Silgan Holdings Inc (SLGN) 2008 Q4 法說會逐字稿

Thank you for joining Silgan Holdings' fourth-quarter and full-year 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 would like to turn the call over to Mr. Miller. Please go ahead.

Thank you. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call may be forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the company and, therefore, involve a number of uncertainties and risks including but not limited to those described in the Company's annual report on Form 10-K for 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.

Thank you, Malcolm. Welcome, everyone, to Silgan's 2008 year-end earnings conference call.

I want to start by making a few comments about the achievements during the year, Bob will then review the financial performance for the full year and fourth quarter, and then Bob, Adam and I will be pleased to take any questions.

As you have seen in the press release, 2008 was another strong year for Silgan with record revenues and income and strong free cash flow. We, again, achieved double-digit earnings growth with adjusted net income increasing over the prior year by more than 11% to $3.69 per diluted share. While there were challenges in 2008 for all, we believe the performance of each of our businesses in the face of these challenges provides insight to the strength of the Silgan business franchises.

Among the milestones for 2008, we achieved record net sales in excess of $3 billion and record income from operations. We improved operating performance in each of our businesses. We generated free cash flow of $181 million. We improved our leverage ratio under our credit agreement to a level under two times. We continued the consolidation of the global vacuum closure industry with the acquisitions in Spain, China and Brazil. We invested approximately $123 million in capital to support growth and productivity improvements and deliver attractive returns in each of our operating businesses. We maintained SG&A as a percentage of sales at low levels despite significant inflation over the year, and we increased the annual dividend to $0.68 per share.

In summary, we believe Silgan has continued to demonstrate the strength of its sustainable competitive positions, and our adherence to our core business and financial disciplines has continued to serve us well. We remain committed to strengthening these franchises by investing to enhance our capabilities, working to provide best value products to our customers and ultimately to deliver high returns on capital for our shareholders. As you can see in our growth outlook, we believe we're well positioned to do so again in 2009.

With that, I will turn it over to Bob.

Thank you, Tony. Good morning, everyone. There is no question 2008 was full of challenges for both Silgan and the broader market. We saw extreme volatility in the raw material markets, energy costs whipsawed throughout the year, the credit markets all but collapsed, and certain of our product categories were impacted by consumer spending patterns.

Each of our business franchises rose to these challenges, stay focused on the core fundamentals and collectively delivered record earnings and strong cash flows during this very difficult economic environment. As important, we find ourselves well-positioned for the coming year.

On a consolidated basis, we broke the $3 billion revenue threshold for the first time in Company history. Net sales for the year were $3,120,000,000, an increase of $198 million or 6.8%, largely as a result of higher average selling prices due to the pass-through of higher raw material and other costs, favorable foreign currency translation and increased volumes in the Metal Food Container and Closure businesses. Foreign currency benefited net sales by approximately $25 million for the year.

We converted these sales to net income for the year of $131.6 million or $3.44 per diluted share compared to 2007 net income of $122.8 million or $3.22 per diluted share. After netting out rationalization charges, which we believe provides the best comparison of operating results, comparable adjusted earnings per diluted share increased 11.1% from $3.32 to $3.69. Foreign currency was a headwind to earnings in the fourth quarter and full year due to the short-term volatility of the Canadian dollar and the Polish Zloty during the fourth quarter. This impact is reflected in our SG&A expense.

Interest expense declined $5.8 million, primarily due to lower market interest rates. This benefit was partially offset by higher average borrowings as we maintained higher revolving loan borrowings in response to our caution concerning the credit crisis.

Our 2008 effective tax rate of 35.7% is generally in line with expectations and reflects an 80 basis point improvement versus the prior year. The current tax rate reflects the benefits of certain nonrecurring state tax incentives and the research and development credit recently renewed by Congress. Offsetting these benefits was a valuation allowance against certain tax positions in Turkey.

