Silgan Holdings Inc. (SLGN) Q4 2012 Earnings Report, Transcript and Summary

Thank you for joining the Silgan Holdings’ Fourth Quarter and Full Year 2012 Earnings Conference Call. Today's call is being recorded. And at this time I'd like to turn the conference over to Ms. Kim Ulmer, Vice President and Controller. Please go ahead, ma'am.

Thank you. Joining me from the Company today, I have Tony Allott, President and CEO; Bob Lewis, EVP and CFO; and Adam Greenlee, EVP and COO. Before we begin the call today, we would like to make it clear that certain statements made today on this conference call maybe forward-looking statements. These forward-looking statements are made based upon management's expectations and beliefs concerning future events impacting the Company, and therefore involve a number of uncertainties and risks, including but not limited to those described in the Company's Annual Report on Form 10-K for 2011 and other filings with the SEC. 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, Kim. Welcome everyone to Silgan’s 2012 year-end earnings conference call. I’m going to start by making a few comments about the highlights of 2012. Bob will then review the financial performance for the full year and the fourth quarter, and afterwards Bob, Adam and I will be pleased to answer any questions. As you’ve seen in the press release, 2012 was another record year for Silgan, as we delivered adjusted earnings per diluted share of $2.70 up from a very strong prior year in which we delivered $2.63 per diluted share. While 2012 presented several challenges, we believe we have further positioned the company for continued success in our markets by continuing to enhance our sustainable competitive advantages. Among the milestones, leading to the successes in 2012 and beyond, we generated $303.7 million of free cash flow or $4.35 per diluted share, delivering a free cash flow yield of approximately 10%. Completed two strategic acquisitions the high barrier plastic food container business from Rexam and Ontas, a Turkish producer of metal food cans and metal closures, enhanced our position in the Eastern food can markets by commissioning new plants in Stupino, Russia, just outside of Moscow and in the Jordan Valley. Increased metal food can volumes made solid progress, improving the operational performance of our plastics business, increased the cash dividend by 9% to $0.48 per share, commenced the tender offer for up to $250 million worth of our stock, issued $500 million of new 5% senior notes and redeemed existing 7.25% notes. These highlights are the results of a relentless focus on our mission to be the best in our markets by focusing on delivering sustainable competitive advantage to our customers, it is this commitment that led to the initiation of two strategic projects in our metal container business that we believe will continue to strengthen the advantages of the food can into the next decade. : The second initiative we kicked off this year is a partnership with CMI and industry members to more effectively communicate the significant and sustainable benefits of canned foods to ensure retailers and less frequent can consumers fully understand the nutritional and environmental benefits of canned foods over frozen and fresh in the store. 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 2013 as we expect to deliver earnings growth in the range of 13% to 19% and continue to invest in enhancing our franchises for the long term. With that I will turn it over to Bob.

Thank you, Tony. Good morning everyone. As we look back on 2012 it’s important to note that in the face of a difficult global economies, volatile weather and changing customer demand patterns, we delivered record earnings and significantly outperformed our free cash flow target. In addition, we made several investments to drive shareholder returns including the acquisition of plastic food containers and Ontas, continued investment in the Eastern can markets, significant reductions in working capital, opportunistic share repurchases throughout the year, and the commencement of the $250 million share repurchase in the form of modified Dutch Auction. As a result adjusted earnings per share increased $2.70 and free cash flow per diluted share doubled to $4.35. On a consolidated basis, net sales for the year were $3.590 billion, an increase of $79.1 million, or 2.3% versus the prior year. Largely a result of the benefits from acquisitions, offset by the negative impact of unfavorable foreign currency. We converted these sales to net income for the year of $151.3 million compared to 2011 net income of $193.2 million. However, 2012 includes a loss on early extinguishment of debt of $38.7 million, rationalization charges of $8.7 million and start-up costs of $6.4 million versus 2011, which included income of $25.2 million as a result of the termination of the Graham merger agreement, net of corporate development costs, rationalization charges of $7.7 million and a loss on early extinguishment of debt of $1 million. Interest expense before loss on early extinguishment of debt was unchanged at $63 million, as higher average outstanding borrowings in 2012 were offset by lower average interest rates as a result for the 5% senior notes issued in March 2012 and the refinancing of the credit facility in July of 2011. As a result for these financings, we recorded…

Hi, George good morning. George Staphos – Bank of America Merrill Lynch: Congratulations on the year. I guess the first question I had, and all only ask a couple of from, is on the Can Vision 2020 program. Ultimately, what was the catalyst for this program? And as you thought about it, is it to some degree, or why shouldn’t we think it to be perhaps a more defensive move reflecting perhaps your observations on the market into the future and how successful do you think it will be or what challenges may be presented by consumer perception around the can? And I leave it there.

