Silgan Holdings Inc (SLGN) 2010 Q4 法說會逐字稿

Thank you for joining Silgan Holdings' fourth-quarter and full-year earnings conference call. Today's call is being recorded. At this time I'd like to turn the conference over to Mr. Malcolm Miller, Vice President and Treasurer.Please go ahead, Mr. Miller.

Thank you. With me on the call this morning I have Tony Allott, President and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, EVP and Chief Operating Officer.

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 10-K for 2009 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, and greetings everyone, from the ice- and snow-covered Northeast. We want to welcome you today to our 2010 year-end earnings conference call.

I am going to start by making a few comments about our achievements during the year. Bob will then review the financial performance in a little more detail and the quarter.And afterwards, Bob, Adam, and I'll be pleased to take any questions.As you've seen in the press release, 2010 was another good year for Silgan, as we delivered adjusted earnings per share of $2.19, up from a very robust prior year.

In addition, 2010 was an investment year for Silgan as we deployed capital towards share repurchases; bond redemptions; capitol expenditures; pension contributions; restructuring programs; and acquisitions, all providing earnings growth opportunities in 2011 and beyond. In the face of these strategic moves, our business remained focused on effectively managing costs, improving manufacturing efficiencies, and providing top quality customer solutions.

Among the milestones for 2010, we achieved record-adjusted earnings per diluted share of $2.19; repurchased 7.1 million shares or approximately 9.2% of shares outstanding; positioned the company's metal packaging franchise for expansion in the Central and Eastern European markets through an agreement to acquire Vogel and Noot, a leading supplier of food and general line cans in those markets; expanded the plastic closure business into the dairy market with the acquisition of IPEC; continued to strengthen the balance sheet through the completion of a new $1.4 billion credit facility, which provided additional liquidity and extended maturities, as well as a redemption of the 6.75% senior subordinated notes that were due in 2013; continued to enhance the cost competitive of the business by closing one of our largest plastic container facilities; announcing the closing of a second plastics facility; and further reducing the cost structure of the European closures operations for 2011; increased the cash dividend by approximately 11% to $0.42 per share and completed a two-for-one stock dividend.

In summary, we remain committed to our discipline of building our franchise market positions through prudent investment and believe this discipline will allow us to continue to create significant value for our shareholders. As you can see in our outlook, we believe we are well-positioned for 2011, and expect to deliver double-digit earnings growth. With that, I'd like to turn it over to Bob.

Thank you, Tony. Good morning, everyone. There's no question 2010 was an exciting year for Silgan. The capital markets cooperated, allowing us to refinance our credit agreement and manage maturities to provide optimal flexibility. We were successful on the M&A front closing the IPEC deal, and announcing the Vogel and Noot transaction in December.

We completed a share repurchase, redeemed $200 million of notes, and our businesses undertook very strategic rationalization programs, while collectively delivering growth over a very strong 2009, all of this leading to double-digit growth outlook for 2011.

On a consolidated basis, net sales for the year were $3,070,000,000, essentially unchanged from the prior year, as a result of higher average selling prices in the plastic container business, largely attributable to the pass-through of higher resin costs and volume gains in each business, which were offset by lower average selling prices in the metal food container business and the metal portion of the closure business as a result of the pass-through of lower raw material costs and the impact of unfavorable foreign currency translation of $4.2 million for the year. We converted these sales to net income for the year of $144.6 million, or $1.89 per diluted share, compared to 2009 net income of $159.4 million or $2.07 per diluted share.

During the fourth quarter 2010, we announced additional rationalization programs. The first relates to our decision to close the Woodstock, Illinois plastic facility by the end of 2011. This decision resulted in a non-cash charge for the write-down of assets in advance of the plant closing. As the plant is expected to remain open throughout 2011, we do not expect rationalization benefits until 2012.

In addition, we incurred a $9.2 million rationalization charge for the reduction in workforce in our German operation. This project will yield a partial year benefit in 2011. Combined with the cost to rationalize the Port Clinton, Ohio facility, rationalization charges for the year totaled $22.2 million, versus $1.5 million in 2009.

After netting out rationalization charges, the loss on early extinguishment of debt, and the non-cash impact from the re-measurement of net assets in Venezuela, comparable adjusted earnings per diluted share increased 4.8% from $2.09, to $2.19 for the full year. Interest expense before the loss on early extinguishment of debt increased $4.4 million primarily due to higher average cost of borrowings in 2010, as a result of the May 2009 issuance of the 7.25% senior notes and the refinancing of the senior secured credit facility in 2010.

During the year, the Company incurred a loss on early extinguishment of debt of $7.5 million as a result of the refinancing of the credit facility and the redemption of the 6.75% notes through 2013. Our 2010 effective tax rate of 34.7% is generally in line with our expectations and the prior year. Full-year capital expenditures totaled $105 million, which is in line with our 2009 spend of $100 million, but well below our forecasted level as we chose to delay certain projects until 2011 to maximize the tax benefit under recent tax law changes.

Additionally, we paid a quarterly dividend of $0.105 cents per share in December. The total cash cost of this dividend was $7.4 million, and for the full year, we returned $32 million to shareholders in the form of dividends, and an additional $247 million in the form of share repurchases As outlined in Table C., we delivered free cash flow of $89.1 million in 2010. During the year, we made decisions to strategically deploy capital, which reduced our free cash flow for the year, including making $92 million voluntary pension payments in March 2010th and funding incremental working capital as we purchased $32 million raw material inventory at year end, ahead of 2011 inflation.

