Silgan Holdings Inc (SLGN) 2011 Q4 法說會逐字稿

Thank you for joining today's Silgan Holdings 2011 year-end earnings conference call. Today's call is being recorded. From the Company today we have Tony Allott, President and Chief Executive Officer, Bob Lewis, Executive Vice President and Chief Financial Officer. Kim Ulmer, VP Controller for Silgan Holdings, and Adam Greenlee, Executive Vice President of Operations. At this time, I would like to turn the call over to Kim Ulmer. 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 impacts 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 2010, and other filings with the SEC. Therefore, the actual results of operations or financial positions of the Company could differ materially from those expressed or implied in these forward-looking statements. With that, let me turn it over to Tony.

Thanks, Kim. Welcome everyone to Silgan's 2011 year-end earnings conference call. I will start by making a few comments about the achievements during the year, then Bob will carry on and review the financial performance for the year and the quarter, and talk a bit about our outlook for next year, and then we will be happy to take any questions that you might have. As you have seen in the press release, 2011 was another record year for Silgan, as we delivered adjusted earnings per diluted share of $2.63, up from a very strong prior year in which we delivered an adjusted $2.22 per diluted share.

As expected, 2011 benefited from significant investments made in the latter part of 2010 and throughout 2011. As we deployed capital toward acquisitions and organic investments, improved our debt capital structure, repurchased shares and initiated several restructuring plans. Among the milestones leading to the successes in 2011, we achieved record adjusted earnings per diluted share of $2.63, an increase of 18.5% over 2010 results, completed the acquisitions of Vogel & Noot and DGS in March of 2011, and successfully integrated them along with IPEC operations acquired in the fourth quarter of 2010. We enhanced our market positions in the US food can industry by acquiring the self-make steel can operation from Nestle Purina PetCare.

We continue to invest in each of our businesses, and took advantage of tax incentives in 2011 through capital spending of $173 million including approximately $24 million for plant expansions into eastern European metal containers markets. We commercialized a new food can manufacturing facility in the Krasnodar region of Russia, a key agricultural area. We upsized the Company's senior credit security to $1.9 billion and amended it to provide greater flexibility, additional borrowing capacity, and extended maturities.

We increased the cash dividend by approximately 5% to $0.44 per share. We generated $359.6 million of cash from operations, despite an increase in working capital to support start up operations and ongoing operational flexibility. And we authorized further repurchases of up to $3 million of the Company's common stock, of which $15.8 million was repurchased in 2011. 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 2012 as we expect to deliver mid to high single digit earnings growth from the existing business, and enjoy a very strong balance sheet with available capacity to further enhance shareholder returns as opportunities arrive. With that, I will turn it over to Bob.

Thank you, Tony. Good morning everyone. There is no question 2011 was another strong year for Silgan as adjusted earnings per diluted share increased 18.5% to $2.63, representing a $0.41 per share improvement versus the prior year. The strength of our business franchises really came through as 2011 was one of the more tenuous years in terms of the overall business environment. We experienced volatile economic conditions across the globe, a historically weak US fruit and vegetable pack, volatile pricing of commodities, and ongoing operational challenges in our plastic business.

These headwinds were mitigated by the solid performance in our metal containers and closures businesses, the benefits of newly acquired and integrated operations and share repurchases in late 2010. On a consolidated basis, net sales for the year were $3.510 billion, an increase of $437.7 million or 14.3% from the prior year, as each business delivered sales gains for the year. We converted these sales to net income for the year of $193.2 million, compared to 2010 net income of $144.6 million.

Interest expense before loss on early extinguishment of debt increased $8.9 million, primarily due to higher average outstanding borrowings in 2011 as a result of acquisition financing, the November 2010 share repurchase activity, and the incremental term loan associated with the refinancing of our senior secured credit facility in July of 2011. Our 2011 effective tax rate of 33.4% is generally in line with expectations, and 140 basis points lower than the prior year, as 2010 was negatively impacted by the nondeductible portion of the charge for the remeasurement of net assets in Venezuela.

Full year capital expenditures totaled $173 million, which is significantly higher than the 2010 spend of $105.4 million, and modestly higher than our forecasted level, as we chose to compress capital spending in 2011, to maximize the deduction for capital put into service in the year. And we deployed $24 million to support expansion in the eastern markets, particularly the new plant commercialized in Russia.

Additionally we paid a quarterly dividend of $0.11 per share in December, the total cash cost of the dividend was $7.7 million. For the year we returned $31.1 million to shareholders in the form of dividends, and an additional $15.8 million in the form of share repurchases during the year. As outlined in Table C, we generated free cash flow of $152.9 million in 2011, ahead of the prior year free cash flow of $89.1 million. The free cash flow measured at December 31st was below our expectations, as we deployed higher working capital than originally planned. The largest component is in trade receivables, primarily due to the timing and magnitude of our contractual steel true-ups, and a few customers who deferred certain payments at year-end. These generally relate to customer specific causes, and do not change our assessment of the collectability. In addition we chose to carry incremental inventory balances through year-end, both to provide flexibility as a precaution to our 2012 labor negotiations, and as we have ramped up the new facility in Russia.