Full-year capital expenditures totaled $123 million, which is in line with our expectations but notably lower than the 2007 spend of $155 million. Our 2008 capital spend was distributed across each of our businesses as we invested in a combination of growth opportunities and cost reduction initiatives in addition to our ongoing maintenance capital.

Additionally we paid a quarterly dividend of $0.17 per share in December. The total cash cost of this dividend was $6.5 million. And for the full year, we returned $26 million to shareholders in the form of dividend.

Consistent with last year, we have included a reconciliation of net cash provided by operating activities to free cash flow in the press release marked as Table C. As outlined, our free cash flow for 2008 increased $63.2 million to $180.7 million before dividends. The primary drivers of the increase were reductions in working capital despite significant inflationary pressures, lower capital spending and improved earnings. This free cash flow was used for the net financing activities of $75 million, including the repayment of $94 million of term debt to pay dividends of $26 million and to fund acquisitions of $14 million with the excess reflected in our year-end cash balance of $163 million.

While we chose to pay down our entire domestic revolver at year end, given our ongoing caution regarding the credit markets, we continue to hold sufficient cash to meet our peak seasonal working capital needs. I will now provide some specifics regarding the financial performance of our three business franchises.

The Metal Food Container business recorded net sales of $1,790,000,000, an increase of $105.9 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 $10.9 million to $162.2 million for the year. The increase in operating income was the result of continued cost control and manufacturing efficiencies, lower year-over-year rationalization charges and slightly higher unit volumes. These benefits were partially offset by a negative cost impact as we substantially reduced inventories in the fourth quarter of 2008.

Net sales in the Closures business increased $67.6 million to $682.8 million, driven primarily from increased unit volumes due to the inclusion of the international acquisitions completed earlier in the year, favorable foreign currency translation of approximately $23 million and the impact of higher average selling prices resulting from the pass-through of higher raw materials costs. These benefits were partially offset by weaker demand for single serve beverage products. Income from operations in the Closures business decreased $6.4 million to $59.8 million in 2008, primarily due to higher rationalization charges associated with the decision to cease operations in Turkey and consolidate various administrative positions throughout Europe, as well as a significant cost inflation.

Ongoing cost controls, improved manufacturing efficiencies and improved unit volumes partially offset these costs. Net sales in the Plastic Container business increased 3.9% or $24.5 million to $651.9 million in 2008, primarily due to the effect of higher average selling prices due to the pass-through of higher raw materials costs, partly offset by a decline in unit volumes. Operating income increased $4.6 million to $54.8 million for the year, largely as a result of rapid declines in resin costs in the fourth quarter and the timing of the corresponding customer pass-through.

Ongoing cost control and strong manufacturing performance partially offset cost inflation and declining unit volumes, which had a percentage decline in the low single digits for the year.

For the fourth quarter, the Company reported earnings per diluted share of $0.64 as compared to $0.52 in the prior year quarter. Both the fourth quarter of 2008 and 2007 include rationalization charges, which negatively impacted earnings per diluted share by $0.05 and $0.03 respectively. After excluding the effect of rationalization charges, adjusted earnings per diluted share increased to $0.69 as compared to $0.55 in the fourth quarter of 2007. Sales for the quarter increased $57.8 million versus the prior year, driven primarily by the effect of passing through of higher raw material costs in the Metal Food Containers business and in the middle portion of our Closures business. Our Metal Food Container business had a mid single digit percentage increase in unit volume as certain customers may have purchased inventory ahead of the 2009 steel inflation.

Our Closures business suffered from unfavorable foreign currency translation of $7 million, and both the Closures and Plastic Container businesses experienced slight volume declines in the quarter. Income from operations for the fourth quarter of 2008 improved $4.3 million over the same period in 2007. The improvement in operating income was largely a result of the delayed pass-through of rapid resin declines in the Plastic Container business, which improved $12 million versus the same quarter a year ago.