Okay. Thanks, George. It is Tony. First of all, the distinction here for whatever it’s worth is the Can Vision 2020 project is about cost reduction, as opposed to the marketing program. I take from your question you’re kind of referring to both parts of that. George Staphos – Bank of America Merrill Lynch: Well. Yes, but also you’re working with your customers to reduce obviously the system-wide cost, getting the product to the retailers. There need to be – there’s a reason why you want to do that, and my guess is part of the reason you want retailers to push more canned products. But, I’ll stop there and you fill in the blanks.

Okay. Okay. Fair enough. Yeah, I just want to be sure. So well, I’m sure as the call goes on we’ll get to both parts. I’ll answer the Can Vision 2020 first. The catalyst here is, first of all, this is something we have always done. We’ve had a relentless pursuit on taking cost out of our product for our customers and every year that happens. And so, it is not in any way, it’s the defensive reaction. It is however a recognition. Over the last decade there has been significant steel inflation and there’s been significant pressure put on our customers through changes in retail stream, and just lower cost of food products kind of throughout the country. And so, it’s really just a, it’s a more comprehensive focus on dealing with a more comprehensive problem for our customers over the last decade. So, I think here the first thing to just say, something we’ve been doing all along around it. The second part is that, we think it could be significant, and we use the word, dramatic, dramatic reductions and total system costs. And again, this is what the little unit period everything from steel, and looking at kind of the steel that comes in, gauges of steel, or any other changes about that, all the way through to the package itself to our customers, how they take our product, how they fill it, how it then moves on to the store. So, it is a bit more comprehensive in that regard, and as we’ve gone through this so far, and with [base] been working on this, the entirety of this year, I really wanted to give it some time to see how much we could find. And, I would tell you that thus far we’ve identified a couple of hundred million dollars of opportunities. Now, these are long-term in nature, so first thing is, these aren’t going to be here next year necessarily, some of these are very big ideas. That $200 million not to our account, and by our, I mean the company and shareholders. The idea as you pointed out is really to drive the savings to our customers to help them in terms of their own situation and to want to continue to support the can. But it is going to give us opportunity to make investments to drive those savings and to get our kind of returns on the investments, so there is something in it for us on the bottom-line as well, but if not the couple $100 million coming through. : George Staphos – Bank of America Merrill Lynch: Okay, but if your customers are saving a half a penny or a penny total system costs added to that, help them ultimately if the consumer isn’t willing to and obviously I’m taking this very historically?

Yeah. I tried to separate the two parts of the conversation, but let’s go back then to the consumer, that isn’t the case that our cans grew this year. Cans have been, over a long period of time, a kind of flat product line. So, I don’t think the evidence suggests that consumers are shifting away from the can. What we find the evidence suggests is that, there is a frequent user of cans and the frequent user understands about the can and all of their, the attributes why they like it. What we found is there is a lot of less frequent user of the cans that have a lot of misunderstanding about the can, and so that starts to drive us into the communication process of helping them. So that’s was the second part to your question. And so, working with CMI and other can manufacturers, we’re going to get out there and try to work more on the communication effort. The misunderstandings you find, which are fascinating when you look at it, is you get a lot of consumers who think of all can goods as processed food and, meaning that more in a pejorative way And in fact, of course you look at fruit and vegetable, for example, and it’s prepared. It’s not processed at all. There is an assumption and a belief widely held that there’s preservatives in food cans. Well, of course there are no preservatives in food cans. Well, of course there are no preservatives in food cans. And there’s a thought that fresh is more sustainable on the environment, et cetera. But again, as we all know, the fruit and vegetable are prepared. They are not processed. The can, once it’s filled, doesn’t have to be refrigerated. So it’s much lighter footprint on the planet as it goes forward. You look at fresh food in a grocery store, 50%, nearly 50% I guess wasted. All the water, all the carbon that goes into growing all that food in a world with limited food, nearly half gets wasted. Almost none gets wasted if it goes into a can. All the nutrients go into that can immediately. And so what we’re finding [is the] accomplished people that don’t understand that, and with all kind of noises out there they are understanding it less and less as time goes by. And so, it becomes incumbent on us and the rest of the industry to be sure that we’re communicating that and helping our customers and retailers understand and communicate as well. George Staphos – Bank of America Merrill Lynch: .:

Sure.