I will now provide some specifics regarding the financial performance of the three businesses. The metal container business recorded net sales of $2.210 billion, an increase of $347.4 million versus the prior year. This increase was primarily due to the inclusion of revenues from Vogel & Noot, and the effects of the pass-through of higher raw material and other manufacturing costs, partly offset by lower unit volumes in the US, as a result of a weaker fruit and vegetable pack in 2011, and the impact of the 2010 customer buy ahead. Income from operations in the metal container business increased $23.7 million to $256.3 million for the year. The increase in operating income was primarily a result of the inclusion of Vogel & Noot, improved manufacturing efficiencies and ongoing cost controls, and the benefit of the timing of certain contractual pass-throughs of changes in manufacturing costs, partly offset by lower volumes and higher rationalization costs.

Net sales in the closures business increased $69 million to $687.8 million, driven primarily from the inclusion of net sales from IPEC and DGS, higher average selling prices due to the pass-through of higher raw material costs, and favorable foreign currency of $15.8 million. The impact of lower unit volumes in the single serve beverage market partly offset these gains. Income from operations in the closures business increased $17.3 million to $75.9 million in 2011, primarily due to the inclusion of IPEC and DGS, $7.4 million of lower rationalization costs, the benefits attributable to the 2010 workforce reduction in Germany, and a favorable comparison due to the $3.2 million charge recognized in 2010 for the remeasurement of net assets in Venezuela.

These benefits were partially offset by the negative impact from the lag pass-through of significant increases in polypropylene resin costs and lower unit volumes in the single serve beverage market. Net sales in the plastic container business increased $21.3 million to $609.9 million in 2011, as a result of higher average selling prices due to the pass-through of higher raw material costs, and a favorable foreign currency translation of $5.3 million. These benefits were partly offset by volume declines and a less favorable mix of products sold. Operating income increased $2.3 million to $12.6 million for the year, largely as a result of $8.3 million lower rationalization costs, and the benefit of the prior year cost reductions initiatives largely within the corporate headquarters. These benefits were largely offset by a decrease in unit volumes, a less favorable mix of products sold, and higher costs associated with resolving operational issues from the restructuring activities.

For the fourth quarter, the Company reported earnings per diluted share of $0.53, as compared to $0.22 in the prior year quarter. The fourth quarter of 2011 included pretax rationalization charges of $2.9 million. The fourth quarter of 2010 included charges for rationalization programs, loss on early extinguishment of debt, and costs attributable to acquisitions totaling $23.7 million, or $0.23 per diluted share in total. As a result adjusted earnings per diluted share increased to $0.56 as compared to $0.45 in the fourth quarter of last year. Sales for the quarter increased $124.3 million versus the prior year driven primarily by the inclusion of sales from acquired businesses, and higher average selling prices from the pass-through of higher raw material and other manufacturing costs.

These gains were partially offset by the unfavorable impact of the 2010 customer buy ahead in the containers and closures businesses, lower unit volumes, and a less favorable mix of products sold in the plastic business, and declining single serve beverage volumes in the closures business. Income from operations for the fourth quarter of 2011 improved to $70 million as a result of lower rationalization charges, the inclusion of acquired businesses, improved manufacturing efficiencies in our metal container and enclosure businesses, and the favorable comparison in the plastic business from the lag pass-through of year-over-year resin price changes.

These benefits were partially offset by lower units and less favorable mix of products sold in the plastic container business, manufacturing inefficiencies as a result of ongoing rationalization challenges in the plastic business, and lower single serve beverage units in the closures business. The tax rate for the quarter was 30.9% versus 25.4% in the prior year quarter . This change in rate is in line with our estimates, as 2010 benefited from the timing of recognizing certain tax credits which were renewed by Congress in late 2010.

Turning now to our outlook for 2012, our current estimate of adjusted earnings per diluted share for 2012 is in the range of $2.80 to $2.90, which excludes the impact of rationalization charges. The mid-point of these estimates represents a 6.5% increase in adjusted earnings per diluted share over the prior year. Reflected in our estimate for 2012 are the following, we are forecasting further improvements in the metal container business as a result of anticipated volume improvements , continued manufacturing improvements, and other benefits from capital investments, and the annualized impact of Vogel & Noot and the Nestle Purina PetCare acquisitions. The closures business is expected to benefit from returns on capital investment, further productivity gains and improved volumes in the base business.

We are expecting gradual improvement in the plastic container business driven by better manufacturing performance, however, we are maintaining a cautious approach to ensure better execution. We expect continued benefit from cost reduction and productivity programs across each of our businesses, and in addition we expect interest expense to be flat versus 2011, although higher in the first quarter as higher average outstanding borrowings are offset by lower average cost of borrowings as we get a full year benefit of the lower grid provided by the July 2011 refinancing of our senior secured credit facility.

We currently expect our tax rate to be consistent with 2011, but do expect to pay significantly higher cash taxes as we cycle over the large accelerated depreciation deduction in 2011. Also we expect capital expenditures in 2012 to be in the range of $115 million to $135 million as a result of the incremental spending in 2011, take advantage of the accelerated deduction and somewhat mitigated by capital to continued growth in the eastern markets.

We are also providing a first quarter 2012 estimate of adjusted earnings in the range of $0.42 to $0.47 per diluted share, also excluding rationalization charges. Given our current outlook for 2012, we expect free cash flow to be in the range of $200 million to $250 million, as planned working capital reductions and lower capital expenditures are partially offset by significantly higher cash taxes, due to the elimination of the accelerated depreciation deduction which benefited 2011. Given our free cash flow generation and the strength of our balance sheet, we are well-positioned to continue to reinvest and grow our business through acquisitions and other deployments of capital to drive value creation for our shareholders. That concludes our prepared remarks. I will turn it over to Alicia, who can provide directions for the

(Operator Instructions). We will pause for a moment to assemble the queue. We will go first to from Ghansham Panjabi from Baird.