Offsetting part of this improvement was the negative year-over-year comparison in the Metal Food Container business, which declined $4.7 million in the quarter. Strong unit volume growth in the Metal Food Container business was offset by a further tinplate still inflation in the quarter and the negative fixed cost absorption as a result of significant inventory decline as volumes benefited from the customer buy-ahead.

Turning now to our outlook for 2009, while the economic outlook is difficult, we continue to believe that diversity, strength and stability of each of our franchises benefits us in the face of such a challenging environment. We currently estimate adjusted earnings per diluted share for 2009 to be in the range of $3.75 to $3.95, which excludes the impact of rationalization charges. These results would represent a 4.3% increase to the midpoint and a 7% increase to the high-end of our range against the strong performance in 2008.

Reflected in our estimates for 2009 are the following. We're forecasting a similar mix of products sold in the Metal Food Container business with volumes expected to be flat to slightly improving. First-quarter volumes are expected to be softer as we believe there was a fourth-quarter 2008 buy-ahead. A return to more normal inventory levels should also benefit the year. The Closures business is expected to experience volume declines as we continue to expect erosion in the single serve beverage market. Unit volumes in the plastic business are expected to be stable as new project awards are offset by general demand weakness, while lower year-over-year resin costs will result in decreased net sales in the plastics business.

Operating profit is expected to improve in the first quarter of 2009 as a result of the continued lag effect of resin declines, while full-year operating profit is expected to decline modestly as the lag pass-through of these resin declines is expected to be less favorable than in 2008. We expect continued benefit from cost reductions in productivity programs across each of our businesses. Incremental pension expense will offset a portion of the earnings across each of our businesses. In addition, we expect interest expense to decline versus 2008 as a result of lower interest rates and lower average outstanding borrowings.

We currently expect our tax rate to be consistent with 2008, and also we expect lower capital expenditures in 2009 as we keep a tight rein on spending. As previously discussed, our normal range of capital spending is $110 million to $140 million. We currently expect spending for 2009 to be at the low end of this range.

We're also providing a first-quarter 2009 estimate of adjusted earnings in the range of $0.65 to $0.75 per diluted share, excluding rationalization charges. Given our current outlook for 2009, we expect free cash flow in 2009 to be consistent with 2008. The primary drivers are improved earnings and lower capital spending, offset by higher working capital and incremental pension contributions.

I would direct the free cash flow target to a range of $150 million to $200 million as the timing of year-end steel payments and customer collections can have a meaningful impact on working capital at any given point in time.

We continue to seek disciplined opportunities to reinvest in our business while optimizing our free cash flow generation during this uncertain credit market.

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

(Operator Instructions). George Staphos, Bank of America.

Congratulations on the year. The first question, can you give us a bit more basics on what was happening with food can margins in the fourth quarter? And if you were seeing increased demand, why were you shipping out of inventory? Why wouldn't you have just produced more, which would have absorbed more of that fixed cost? And I had a couple of follow-ons.

You are right. We did see relatively strong revenue in the fourth quarter from the food can business, and that growth was primarily driven by unit volume in the food can business of an increase of just over 6% versus the prior year.

At the same time to your point, we were pulling back on production at year-end because we had not seen the significant volume increases prior to that point in December. So we were pulling back on our production volumes, which the increased sales drove more overhead through to the P&L. And, in fact, we saw about a $20 million decrease in finished goods inventory for the food can business.

In addition to that, we also saw further inflation in tinplate costs for 2008 than we recognized in the fourth quarter. So really this is a timing issue. The increased sales volumes, not only do they come in in the fourth quarter, they came in truly in December.

Okay. And I'm just a little curious with the raw material cost pressure that you cited, why wouldn't that have normally been just captured in your normal pass-throughs? You're setting your selling prices relative to your steel costs. Is it just a function of perhaps you had bought some metal at a higher price planning for 2009? Obviously tinplate prices are going up. But your selling prices had not yet adjusted for the fourth-quarter volume?

