plans, which are currently estimated to be $0.23 per diluted share. We are also providing a fourth quarter 2008 earnings estimate in the range of $0.45 to $0.65 per diluted share, which also excludes rationalization charges. The $0.20 range is larger than normal, given the heightened level of uncertainty. This is particularly relevant coming into a quarter where we have concern regarding consumer spending patterns and an ongoing credit crunch. It is not yet clear how these situations will impact our customers' businesses and their year-end inventory decisions. As we sit here today, we continue to hold cash to ensure access to liquidity, which will have an impact on our quarterly earnings.

As we indicated in the press release, achieving the high end of our earnings estimate would require our credit market outlook to improve and, therefore, reverse course on holding this excess cash. While we remain cautious in our view, our free cash flow forecast is unchanged as we continue to expect year-over-year improvement in free cash flow.

That concludes our prepared remarks, so we can open it up for Q&A. Operator, would you kindly give the instructions, please?

Thank you.

(OPERATOR INSTRUCTIONS)

We'll go first to George Staphos with Banc of America Securities.

Thanks. Hi, everyone. Good morning.

Good morning, George.

I guess maybe for just a point of clarification, Bob, can you remind us, what is your free cash flow guidance for this year?

Sure. I don't know that we've necessarily given an exact dollar amount of free cash flow guidance, but keep in mind last year we generated a bit short of what our expectation was, and that was $124 million.

That's right.

And what we said was that we thought we'd be able to take back some of the cash that we left on the balance sheet last year. We left roughly $50 million of incremental cash on the balance sheet through working capital through our year-end decisions, as well as we thought we'd have reduced spending on CapEx, which certainly looks to be the case as we sit here right now, and that cash taxes would be roughly in line with our book tax.

So I think all that leads you, and you can make your own conclusions on where you think our earnings will be, that should lead you to a pretty good improvement on a year-over-year basis.

Okay. I appreciate that, Bob. In terms of the incremental borrowing, I know it's hard to project, and to some degree that's the reason why you've gone out proactively, I guess, to take on this incremental borrowing, but should we assume that this could stay on the balance sheet given the world as we know it today until third quarter, at least until you're through your seasonal working capital crunch, or could in fact that number move up higher as we get through the first half of 2009?

George, Tony. First of all, the quick answer to your question is I would not necessarily expect that number to move higher. I think if you kind of drop back, because I know the question sits out there sort of why did we do this, the - obviously, concern about the credit market, but I would boil that into sort of three categories, and we've had this concern of course all year long.

Sure.

Category one is the one you're talking about, which is that we have - our business model requires that we have a buildup of working capital in the peak season. We don't have the capacity to supply that, other than through building working capital, so one of our concerns is that we have historically relied the credit market, our revolving facility, in order to borrow that, and that peaks out at something, 275, $300 million at sort of the peak timeframe. So that's one element of this.

But there are other elements, in that when we started to really see the credit markets freeze up, we also then got a little bit concerned of what I call the grease to the economy. What does that do to our customers' ability, on credit - collections, et cetera? You start to then wonder what's going to happen to the rest of your working capital and the flow of working capital in the ordinary course. We just wanted to be sure our business was ready and braced for that, if in fact that came to present itself. Finally, we think that cash is king in a time when there's essentially a frozen credit market. So the more we could leave the business in a liquid position, the more opportunity that might present to us as we move forward, and other companies that aren't so situated get into some trouble.

So that's sort of a long way around, George, to say that really what we did in September was a little bit more than what we would need to cover ourselves through the peak time period, because cash will come in in Q4. So I think if the markets improve, and our view of the markets improve, there's actually the chance to kind of come down to cover that first you item I talked about, which is just what we need for the revolver. So that's what we'd like to see happen, is sort of the moderate answer here, is we keep enough cash on our balance sheet, to take us where we don't need to rely on the revolver as we go forward. So that would be a little less cash really than we have right now.

As to sort of what are we watching to make that decision, really once the governments around the world and in the US started stepping in here, obviously the situation looked a little bit better. So really now we're just kind of watching the three-month LIBOR to pick one metric, and watching the banks' own interest in lending to each other and keeping an eye on that.

So all the way around on a long answer is we'll watch that and the moderate step that we'd like to get to is to leave ourselves enough cash on the balance sheet to cover the working capital needs. If things revert all the way back to a very strong market, then we'll have the opportunity to think about do we need to keep that cash on, or can we start to trust our revolver on an annual basis again?