Good morning.

Good morning Ghansham.

On the North American metal food can business, obviously a tough year from a fruit and vegetable pack level in terms of industry volumes. Can you help us think about where you are in terms of asset utilization, and maybe where the industry is also?

I think if you look across the platform, and we are probably pretty well in line with the industry, there is not a lot of excess capacity in the market. I would think particularly speaking to us, we intentionally do not have enough capacity to meet our peak demand. And that is kind of why you see us use either cash or working capital or a revolver to build working capital. If you looked across the broader platform, we are probably 90%, 90-plus percent utilized across the entirety of the year. I would say largely the rest of the industry is kind of in that same position.

And then thinking about free cash flow, obviously a decent amount of cash expected in 2012. By our math net EBITDA in 2012 will be comparable to 2010 when you decided to do the big share buy back. Is it fair to assume that barring any sort of acquisitions that is something to look forward to in 2012?

Yes. I think we have always said we are focused on deploying the capital to either grow the business or otherwise return value to shareholders. I think we stand in the same position that our preference is to find M&A activity to deploy that cash, but clearly in the absence of those opportunities, we will move to other alternatives including share repurchases like we did in 2010.

Great. Thanks so much.

We will go next to Chris Manuel with Wells Fargo.

Good morning, gentlemen.

Good morning, Chris.

A couple of questions for you first. If we could talk about the plastics business for a minute, you indicated there was some rationalization challenges, some manufacturing issues throughout the course of the year. Could you maybe give us a sense as to how much in 2011 you would estimate that hit would be, and how that phases as we go through 2012, if that starts to go away?

Sure, Chris, it is Adam. We had talked on previous calls about one of the very complicated rationalizations that we had undertaken in 2010, and again it was just a little more challenging than we anticipated. It has been a bit distracting for the business, and we have been working hard to overcome those challenges. We also talked about the additional costs that we have incurred as we have kind of been working to resolve all of those issues. My guess in 2011 it is somewhere around a $5 millionish kind of number, as far as the costs that we have incurred. With resolving the issues around that rationalization.

So it won't continue into 2012?

No, it continues, and we mentioned on the last call it will be a gradual unwinding of those costs. First and foremost, we are absolutely focused on meeting our customer requirements. And in order to do so, we have incurred some operating efficiencies and additional costs to be able to do that. We are going to make sure that we are meeting all of those requirements before we fully start to unwind the higher costs that we are carrying. So it will be a gradual affect over the course of the year.

That is helpful. And if I think about over the last few years you have made some investments into this business. How would you characterize some of the returns you got from those investments? Is there a point at which, I hate to say throw in the towel, but maybe this business I think it is still earning a return in excess of its cost to capital and such. But at what point do you take a look to business and maybe consider if it is a better fit in a larger platform, or somewhere else?

Chris it is Tony. First I appreciate you hitting one of the key points, which is it is still getting a return above cost of capital in what was an extraordinarily tough year for the business. I think we have been really clear that we are not at all satisfied with where the business is right now. Albeit at a 10% EBITDA margin level, we believe it is capable of much more. That is where we are now. So why the answer I am about to give you is that we remain focused on plastics as part of the overall rigid packaging universe. So we continue to believe that it is a good area to be. There are absolutely parts of that business where we have defensible competitively advantaged businesses, and then there are parts of it where we don't. And so part of what we have to do is make sure that we keep and the investment on the parts where we do have that, and to get cost structure in line. And so a big part of what we are wrestling with right now is our effort to get the cost structure in line. We took the biggest and toughest rationalization first, because you want to go at the big opportunity first. That is essentially, as Adam said, it didn't turn out well. We do expect ultimately that we will get those savings. It is critically important that we protect the important customers in the important markets where we do have competitive advantage. But when we are done here what we see is still a plastics business, rigid plastic. Where we do have a focus area on sustainable competitive advantage and good returns on capital.

I had a couple other questions, but I will jump back in the queue.

Thanks.

We go next to George Staphos from Bank of America-Merrill Lynch.

Thanks, guys.

Good morning.

I was going to pick up on Chris' line of questioning. Not necessarily get into the strategic for now, but just as we look at the investments that you are making within plastics, and the continued efforts to improve the operations, could you give us a couple of mile markers from an operational standpoint that would make clear to us that the plan that you have in mind is in fact working. Obviously if the plan works, margin will head higher, earnings will head higher, not talking about that for this call. Really what tactics or mile markers from an operational standpoint could we see that would suggest that the plan is coming together as you expect?

Margins is obviously a big part of it. You are going to see profits come back. You are going to see, again this is assuming we are successful here, I want to be clear. You would expect to see the returns on net assets come back up again even though we are saying they are above our cost to capital. The spread there is not what it has been in the past. It is not what we think the business is capable of. That is what you will begin to see. And then I think the second part, and it is a good question, you will then see us investing more. I should point out that the capital investment in plastics this year was less than last year. That is not a sign that we are satisfied. One of the things that we always say when we are on the road, is the best way to judge how we are feeling about something is how much do we invest in it. I think it is pretty clear that we are holding back a little bit on the investment in plastics. If you look on the acquisition side, we have been holding back on acquisitions around it because we aren't satisfied. The first one is you will see recovery in the margins you will see some recovery in returns, and then you will see us talking more about more capital acquisition, and putting more back into the business.