Well, I think what happened is you look at our tinplate costs for 2008, number one, our costs came in essentially where we expected them to over the course of the year. So again, there is a timing issue versus the full year and what we traditionally true-up in the fourth quarter both with our suppliers and our customer from a tinplate costing standpoint.

I think the more relevant comparison if you're thinking margin, etc., is really to look at full-year margins. The fourth quarter has been kind of whipsawed by two things. It is being whipsawed by the inventory, the fact that we filled the sales by the inventory be it the reasons Adam said, which had a better than $5 million impact on the quarter, and the fact that essentially you have got -- you are working on true-ups of your steel costs against the customer pass-through, all of which gets passed through on the year, but it's not always perfect in the quarter.

Okay. A couple of last ones, and I will turn it over. You mentioned that we should expect modest earnings improvement within food can paraphrasing, but if you can give us a bit more clarity in terms of what the drives will be. I remember, I seem to remember that is related to mostly productivity. And then did you guide on what you expect for Closures EBIT for 2009? You had mentioned what you expect from Plastic Containers.

Yes, George, first of all, on the food can side, essentially what you're saying is that because we're going to have so much inflation coming in, that is going to give us a headwind, if you will, on the margin rate, obviously having no bearing on the actual operating profit coming through.

Against that, our expectation is that we will continue to have strong operating performance. We will continue to benefit from some of the plant closures that we have done over the past year or two. So mostly it will be an operational-driven improvement against that that we are believing will give us a little bit of improvement, flat to some improvement on that rate. But certainly on the dollar drops, we're looking for improvement next year.

Got you.

On the Closures side, you essentially are going to have a couple of things going on. One is, we're anticipating that you'll have continued challenges on the single serve beverage volume side. So our expectation is essentially that you'll have -- that will be a little bit harder for us and that we will more or less offset that, and we're not really clear whether on a rate perspective what happens here. But essentially we will be working to offset that with the operating performance that we anticipate during the year.

I should note also we did have some inventory drawdown on the Closures business as well. The metals side also had some pull-forward we think, and so you get some benefit of the fact that that will not recur either next year.

Okay. Thanks for the details, guys. I will turn it over.

Chris Manuel, KeyBanc Capital Markets.

A couple of questions for you. First of all, I think in the press release I had read you were anticipating a flattish or similar food can volumes for '09 versus '08. Can you help us a little with how you would foot such a strong trajectory, and what appears to be some of your customers having some up volumes and a little bit with the anticipation for '09? I would have anticipated I guess a little bit of growth there.

There is a significant amount of data at this point that supports the idea that the food can should be seeing the benefit from the current economic situation. As we continue to talk about restaurant, dining occasions are down. We have seen increased supermarket and superstore consumption here late in the fourth quarter. And anecdotally if you look at some of our key markets like soup and some of our key customers, you will see some strength on the go-forward basis.

So we feel pretty good about a slight increase to our food can volume for 2009 as we sit here today. But the uncertainty of the current economy is a factor that we're just not clear on at this point.

I think also just add to that the fact that we are saying a portion of the fourth-quarter sales are buy-ahead that we think will impact the early part of next year.

By the way on that, I want to note that we certainly did not want -- did not encourage our customers to do buy-ahead. It is not in our interest for that to occur, and not all of this is buy-ahead. It is pretty clear when you look at kind of the areas where the growth was, etc. Some of this looks to be kind of underlying strong performance.

So we are not trying to say everything was buy-ahead, but it looked to us pretty clearly like some of it was buy-ahead that we could not really prevent.

Okay. So could you help us may be quantify both in the metal food and within the plastics, what it is called unusual activity from being a resin gain, and your price cost was mismatched in the plastics and what the slower production and the prebuy might have impacted you in each of those segments?