I will now talk about the specifics of our operating businesses. The metal food container business recorded net sales of $1,860,000,000, a decrease of $52.1 million versus the prior year. This decrease was primarily due to the effect of the pass-through of lower raw material and other manufacturing costs, partly offset by volume gains for the year.

Income from operations in the metal food container business increased $26.2 million to $232.6 million for the year. The increase in operating income was primarily a result of improved manufacturing efficiencies and ongoing cost controls. The timing of certain contractual pass-throughs of raw material and other manufacturing costs and improved volumes. These benefits were partially offset by a less favorable mix of products sold. Volumes were up modestly for the year despite the strong 2009 fruit and vegetable pack, and the net impact of changes in customer buying patterns in advance of raw material inflation.

Net sales in the closures business increased $9.7 million to $618.8 million, driven primarily from higher volumes due to continued demand improvement and the single serve beverage markets, and the benefit of a likely buy-ahead in the fourth quarter of 2010, as well as the inclusion of the IPEC acquisition and the pass-through of higher resin costs in the plastic portion of our closure business.

Partially offsetting these benefits were unfavorable foreign currency translation of approximately $15.8 million; lower average selling prices in the metal portion of our business as a result of passing through lower tinplate places; and lower sales into Venezuela, as we continue to manage our cash exposure into Venezuela. Income from operations in the closure business decreased $15.5 million to $58.6 million in 2010, primarily due to $7.8 million higher rationalization costs attributable to the workforce reduction in Germany.

The negative impact from the lag pass-through of rising resin costs, the unfavorable comparison to the 2009 benefit from the delayed pass-through of raw materials in Europe, and a less favorable mix of products sold, partly offset by volume gains for the year. Net sales in the plastic container sales business increased $47.1 million to $588.6 million in 2010 as a result of higher average selling prices due to the pass-through of higher raw material costs, increased volumes, and favorable foreign currency translation of $11.6 million. These benefits were partially offset by a less favorable mix of products sold.

Operating income decreased $21 million to $10.3 million for the year, largely as a result of $12.1 million of higher rationalization costs, the negative impact of the lag pass-through of inflating resin costs, higher operating costs while implementing the rationalization programs, and a less favorable mix of products sold, partially offset by an increase in volume. Rationalization charges for the write-down of assets in the Woodstock facility and costs associated with overhead reductions in the completion of the Port Clinton rationalization program totaled $12.3 million for the gear.

For the fourth quarter, we reported earnings per diluted share of $0.$0.22 as compared to $0.$0.31 in the prior year quarter. The fourth quarter 2010 included pre-tax rationalization charges of $18.5 million, and a loss on early extinguishment of debt of $3 million, which collectively impacted earnings per diluted share by $0.20. The fourth quarter of 2009 included a loss on early extinguishment of $600,000.

Adjusted earnings per diluted share increased to $0.42, as compared to $0.31 in the fourth quarter of last year. Sales for the quarter increased $6.3 million versus the prior year, driven primarily by higher volumes across all of our businesses, the pass-through of higher resin costs, and the impact of the IPEC acquisition, partially offset by the impact of the pass-through of lower metal costs, unfavorable foreign currency of $5.1 million, and a less favorable mix of products sold in the plastic container business.

Income from operations from the fourth quarter of 2010 was $38.6 million, as the charges associated with rationalization initiatives negatively impacted the quarter by $18.5 million. Excluding these charges, income from operations improved as a result of higher volumes across each of our businesses, improved manufacturing efficiencies in our metal food container and closures businesses, and ongoing cost controls. These benefits were partially offset by the unfavorable comparison to the prior year benefit from the delayed pass-through of raw material cost declines in Europe. a less favorable mix of products sold in plastics and incremental SG&A costs associated with ongoing corporate development activities. The tax rate for the fourth quarter 2010 was 25.4%, versus 35.6% in the prior year quarter. This change in tax rate is in line with our estimates, as it relates to the timing of recognizing certain tax benefits which were renewed by Congress.

Turning now to our outlook for 2011, there is no doubt that 2011 will benefit from a strategic initiatives implemented during 2010. As a result, we are expecting double-digit earnings growth for 2011.

Our current estimate of adjusted earnings per diluted share for 2011 is in the range of $2.55 to $2.65, which excludes the impact of rationalization charges but does include the anticipated closing of the Vogel and Noot transaction, net of incremental transaction costs, and negative purchase accounting adjustments. We currently expect this transaction to close late in the first quarter. These estimates would represent between 16% and 21% increase in adjusted earnings per diluted share over the prior year.

Reflected in our estimate for 2011 are the following. We are forecasting further improvements in the metal container business as a result of improved volumes, the anticipated net benefits of the Vogel and Noot acquisition, ongoing manufacturing improvements, and other benefits from capitol investments. The closures business is expected to benefit from the full year inclusion of the IPEC acquisition, the benefits of the German restructuring activity, further productivity gains, and improved volumes in the base business.

We are expecting significant improvement in the plastic container business driven by better manufacturing performance, the benefits of the 2010 restructuring activities, and continued volume growth. We do expect continued benefit from cost reduction and productivity programs across each of our businesses. In addition, we expect interest expense to be up versus 2010, as a result of higher average outstanding borrowings attributable to the significant capital deployments completed in 2010, the completion of the Vogel and Noot acquisition and higher average market interest rates in 2011.

We currently expect our tax rate to be consistent with our 2010 rate. The full year net benefit of the share repurchase completed in 2010, and also expect capitol expenditures in 2011 to be in the range of $130 million to $150 million, as a result of deferring certain projects from 2010 to take advantage of potential tax incentives and the impact of the Vogel and Noot and IPEC acquisitions.