And Tony from an operation standpoint, perhaps we are not on a forum where you could enumerate a couple of things that we would see happen that would again suggest that the margin improvement will in fact occur, et cetera?

I think in the short-term you will see us, you ought to expect to see us continue to rationalize plants. You ought to expect to see volumes flat to down a little bit because there is a certain element of refocusing ourselves. I think the thing I will be watching and I know Adam will be watching, is if we see a lot of volume declines over a period of time that isn't intended that will be more of a warning signal we haven't been able to satisfy our market.

That is great, Tony. I appreciate that. Two last ones and I will turn it over. You mentioned as you normally do in your year-end review, and we appreciate all of the details for that matter in your press released in the fourth quarter, a number of risk factors that you see, of the ones that you went through, which one or two are you most leery about as you look out to 2012? And said differently, how confident are you, I realize there are no guarantees in life, certainly not in our business, but how confident are you in the low end of the guidance, given the risk factors that you see ahead of you? Thanks.

Thanks. I will start and then Bob or Adam can fix what I say wrong. As you know us well enough to know that we feel pretty good about the low end of the range. It would have to be as we understand it at least, quite a few negative factors would have to pile up on us before we would slip out of the low end. So we feel pretty confident to answer that part of the question. I think the risks that I would raise for you that are on our minds, we mentioned caution around Eastern Europe or eastern markets and around Europe in general. I guess more importantly. That is one, and we don't have a lot to tell you about that. It is not as if we are seeing issues. It is more just the obvious, that it is a market that looks like it is going to be slower coming up, and you don't really know how western Europe is going to do, and it reverberates through Eastern Europe and eastern markets. That is probably the biggest one.

I think those two are clearly the top of mind issues for us. I think certainly plastics is within our control to get organized and move the ball forward. The European economy is an unknown for all of us that do business there. I think the good news is we saw volumes hold up pretty well as we came through the year in the Vogel & Noot business. There weren't any real surprises around volume. We are kind of optimistic as you look forward, but there is I guess I would say cautiously optimistic around the economy in general.

The last one is normal for us, but it is important that we have to keep taking costs out of our business, out of our packages and continue to deliver a competitively advantage product to our customers. That continuous effort always exposes you to some risks that you don't do a good job at it. Our history has been very good there . The recent plastics example is one case where that continuous effort to take costs out sometimes blows up on you. It all boils down to just good execution and getting it right. I feel pretty good we will do it, but there is always a certain inherent

Thanks, I will turn it over.

Thanks, George.

We will go next to Phil Gresh with JPMorgan.

Good morning.

Hi, Phil.

Within the guidance I was wondering if you could share what the impact is expected to be from the start up costs and the inventory reductions, and I assume that is probably more front end loaded in the year in terms of the impact to 1Q?

Well, certainly to the start up costs. I assume you are referring to the plant in Russia. That probably got an early year largely first quarter-related impact, that is probably something about $1 million of costs coming through. As to the broader inventory reduction that will happen more cycled through the year, and we shouldn't at all be expecting that all happens in Q1.

And is there a way to quantify the impact you expect on the free cash flow from the inventory reductions roughly?

We would be looking for something, and this is a broadly working capital statement now and not just inventory, although a big chunk of it will be. We are probably looking at some $40 million or $50 million of working capital improvement on a year-over-year basis.

Okay. And then on the Vogel & Noot, what were the sales and accretion contributions this quarter? I think you gave that last quarter.

I don't know if we got to the sales number or not, but the accretion for the quarter was minimal. It was a little bit less than a penny. I will point out the fourth quarter is seasonally a very low quarter for it. It is largely pack oriented. But the good news is that it performed right in line with our acquisition expectations.

And I think we did actually in the last quarter. The sales were about $65 million.

Okay. And then what is your outlook for that business for next year in light of what you were talking about with a little more caution there?

I think as we were saying the volumes held up pretty well through 2011. I think we would be thinking that volumes will be flat to up a little bit kind of as we start to get benefit from the newly commercialized facilities. We are not expecting a lot from that business other than the year-over-year impact, and then some modest growth as we get year-over-year impact being defined as having it for a full year, as well as modest growth as those new facilities come commercial, and remember that they are pack related. So a lot of that will be back end loaded as well. I think a better picture is around the volume story, and slight improvement because of the new commercialization.

Is there a point at which you would consider slowing down the expansions there, as a result of end market trends, or is it not really in that territory at this stage?

I don't think we are seeing anything that suggests we should do that. And for the ones that we are underway on, we are feeling pretty good about those markets. One of the things that we have talked about is that those eastern markets have real growth opportunities for us. Particularly as those markets expand their processed food markets and many multi nationals start to come into those regions, obviously that contrasts what goes on in the rest of our markets that are more mature, where our growth opportunities are more structured around growth and success is at our existing customers. We have been pretty clear we like those opportunities in those markets, and we have not seen anything that would steer us away from those markets right now.

Remember that these are, the way the Vogel & Noot team has traditionally done this, these are relatively small footprint starts and then they grow from there. It is not a case you are putting a huge amount of capacity. You really have to be sensitive to how fast is the rate of growth in those developing markets. What it would impair is the rate at which those plants then grow. But as Bob says, what we are focused on is the growth of the markets, and being a player in that. As long as there is growth, we would expect to continue to take our piece of that.

Thanks a lot for the color.

We will go next to Chip Dillon from Vertical Research Partners.

Yes, and good morning.

Hi, Chip.

In looking at the cash flow statement I can't really decipher what the cash taxes, I know you expensed $96 million. What were the actual cash taxes in 2011, and what do you think the increase I guess in terms of the cash tax will be from 2011 to 2012?