Sure. We will start with plastics. If you look at the improvement in plastics that we saw in the fourth quarter, the majority of that improvement did come from price declines in resin and the lag passing through of those costs to our customers. So there will be a residual benefit that we will see in the first quarter of 2009 as we continue that pass-through mechanism.

I will also say we're starting to see some inflation now here in the first quarter of 2009, so that benefit will be offset by a bit of headwind as we look at the resin markets going forward.

If you jump back to the food can business, as Tony said, we had about roughly $10 million of nonrecurring costs to the quarter, and as we look at the inventory component of that, we will say slightly more than half of that value will not repeat in 2009, and it will be not a detriment in 2009 as it was in 2008.

Okay. Thank you. And one last question I had was on the free cash flow. It looked like you had a new category that you brought in in the I think it was Schedule C, a change from how you presented it in the past. Bob, can you may be give us a little color there what is the checks held for payment stuff there?

Yes, essentially the way we reflect held checks in our cash flow statement is that they get recorded down in financing activities, which is largely due to the fact that we used zero balance accounts. So any outstanding check is treated as a borrowing, if you will.

But given that essentially we just had less checks outstanding at the end of the year, and that the checks are out, we treated them as paid essentially for the year. So we think it is a better reflection of the treatment of that by looking at the free cash flow net of that change in outstanding checks.

So these are just outstanding checks that are part of the ordinary payables cycle. And because we do them off of zero balance accounts in our statement of cash flow, the accounts put it down as a financing item, not as an operating item. And so for our purposes, we're saying as we think about cash flow, we think it is relevant to the entire cycle of cash flow.

Okay. And at year end, I know it is tough to look ahead to year-end '09, but was it unusually big this year? When we looked back at it last year, I think it was only $7 million or $8 million.

Keep in mind, Chris, that that is the change on a year-over-year basis that you are seeing there. So this year was a bit of what I will call an oddity where we had far less checks outstanding. But essentially it is all just timing as to whether it is reflected in the outstanding check number, or it is up in the operating section for changes in working capital, in this case payables.

Claudia Hueston, JPMorgan.

You mentioned higher pension expenses. I was wondering if you could just put some numbers around that and then maybe what your expectations are in terms of discount rate and rate of return for '09?

Sure. Well, essentially let's talk about what '08 brought us. I mean we came into the year with roughly $400 million of assets. Performance was down about 18% on a year-over-year basis.

What that means for us is incremental pension expense of $15 million to $18 million. That will probably lead us to additional incremental contributions in the neighborhood of $10 million to $15 million, and that is over and above the $11 million or so that we spent this year or that we contributed this year.

In terms of our assumptions for next year, we're looking at a discount rate that is blended between the plans, but a blended rate of about 6.3% and a rate of return that is 8.5%.

Thanks very much. And then just looking at your guidance for the first quarter, if we think about high-end versus the low-end, is it mostly volumes that is sort of driving that difference, or is there something else as we think about low-end versus high-end?

That is a good question. There is quite a bit. Certainly volume would be one of that. How much is buy-ahead and how quickly does that; if so, does it influence? But there's also quite a bit moving in terms of inflation and price pass-throughs, and in some cases, of course, remember that we actually have to go get price increases. Our can business has pretty efficient pass-throughs. That is not necessarily as true across the board.

So it's quite a bit in that first quarter. And also, I will remind you that seasonally Q1 and Q3 tend to be less strong quarters. And as a result, the EPS swings a lot more because you've got a lot of fixed cost sitting there against how much volume comes through.

Okay. And then just finally, on the prebuy issue, where are your inventories now versus where you would want them to be at this time of year?

I think in the can business and in the Closure business, they are probably a bit low, although you will understand that we cannot help but ask ourselves can we hold some of that gain now that we have gotten it there.

So I'm not sure we are clear yet whether some of that can be held. But we have to fairly say this was beyond what we were managing ourselves to. And so in fairness to our business guys, they probably need to have some recovery of balances on volume.

Alton Stump, Longbow Research.