We're also providing a first quarter 2011 estimate of adjusted earnings in the range of $0.35 to $0.40 per diluted share, also excluding rationalization charges. This estimate includes the negative year-over-year comparison resulting from the 2010 benefit from the delayed contractual pass-through of lower raw material and other manufacturing costs, as compared to the delayed contractual pass-through of higher raw material and other manufacturing costs in 2011.

Additionally, the first quarter is expected to be negatively impacted by lower volumes due to the fourth quarter 2010 customer buy-ahead, incremental transaction costs, and purchase accounting adjustments for the Vogel and Noot acquisitions, as well as higher interest costs. The first quarter of 2010 will benefit from the impact of the share repurchases and the IPEC acquisition.

Given our current outlook for 2011, we expect free cash flow to be in the range of $180 million to $220 million as higher capitol expenditures, as a result of the project deferrals into 2011 and the impact of Vogel and Noot / IPEC acquisitions are offset by significantly lower pension funding and lower working capital. We continue to seek disciplined opportunities to reinvest in our business, while optimizing our free cash flow generation. Given the continued strength of our balance sheet and access to liquidity, we continue to seek opportunities to grow the business through acquisition.

That completes our prepared comments, and I will turn it back to Candace who will now provide directions for the Q&A session.

(Operator Instructions)We'll first go to Mark Wilde with Deutsche Bank.

Good morning.

Hi, Mark.

Tony, I wondered as we just looked through the press release and listened to the commentary, we heard a lot of the comments about sort of weaker mix, lower mix. And I wondered if you could just talk about this issue across your different businesses and whether that trend is going to reverse itself in 2011.

Sure. I'll let Adam maybe take a piece of this. But, I think, broadly, you kind of have to look at the individual businesses and what's driving it. I think you could-- in some cases, you could argue that it has a bit to do with the economy. Certainly, as I think about what drove it in our plastics business, it certainly had to do with negative economy. And so, I think the answer there is a question of as that recovers, what happens? If the economy comes back, you expect to see improvement there. In the case of the can business, it's a bit of a mix. It's somewhat what markets are growing and which ones aren't.This is a good point to caution. Mix is sort of a tricky question, because when we make comments about volume, we use a standard drop-through value, so it's not necessarily the margins are worse. It's more a question of the drop-through value of the products, so, it sounds more negative than we mean it to.it's just that we're saying volume did X, and then mix did Y. It may be good margin business, but it's -- on a per unit basis, it's a lower drop-through. I can think of that in the can business particularly, that relates.

I would also say that's applicable to plastics and closures as well, when you look at the product mix and the absolute dollar drop-through associated with a mix of different products.

Okay. Another question. You have announced another plastics plant rationalization, so this is two closures announced in about a year. I wonder if you're re-thinking strategy in that business or if it's just a change in business dynamics that you are seeing in that plastics business that's driving this.

Sure. That's a good question. I would not say it's particularly a change in the dynamics of the business, although there's bits of that. But mostly, what this is, is us reacting to what we've all talked about many times in this call, which is that from a trend perspective, we think the plastics business -- we're disappointed by it, quite frankly.And so we're just getting at the cost side of the business in a lot of different ways. And so the Port Clinton rationalization, which we went through in 2010, was not at all about the volume leading to it. It was, in fact, the hard part of that shutdown is that we really had to move all of those assets to other plants, which made it a full year, and frankly, a much more challenging rationalization than we had anticipated. But that's all about getting some of the overhead cost out by consolidating plants. And so, mostly, it's us just getting at the cost side. There is also -- as you saw in the quarter, we are doing another plant, as you pointed out. That has to do with the cost basis of the technology in that plant, and efforts that we've been underway to identify technologies at a lower cost basis. Once again, that is predominantly driven by the opportunity to get some costs out. As it happens, that plant is a little bit affected by the market because it is a higher price-point product, so there's been some market impact there. But the plant closure has more to do with us trying to get at a different, lower cost-based technology.

Okay. And then the last question, just on Vogel and Noot. It seems like this might be a little different business model than you've had in the North American food can business, where you might be looking to grow a footprint over there, over time. Can you talk about what you think the trajectory is of that business in terms of growth and also in terms of its need for incremental capital?

Sure. You're correct that it is a little bit different. Although, it's maybe not different if you look at Silgan back a decade or more ago where we were looking at consolidation of rollup opportunities in the markets that we had at that time. So it's maybe similar to an execution we did many years ago. We do see opportunities to grow a little bit more here, particularly focused to Eastern markets, and so, I think we would expect to be continuing to make investments, although it's going to be gradual. Your question is what kind of growth rate.I would think this'll be in the-- we'd like to see it in maybe 4% to 5%, where we'd be able to make capital investments going forward.As we said in the original announcement, there are already some plants that are in the construction stage as we speak. So that's already begun by the former owner and our current management team once the deal closes, and we'll be continuing that same effort.

Okay. So presumably, Tony, 4% or 5% growth between plants under construction and then what you might be able to pick up in efficiencies and existing plants, you can probably fill a 4% or 5 % growth rate with just those two things. Is that correct?

I think that's right. I think I would once again say that what we're on is a gradual path, and we're not trying to make major changes to the business. We really want to just allow the management team do what they've been doing, but I think that's correct. There is definitely -- there is growth opportunity in those markets. There is some cost opportunity in the operation as it grows.

Okay, very good. I'll turn it over. Thanks.

Thanks, Mark.

Now to George Staphos with Bank of America Merrill Lynch.

Thanks. Hi guys. Good morning. A couple of things. One, could you give us a bit more granularity on what the volume change was for the businesses in the fourth quarter? You had mentioned it in specificity and I'd missed it. And should we expect that most of the businesses are down the first quarter because of the buy ahead, or would that be mostly related to the food can business?