Yes, we got a really nice cash tax benefit in 2011 because of the capital that we compressed into the year and got the accelerated deduction. So cash taxes were somewhere in the range of $40 million to $45 million for 2011. It will be significantly higher, maybe 2 to 2.5 times that next year, maybe even a touch more than that.

And we will probably approximate the booked tax rate?

It would certainly be moving closer to that.

Got you. And then you look at the M&A picture, and obviously you don't want to show your hand on a call too much, but can you just give us a feel if you had to at this point in early February, do you think the opportunities that might be there are more of the DGS size, in the $25 million range, or something in the Vogel & Noot range, or somewhere in between as you look at the world today?

I would say that the opportunities we are looking at are any and all of those. We don't discriminate against size here. We have proven that clearly small acquisitions can add to the bottom line pretty effectively. So when we are on the acquisition hunt we are turning over every rock. As you said it is hard to sit here in February, and make a definitive prediction as to what gets done, but clearly there are a lot of things out there for us to look at. We are sitting on a really strong balance sheet that would facilitate that. The credit markets are pretty good. I don't know what all of that means for activity in terms of others coming into the market to be competitive there. But we are happy with the pipeline we have going on right now.

At the risk of being a broken record though, again we will be very disciplined. I think we have said before we probably would walk away from 10 deals from every deal done. I don't want to over skew this conversation either way, each one will have to pass a whole bunch of gates before we move forward on it.

Got you. And one last quick one, I might have misunderstood you, on the volume side can you give us any direction in terms of what the magnitude was of the decline in the fourth quarter, and then I think you mentioned something about a 99% utilization rate. Does that mean you could run out of capacity? I believe you were talking about food can there, but correct me, if the volume gains tend to be at or above what you would anticipate for 2012?

I could only wish we were running at 99% utilization. I think what I said was that we were closer to 90%, 90-plus percent is what I said. Fairly well utilized, but clearly as we continue to deploy capital against deficiency opportunities, we can wring some capacity out of that which has been the history. We are not at all capacity constrained in our core markets. Again backstopped by the fact that we are not expecting huge growth in those markets either. So we are pretty comfortable with that.

Thank you.

Thank you.

We will go next to Mark Wilde with Deutsche Bank.

Tony, good morning.

Hi, Mark.

Just to start off here, I was struck as I went through the released last night about the number of times Europe got mentioned in there. I just wanted to be clear about this, you are not seeing in either the closures business or the metal container business over there, anything that you would see as a real down draft in the business?

That is correct. All we are seeing is us reading the newspaper the same as everybody else, and thinking that even though we are in quite stable markets that tend to do quite well in down conditions, nonetheless you have to be a little worried particularly as the western problem drifts east, but we have not seen that.

I was going to ask about that. It seems the concerns around places like Hungary and Poland have increased over the last two or three months.

But again, this goes right to the value package that we have. It is what we make that is so important to the food stream. It is relatively the lowest cost means of delivery. As you know, around the world evidence suggests that down markets do not necessarily hit us all that hard or all that directly. That seems so far to be holding up.

At the same time, you have got a lot of liquidity right now. I am just curious, does it appear to you that the questions around Europe may be opening up more opportunities for you over there, in terms of acquisitions at attractive values?

Sure, I think that is possible. You have got to be careful to think you are smarter than everybody else, right? There is a reason people are worried too. Yes it obviously makes the opportunities better. And yes, we are watching Europe and see it as a good opportunity in the future, but of course there are real issues that are driving all of this too. It is figuring that balance out and getting the right answer out of that.

Second question, can you talk a little about these labor negotiations in 2012?

Sure. There is not a lot to talk about. Essentially our contracts are pretty well spread out over year by year so we don't have particularly heavy years on this. I would say 2012 is a little bit more than 2011 was, but not a lot. And so we are not trying to signal anything more than that. Sometimes as you come into negotiations there are things you can do to plan for that aren't inventory based, and sometimes you need to think about inventory as part of the levers you pull coming into it. As it happened this year as we looked at what is coming up, we used inventory as one of the ways to plan and prepare for the negotiations that were coming up. I wouldn't read more into it. It was really just a working capital move.

Okay. The closures business was a little bit weaker than we expected. Any thoughts there?

No, not necessarily. It is the seasonality of that business. Fourth quarter is typically a weaker quarter for that business. On a full year basis, they were down a little bit. Again, if you go back to the single serve beverage, not only in the US, but really around the world single serve beverage was softer this year than anticipated. So it is really nothing more than that. We do anticipate that recovering to a large degree next year in 2012.

And then the last question I had is could you just update us on BPA? As I understand it, we may be hearing something from the FDA here during the first quarter?

That is right. The FDA is, I guess, required to released their ruling on March 31st. While I think the scientific evidence is pretty clear, you never know what type of political fire storm is going to affect the ruling here. I think industry expectation probably points toward a reaffirmation of the safe finding, followed by it being prudent to continue to study it. Who knows if that is really where they come down or not. I think we have been working for a number of years now, to make sure we have developed alternatives in an effort to prepare for what is otherwise a political decision or a consumer preference issue, to be able to shift away from BPA if that is what our customers and the ultimate consumer decide to do. I think where we sit today the majority of our products do have workable solutions identified. And we will continue to work with our suppliers and our customers on an orderly transition for those products, as well as continue to develop more products where we may not be exactly where us and our customers want to be.