Good job on the quarter. Not to beat a dead horse here, but just with the buy-ahead in metal cans, obviously you gave some pretty specifics on the cost front as to what the hit was. Any idea as to what the actual topline boost was from that buy-ahead in food cans?

We can tell you that the volume was up a little over 6%, so that you can probably get pretty close to it with that.

Okay. But I think just in terms of what some of your competition has done in food cans in the fourth quarter, it sounds like the overall market was up mid single digits, so it was a boost. Was it more than 200 basis points? Was it more than that from the buy-ahead for you guys?

I'm not sure I'm tracking the question. I'm giving you the revenue line. If you're talking about the drop through, again you would have to look at two things. You would look at kind of a normal margin drop through for us, and then we're telling you that there is about $10 million in the quarter that sort of offsets that.

Okay. Because what I'm trying to get at here was just with the net impact all-in, was it positive or negative from that buy-ahead on the profit line, if you have any color?

It is definitely positive on the profit line. There is no question about that. The conversation has more to do with the margins because you're bringing in costs, overhead costs for prior periods as you sell the inventories, and so that has more of a margin impact.

Mark Wilde, Deutsche Bank.

First question on the volume outlook for next year, we talked a lot about the food volume, but I think, Tony, in the past you mentioned one area of uncertainty is how the pet food business kind of responds in a downturn. It is nearly 25% of the market. Can you give us any color on what you are seeing there?

Yes, well, I will turn it to Adam.

If you look at our pet food market versus the overall food market that we serve, we're expecting essentially a flat volume versus 2008 for 2009. That market typically does suffer a little more challenge I think as we look at the economy and consumer spending habits. But at this point, we feel good about the brands that we are associated with and the growth that they have brought to us over the last couple of years.

Okay. Second, Tony, can you talk at all about where you're going to be putting capital in '09? You said you are going to be at the low-end of the normal range, but maybe you could just help us think about what is normal maintenance capital, CapEx for you guys, and then what is really discretionary, and what you're going to be putting discretionary toward?

Okay. It is always -- the maintenance question is always out there. We have kind of a standard answer to it, although it is tough to get it. But I would say something like $50 million, give or take a good $10 million to $15 million around that, is what you would probably have to spend just to maintain your business. So we will call that maintenance. And then so therefore, the rest of that up to the low-end of the range would be 110-ish kind of a number will essentially be spread as our capital has been in the past.

So there are opportunities and continue to be in the plastic business for us to pursue certain growth. Likewise, we continue to spend on productivity and cost reduction opportunities in the can business and in the Closure business. I think maybe the one difference could be that because of what we've talked about on the single serve beverage side, that is an area where we have been putting a fair amount of capital in, fueling behind the growth of that segment. It would appear to me right at this moment at least that we can take a breather on that and wait and see how that market plays out.

And then the final question I had, from a financial standpoint, you are in some of the best shape that you have ever been in in terms of just your coverage ratios.

As you think about sort of acquisitions, where do you see the market right now? Have people's value expectations come down enough do you think?

Well, this is Bob. I think the multiple expectations have probably contracted to a point where they are getting at least more reasonable in our view. I think the problem still sits there that the credit markets just are not cooperative against that.

So I mean could we go out and do a smaller bolt-on acquisition within our current capacity? Yes. Would we do something that moves the needle against the broader borrowing capacity of the Company? That would have to be at a price that obviously takes into account repricing the entire credit structure of the Company. So I'm not sure that we would have necessarily gotten to values that make sense relative to that yet, and I think the broader market is there as well, and that is what we have not seen a whole lot of M&A activity going on in the marketplace.

That said, we do continue to do our work and control the waters here for opportunities, and we feel like we've got a pretty good pipeline of things that we're talking about internally and externally, and it is a matter of getting some support from the credit markets to be able to get them done.

Richard Skidmore, Goldman Sachs.