Good morning, George. It's Adam. Just looking at fourth quarter, I'll run through each of the businesses and I'll jump back into the Q1 question here. So for food cans, again, f you look at the market data, CMI was up slightly in fourth quarter. We essentially were up in line with CMI, more on the strength of our core markets, and wet pet food, and fruits and vegetables. Our closures business was up low double digits as we saw continued recovery in our noncarbonated single serve beverage markets. And if you move to our plastics business, we were up low to mid single digits. Again, the market continues to recover, demand continues to recover. And we do have some new business awards that were being commercialized late in the year as well. So that's the story for Q4. We did have a bit of a pre-buy in the food can business and also in our closures business as well. So I think the larger impact would have been in the European closures business versus our US business, as we were looking at raw material inflation in 2011, more so on the European side then on the US side. As far as the expectation then for Q1, there will be a bit of a headwind versus that pre-buy that took place at the end of the year. So it will impact the closures business and the food can business. We did not see that so much in our plastics business.

Okay.

George, I will add one thing to that just so we set the expectation, is that, in the closures business, that headwind will be offset a bit by the incremental volumes coming out of the IPEC business.

Okay. That's helpful. I guess a point of clarification. If you grew in line-- if I heard you correctly-- with CMI data in the fourth quarter, which was up modestly, how do you know or why do you attribute that to a pre-buy?

Well, it's difficult to determine exactly what's a pre-buy, what's regular demand as you are looking on a quarterly basis. But it's just -- depending upon the market and whether customers are specifically staring at inflation on January 1, or if it's a later pass-through mechanism that we have on our business, so we attribute some of that volume to a pre-buy.

Okay, but maybe a question behind the question, guys. There isn't any -- there isn't any kind of share shift that we need to be mindful of that might have occurred in the fourth quarter, that hit you in the first quarter?You don't think you lost any significant customers or anything like that?

No, we did not.

Okay. The closure volume was quite good, obviously, some of that was your customers trying to get ahead of steel increase. At least, versus our model, your performance in the business was a little bit lower than our expectations within closures. You know, was there any-- you mentioned mix, but were there any other factor that we need to be mindful of in terms of the margin in the fourth quarter on closure and what it means for 2011?

Sure. If you look at our closures business as well as the food can business, for that matter, there's obviously a seasonality to those two businesses. And our fourth quarter is always a smaller quarter for us, but we maintained most of the fixed overhead associated with the businesses. But, as we talked about on the last call, we did have an offset to the benefit in the second half of 2009 for raw material pricing pass-through in our European closures business. That was a benefit last year and actually a detriment to 2010, so I would say that was the other thing that probably would've been the biggest impact to our margin performance.

The only other one on that, I don't think that could've modeled was Venezuela. It was a negative for us. I think Bob covered it in his piece, but essentially in Venezuela, we -- given issues with the government getting cash out, et cetera, and the fact that there's no domestic steel supplier in Venezuela, and our decision not to take further risk to the Venezuela market, we essentially allowed that business to get very lean on its steel supply and, therefore, it had to cut back in sales, and so that had some profit impact on the quarter. Now, that's -- looks like that's remedying itself and the cash flows are starting to run again out of Venezuela, so I think that's one that was kind of unique to the quarter, or so we hope.

The last thing I would say, also, is we feel great about our closures business. They were cycling over a very difficult, very strong 2009, so that business is very well-positioned today and for future growth.

That's helpful, guys. Last question and then I'll turn it over. You mentioned to some degree that you were a bit disappointed with the plastics business and its performance. Do you still see the business as a Silgan franchise business, as you think about your businesses overall? And how is your view of the business, even if it is a franchise, has it changed at all over the last couple quarters or last couple years. What will be the key metrics aside from improved profitability in 2011, that ,in your mind, support it remaining a franchise business within the portfolio? Thanks guys, I'll turn it over.

Thanks, George. Good question.We do continue to think of it as a franchise business. I think there's a lot of things to say on that, but I think that one is just to point out that the volumes of that business, which did shrink at the worst of the recession, have been on a good, solid climb now. So I think the market position that we enjoy remains positive, which is not the same thing as saying that the earnings from the business are where we want them on a trend line. But again, if you talk returns-- EBITDA returns on the business, it's some 13%, EBITDA on net assets, which is below our average and below its history, but certainly not something that is all negative by any means. But more specifically, what are we thinking about it, is, again, 2010 primarily was about operations. We put a lot on the business in 2010.

First of all, recall that we took out 20-some percent of our operations team in 2009 as the volume came off. Now volume, as I said, is coming back, and so we had to go through the ramp up, if you will, of all of our operations to deal with that. And quite frankly, that was harder and could've been done better. So that was part of 2010. We also -- I had mentioned before, we went through this Port Clinton rationalization, which was significant, where we had to move all of the assets while we were continuing to supply customers and get qualified out of new locations. And so that was hard and it cost us a lot in the year. And so that's-- will be behind us as we go into 2011 and creates opportunities going forward. As we mentioned, we announced another plant shutdown.

We've made significant overhead cost reductions in the business at this point in time. And we are very focused on the increased volatility of resin, and the fact that we continually on these calls talk about resin, and we don't like it any more than you all do.And so we're working very actively to tighten the time lag between when we get a cost increase and it gets to our customers so that we can kind of reduce the exposure to volatility. So, I would just say we have a lot in play, fixing the cost side of the business and the operating performance, which we were disappointed by this year, but from a top line perspective and kind of where we sit in the market, really not much has changed there. And so most of the metric we'll keep watching is the return we get on the investments that we make, which is acceptable today but below our average, and we expect that to get much closer to our average.