Okay, thanks. I appreciate that. A quick one and I'll turn over. Are you seeing any pickup in customer bankruptcies that's troubling you? Thanks.

No. We are watching it, but absolutely not. I think it's obviously fair to say that the government's been quite aggressive in reacting to the current situation. So as we look right now, we have not seen that. But it is something that we are keeping a close eye on.

Thanks.

We'll go next to Ghansham Panjabi with Wachovia.

Good morning. Can you quantify the effect of the resin lag on your plastic containers business, and maybe even the closures business?

I don't know, to a dollar amount? Not really. If you talk about a margin amount on the plastic side, and this is going to be a rough number, but it's probably something like 50 basis points of impact on the lab alone. And that's on a year-over-year comparison. Now, that number's not -- the margins are up more than that, but of course you've got to remember the mathematical impact of just all that raw material increase passing through, which is actually almost a full 100 basis points on its own. So some of those, too, we did better than that, and that's mostly the manufacturing operations side doing a better job there.

In terms of - were there any sort of insurance proceeds with your plant disruption in Houston?

No, because essentially the way the insurance policies work is that the deductible relative to named storms goes up to a percent value of the insured property, and the damage that we incurred here was well below that.

Okay. Tony, one final one. Looking at what's occurred this year, your metal food business has had a terrific year, you know, especially on the operating profit and operating margin side. How should we think of this business going forward? Should we think of '09 as a slight improvement over '08, and maybe the plastic business gets a little better along with closures, or is there much more in terms of margin improvement in metal foods? Thanks.

Well, I think it's funny we get this question all the time, and we give the same dull answer to it, which is we will keep - in '09 we will keep doing the same things we've been doing, which is focus on our operations, get our costs down in every way we can, drive value to our customers, and hope that our customers gain growth through the value that we bring to them, and that provides growth in the business. So we'll keep doing that. It has tended over time to work pretty well for us. So I think that that will create continuing opportunities for financial performance improvement. Now, some of that will be - if our customers get more volume, that's topline as opposed to margin. So I would not necessarily want you going away thinking there's a big margin bump here. But we always say that. We're always working at trying to enhance it every way we can.

Okay, great, thanks.

We'll go next to Chris Manuel with KeyBanc.

Good morning.

Good morning, Chris.

A couple of questions for you. First, if we could talk a little bit about the trajectory of orders through the quarter, you talked about how there was a softening in some of the plastic and some of the closures. Was that pretty uniform through the quarter? Did that accelerate in September, et cetera, and what you've seen thus far into October?

Chris, this is Adam. Essentially we saw flat demand through the plastic container business as well as the beverage side of our closures business through the quarter, so I don't think it was anything new per se, it was just pretty consistent throughout the quarter.

Okay. And can you tell us a little bit - give us a little bit more granularity, too, by product? There are some of your products that one would anticipate should -- well, let me ask it this way. Were plastics any different than your metal vacuum closures?

Yes, they were. And if you look at the market segments that we deal with in metal closures versus plastic closures, certainly in the US the plastic side of that business is heavier weighted to the beverage piece of our portfolio. So those closures were affected, I think, a little bit more significantly than the metals side, which has a decent amount of food and snack businesses that it is associated with.

Okay. And then as you look at the food can side of the business, it looks like volumes are up nicely there. Can you talk a little bit about, I know it's early to really disseminate, but folks eating at home more, and you've got a good slug of your business that are soups, broths, et cetera. Have you seen any pick up in these types of businesses that would bode well for future prospects?

Well, you know, I think we even covered this a bit in an earlier discussion, but it's a very logical discussion to have. We have not seen that improvement yet. Obviously, we just have come out of the peak season for us, which is related to the path which our volumes were essentially at our expected level for the quarter. By we haven't seen that transition yet to more in-home consumption, although as we go into the future, that's something that we're going to be keeping a very close watch on for our metal food container business.

One last question for Bob. In my understanding back from my commercial lending days, is that when you go in and borrow, you need to tell them or give them -- you get a rate set on how long you anticipate having borrowed. Is this -- are you rolling this over on a daily basis or is this something that, you know, if you wanted to unwind it today, you could without breakage fees or -- what's the timeframe that you have to keep this borrowed for, should I say?