I would just like to thank you. Just to follow-up on Mark's question with regards to your leverage, Bob, where do you think the appropriate leverage ought to be for Silgan? Has it changed in your mind given where we are at? And as you look through the year, is the planned just to take the cash generated through the year and just keep it on the balance sheet?

Well, I think generally our view has not changed over the long-haul. I think we have said that somewhere in the 2.5 to 3.5 times leverage range is probably appropriate for this Company given the cash generating power of it. But in this credit market, I think it is a completely different story. And we said before that we are very comfortable being by that definition under levered for a period of time. I think that is exactly where we sit right now, and then we will squeeze all of our free cash flow and hold it to be able to hold cash for -- against that credit market risk, if you will.

So today I don't have anything that would tell me that we should be doing much to lever the Company, and I'm comfortable from where I sit that continuing to hold cash is the prudent thing to do.

And then just maybe a question on top of that for Tony. How do you weigh the benefits of maybe raising the dividend versus conserving the cash and having the leverage come down?

Well, I think squarely Bob and I are in the same camp on that. Right now we have used expressions like cash is king, etc. Our feeling right now is that liquidity is critically important. We have been quite successful over a long period of time building this business through acquisitions, and therefore, we think it is pretty important that we leave ourselves in as flexible a posture as we can right now when the credit markets are in such bad shape. So we would lean pretty heavily -- in the near-term, I would at least -- to just kind of holding the powder right now as opposed to any sort of major shift on dividend policy.

Right. The other thing I would add to that, too, is keep in mind that we have got amortization payments coming due on the term debt, so it is somewhere in the neighborhood of $130 million for 2009. So a portion of our free cash flow generation will go to pay down those amortization payments.

George Staphos, Bank of America.

A follow-on question. Tony, we're seeing that the food companies seem to be getting the benefit of their pricing actions from 2008, and previously they are hopefully getting some relief now on some of their ingredients and other input costs, can prices perhaps aside because of what has been going on with tinplate. How do you feel about generally speaking the credit worthiness and the ability to operate and market for your larger customers and not say what we have all talked about ad nauseum here for the last few quarters of what is going to be a very economic environment? And then I had a follow-on.

Okay. Well, if I answer the question right, George, I think that what you say is right. I think if we looked at our customers as a group, I think you would have to say that they have fared quite well over the last couple of years. They did get their inflation through as you point out when they had it. They, too, to the extent there is trade down of the consumer, they would also stand to benefit from that. So I would say broadly we would look at our customer base and feel pretty good about it.

Now it is hard not to bring in the current economic situation. So I will just say that underneath that, obviously we are looking closer than we have at foreign credit risks. We're trying where we can to make modest shifts to the way we do business with some customers. So we're trying to manage within that context. But I think broadly that we feel pretty good about our customer base's economic position.

Are the smaller packers deteriorating at a quicker rate than perhaps what you saw in the second half or the first half of 2008? That presupposes that they are actually having difficulties, so what could you tell us there?

Yes, I don't -- we have not seen that. I think it is not so much the deterioration of business as a population. I think it is going to be more about do they have credit facilities that are coming due, and what is the implication of that? But no, we have not seen anything of late that makes us more concerned than we were a quarter or two ago.

Okay. When will your pricing be ultimately finalized historically end of first quarter was when everything was pretty much set in stone because it had to be given the crops. But when should we expect in 2009 that effectively 95% or more of your pricing activity will have been set for the upcoming year?

I'm assuming, George, that is the food can question, and our food can prices were effective January 1 of 2009. So our food can price increase that we have announced has been implemented and is in the market.

And so that suggests that your tinplate has also been locked in by that point?

That is correct.

Okay. All right, guys. Thanks very much. Good luck on the quarter.

(Operator Instructions). Tim Burns, Cranial Capital.

How does it feel as the world goes to hell in a handbasket to be the sturdy company that thrives in this environment?