Okay. Thanks, guys. I'll turn it over.

We will go now to Sara Magers with Wells Fargo.

Good morning, gentlemen.

Good morning.

I'm wondering within your earnings guidance, what your assumptions are regarding the Vogel and Noot and then the IPEC acquisition. And then to follow on to that, I'm wondering if you have any idea for what you think rationalization charges will be in the year, and if it would be possible to break out what your anticipated transaction and accounting charges will be, related to the acquisitions.

Okay. There's a lot in there, so hopefully I will get what -- in the order that you had them. In terms of what's in our guidance, we do -- we are modeling the Vogel and Noot acquisition. And obviously, the IPEC acquisition has closed. On the Vogel and Noot side, the expectation is that it's kind of a late first quarter close.Quite frankly, that is all subject to getting through regulatory approvals and then getting too close, so it could move around a little bit on us. With that said, we kind of look at this business as being something in the neighborhood of $0.10 accretive on a full-year basis, and that's after the interest costs of the deal as well . So if you are looking at getting somewhere in the neighborhood of nine to ten months of that, and then the impact of the purchase accounting, we're probably netting modest accretion that's probably in the nickel, nickel plus kind of range for the year. In the purchase accounting adjustments, we're just in the throes of that now, so it'll be largely about where their inventory balances end up, and reducing the profits there, as well as the final costs associated with the close. But I would guess that there is probably $0.03 or $0.04 of dilution coming at us in Q1 as it results-- as it relates to those costs coming

And that's included in the net $0.05 number that you spoke about previously?

Yes, that's all included in the guidance that we provided.

Okay.

In terms of rationalization charges, which I think is the other one that you've asked about, right now we don't have any. While we continue to review the platform in each of our businesses doing a lot of work around opportunities, we don't have anything in the chute that we would be prepared to talk about or announce, but I think we'll have some limited carryover of a couple of cents, as the charges come through. The one that will add to that probably comes in either late 2011 or into 2012 is as we finally close the Woodstock facility. There'll be incremental charges associated with that, and that will be more around the cash side of the charges, dealing with the people in the plant shutdown.

Okay.

Did I catch them all?

I think so. And then possibly if I could follow on. I wanted to ask regarding your raw material inventory. It went up nicely at the end, and I'm assuming that's prebuy in front of the inflation in 2011. How much do you think that you've probably covered going into the year, given what your expectations are for production? And do you think it's going to be a year similar to 2009 where it was well-managed and you saw some nice segment profitability based upon that?

Yes, I think if you look at the inventory purchases right at the end of the year, it's about $32 million. That probably is somewhere in the neighborhood of 30 days of inventory, just getting ahead of that inflation. There's nothing about the inflation or any changes to the way we pass through metal, so I think this is just good, prudent management of working capital here, and there's nothing about any of that will have any meaningful impact on earnings on a go forward basis.

Okay, great. Thank you very much.

Thank you.

We'll go now to Chip Dillion with Credit Suisse

Yes. Good morning. First question is on the capitol spending side. You mentioned it would be in the $130 million to $150 million range with some projects deferred from last year. As we look at 2012-- and I know things can change, especially with the recent acquisitions and other opportunities-- as it looks like today, do you think you will stay in that ballpark as you go into '12, or would it have a bias going downward?

I guess what we would say is, any given year is going to be difficult to predict, of course. But, essentially, what we would say our normal range pre the two recent acquisitions, would've been $110 million to $140million, and we were kind of guiding to the higher end of that range as we came into the later part of the year. We've obviously peeled that back because of the pending tax law changes. That's what's driving some of the increase next year as well as the two acquisition activitySo I think we've probably increased the overall range a bit on a go forward basis, and I think, by definition, spending to the higher end in 2011 probably does bring 2012 down all little bit. As you know us , we'll be opportunistic where we find opportunities to deploy capital and create value on a go forward basis, but I think it's likely that '12 probably comes in a little bit lower than that spending that we're looking at for

Okay. And with your mix moving more -- tilted more to Europe, with the recent acquisition-- the Vogel acquisition-- what tax rate guidance can you give us for '11? I think you gave us '10 numbers, obviously, but what do you see for '11 and '12 possibly?

Well, '11 right now I guess what we'd say is, given that there is, probably only modest accretion coming out of the Vogel and Noot acquisition, it won't have a significant impact on the tax rate for 2011. As you fast forward into 2011, the expectation is that it probably comes down because the earnings will be coming out of a lower tax jurisdictions, but it's just a smaller income level on a broader base, so it doesn't have a lot of impact on the tax rate for next year.

Okay. And last question. You've obviously, in closures, benefited tremendously from the jump in some of the single serve beverages. I think you mentioned double-digit growth in the fourth quarter. Any view as to how that is looking in 2012? Would you expect it to moderate a bit? Is that in your forecast, or do you think it stays as strong as it is?

Sure. If you look at the single serve beverage markets that we serve, they're just now returning back to the pre-recession type volume, absolute volume levels. So, I don't think we're ever going to get back to the 20% growth per year in those specific product categories, but I do believe that mid-single digits are very reasonable expectations of growth for the single serve beverage market. Not only in the US, but as the European economy recovers as well, we would see some additional recovery in Europe on single serve beverage, too.

Got you. Thank you.

We will go now to Rick Skidmore with Goldman Sachs.

Good morning. Tony, can you just talk about the timing of the future projects for the Vogel and Noot and when those projects come on? And I think you mentioned in the press release back in December, the six and a half times EBITDA on the future -- including the future projects. What's the current run rate, and how do you -- what's the timing to get to that future run rate?

