Anthony Allott - President and Chief Executive Officer Robert Lewis - Executive Vice President and Chief Financial Officer Adam Greenlee - Executive Vice President and Chief Operating Officer Kimberly Ulmer - Vice President and Controller.

Mark Wilde - BMO Capital Markets Mehul Dalia - Robert W.

Baird Chris Manuel - Wells Fargo Securities Anthony Pettinari - Citigroup John Dunigan - Barclays Adam Josephson - KeyBanc Capital Markets Debbie Jones - Deutsche Bank Chip Dillon - Vertical Research Partners Tyler Langton - JPMorgan Brian Maguire - Goldman Sachs George Staphos - Bank of America Merrill Lynch.

Good day, everyone and thank you for joining the Silgan Holdings Fourth Quarter and Full Year Earnings Results Conference Call. Just a reminder, today's conference is being recorded. Now for opening remarks and introductions I will turn the call over to Kim Ulmer. Kim, please go ahead..

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 may be forward-looking statements.

These forward-looking statements are made based upon management's expectations and belief 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 2015 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, I'll turn it over to Tony..

Thank you, Kim. Welcome, everyone to Silgan's 2016 year-end earnings conference call. I want to start by making a few comments about the highlights of 2016 and provide a brief update on our ongoing efforts to position the company to continue to deliver strong shareholder value.

Bob will then review the financial performance for the full year and the fourth quarter and provide highlights for our 2017 outlook. Afterwards, as usual, Bob, Adam and I will be pleased to answer any questions.

As you have seen in this morning's press release, we delivered adjusted earnings per diluted share of $2.77 and free cash flow of $179.9 million. Each to the higher end of our expectation.

Also as discussed in the release, among the milestones of the past year, we are delivering net income per share of $2.55, delivering adjusted net income per share of $2.77, generating cash from operations of $6.55 per share, commercializing one new container facility and two plastic container facilities, increasing the cash dividend by 6%, completing a tender offer to purchase $269.4 million of our common stock, and announcing an agreement to acquire the dispensing systems business.

The extensive transition efforts of last 24 months are winding down and we are pleased with how the business is positioned moving forward. Our efforts were directed in improving customer service and eliminating access costs throughout our system.

The new metal can plant in Burlington, Iowa completed its commercial qualifications during the fourth quarter and will contribute to the full-year of 2017. This was a large driver behind our to close the LaPorte facility and will be the primary driver in the anticipated near-term improvement in our metal container business.

Our plastic container business continues to improve. In 2016, we commercialized to new facilities to better serve customers and over the entire project we added or relocated more than 100 manufacturing lines to further optimize our footprint and be more cost competitive.

While there is still work to be done to improve profitability to target levels and get back the top line growth, we do expect significant financial improvement in 2017.

The closures business got little fanfare as they completed the Portola integration and related footprint optimization flawlessly, successfully supporting record demand levels and positioning the business to leverage volume growth against a market-leading cost position.

With already a great business, it's positioned to become more important in terms of scope and growth opportunities with the pending acquisition of the dispensing systems business.

We are providing 2017 guidance for adjusted earnings per diluted share in the range of $3.15 to $3.35, which represents a double-digit improvement in adjusted earnings per share and excludes any impact from the pending acquisition. In addition, we expect free cash flow in 2017 to improve 22% to $220 million. With that I'll turn it over to Bob..

Thank you, Tony. Good morning, everyone. With the new plant startups and footprint optimization largely behind us, we have eliminated excess manufacturing and logistical costs, exited certain high cost production facilities and are positioned to better serve our customers for the longer term.

As a result we delivered adjusted earnings per diluted share of $2.77 and free cash flow of approximately $179.9 million, slightly better than expected as inventory reductions offset slightly higher capital expenditures.

On a consolidated basis, net sales for the year were $3.6 billion, approximately $151 million lower than the prior year as sales declined in each business largely due to the pass through of lower raw material costs.