Well, it is definitely a little more fun coming to work this year than it was probably five years ago when we had to talk about the new economy versus old economy.

The Plastic Containers business, well, first on the metal front. Have you seen any conversions to metal as a result of marketing decisions, you know, material displacements or what have you, or is it just kind of more volume of the same mix?

I would say we have not seen that conversion at this point. It really is growth of our existing franchise business and our existing customers.

Got you. It is not that easy to convert back, is it?

It is not, but it makes perfect sense. It is a superior package. Do you want me to go on my whole litany about that?

No, that is okay. The second thing was the Plastic Containers business. It looks like, and I could be wrong, adjusted that the year-over-year operating income was up. The margins were up. Now that includes this big hit or positive in the fourth quarter. I mean is that the way you are looking at it?

Yes. I think one of the things Adam said is that all of that is correct. Some of the benefit in the fourth quarter relates to headwind we had this year. Some of it relates to headwind from a couple of years prior. So roundabout kind of half, 50-50 of those numbers. So there is a portion that will become something we have to come up over in 2009 versus 2008.

Got you. Now the core strategy of the business, especially on the bottle side I guess, was the target consumer products at the higher end with demands for more exotic graphics and turnaround time. Is that still the strategy with people potentially downgrading in terms of the product line? I mean hell, here in Ohio people are not taking showers for a month at a time. But what is happening to your business there?

Well, the basis of the franchise is in custom molding of highly decorated applications for our plastics business. So that remains the case today. So we still see the personal care market as a market that wants differentiation on the shelf, and in many cases the turnover and lifecycle of those products supports the fact that they are willing to pay for that differentiation to some extent. So we have not seen any change in that as we sit here today.

What has happened is we have diversified into some other areas, but the core strategy of the business still remains right where it was.

Yes, I guess what I'm wondering is what is the soup and beans and stuff like that that is in the personal care area that you can target and benefit from? Predict by that.

By that you mean the more -- the less exotic to use your words. Really for us, it is all going to be around rebranding, relaunching, etc.

So I mean what we are talking about is not -- exotic is definitely the wrong word. Because it is all in kind of the sweet spot of that marketplace. But what we want to be is the company you go to when you need to do a new decorating, new launch, new shape, etc., and you want to do that quickly. So that kind of fits right in the center of that market. It is just that we are not trying to be the high cavitation ultimate low-cost kind of player to a big product area. That is kind of the differentiation.

Got you. And it sounds like you are continuing to make headway on the White Cap or the Closures business I should say. Maybe small but more movements. How far can you take that business? Are there plastic tag-ons as you go?

Yes, that is a good question. We are pleased with where that business is so far. As we have talked about, it does have a sizable beverage component to it. So it's got to deal with that. But they have done a superb job of controlling their costs as they have dealt with that, and we will expect them to keep going forward.

And yes, it does still have some -- we're in the plastic market, mostly in North America. We're very small in the plastic market in Europe. So it does present the opportunity to kind of expand what we do in the plastic side in the European marketplace at least. There could be some other plastic areas around even in our current market of Closure that would be of interest, and some of that could lead a little closer to food, which we, of course, do on the metal side a fair amount of food, not so much on the plastic side.

So, as you see the shift from glass to plastic containers, it would be very logical for -- Silgan is one of the largest food packaging companies out there -- to participate in that.

Sure. Okay. And Bob, I was just -- I have a couple of ideas. There's a few investment banks for sale, and I don't know if that is something you are interested in?

It does not quite fit our franchise.

Okay. Guys, great quarter, and I will talk to you in a few months.

(Operator Instructions). Mike Sheridan, Cobalt Capital.

Thanks. My question has been answered already.

And it appears we have no further questions at this time. I would like to turn the call back over to Mr. Miller for any additional or closing remarks.

Thank you, everyone. We appreciate your time, and we look forward to talking to you after the end of our first quarter.

This does conclude today's conference. We thank you for your participation. Have a great day.