Okay. Good question. The projects would be in 2011 and '12, so a couple of years. One of the things we like about the way Vogel and Noot has grown is when they go into these markets, they tend to move in a moderate pace rather than putting in great big facilities, et cetera.It's a much more gradual move into the market, so these will come on over time and there won't be any kind of big step associated with it. At least that's certainly our expectation. You are right that we had said six and a half times as we get up to speed. They're in their audit process now, so we don't have the final number, but I think the trailing number here is going to look like EUR36 million to EUR38 million on the EBITDA line, so it'll give you kind of a feel of it.

Okay. And then, Bob, when you talked about the accretion for the full year from Vogel, you mentioned $0.10. Was that looking out into the future, with the projects completed, or is that more the current run rate?

That's probably more the current run rate on an annualized basis, so it's capturing a part year, capturing the purchase accounting as well as incremental costs that might be involved around putting those commercializations in place.

Okay.

As Tony mentioned, these are relatively small plants that we're talking about, so it will be modest from there, and paced from there.

Okay. And then, lastly, just on other free cash flow items, can you provide what you expect pension contributions and expense to be in 2011, and then any restructuring cash that you think goes out in 2011?

Yes.On the pension side, as you know, we made a $92 million pension payment in March of 2010. There is no real required contribution in 2011, and at this point, I don't really see a necessary contribution in 2011. Our pension plans are funded up pretty well. Our US plans, now, at the end of the year will probably get us to mid-to high 90% funded, so we're feeling pretty good about those plans. In terms of pension expenses, we're probably a bit better than what we talked about last quarter. We were thinking that we were going to see $3 million, $3.5 million of year-over-year detriment largely because of the change in discount rates. The rates rallied here at the end of the year, so the discount rate's not quite as bad as we were thinking it was going to be. So net net we're probably flat to maybe a slight benefit in pension expense on a year-over-year basis.

Okay. And any cash restructuring charges from the things that you've just announced with Woodstock and Port Clinton that would hit in 2011?

Well, not so much Woodstock. The Woodstock rationalization is all largely non-cash because of the asset write down. But if you look at the $22 million of rationalization charges that we booked in the year, about 70% of that or so, are cash related charges. Now, obviously, earning our kind of payback against that's a little bit less than the three-year payback against that cash charge. And that cash charge will be split between 2011 and 2012.

Great. Thank you.

We will go next to Al Kabili with Macquarie.

Hi, thanks. Good morning. I wanted to circle back on Vogel and Noot a little bit. In terms of the expansions in the new markets that you're doing, what percentage of that do you have visibility on, of new business that is contracted signing? How much of the new capacity that you are adding in, what percentage is locked in with contracts there?

Very little. That's why I said, these are what we're talking about are kind of seed plants. Mostly, these are putting in a small plant into a growing, developing region and then beginning to supply that marketplace.So this is more about hard assets on the ground that it is about customer sales and contracts going forward.

Okay. But even with this small plant seeding, these are going to be immediately profitable, then, as you expand based on the six and a half times forward guidance on EBITDA?

Yes, I'm not sure I would use the word immediate there. Our expectation is that these--remember I said that they'll come on over time. They'll ramp up. So our view is they will get to, in a fairly short order, to be profitable plants, although small, and then continue to grow there. But the problem with immediate is, obviously, when you first start out you hire a lot of people and it probably goes the other way on you for some period of time. But again, the benefit is because it's small, neither one of those are very big numbers. So our view is more that this is about a couple of a year program to get these online and then hopefully it will be continued growth opportunities as we go forward.

Okay. If we could switch to closures a bit. I was wondering if you could just help us quantify what savings would be related to the German headcount reduction, how much you think you'll get in '11 and how much carries forward in '12.

Yes, there's about $9.1 million of the charge is associated with the severance costs there. That's predominantly all cash.That's about -- represents about 22% of the total plant headcount. The reductions will occur through early to mid 2011, and that's got payback of a little more than 2.5 years, so if you look at that taking a half-year in 2011.

Okay. That's helpful. And Bob or Adam, is there anything that prompted this change in terms of -- or this move to reduce headcount in Germany? I mean, the volumes and closures look pretty strong.

Sure, Al. It's very simple. We're very focused on maintaining our cost competitiveness in all of our businesses, and this was an opportunity to really focus on the cost side of our European operations, and take the opportunity to reduce that headcount and become more competitive.

Increasing efficiencies and shifting around some of the geographic position of where things are made.

Okay. But it's not in response to any competitive volume loss or anything like that?

No, it's not.

Okay. And then, on the plastics side of the business, can you help us with the year-over-year decline and EBIT from the fourth quarter '09 to the fourth quarter of '10 down $ 3 million or so on an adjusted basis. How much of that is resin, how much of that is mix?I'm just trying to understand the decline given the increase in volumes there.

I think the biggest component of that is going to be resin. We were in a significantly volatile period here in Q4. Resin costs went against us, and literally all of our resins that we purchased. So cost structure was going -- or raw material prices were going up. At the same time, we were passing through lower resin from a previous period, so we were pinched between the raw material side and the sales side. And that had an impact of $2 million or $3 million, so I think that's going to be the biggest component that we're focused on for Q4.

Okay. And as we go into the first-- I mean, when do you catch up ? I assume that's still going to be a bit of a headwind in the first quarter. Is this something that fully catches up in 2Q, or how do you see that playing

There's still time to watch that one play out, to be honest with you. As we sit here now, the volatility has not stopped. In fact, we're facing significant inflation in resin costs right now in Q1 in certain resins that we buy, so it's certainly a head wind -- or it's a head wind in Q1, probably to the same kind of magnitude I just outlined for the Q4 headwind that we had. Right now, resin's expected to start dropping in Q2. We've got some of that built into our forecast, but, again, I think we're right in the middle of it right now as far as what's going to happen with the resin markets.