Well, essentially, Chris, you're on it. We've got the ability to make day-to-day decisions here, obviously within the couple-day notice period that we have to give the banks. But we can react to changes in the credit environment as we see them pretty quickly here, and could pay it down at pretty much any point in time we chose to do that.

Okay. Thank you.

Thanks, Chris.

We'll go next to Claudia Hueston with JPMorgan.

Thanks. Good morning. You sort of alluded to this a little bit in your answer to George's question, but I was just wondering if you could just comment a little bit on how the M&A environment looks at this point, and sort of expectations given the credit environment, and has your views just in general in terms of prioritizing acquisitions changed at all?

I'll start and let Tony fill in what I might miss here. But I think the environment here has continued to be slow relative to the environment. I think that's nothing more quite frankly than the idea that there just isn't a lot of cash out there. So the ability for companies to do deals has been somewhat limited. I think those that need to come to market are coming to market desperately. Those that don't necessarily have a catalyst that forces them to sell right now are perhaps sitting on the sideline and waiting for a better opportunity.

I think what we've seen, though, is that at least in the discussions that we've had with targets and with banks, quite frankly, is that the multiple expectations from sellers is starting to decline, and has probably moved pretty well off the peak days, and in line where we would see it pretty attractive. I think that's another part, as Tony alluded to, as to why we held the liquidity, is to be able to react to some of those opportunities that may present themselves to us. So being liquid is important to us.

So in terms of our preference or our priorities, I don't think we've moved much from what that is, other than being relatively more targeted, and more critical perhaps because you've got the incremental borrowing costs that would be associated with any deal. So holding to making sure we get good cash-on-cash returns for any acquisition that we might do, the deals are a little more burdened with incremental borrowing costs. But I think we'd still find attractive opportunities should they present themselves.

To be clear, we believe we are relatively advantaged by what happened over the last year. As you know, we kept our balance sheet strong, we've now put ourselves in even a more liquid position. The obvious competitors for deals, the sponsor market, is not there, so the big answer to your question is we feel quite optimistic about the opportunities as we go forward. But it is true that you have to look at that in the light of current credit markets, we've got to be even more discerning perhaps about where those limited resources are applied.

Thank you very much. That's very helpful. Then I just wanted to comment quickly on the guidance, which you said is unusually wide. I didn't know if you might be able to give us a little bit of what's implied maybe at that low end in terms of volumes and what's implied at the top end in terms of volume expectation? I mean is it sort of the low end is getting materially worse from here or the high end is going to sort of start to pick up? Some color on that would be helpful if you can?

The range is indicative of us not knowing as we sit here right now what way our customers are going to react. You could look at it a couple of different ways here. As we move into a declining resin environment here, we could have plastic customers that delay purchases into the early part of the year. That would certainly have impact on the earnings, if that does happen. And then conversely, on the metal side, you know, ahead of escalating prices year-over-year, we could see customers really try and, on an incremental basis, buy ahead of that, although we're not necessarily promoting that in the marketplace, we don't necessarily have infinite control over what buying decisions our customers make around their own inventory levels. So we could see pretty broad swings, just as a result of that issue itself.

Okay. Thank you.

We'll go next to Alton Stump with Longbow Research.

Thank you. Good morning.

Good morning.

Not to belabor the point with the credit facility borrowing, but obviously this is a strong time of the year for free cash flow, and with your debt obligations it looks like you should have no problems paying down debt with the free cash flow generation, for at least the next couple of years anyway, so in that regard could you maybe give a bit more color as to what made you decide to pull the trigger in September with this extra borrowing?

Sure. I gave a long answer to George, so I can understand. I did cover part of that, but to be clear, this borrowing was partly to cover the working capital needs that we would have. But it was partly a proactive move around what we think might happen out in the market in general. So this is not a case where we needed all of this cash necessarily in the short term. It had a little bit more to do with kind of what was going to happen to the broader economy, et cetera, going forward.

So that's what was on our mind. And so, yes, we can pay down some of it against our working capital needs next year, but we really just want to wait out and see - again, cash is going to be very important for kind of the growth of the business going forward, and we thought the more liquid we were the better off we'd be against that.

One quick I follow up. Of course cost saves have been a big part of the story within your metal container segment. I just want to get an idea with some other recent plant closures you've done in Stockton and St. Paul, how much more cost saves there might be with those closures, or are they pretty much tapped out by this point?