We converted these sales to net income for the year of $153.4 million or $2.55 per diluted share as compared to 2015 net income of $172.4 million or $2.81 per diluted share. Adjustments increasing earnings per share in 2016 totaled $.22 while 2015 included adjustments that increased earnings per share by $.16.

And as a result adjusted net income per diluted share was $2.77 in 2016 versus $2.97 in 2015. Interest expense increased $900,000 to $67.8 million, primarily due to higher weighted average interest rates. Our effective 2016 tax rate was 33.9% as compared to the 2015 rate of 31.8%.

The 2015 rate was favorably impacted by higher income in lower tax jurisdictions and the ability to fully recognize benefits in 2015 from the legislative extension of certain U.S. tax provisions.

Full-year net capital expenditures totaled $180.3 million in 2016 as compared to $237.1 million in the prior year, each driven by the new plant expansions and investments to support our footprint optimization plans. Additionally, we paid a quarterly dividend of $.17 per share in December. The total cash cost of the dividend was $9.6 million.

For the full-year we returned $40.9 million to shareholders in the form of dividends and an additional $277 million in the form of share repurchases, including the tender offer completed in November. As outlined in table C, we generated a free cash flow of $179.9 million or $2.99 per share versus $117.4 million or $1.91 per share in the prior year.

I will now provide some specifics regarding each of our three businesses. The metal container business recorded net sales of $2.27 billion, down $93.4 million versus the prior year. This decrease was primarily due to the pass through of lower raw material and other manufacturing cost and a shift in sales mix to smaller can sizes.

Income from operations in the metal container business was $214.7 million, a decrease of $21.7 million versus the prior year.

This decrease was primarily due to higher rationalization charges, the unfavorable impact from the contractual pass through of indexed deflation, the unfavorable impact from current year inventory reductions versus inventory builds in the prior year, start up costs for the new manufacturing facility and a less favorable mix of products sold.

These declines were partially offset by better manufacturing performance. Net sales in the closures business water at $797.1 million, a decrease of $7.9 million primarily due to the pass through of lower material cost, partially offset by a nearly 3% increase in unit volumes as the business benefited from strong demand in the U.S. beverage markets.

Income from operations in the closures business increased $8 million to $99.8 million in 2016 primarily due to higher unit volumes, improved manufacturing efficiencies and lower rationalization charges.

These increases were partially offset by the unfavorable impact from the pass through of change in resin costs as compared to the favorable impact in the prior year.

Net sales in the plastic container business decreased $49.8 million to $543.9 million in 2016, principally due to the lower unit volumes of approximately 3% as we continue to rebalance the customer portfolio along with the footprint optimization program.

The pass through of lower material cost and the impact of unfavorable foreign currency of $4.4 million.

Operating income decreased $2.6 million to $5.2 million for the year, largely attributable to start up costs for the new manufacturing facilities, lower unit volumes, the favorable impact in the prior year from the lag pass through of decreases and resin costs, and foreign currency transaction gains in the prior year.

These reductions were partially offset by lower rationalization charges and better manufacturing performance late in the year. Turning now to the fourth quarter. We reported earnings per diluted share of $.41 as compared to $.44 in the prior year quarter.

We incurred $5.1 million of rationalization charges in 2016 as compared to rationalization charges of $3.6 million in 2015. As a result, we delivered adjusted earnings per diluted share of $.48 in the fourth quarter of 2016, unchanged versus the same quarter of last year.

Net sales for the quarter decreased $23.7 million versus the prior year, driven primarily by the pass through of lower our material and other costs in the metal container and closures business, a less favorable mix of products sold in the metal and plastic container businesses, and the impact of unfavorable foreign currency of $900,000 and $1.1 million in the metal and closures businesses respectively.

These declines were principally offset by an increase in unit volumes of approximately 1% in each of the metal and plastic container business.

Income from operations for the fourth quarter of 2016 decreased by $300,000, primarily as a result of declines in the metal container business which was unfavorably impacted by a reduction in inventories in the current year as compared to an increase in inventories in the prior year.