And we’ll take our next question from Chris Manuel with Wells Fargo. Chris Manuel – Wells Fargo Securities LLC: Good morning, gentlemen, and congratulations on the strong cash generation.

Thank you. Chris Manuel – Wells Fargo Securities LLC: A couple of quick thoughts there, first, could you give us some, what you’re anticipating as you’re looking forward across the different businesses with respect to volume? You did have a little bit of growth this year, but I was thinking too, we may have a little bit more growth in food next year. Could you maybe give us a little bit of look by the region whether that’s Europe, North America, and then by plastics and closures as well?

: :

When you move over to closures, globally, we’ll start with the 2012 performances well, and total unit volume for closures was up a couple of percent, largely driven by our U.S. single-serve volume that continued to show strength as we had a warm summer and a long summer here in the U.S. business. So, U.S. volume was up kind of mid-single digit, while European business was up low-single digit in 2012. And as we go forward into 2013, we expect to see the same kind of continued solid volume for the U.S. business and we're not anticipating any recovery for the European business. So, I think 2012 was a good year for volume in the closures business and we'll see more of the same in 2013. As we move to plastics, what interesting is unit volume is a great measure for food cans and for closures. It’s not a perfect measure for our success in the plastic business as we selectively focus our efforts in our growth strategies towards very specific target markets, but as we talk about the pound volume for the business, again in 2012 we were down kind of mid-single digits as we had expected to be, so kind of right in line with our expectations for the year. And then as we move on to the fourth quarter of 2012, we included, obviously, the plastic food container business, which from a unit volume standpoint absolutely met our expectation in 2012 for their unit volume. And 2013, I’d say, we’ll expect continued improvement in the operating performance of both pieces of our plastics business. Again I think selectively unit volume will be down in our base business and we’ll expect nice growth out of the plastic food container business that we acquired. Chris Manuel – Wells Fargo Securities LLC: Okay, one last follow-up question and it had to do with, when we look at the dollar profit levels in the closures business, it seems to follow-up quite a bit in 4Q. And I think you referred to some price pressure, I recommend there is probably some seasonality in there too, but could you give us a little more color and what you’re seeing with respect to price pressure? Is this sort of at the beginning of this? Will this run for a year or is there some contracts rebid or maybe some extra color there that would be helpful?

Yeah, sure. Again, we’re specifically talking about Europe, and again I think some of that price pressure comes from the choppy volume market that we’ve seen in Europe as, as that capacity gets aimed at kind of smaller volumes available in the market. So in the year, it was somewhere in the [June] of a couple million dollars that negatively impacted us. I think that happened relatively early in the year, Chris, so we just kind of saw that play up to the balance of the year. And as we move forward into 2013, we don’t anticipate further reductions in price. We’ve seen kind of the market stabilize in Europe for closures and look for that to stay strong as we head into the next year. Chris Manuel – Wells Fargo Securities LLC: Okay. That’s helpful. Thank you gentlemen.

And we’ll take our next question from Ghansham Panjabi with Robert W. Baird. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: Hey, guys. Good morning.

Hey, Ghansham. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: Hey, Tony, going to back to George’s question on Can Vision 2020 and the CMI branding initiative, can you just give us some color on how long these programs have been in the works, just sort of some context there, you’re obviously funding it in 2013. So, how long have you been working on this?

Yeah, I would, again, as I said, in some ways let me talk Can Vision. It’s something we’ve always been doing, but as a comprehensive program of this nature it’s been basically the entirety of 2012. Essentially the same thing is true on the marketing program, although it took a while to finally get agencies in, et cetera and get moving on that, but it’s sort of been on our plate for the entirety of 2012 and there is spending in 2012 against both of these projects and that will accelerate into 2013. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: Okay. I’m sorry if I missed this, but was there a dollar amount that you allocated to these two programs and how do you split between the two?

Yeah, I don’t necessarily have a great split for you of the two. The cost in the current year was some $3.5 million, $4 million and that will probably go up to by about the same amount again next year. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: Okay, all right. And then as a sort of a follow-up question, on the legacy plastics business do you have a sense as to how the margins were during the fourth quarter, I know it’s complicated with Rexam, but if you can break out those two, that will be helpful too. Thank you so much.

Sure, Ghansham, it’s Adam. The margins for the base business did improve not to the historic levels, but certainly improved versus what we've seen previously. The Rexam business was right in line with our expectation as well. So both businesses performed very well. From an operating margins standpoint, we were in the 4.5% kind of percent range for the base plastics business and again Rexam I’ll just say was in line with what our expectation was. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: And so Adam going to the contract between the two businesses legacy and Rexam, are they comparable in terms of resin pass through, because resin has picked up quite a bit.