You referenced Stockton and St. Paul. Most of that has kind of funneled through the earnings in '08. We have done some additional rationalization in Richmond, the Turkish facility announced this quarter, and the Tarrant facility in the metal containers business, as well as the restructuring that we did earlier this year around the European operation in general. So there is incremental cost savings to come around those as we move into next year.

Okay, great. Thanks guys.

We'll go next too Tim Thein with Citigroup.

Thank you. Good morning. Two questions, here. First on closures, can you comment if you saw any or if you're seeing any -- you mentioned plastic -- I'm sorry, the PET business in North America obviously, the single-serve woes have been pretty well documented. I'm wondering if you've seen any in Europe, I think you're a bit more levered to glass, and my sense is it more on the food side so it wouldn't really apply, but if you have exposure to beverage there, if you're seeing any shift from glass to cans?

And then secondly, in North America, how would you look, if you look into next year, I mean, how do you guys view an environment where I would expect inflationary pressures come down enough, that PPI number, all else equal, probably comes down next year. How do you view that in terms of less bench -- less of a cushion for you guys to try and keep your costs under that PPI benchmark? I guess just what I'm saying is how do you view that in terms of, if we're in an environment next year of lower inflation and what that means to your margins in metal food?

Tim, Tony. I'll try and -- it was a long question, see if I make it through. In Europe, first of all, beverage is an important part of the Europe market as well; in that case, it is of course a metal closure on a glass beverage bottle. Yes, there again, you're seeing some, although it's a little different than the US, you're seeing some trade away by the consumer away from some of those beverage products. A bit of the same trend in that regard. So, therefore, the volumes in Europe broadly were a bit disappointing to us as well, for that reason primarily. The question you asked about kind of the shift to glass as a driver of that, I think there is an increasing -- sorry, shift from glass of course - I think there is some increasing pace at which that's happening but it's still pretty modest in Europe against anything we saw in the U.S. So I don't think that's a major player to what's happening.

Okay.

The -- as to the inflation environment for next year, I think first of all, let's hope that what you say is right, it certainly makes sense that we would see less. I think it's important to understand that in our cost structure in 2008, we suffered significant inflation in our costs. So part of what 2009 will be about is recovering some of that inflation that we experienced. So in our can business that happens through a contract, in our European closure business, to pick another end of spectrum there, that happens through a negotiation of price. But part of what we would actually expect to see is some recovery of the inflation that we suffered in 2008 going into 2009. So the answer to your question is no, that lesser cushion, if you want to call it that, that's more of a 2010 kind of a question.

Okay. Good, thanks a lot, guys.

We'll go next to Christopher Butler with Sidoti & Company.

Hi, good morning, guys.

Good morning.

In light of everything that's happened here over the last few weeks with the markets, and looking at your's pension plan and the allocation towards equity there, has there been any change before October to the allocation that's going to help as far as what we're going to look at for costs going into 2009?

Chris, there's a couple of questions in there. Obviously, what's happened to the market over the last several weeks and months has certainly had some impact on the asset values. But I don't think it necessarily will have a material impact on our funding requirements. Obviously, it will be a day-to-day watch and see where the year ends in terms of how bad the performance is down year-over-year, and what that means to ultimately the expense for next year and any funding requirements. But maybe I'll try and give you kind of broad parameters. Our pension plan was roughly about $400 million worth of assets at the tail end of last year, and was about 90% funded at that time. We have seen a pretty meaningful decline in those asset values as investment returns are down roughly 25%, and that's pretty well in line with the broader market, because we are funded into indexed-based funds, and it's about 58/42 equity to debt instruments, if you will.

We made an incremental contribution during this year of about $8.5 million, and based on this performance, we project that we'll be able to maintain a funded status that's above the PPA target thresholds, which, as you may know, is where incremental PGBC premiums and benefit disruption and those kind of things start to kick in. So we shouldn't have any problems against those. What it does mean to us is that we would have an expectation that we'd have to fund somewhere in the neighborhood of $10 million to $20 million, and that's based on information that we know today. And just to give you some correlation, that's pretty well in line with the annual -- the average annual contributions we've made over the last five years. So not really a material impact for us at this juncture, but it's something to continue to watch.

I appreciate the detail. And similarly, with the release, you didn't talk about any problems with your cash position. I assume that that's being invested in money markets or something that's very conservative at this point?

The conservative part of that is right. We sort of distributed it out so that we're invested in Treasuries to obviously protect the cash that we borrowed, and what that does mean obviously is that it just -- it sort of maximizes the negative arbitrage that's hitting the P&L.