As to the FDA's decision, I think it is unlikely that there will be an immediate and outright ban, although it is not impossible. That would certainly tax the supply stream if that is what happens. But if it is a more modest move, clearly there are some shelf life implications for some products. And quite frankly, there is a little bit of cost implication to certain products as well. But I would say generally we feel like we have done a pretty good job of getting out in front of this, and being pretty prepared. So feeling reasonable about where that might come down.

How much of the business is actually in cans that don't have any BPA in the codings at this point? Do you have any sense?

I would say 5-ish percent, something like that. Maybe like 10 now.

So pretty small?

Yes.

Alright, sounds good. I will turn it over.

Thanks, Mark.

We will go next to Al Kabili from Credit Suisse.

Good morning, thanks. Just a question if you could help us break out the volume growth that you saw year on year in each of the segments?

I will start with containers. Essentially if you look at the full year for food cans, we are down low single digits which is as you would expect given the fact that we had a fourth quarter 2010 buy ahead, and then follow on that with a historically low pack or a weak pack. We kind of finished in line with where we would have expected. If you look at the European business, it is hard to give you exact comparisons, because they had closures in their business. They didn't exactly have a perfect reporting as to cans year-over-year, but the view is that business is probably flat to down a little bit which is right in line with where we expected it to be, given some of the things we knew about coming into the acquisition. So that is the outlook or the historical look at food cans. I will let Adam speak to closures in plastics.

Starting with closures, a little bit of a mixed bag. In Europe we saw slight growth in our White Cap business, and in the US we were down slightly as well. So down just a couple percent in the US business and the organic business. You add in our two acquisitions of DGS and IPEC, and the volume growth is substantial.

And Adam is this for the full year, or just for the quarter?

Full year, thank you.

And I assume the fourth quarter was pretty similar down low single digits?

It was, yes. I will change that answer for you on plastics. Plastics on a full year basis was down low single digits, and in the fourth quarter, actually volume suffered. We were down low double digits.

Okay. And any driver on the down low double digits in the plastics business in the fourth quarter? Is this some of the operational issues you talked about, or is there something else going on that drove that sequential deterioration in the growth rate?

Sure. Actually, it was not the operational issues that we had. It was much more about our customers and their managing their inventories. They shut down selling lines throughout the fourth quarter to help manage their own working capital. And for whatever it is worth from a trend standpoint, we have seen good volume here in January as we started 2012. Our January unit volume was actually greater than any month in the fourth quarter. So we do think it was inventory management in the fourth quarter.

Terrific. Now you also mentioned mix had an impact on the plastic containers business. But at the same time I know you guys are also looking to refocus more on where you have a competitive advantage. So can you just talk a little about what you are seeing there in terms of mix? Why the difference there?

Sure, if you look at mix going back to 2011, really it was a technology platform basis. We shipped more products off of lower margin technologies than we did the higher margin technologies. We had an unfavorable mix from that standpoint in 2011. As we talk about mix management going forward that will be a process that we employ throughout 2012. We are just at the outset of doing that, and don't anticipate immediate changes there. It takes some time to work through that, and that will be a part of our process for 2012.

Okay. As you do that, does that have implications for your volume? Do you lose, is that a headwind to volumes as you are going through this process? Or can you favorably improve mix and keep volumes holding up?

In a perfect world you do the latter. The reality of where we are is that will impact volume negatively in 2012. At the same time we will be refocusing on our core markets, and really focusing our growth on those core markets that we serve and want to grow in. So ideally we would be bringing in new business to help offset the business that we are exiting. But there likely will be a timing mismatch as we do that.

And that was when I gave George the answer on risk factors, that is why I was trying to say it would be a meaningful decline in plastics volumes. Because I think that the net of what Adam just said, is you may have some modest declines. We are not necessarily counting on it, but you might have that. If everything works great you might even pull off some modest growth and rebalance yourself. It is a little hard to know the answer to that ahead of time.

And I guess the final question along these lines is, I know you expect gradual improvement throughout the year in plastic containers. It seems to me though there is going to be a little bit of a resin headwind at least in the first quarter. Do you still see improvement in the first quarter sequentially, given the resin headwinds that are out there? I guess you won't have the destocking impact, but help us work through the moving parts there? Thanks.

Correct, and there were increases in December and now in January for certain resins. So we are bringing headwinds into the year. Despite that we are expecting improved performance in the business for the first quarter.

The one thing we know for sure is there won't be, it won't be steady improvement every quarter. This business has always had a certain up and down to it. Resin is still, does buffet the business. While we are in the process of trying to improve pass-through timing, et cetera, that it is a slow process. We have got long-term contracts, you have to work through those. The one clear thing is there will be ups and downs here. So the word gradual, we tried to pick carefully to imply that it is not going to quickly, but we were not trying to convey it would happen every quarter a little better than the last one. It just won't be that way.

Okay. Alright. Thank you. Good luck.

We will go next to Usha Guntupalli from Goldman Sachs.

Good morning.

Good morning.

I have a quick question. Could you provide any early read on January can volumes, to the extent possible?

Yes the early read is that volumes in the quarter will be up, and that is largely attributable to the buy ahead we experienced in the fourth quarter of 2010, negatively impacting volumes in the first quarter of 2011. Added on to that, we also did the Alpo acquisition from Nestle PetCare in the later part of the year. That will also benefit the first quarter as well.

And there is nothing about January that leads us to change that view right now.

Correct.

Got it, thanks. And a quick follow-up, could you also comment on your metal and resin costs also built into your 2012 EPS guidance?