Not necessarily. I’d say that our legacy business is working very hard to tighten our resin pass through mechanisms and the Rexam business had been a bit in front of us on that front. So their pass throughs are a little bit tighter than ours on the legacy business. Ghansham Panjabi – Robert W. Baird & Co. Equity Capital Markets: Okay. Thanks so much.

We’ll take our next question from Adam Josephson with KeyBanc. Adam Josephson – KeyBanc Capital Markets: Thanks. Good morning, everyone.

Good morning, Adam. Adam Josephson – KeyBanc Capital Markets: What is your full year EPS guidance of $3.05 to $3.20 include as far as uses of $250 million of free cash flow that you expect to generate aside from the dividend?

You’re talking about the free cash flow that we are forecasting to generate in 2013. Adam Josephson – KeyBanc Capital Markets: You got it, Bob.

Yeah. So any deployment of that CapEx would be incremental to what’s in the guidance right now. That’s funny. This is always the challenge for us is what’s always here is what we have in hand right now. There is always that last piece that we think about, which is deployment of cash and obviously we are deploying and counting the cash on the buyback and on the plastic container business that we acquired. But beyond that we don’t know how to factor it in, so its not there. Adam Josephson – KeyBanc Capital Markets: Right. No additional buybacks, acquisitions or otherwise.

Correct. Adam Josephson – KeyBanc Capital Markets: Okay. And how much of a back to resin and the resin like, how much of a drag you expect that to be in the first quarter and for the full year?

Well, first of all our forecast for resin is we’re experiencing increases literally as we speak certainly in January, we saw increases and our base resins will anticipate further increases through the first quarter. And so what we do from a forecast standpoint, as we forecast what we know, so we forecasted the increases without any relief later in the year. So with that I tell you for the full year we’re in the kind of $3 million to $4 million range and then in the quarter, it’s a couple of million dollars. Adam Josephson – KeyBanc Capital Markets: It’s helpful Adam. And just last one on the acquisition pipeline have you – how would you characterize it relative to what you’ve seen in previous quarters?

Yeah. I think there is really not a lot change there, I mean, as we’ve talked, at length, it’s a core part of our strategy and we look to deploy capital. Our discipline is that we find things that marry up where we think we can find sustainable competitive positions in those markets and then we can earn good returns. That's still the case. There is still plenty of opportunity that that is out there. And credit markets are pretty right to allow for acquisitions. I think as we’ve seen in the past, the amount of activity that we undertake given our discipline, doesn't always translate to near-term acquisitions. But we’re hopeful that as we continue to troll for opportunities that we find one that fits us well and drives good shareholder returns. So we’re still feeling pretty good about the prospects. Adam Josephson – KeyBanc Capital Markets: Great, thanks Bob. Thanks, everyone. I appreciate it.

We’ll take our next question from Phil Gresh with JPMorgan. Phil Gresh – JPMorgan Securities LLC: Hey, good morning guys.

Hi, good morning. Phil Gresh – JPMorgan Securities LLC: ,:

: Phil Gresh – JPMorgan Securities LLC: Okay, not to delay with the point, I guess sort of the thought if you’re going up and then stable from there, which it sounds like where you’re forecasting that when it stabilizes you do get to recover some of this increase, which I guess a little thought was in the back half?

You recover the increase, but you never recover the lag that you lost at beginning of the year. Phil Gresh – JPMorgan Securities LLC: Okay.

You needed time to recover that. Phil Gresh – JPMorgan Securities LLC: Okay. And then on the metal side, on metal food can, could you just give us a little bit of a bridge of kind of year-over-year for the fourth quarter, just how much of an impact there was from the inventory reductions and Sandy and whatever other items you’d want to call out.

Sure. So on the fourth quarter, I mean, first of all, just to point out as we did in the release, it’s a tough comp. It was a very strong fourth quarter last year and it was strong because we were building the inventory, which we talked about the time ahead of the labor negotiation. By the way, that’s through Q1, Q2, so the same answer when we get to Q1. It also was strong, because it had the benefit of certain project costs we had been working on all year along that we get some reimbursement for and that reimbursement came in Q4 as we had kind of a one-time, if you will, benefit in the quarter. So, both those made it a tough comp against that you had sizable inventory, comparatively inventory reductions, and we took the opportunity to continue on that. At the end of the third quarter, we told that we’ve gotten a little earlier. Weren’t so sure how much more we’d get, but we found opportunity to keep going in Q4 and got more. So that had some $3 million to $4 million of negative impact on the inventory side. We also – we talked about this logistics point, but again this was not the smoothest year-on demand patterns et cetera. So, there are a couple of million dollar costs associated just with that, shipping product around plant-to-plant, and so beyond that the rest in basically Europe. In Europe, as Bob talked about the volumes, we definitely saw, through the course of the year volumes were okay, pricing was a little challenging. We definitely saw volume pull back in Europe in the fourth quarter, particularly in the December timeframe. We do you think that part of that is attributable to sort of the economic malaise, and the idea of getting some working capital out. We also do think some of that is attributable to the timing of the Christmas holiday and customers taking longer shutdowns et cetera. Time will tell we’re right about that, but that’s our view. So that is the rest of the bridge if you will and plus the start-up cost on the new plants. Phil Gresh – JPMorgan Securities LLC: Okay.