Treasuries or government-backed securities of some kind.

I think you said that due to natural hedges, FX was - had a minimal impact in this quarter. Where we stand right now with foreign currencies, what kind of impact do you have baked into your fourth quarter numbers?

We're forecasting no impact on earnings there, either. Remember, we sort of balanced both financing those international acquisitions in local currency, and balance cross-country relationships, vendor-customer relationships, to offset the that. So on a year-to-date basis, from a profit standpoint we're neutral. That was the case in the quarter and we would expect that to be the case for the fourth quarter; while geographically there's some difference on the P&L, the net is - we would expect to be neutral.

Great. Thank you for your time.

Okay, Chris.

We'll go next to Craig Hoagland with Anderson, Hoagland and Co.

I had a quick question on resin prices and if you're seeing those turn as fast as we're seeing energy prices turn, and what impact you might expect in the next couple quarters?

Sure. Just looking at Q3 quickly in the rear view mirror, it was a dynamic quarter for resins. We came into the quarter with significant inflation, really peaked in August and saw the beginning of the decreases in September. Our forecasted outlook for resin is continued decreases. We're a little more cautious maybe than what some of the other markets or publications are saying for resin at this point, but that's consistent with how we've looked at it in the past. But we do see continued falling prices for resin going forward.

Okay. And you do expect that to help margins in the plastics business in particular?

Yes, that's correct, as we have the lag effect pass-throughs of those decreases.

Right, okay. And also the mathematical effect you mentioned before.

That's correct.

Okay, thanks.

We'll go next to Richard Skidmore with Goldman Sachs.

Thank you. Just to clarify that last question, the lag that you have in plastics, is that about a three-month lag between your pricing and resin?

On average, I think three months is very close. 60 to 90 days.

Okay. And then just a couple of other quick ones, quick questions, the volume decline that you saw in plastics?

Yes. Your question is how much was that?

Yes.

It was about 1%.

Okay. And then following up on a previous question on the cost savings at the recent closures, how much have you discussed with regards to the potential impact for 2009 from the recent closures at Tarrant and Richmond?

We haven't really gotten into '09 numbers as we sit here today.

So you haven't talked about how much those closures may save you?

Not in specific dollar amounts. All we said is if you look at them on a cash-on-cash return basis, that you'd see kind of a three-year payback on that. And just kind of to give you that basis, Tarrant was about $2.4 million in total costs, about $2 million in cash, and then Richmond was about $1.1 million in total costs and $800,000 in cash.

Thank you.

By the way, some of the benefit of those was already in '08, so that's not added into '09.

(OPERATOR INSTRUCTIONS)

We'll go next to George Staphos with Banc of America Securities.

Thanks. Hi guys. A couple of questions around the food can business. Do you have any larger long-term contracts coming up for renewal any time in the next 12 months? If you could remind us there. And then separately, from the trade [view] that we've seen, the [pack] while delayed this year has been progressing and progressing more quickly. I don't know if that means anything for your volume in the fourth quarter but if you could give us a bit of comment or two there as well?

Sure, regarding the question on our food can business and our customer contracts, as you recall at the end of last year we stated we had about 40% of our agreements were renewed or extended last year. So the quick answer is no, as far as having any major piece of that business coming up in the short term.

Moving on to the pack question, I would agree in general. If you start with the Midwest pack, despite the early flooding and late planting, we actually had a pretty good pack in the Midwest for vegetables. So it didn't finish all in Q3, we'll have some slippage into Q4, but nothing of tremendous significance. If you go out to the West Coast, tomatoes did start a little bit late as well, but they actually finished very strong and actually the pack concluded for the most part in the third quarter. So I think when I take both of those together, in general the pack's not very different from last year's pack. The Midwest vegetables started a little late and went a little bit into to October, and tomatoes caught up and closed out in Q3.

Okay, that's fine. Appreciate the color there. Then I think it was Chris' question around resin, and what it might have cost you in both of the businesses in the quarter, and I didn't quite follow the answer, guys. You mentioned something about 100 basis points in terms of mathematical impact, and then you mentioned something about 50 basis points of compression. Yet when I look at the year-on-year margin change in both of those businesses, unless I'm looking at it incorrectly, the margin compression was worse. Again, ballpark, what did the lag in passing through resin cost you from a margin standpoint in either of those businesses?