Okay. Final question's on the Cap-Ex. The timing shifting out-- Bob mentioned earlier that you got it toward the high end of that $110 million to $140 million, and you came below that. Can you help us walk through what changed on the Cap-Ex front in terms of timing there? Thanks.

Yes, the real change was driven by all the uncertainty, or maybe gaining certainty, around what was going to happen with the tax deductibility in new projects. And as we came through the back part of the year, we had the opportunity to defer some of those projects and not distract some of the businesses with those projects, so really we just picked them up and moved them out of the final months of 2010, and we will move them into the front part of 2011.

Okay. All right, thank you very much.

We will go now to Christopher Butler with Sidoti and Company.

Hi, good morning, guys.

Good morning.

You talk about Cap-Ex being up a little bit. I was just wondering what your thoughts are on use of cash here as we move into 2011. Vogel and Noot is something that you're going to be dealing with at least through the first half of the year. How do you think of applying cash at this point?

Let's start with where we think we will be from a leverage perspective relative to the -- what we've said publicly as our optimal range. If you look at where we ended 2010, we'd be somewhere in the neighborhood of 1.7 times levered. If you pro forma that for the Vogel and Noot acquisition, we will probably get somewhere between $2.25 million to $2.5 million, depending upon on the seasonality requirements for working capital, so at the lower end of the range that we've said is optimal. But given the capacity that we've got on the balance sheet ,and we think the skill set within the management team, we're in no way slowing down the activity that we look at around the corporate development activities. We continue to have a full pipeline of opportunities, and as we said, if things come to fruition that meet our criteria around franchise and financial returns, we're happy to add to the portfolio. So that continues to be where our focus remains, is around trying to grow the business.

And, shifting gears for a second back to the plastics business, historically, when raw materials are an issue, we get margins that get compressed, but then within a quarter or two we generally get some outsized return as you get that bounce back. Looking through 2010 and even back into 2009, the bounce back seemed more muted than we've seen historically, and the bottom seemed a little bit lower. Could you talk to that a little bit? Has there been some sort of structural shift, or is this just volumes are still getting back to normal story?

I think volumes are getting back to normal, but I think the key factor is that we've been in an inflationary environment for resin, essentially for the last two years. So we've not seen the decline of resin then we have a delayed pass-through mechanism, that we do have the opportunity to increase our margins a bit. So, as long as there is inflation in resin, we're playing catch-up.

And on the metal cans side, I think you had mentioned that, as it all turned out -- 2010 turned out to be a pretty decent harvest and pack year, so as we look forward to next year, is that going to create a little bit of a headwind? What are you thinking on that front?

I don't think it will be a head wind. I think 2010 was, essentially, a return to a normal pack kind of volume versus a record 2009, so I think as we look forward into 2011, we would expect, again, a normal pack similar to what we had in 2010. The only catch that I would say is that whatever pre-buy happened in Q4, obviously, will be impacting our Q1. But again, I think that was a relatively small part of it , so the food can continues to do well in tough economies, and we feel great about our food can

I appreciate your time.

We will go next to Chris Manuel with KeyBanc Capital Markets.

Good morning, gentlemen.

Hi, Chris.

A couple of questions for you. First, we will start with kind of a volume assumption as you're look at 2011. It sounds like on your food can side, you are probably assuming sort of a flattish environment. Could you maybe run us through your other businesses, given pre-buys and things of that nature that have occurred, what might be embedded into your guidance?

Sure. Actually I prefer food can volumes. Chris, we're expecting modest growth in food cans again in 2011. So, moving over to closures and plastics. For both of those businesses, we're thinking somewhere between 3%, 4%, 5% volume growth in those businesses. If you look at our closures business, again, not only will we have continued growth or expect continued growth in our US single serve market, we expect the European markets to continue to recover as well. On the plastic side, again, we were pleased with the volume side of our plastics business for the most part in 2010, and that demand continues to recover and rebound. So, we've got recovery in our core markets, and we've also got new business awards that we've earned in 2010 that will hit us in 2011. So, again, 3%, 4%, 5% for those two businesses, and that's really what we've embedded into the forecast.

Okay. That's helpful. And on the plastics side-- in your press release, and I think earlier in prepared comments, you expected that piece to improve significantly-- as you look at-- you mentioned in your closures business you are back to where volumes were pre-recession. Where would your plastics volumes be compared to pre-recession? Would you be at 80%, 70%, 90%? How would you think about that?

I probably have to go back and check for you, Chris. They are definitely down. There are some areas where, frankly, as we exited plants, et cetera, we moved away from some business. So they are down some, and that's a natural culling process. But in terms of what we'd call where the franchise is important and the skill set and capabilities we bring, that's been pretty stable through all of this. But the growth, again, Adam said it, the growth looks fine to us. We see plenty of opportunities. It's really, again, I'll repeat, 2010 was more about -- we put a lot on our plate and, frankly, we didn't do a great job with it. And '11's got a lot on the plate, too, with another plant shutdown.We're expecting to do better with it. And really, emerging into '12 with a lower cost structure, good sales, and then we'll talk about resin only again when we get there.

Okay. Well, that's always the wild card.

No doubt.

I guess improvement in 2011, but when I look back at history, and this used to be a business that was consistently in the 40s on the EBIT line. It sounds like you need a little bit of volume improvement to get back there, but a lot of it is on your own plate with what you are doing in closing plants, rationalization, that type of stuff that can return this business to where it historically has been. Is that a fair way of thinking about it?