And that I think where you’d see in the quarter. Phil Gresh – JPMorgan Securities LLC: That’s very helpful. Thanks. And just a follow-up, on the first quarter you said there is some inventory build benefit as well. Roughly how much would that be that we need to be thinking about?

Another $2 million to $3 million difference, and again that has most to do with what we’re doing in the first quarter of last year, although we are going to be reducing less this year as we keep trying to work at inventory. Phil Gresh – JPMorgan Securities LLC: Okay. All right. Thanks a lot. I’ll turn it over.

We’ll take our next question from Anthony Pettinari with Citi. Anthony Pettinari – Citigroup Global Markets, Inc.: Good morning.

Good morning. Anthony Pettinari – Citigroup Global Markets, Inc.: You referenced metal containers potentially showing a little stronger growth in 2013, and given you’ve announced some capacity reduction actions in North America last year. Following those, would you expect that your footprint is going to be pretty stable in North America over the next 12 months to 18 months, or are there additional steps that could potentially be on the table to optimize your footprint? And then maybe just a related question, you called out operational improvements in metal containers in the year and I was wondering if there was sort of any major initiatives that you could point to, or if we should think about the timing of those improvements in the year?

Sure, on the footprint question, it’s a good question. As you know, we did shutdown one plant as you point out, and we talked on our last call that Campbell has concluded the bay, are going to be shutting down their filling operation in Sacramento, California. So the quick answer to your question is that as we sit here right now, we don’t see any immediate footprint changes, although we constantly look at that. But our thinking right now is that there is, we have a very good asset on the West Coast that we think can be very important and because of the shutdown of our Kingsburg plant, we’re already absorbing some more volume in the existing footprint. As in aside a reminder that the, our can plant in Sacramento was roughly 50% Campbell and 50% third party, so it already was supplying other customers in the market. So right now we’re not seeing any shift on that, but as you can – if you follow me through all that you would realize that the rest of our systems will be that much more tightly utilized, because you’re going to have a little less on the Sacramento line until we resolve that question. And so we are thinking that in terms of some of the logistic issues we talked about in 2012, we are bracing that we may have some more of that, because we have a very tight system in 2013. So that’s factored in there. Against that we always assume that we’re going to make operational improvements and tend to do sell through our operations excellence and just continually working on outputs, et cetera. So that’s the context that you read. Anthony Pettinari – Citigroup Global Markets, Inc.: Okay, okay that’s helpful. And then just switching gears to CapEx, you referenced the higher CapEx in your free cash flow guidance. And I was just wondering, if you could call out the impact of the acquired businesses on that higher CapEx, if you could quantify that looking at Rexam or Ontas versus maybe the legacy business or any kind of CapEx projects from 2012 that maybe you deferred into 2013 or maybe how we can think about those projects?

Sure. Really the acquisitions that we completed in 2012 will have a minimal impact, at least in the near-term on CapEx. So that $120 million to $160 million is a range that we kind of increased a bit when we acquired the Vogel & Noot business knowing that we will be making some investment into some of the eastern markets and still feel like that’s a pretty good range in the near-term given what we see on the horizon around those two businesses. And again, those two businesses are relatively small against the broader scale. As we move forward, and that business continues, that business being the plastic food container business continues to grow. There could be some capital deployed, but we’re not expecting that to be in 2013. Anthony Pettinari – Citigroup Global Markets, Inc.: Great. I’ll turn it over.

Okay.

We’ll take our next question from Chip Dillon with Vertical Research. Chip Dillon – Vertical Research Partners LLC: , : : : , :

You’re talking the assumption for 2013 now? Chip Dillon – Vertical Research Partners LLC: Yes.