Sure. I will speak to metal. As we came through 2011, we saw high single digit inflation in the US markets, maybe a little bit more in the European markets. As we fast-forward to 2012, there is a lot of posturing and negotiating that is going on right now about where steel price is going to land for the year. We are right in the throws of that. It is too early to tell exactly where it is going to be. I think we do expect that we will see continued inflation in the market. In this case the US will see a little more inflation than Europe does. Largely because Europe has taken more inflation over the last couple of years. I would say in the next 30 to 45 days we ought to be through those negotiations. That is the early look is that we will see continued inflation.

And jumping over to resin I mentioned we are bringing headwinds from 2011 into the early part of the year. The expectation is that resin won't be as volatile as it has been in the past. And there is a chance for some stability in the resin market. So we are taking a cautious approach as we look at resin going forward, and again are planning for more stability in the resin markets this year than prior.

I appreciate that. Thank you.

Thank you.

We will go next to Christopher Butler from Sidoti & Company.

Good morning, guys.

Hi Chris.

Just a clarification on something Adam said earlier with about $5 million of added cost in 2011 on the plastics business. You had about $4 million of restructuring. Is that four plus one of miscellaneous disruption, is that the way to read that?

No it is not, those are actually separate items.

Appreciate the clarification. And shifting gears with concerns in Europe and the build up of cash, are you where you want to be there, or are we going to see more of a cash build just to protect against whatever may come?

No, I think what you are seeing in our cash position at year-end is essentially enough cash on the balance sheet to satisfy our peak working capital demands, and we consciously made the decision to hold the cash as we came through year-end as opposed to paying debt, largely around just economic crisis and wanting to make sure that we could facilitate that build through the peak period. I don't think we will be looking to build further cash from where we are. And quite frankly we will be deploying what we have through the early to mid part of the year.

And finally on the acquisition front can you touch on valuations of prospective targets, and how they may have changed since your last conference call?

I would say they are probably at least from our perspective in terms of the discipline we deploy, there is probably not a lot of change going on there. Who knows what people will do with credit markets doing what they are doing right now. I think our focus as always is on the cash on cash return for the acquisition opportunity. No real change from where we sit today.

I appreciate your time.

Thank you Chris.

We will go next to Robert Kirkpatrick from Cardinal Capital.

Just a quick one for Bob. You talked about cash taxes in 2012 heading up substantially, kind of approaching or somewhere around your booked tax level. What about well beyond that? Should you be able to have a cash tax rate that is less than your tax rate, or has something structurally changed?

What we have historically been able to do is we had some NOLs we burned through. We are essentially through at least a majority of them, if not all of them at this point. As the business exists today, our cash tax will largely be pretty well in line with our booked tax on a go forward basis.

What throws that is obviously that is capital, one of the big things that gives you a timing difference is more capital expenditure. When you take it all of the one-time write-off you lose that benefit going forward, right. So we took a one-time benefit that is going to cost us to go forward a bit. The other one is acquisitions drove that quite a bit, because you then recapitalize the depreciation base in some cases, and you might change your geographic which would change both your book rate and therefore your cash rate.

Great. Thank you so much.

We will go next to George Staphos from Bank of America-Merrill Lynch.

Thanks, hi, guys. One question just as a detail. Did you mention what your food can volumes were in the fourth quarter on a percentage basis? Earlier the question I think you were referring to your total year volume. If you could just clarify that?

We were up slightly in the fourth quarter, and again down low single digits for the full year.

Less than 1%. So really slightly.

Thanks. As we think about end market certainly there has been discussion in recent years about the metal can losing share in some applications. Are there any that you view as particularly troubling right now, or are there any markets you have an opportunity to regain share, or gain new share through the metal can?

Sure, this won't sound particularly new to you, but if the places where we feel most comfortable is where we mostly do heavily invested processing infrastructure, and that is most of what we do, is heavy continuous type retorp areas. That is the bulk. The fringe that always, you deal are if it is a dry product, it doesn't need to go through that, and we have seen most of that conversion. There are some areas where you get like nutritionals, where we have seen that plastics, that the reclosability is so important there, that it has even worked the investment towards new technologies in that case. And so we have seen that to a pretty large degree. There would still be a little but more risk there, but it is not a huge part of what we do. And then yes, on the other side there are other areas that you remember that one great things about the can is that it is so tamper-proof. Anything that really worries about tamper, you think about some baby products, et cetera, it is logical for them to consider it at least, moving back towards metal, and you have seen some cases of that, but all of this is small. Really we are talking about small movements in terms of the relative percentages of the business either way on that.

Is there a way to with your existing technology in end, to come up with a reclosability feature? You have easy open end, but do you have any technology, or does the industry have technology that would allow for reclosability on metal cans? If that is even applicable or usable?

The answer is yes, there is some technology, and there is opportunity to enhance that technology. And so the idea of reclosable metal package, is it works. We can demonstrate it. You do get into a cost point here. Now are you talking about a much more cost-added to the package. You will have to have a little more of a reason to do it, or a specialized product you are putting it into. The answer is yes, that is an opportunity going forward. I don't know how big, but it is there.

Last question and I will turn it over, if you looked at standard sized can, and I realize that is a broad statement, and I compared it to an equivalent package that had a wide top closure, how much BPA is in that wide top closure typically? And is it fairly comparable to that on the can on the coating side?

The coatings are very similar, George so it would be comparable to what we see on the cans. Less overall exposure because of less surface area. Less surface area, but the coating would have the same. But the coating itself would have the same type of BPAs as the can does.