I think you said it right. I would add to it getting out of our own way.So it's not just the improvement from some of these, but it's actually the process of going through the rationalization itself was not helpful in 2010. So not only did we not get the benefit of some restructuring, but we were causing our own problems where we had two plants staffed up to make the same product for a lengthy period of time, for example. But basically, you got it right.

But the recovery to those kind of levels, it's a step-by-step process, so it will take a little bit of time for us to get there as well.

Okay. That's helpful. But it's still, from the sound of things, a '12 -ish sort of event.

With a step in '11. We would be disappointed, and we didn't put "significantly improved" in the release if you didn't know that we would be disappointed if we don't see improvement next year. There's got to be some step moves here.

I appreciate the line in the sand. And if I could switch gears, and flip through what you've done in Europe on the food can side.If memory serves, I think you had twelve plants that you've acquired, and I think there were eight different countries where you are going to have flags on the map. As you look at what's being added, I appreciate that you said that they are more seed capacity, but can you give us a sense of , when you have a couple more plagues on the map in terms of geography, will this-- how big are the expansion plans over there? Will it add 5 %, 10%, something like

Yes, there will be new flags, and they would be east, and again, they would be small and ramping up. So I think, would we ultimately expect them to be that kind of magnitude to the business? Absolutely. They won't be in the first six months they get going.

Okay. And other opportunities -- considering this to be a platform business, do you see other opportunities over there for further consolidation?

Yes. I don't want to overplay that point. I think this is -- it's not as if we haven't looked over time. In fact, the Vogel and Noot business is a business that we've paid a lot of attention to for many years which just tells you kind of how long the lead time is on M&A.And so this is one we thought really was a very interesting and unique fit, because we really wanted to be sure that the platform made sense. And so we believe that to be the case. This business already has enough on its plate, I think, in the near term, that we aren't necessarily feeling compelled for more consolidation. But, essentially the management team there has grown through consolidation, and that's what they do when we've grown through consolidation, so there's a certain commonality of focus and skill set around that that I think will be deployed.

Okay. And then, the last question I had. Recognizing the long lead times required for M&A, if we work our way through 2011 and there's nothing else of size that develops, you guys have a pretty established mechanism now in place to think about cash flow redeployment, similar to what you did at the end of 2010. Would it be unreasonable to assume that if you don't have anything of size that you would consider an activity like that again?

I would say that it's very different this year than it was a year ago, where we were down one-time leverage level and we quite intentionally-- speaking of lines in the sand-- drew a line in the sand that if we didn't deploy it through acquisition, we would deploy some through return of cash to shareholders. I don't think we're in that same boat right now. Are there other things in our arsenal? Yes, but I wouldn't necessarily think of that in 2011. I think the leverage number's come up enough that it's not the same inefficient balance sheet it was a year ago. So I would not want to leave you with the same impression that we feel as compelled without acquisition to do anything right now.

Okay. That's fair. Good luck, gentlemen.

Thank you, Chris.

(Operator instructions)We will go next to a follow-up question from Mark Wilde from Deutsche Bank.

Tony, I just wanted to follow-up briefly on that discussion with Chris about Vogel and Noot over in Europe. Can you give us some sense, in their markets, what you would estimate their share to be?

Boy, it varies a lot, but they are going to be one of the lead players in most of the markets they are in. Now, there are some where they are feeding and so that's not quite as true. Certainly, as you go east, particularly, that's the case. They are one of the top two or three in most of those markets.

Okay. And would you call those central and eastern European markets -- are there a lot of players in each of those markets, or what's the structure of the industry look like?

There are -- most of the big, Western European players have, depending by country, they have some presence in some of those markets often pulled by international customers, and then there tend to be local, small players in each of those markets. In many ways, that sets up the opportunity, right, because you got a relatively inefficient set of -- inefficient and maybe not the same quality that an international customer would want from their supplier, so that's where the opportunity fits as you look forward.

Is there any difference when you get over in Central and Eastern Europe about how far you can ship empty cans versus what you might see in Western Europe or here in the US?

No, not dramatically different. It would be the same. Again, there's a fair amount of shipping of error issue.

Okay. Thanks.

We will go now to Sara Magers with Wells Fargo.

Thanks for taking my question. Just a couple of housekeeping ones. One is on the corporate expense line. It's a bit higher year-over-year. I'm just wondering if that's an appropriate run rate going forward or will it continue to trend up?

Well, most of that is driven by the fact that there's two things in the year. We've got incremental corporate expense around M&A corporate development activities. Also incorporated in that line is the devaluation, or the re-measurement, in Venezuela, so that won't recur. However, that's likely to be replaced with incremental costs, as we talked about, at least in Q1 relative to the M&A activity around Vogel and Noot. I think that line is relatively stable but for the M&A activity, which is really what will drive the volatility there. So I think '11 is going to be probably more in line on a net basis with where we are, and it will be driven from there based on the level of activity around the M&A front.

Okay. And then in the press release, in your commentary regarding plastic containers, you talked about a certain overhead activity helping drive year-over-year segment profitability and plastics. I'm just wondering exactly what you mean by that.

We did have a workforce reduction in our headquarters location in Chesterfield, Missouri.

Okay. And that was it?

Essentially, that was it ,

Okay. Great. Thank you very much.

Thank you.

That concludes our question-and-answer session. I'll turn the conference back over to our speakers for any additional or closing remarks.

Thank you everyone for your time and attention. We look forward to talking to you after our first quarter.

And that concludes our conference for today. Thank you all for your participation.