Yes, so the tax – we’re expecting the tax rate increase, it will probably go up into the 34% plus, that’s large, that’s probably a more normal kind of rate of where we’ve been. We do have some jurisdictional changes in tax rates, as well as, as you mentioned the mix of where profits going to be driven, and a big part of that change year-over-year is the fact that 2012 benefited from some discrete items that brought it down, that will not recur in 2013. Chip Dillon – Vertical Research Partners LLC: Got you, got you. And I guess this is a follow-up and when you think about the whole M&A situation that’s out there and can you guys are very careful at the pitches you swing at. Or you finding the – I guess the improving, emerging economies, or just global economies coupled with. What the markets are doing is making that more of a challenge, because I guess asking prices are up or not really because, financing costs continue to be low although they've started to come up a little bit.

Yeah, I don’t think we’re seeing huge shifts in kind of value expectations, yes, I obviously if borrowing costs remained as low as they are right now. You’d expect that would happen. But I think against that you’ve gotten, it’s been sort of a rocky couple of years for those developing markets and even though people are starting to feel like the world economy is headed for better I guess. We have not seen a big change in valuations in that regard. Chip Dillon – Vertical Research Partners LLC: Got you. And then I guess the last question is on the initiative, you guys are part of and I imagine others are too. Tony, you gave some pretty compelling factors that I think are out there, and I’m just wondering if you’ve seen studies that show this perception, I thought it was quite interesting how, the whole preservative versus fresh issue in the can and outside of the can, and then certainly the footprint issue where the fresh that given that somewhat is wasted. Is that something that, you’ve seen perception at least here in the states change over time or is that right now go through this initiative?

Yeah, I don’t think the perception is changed. I think there hasn’t been much perception. And so we’ve been relatively satisfied with the regular user of the can. And I think now we’re starting to look a little further on that. I think what has changed is that the American consumer I think is a little bit more sustainable conscious, certainly the retailers and customers are. And so, I think the power of the can is actually much stronger as you get into that side of the discussion. And then, I think the whole preserving question, I think there is sort of a movement afoot, and you look at kind of organic foods. And, I mean, there is just, I think people are getting a little more tuned to what they’re eating et cetera, and I think the can would have always historically fallen into a category. Now, I’m talking about less frequent users, right? Not the regular, but… Chip Dillon – Vertical Research Partners LLC: Yeah.

For them they would have typically put the can not in that category of good for me, et cetera. So, I think part of this is educating that group so that they feel good about feeding their family from a can that is a plus not a neutral decision. Chip Dillon – Vertical Research Partners LLC: Got you. Okay, that’s perfect. Thanks.

Thanks sir. We’ll take our next question from Scott Gaffner with Barclays. Scott Louis Gaffner – Barclays Capital, Inc.: Good morning.

Good morning. Scott Louis Gaffner – Barclays Capital, Inc.: Just wanted to get an update, you mentioned the capacity expansion, the plants coming online in Russia, and Jordan. Can you just talk a little bit about how those plants there progressing if they’re commercially producing cans for commercially (inaudible). Are the contracts in place for existing customers and then maybe I think you mentioned Ukraine coming on early in 2013. Can you talk about those; I mean can you also frame it in the context of any future possibility of expanding with existing customers or in which region could you expand, et cetera?

: On Russia, on the other hand, we do have both of those facilities commercialized now, the last one as being qualified with various customers. They are both pack related entity. So we’ll see that benefit kind of coming as we move into the pack season. We do believe that those areas of Russia, in particular, will become increasingly important from food can growing regions and food can consumption. So we do see opportunity to further build out over time. That doesn’t necessarily mean it’s going to be in 2013. I think, we’ve taken the approach that we want to build out with local customers where we think we can support the local market grow with those that are there, be prepared if and when multinationals come in, but typically we think that there is better profit opportunity by supporting the local customers and that’s our focus right now. And then, in the Ukraine, that’s a facility that will be kind of a shared facility between cans and closures and that we should see come on board kind of in the first quarter to the second quarter of 2013, and again, another pack related environment. So we’ll see the benefits there coming in the back half. Generally we think that region, as I indicated, for Russia, is right for continued growth around food can consumption.

This is Tony. So remember that these are relatively small plants, so they are kind of one-line becomes two-line et cetera. So incrementally the early profitability from them is less because you got all the fixed cost of the plant et cetera. The point is exactly what your question got to is that our belief is that we are going to be able to grow these and these are markets, if you take Russia as an example. This is a market where we really believe that the canned food and the can is going to have a long-term solid future. It’s a huge advancement from where they are. Again you go to these issues of protecting food and not wasting it, et cetera. That’s the market, but that’s highly valued in. And so, again we think it’s very important to continue to build the position the way we are in that market. And so the opportunity is definitely down the road as those plants grow in size. Scott Louis Gaffner – Barclays Capital, Inc.: Right. And just to go back to the point, you’re going after the local account, but with Can Vision 2020 you’re aiding some, helping out some large national account that are potentially global account as well. Does the conversation ever extend to migrating your business overseas with those customers? How do those conversations go? Or is that just not a possibility at this point?