If you adjusted for surface area and, again I haven't given you any dimensions or specs so I know it is hard to do, but is it 2X the amount that would be on wide closure, 5X, that sort of precision is what I am looking for?

The problem we have here, George, is that all of this we are measuring in levels that mankind could never measure in before. It is part of the craziness of the whole debate. It is hard for us to tell you exactly because you have to go do a bunch of sampling studies, which always seems to give very, varied disparate answers to it. So our belief is that it is quite a bit less, it is half or et cetera, I don't know. The exposure is less, all of this is very, very low exposure. Which is why there is this raging scientific debate.

Well, we look forward to you trail blazing as always Tony. Good luck in the quarter. Thanks.

Thanks George.

We go next to Chip Dillon from Vertical Research Partners.

One more question . Sorry to beat a dead horse on BPA, but Tony I think you all suggested that maybe as much as 95% of your cans have some involvement here. If we see the FDA come out with what may be viewed as an extreme ruling against the use of this, I guess two questions, can you sort of give us a range of what you think it could do to your volume? In other words you mentioned that some products may move to, the cost would go up to high to continue using cans maybe you would lose that business. Is that possible? I guess more importantly, I would also ask if it is a negative ruling, can the industry do anything about it? Are there court remedies, or other strategies you can take to try to forestall

Again I think, let me deal with the most important part here. While there is some cost difference we are talking about relatively small amounts of costs to the package, and its a competitive position versus other alternative packages. I wouldn't characterize this at all as something that would be a very significant change in a competitive package. But it would be more money. It could be shorter shelf life. We think that would be for some indeterminate period of time, while we can do more studies and maybe enhance the coatings a little bit more over time. It is manageable . I think the point we are trying to make is it does come at a cost to the consumer. And it does come as a cost to society. If you have less shelf life and more food waste, et cetera. Which kind of leads to your last point, which is I wish individually you could have this kind of dialogue and say this package takes so much waste off, and therefore it is so good from a sustainability perspective, carbon footprint, et cetera, it brings so much. And then we have this issue that laboratory, good laboratory practice studies don't find a problem with it. Why are we going down this path? The final answer is politics and consumer sentiment. At the end of the day I don't think there is a court that will ultimately help us deal with that. If the FDA comes out with something, that will just further the consumer impression that there is a problem here. Our view is we have to protect the cans. If people think there is a problem we have got to move

Maybe a silver lining if you could view it this way, is that the inconvenience to the consumer might obviously create a backlash. But also if you have shorter shelf life, if you are like our family, you sometimes forget what you have in the cupboard, you will end up buying more products, and that could actually boost your volumes, which isn't a good reason to see that happen, but could nonetheless happen.

I guess that could happen, you are right. I am not sure it is necessarily a good outcome. Because they might not get rid of it either, and consume it when they shouldn't. I think the one interesting thing is, just the quantity of time on this call shows increasing awareness, et cetera, which kind of reinforces our view that as an industry we probably need to move on in due course here.

Thank you.

We will go next to Chris Manuel from Wells Fargo.

Good afternoon at this point. Just a couple of very quick tie-up questions. Did you tell us what D&A would be for 2012?

We didn't. It is up. I would say it is somewhere in the neighborhood of $165 million.

Okay. And if you were to take a stab today at what maintenance CapEx levels would be, it used to always be in the neighborhood of $65 million, but you have added a number of components onto the business. What would you estimate that maintenance CapEx is?

I don't know. Your 65 seems high a little bit for the historical business. I would say that the 65 probably covers what we have done today with the incremental acquisitions.

So when I think, so the last question I have is, when I think about you guys normally getting a pretty healthy return on capital beyond maintenance, and I think about what is done here in 2011, that would normally imply a pretty nice pick up in earnings over the next few years. Could you maybe tell us what, if you can put them into large buckets, or however is applicable, to where you spent the capital in 2011, and maybe what types of returns you would envision from said projects?

Sure. If you look at, at least the excess capital over normal spend in 2011, it kind of happened broadly across the businesses with the one exception of plastics, where we deployed less capital on a year-over-year basis. If you look at where the majority of that excess capital got spent, it got spent in two areas, both in the can business. It was largely in the European business to facilitate the build out of the new facilities. And so we will start to see those returns yield through the one in Russia in the later part of this year. The other one is coming up in late 2012 and 2013 being commercialized. So we won't start to see those returns until late 2013. If you look at the additional increment, it was in the US food canned business, and a large portion of that was oriented toward easy open ends, and we would expect start seeing that yielding benefits as early as 2012. So all of those were good return projects, kind of in line with our historical bench marks. We didn't drop our parameters just because we were looking to accelerate the tax deductions, these were just all-around good projects that we accelerated.

As I would expect. Was there any spent in closures as well?

There was. Spend or increased spend?

Well, I think of if I use the 65 benchmark and you spent 173 last year, let's just call it 90 of returned capital. And to put it in big buckets, if two-thirds of that went toward metal, you kind of ran through those, I am guessing there were some into the closures and you mentioned you underweighted additional investment into plastics. Am I characterizing that fairly? That is what I was looking for. Thank you, gentlemen.

Yes. Yes. Great. Thanks Chris. Do we have anybody else?

At this time we have no further questions sir.

Thank you very much. For those that are still on the line, thank you for your time, and we look forward to talking to you after the end of the first quarter.

That does conclude today's conference. We thank you for your participation.