Well, first of all, if you look Q3 to Q3, let's talk plastics first, the margin pressure there when you take out rationalization is 1%, 100 basis points. So it's not great. In fact, what I explained was a greater number than that. The mathematical side of that alone gets you pretty close to that difference.

Now, we all know there was lag in passing through as well. The rub of that, remember what Adam said, that you saw a peak during Q3, and then some fallback from the peak. So in fact, if you look at it, the mathematical side of it is a little stronger than the net year-on-year of the lag. So it's less than 100 basis points, I said 50, it's some - probably in between those two, in fact. And then what happens is the manufacturing side basically has done a great job of making up some of that headway. Relatively the same kind of answer you'd get out of the plastics side of the closures business.

Okay. And then in terms of volumes for the quarter in both of those businesses, again they were done roughly equivalently, and it sounded like within plastics closures, there was a bit more volume slippage because of the beverages business, while food closures, which are more metal, hung in a bit better? Is that the fair summary on what you're saying there?

Absolutely.

Okay. I'll turn it over.

We'll go next to Mark Wilde with Deutsche Bank.

Good morning. Is it possible to get a little more color as to how the first three weeks of the fourth quarter have looked in the different businesses?

Sure, Mark, we'll start with metal foot containers. Again, as I mentioned the Midwest vegetable pack did slip a little bit into the fourth quarter. So I think we had a slightly stronger October here at the start, I think that will settle out and October should be about the same as it was last year, given that we had tomatoes slipping into the fourth quarter of last year. So a good start, but I think for the month we're not expecting really much different than we had last year.

On the plastic side of the business, I'd say, again, right at expectations. We're seeing continued softness for demand for plastic products. The issue that we have in our plastics business is most of our new product launches that we've been able to enjoy for this year have been offset by general softness in the market. So whether or not we're any different from that at this point, the first three months of October, I don't know. I just think we're seeing essentially the same type of demand levels in our plastics business.

And for closures, I would say essentially the same thing, just continued softness, primarily on the beverage side of the business for our closures business.

Second question. Steel prices just broadly for commodity steel is falling. Is there eventually a point where that kind of ripples through to the tin plate market, or is the tin plate market just completely decoupled from the overall steel market?

Good question. The tin plate, I would argue, should be somewhat decoupled from the broad steel market. What essentially happened, though, to kind of go back, is if you look at the past year, we saw a rapid run up in inflation across a bunch of product areas - oil obviously drives plastic resin, that were up. If you look at the average last year to the peak in Q3, up some 45%. Glass was announcing up 40%-plus increases. Steel actually went even more than that, if you're talking about the basic cold-roll or hot-roll steel, it went even more than that. Tin didn't. What we talked about in the beginning of the year were kind of low to mid-teen type increases for cans. That reflected the fact that tin is and should be a more stable product area. It has historically been a more profitable area for the steel manufacturers. The way that works is that of course it shouldn't react on the whip saw on the upside either. That's been sort of what's happened here.

However, therefore what that sets up is while steel went way up, stell as we are all reading in the journal is now coming down, but tin would need to go up fairly significantly just to kind of get back to what is reasonable against a likely stabilized level for steel. And so I think tin did exactly what we expected it to do, it went up, and it went up in a more stable manner, and that means it has to go up against again next year, even in the face of declining steel and other commodities. But remember, because we passed through less than those other commodities last year, the competitiveness of the cans was enhanced last year. It went up it less than other competing materials, and our view is that that will continue as we move forward.

Fair enough, that's a good answer. Last question I had, just in terms of credit conditions, can you talk about anything you might be seeing in terms of their behavior of your customers, or their customers at this point, to tighter credit conditions?

In fact, I think we'd have to honestly tell you there has not been a lot of that yet. There' s not much we can point to right now that says people are dragging out payments. There are obviously the odd one here and there that has refinancing requirements coming up and they're trying to work themselves through that. But really, in fairness, we can't say the behavior has changed much. So everything we talk about on the cash has been more of a proactive concern about what the next step might be.

Fair enough. Thanks, Tony.

At this time, there are no further questions in the queue. I'd like to turn the conference back to Mr. Allott for any additional or closing remarks.

Great. I want to thank everybody for the time. Obviously we feel like we have a good quarter and are on our way to completing a good strong year for the company. We look forward to talking to you at the end of the year about the year and our Q4 results. Thank you.

This concludes today's conference. We appreciate your participation. You may new disconnect.