, : : .: – : Scott Louis Gaffner – Barclays Capital, Inc.: :

: : Scott Louis Gaffner – Barclays Capital, Inc.: Great. Thanks.

And we’ll go next to Mark Wilde with Deutsche Bank. Mark Wilde – Deutsche Bank Securities, Inc.: Good morning.

Good morning.

Hi, Mark. Mark Wilde – Deutsche Bank Securities, Inc.: Tony, not to belabor this Can Vision, I’m curious in the release you talk about kind of a dramatic reduction in system-wide cost. I’m trying to figure out what are two or three examples of what can be done to really dramatically change the cost.

The easier examples are, you can light weight materials of course. You can totally change the way cans are handled between us and our customers, so that they can be lighter weight. That’s one example. But you also can change coding systems, lining systems. You can do joint purchasing programs. You can look at shared warehousing, distribution. You can go to the material. I mean, so it’s actually quite encompassing, and by the way, and this one, but you can look at how we make cans in our own mines and the limitations that we have, and again when you get into that more comprehensively and you’re willing to bring in your suppliers and your customers. There is actually quite a bit. Mark Wilde – Deutsche Bank Securities, Inc.: Okay, all right. The second question I had is, just leveraging the position in plastic food packaging. It sounded like we got beyond 2013. You might be thinking about just more capital in that business. Can you just talk about how that might play is it expansion on the existing side, is it new Greenfield sides, is it may be putting equipment in some existing plants?

It’s a good question, Mark. This is Adam, as we look at the proprietary platform that we utilize for our plastic food container business. We think that has merits all around the world, and certainly they’ve done an excellent job here in the U.S., we do some export business as well, but one of the neat things about the acquisition is Silgan’s global footprint and global reach too not only in local market, outside of the U.S., but to the multi-nationals as well. So and we expect our business to grow, we expected to grow internationally, and as we do so we will be putting more capital use in that business. So there would be at some point in the future our expectation would be an additional side, and we’ll determine of where that is and when that happens based upon our success in selling the package. Mark Wilde – Deutsche Bank Securities, Inc.: Okay, it sounds good. We’ll stay tuned. Good luck in 2013.

Thanks, Mark.

Thanks, Mark.

(Operator Instructions) We’ll take our next question from Alex Ovshey with Goldman Sachs. Alex Ovshey – Goldman Sachs & Co.: Thanks, good morning, can you hear me?

Yes, we can hear you Alex. Alex Ovshey – Goldman Sachs & Co.: Thanks. I just wanted to ask on the penetration rates of the easy open end within the metal food business, where is it now and how do you see that trending over the next couple of years?

Yeah. We continue to see penetration so you its some 60%, 65% of our product line has easy open ends, we continue to think some form of easy open end, we will continue to penetrate. And I think we talked many times before it tends the markets that shift, once somebody goes the rest goes, so it comes lumpy, but our view is that it makes sense that convenience is important to consumers and that will continue. Now that adds costs to the package, which is in a bit of conflict with a whole idea of Can Vision 2020. So that’s the exact balance our customers are always working on. Alex Ovshey – Goldman Sachs & Co.: Okay. Thanks, Tony.

Okay.

And we do have a follow-up question from George Staphos with Bank of America Merrill Lynch. George Staphos – Bank of America Merrill Lynch: Hi, guys. A few housekeeping questions, I’ll ask them in a sequence just maybe to save time. One, could you give us a more precise metric for volume growth for each of the businesses in the last quarter and fourth quarter? Secondly, directionally, if not precisely, can you talk about what you expect for tinplate pricing? And then, in terms of the progression of the quarter, should we assume 2Q and 3Q are back to more normal progression in terms of earnings growth? Obviously fourth quarter have, I guess, an easy comparison relative to your overall growth goal, but was it all based on third quarter having a much better year? You understand what I’m saying.

Yeah. Well, on the metric, I think we haven’t talked about. I mean, so in Q4, Bob talked about cans being up low single-digit. So I think that translates something like in the 3 percent to 4ish percent range across the global pattern. George Staphos – Bank of America Merrill Lynch: Okay.

Closures were down kind of 3ish percent, something like that, and then, on the plastics side, similar to that. So those are roughly the numbers. Again on the closure side that would be primarily on the European side. George Staphos – Bank of America Merrill Lynch: Europe?

Yeah. U.S. was strong of course all year long and then U.S. sort of stopped, if you will, because it had been such a strong year that. So the U.S. was kind of neutral on that. It wasn’t pulling anymore. George Staphos – Bank of America Merrill Lynch: Okay.

On the tinplate side, George, I think there is a lot of plastering going on in the markets, both domestically here in the U.S. and internationally around the steel supply and I guess we see it now. We’re looking at kind of modest increases as we move into next year, something kind of in the mid single-digit. We all see what’s happening in the economy, but I think the posture and what we’re seeing in the market right now indicate that we will see some increases moving into next year and that’s comparatively we saw increases that were kind in the low single-digits in 2012 as it finally shut out as well. George Staphos – Bank of America Merrill Lynch: Okay.

Yeah, the progression question, and first of all, I would not necessarily call Q4 an easy comp. Actually if you look historically this quarter is much more in line than Q4 of 2011 was. George Staphos – Bank of America Merrill Lynch: Great point.

Right. And a lot of the things that affected the quarter, we intend to keep moving on. So for instance, inventory, that’s probably another quarter where we’re trying to get out the inventory. Hopefully, logistics issues are a little bit less on out there. It certainly shouldn’t be a hurricane, we’re hoping. And then Europe, we’ve kind of left in, let’s wait and see. Although, the shortfall in December was a little stronger than we would normally predict in any other year. So there are a few things that make us feel like will be higher in Q4, but I would not want to call it as a lay down. And then, between Q2 and Q3, I guess, history is your best guide there, but we will talk about it. It swings between quarters so much, but that’s probably a hardest one to get right between the two quarters. George Staphos – Bank of America Merrill Lynch: But we’re done with the discrete things that could move because of things you are doing that could move the percentage well up to what a normal 2Q, 3Q would look like is what you’re saying?

I think that’s right. The only exception that would be, when do we get out inventory, and we are again trying to get more our finished goods inventory during the year, but my guess is, what you say is correct, because that’s a season where it’s pretty hard to get out because you need to build inventory for that season. So, it tends to be in the shoulder seasons that we take the bigger hits on inventory. So I think what you’re saying is right. Yeah. George Staphos – Bank of America Merrill Lynch: Okay. Two bigger picture questions and I’ll turn it over. Have you done any work thus far with secondary packaging companies regarding system costs whether it’s pallet guys or corrugated guys or what have you, the related question, one of the other packaging company’s actually need is talk a lot about their captivate system at the retail level. Have you seen much affect at all from that system in terms of maybe changing retailers’ use of the can and for that matter, have you talked at all with that company about that system relative to what you’re working on now? And then lastly, would you share your learnings with the other food can companies, again given your work you are doing there? Thanks guys.

All right. Great questions. As to your specific system, to the best of my knowledge, no. Although the good news is I’m not the one who’s really down and doing the engineering here. So I could be wrong about that, but I’m not the one who’s really down and doing the engineering here. So I could be wrong about that, but I’m unaware of that. I think it’s, what we’re looking much more around that is first and foremost, what is the package that needs to be protected, and then you get to the systems that protect it. So, we’re coming a little bit more from that side, although the combined purchasing effort would certainly deal with the suppliers. So, we are definitely in contact with suppliers. We are thinking about it, but we’re starting more from the different end on that, which is what’s the right package to protect our cans. So what’s your second one? George Staphos – Bank of America Merrill Lynch: Would we share with…

Oh, yeah. Good, right, right, right. As I think you know, we as an industry through CMI when BPA came along, et cetera, we viewed all of that is something was important for the can in total and that could be shared. I think there will be a variety of things that come out of Can Vision 2020 and I could imagine some of those will be, A, obvious for our competitors if we’re successful, and they’ll pick them too. And so, most of that we will view in the same light. Now, what’s good for us, and good for the can is good for everybody. There could be something in there that are more proprietary and that we would obviously perhaps not share that as much. But again our goal is to drive value to our customers, so that they enhance their competitive advantage. It’s not to grow share through a good idea here. George Staphos – Bank of America Merrill Lynch: Okay. All right, guys. Thank you. Good luck in the quarter.

Thanks, George.

And Mr. Allott, there appears to be no further questions at this time. I’ll turn the call back over to you for any closing remarks.

Great, Tom. Thank you. Thank you everyone for your time today and we look forward to talking to you in April about our first quarter. Have a good day.

This does conclude today’s conference. We appreciate your participation. You may disconnect at this time.