Higher rationalization charges, a less favorable mix of products sold and the contractual pass through of indexed deflation. These decreases were mostly offset by improved operating performance across each business and higher unit volumes in the metal and plastic container businesses.

The tax rate for the fourth quarter of 2016 was 32.4% versus 26.2% in the prior year quarter as the fourth quarter of 2015 was favorably impacted by the ability to fully recognize benefits from the legislative extension passed in December of 2015 of certain U.S. tax provisions in higher income and lower tax jurisdictions.

As we turn to 2017, our current estimate of adjusted earnings per diluted share for 2017 is a range of $3.15 to $3.35, which excludes certain items identified in the press release. This estimate also excludes any impact from the recently announced agreement to acquire the dispensing systems business.

We will update our estimates once the acquisition is closed and the appropriate purchase accounting adjustments are calculated. Reflected in our estimate for 2017 are the following.

We are forecasting the metal container business to benefit from more efficient operations with a full year of commercial production in the Burlington facility and lower freight and logistics cost.

These benefits are expected to be partially offset by higher depreciation expense, the unfavorable impact from the contractual pass through of indexed deflation and the unfavorable impact from further reductions in inventories.

The closures business which is cycling over record profitability in 2016 is expected to benefit from improved manufacturing efficiencies. We are expecting the plastic container business to benefit from cost reductions resulting from the completion of the footprint optimization efforts in 2016 and modest volume improvement.

In addition, we expect interest expense to increase modestly versus 2016 largely as a result of higher average interest rates and higher average outstanding borrowings as a result of the tender offer completed in the fourth quarter of 2016. We currently expect our tax rate to be approximately 33.5%, largely in line with the prior year.

Also, we expect capital expenditures in 2017 to be approximately $140 million-$150 million, which is to the lower end of our normalized capital spending. We are also providing first quarter 2017 estimate of adjusted earnings in the range of $.48 to $.58 per diluted share, which also excludes rationalization charges.

Based on our current outlook for 2017, we expect free cash flow to be approximately $220 million, up from approximately $179.9 million in 2016. That concludes our prepared comments so I will turn it back to Debbie and she can provide the instructions for the Q&A session..

[Operator Instructions] We will go first today to George Staphos with Bank of America..

This is actually [Victoria Mattin] [ph] I am sitting in for George Staphos. I have two quick questions. One, do you guys have any indications on the pack yet. And two, what are the next key mile markers for the three new facilities and related warehousing..

Okay. So on the pack, we really don’t -- it's way too early at this stage. So we will wait and see. Our expectation, as we have said before is that it was a pretty miserable pack, almost across the board in Europe this year.

So our outlook assumes improvement in the European pack but that’s based more on just happened last year than it has got any specific knowledge about this year. And similarly, we really have no information either way on the pack this coming year in the U.S.

So the next key milestones on the new plants, first of all on the can plant basically, it's up, running and really there are no more milestones. It's got to deliver and is delivering and so that’s kind of where we are. And you did mention warehousing too. There is sort of two parts to that plant.

There is the plant itself and then we did get at warehousing for our Midwest region and as we had talked about, we were already benefitting from that in the fourth quarter. That’s already in the numbers so we expect to continue to benefit from that.

All the plastics side, again in one case the new facility was for a customers', that’s up and running and supplying that customer. In one case the facility was more a consolidation effort of a lot of footprint. As we have talked about, we have gotten that, a lot of that.

And what's good about that plant is it continues to have room for us to continue to grow into it as we look forward..

We will take our next question from Mark Wilde with BMO Capital Markets..

I wonder if you could give us just kind of an outlook on input costs in '17 as you are seeing right now and what the impact on you guys will be..

Sure. I will take steel and I will let Adam take the resin world. On the steel side, we are definitely after a couple of years of deflation on steel, we are absolutely seeing meaningful inflation. If there is a little bit by region where I put that at high single digit into double digit increases.

So as you know in the majority of our steel businesses we have direct pass through of that to our customer. So while that will have some top line impact on us, it should not really have any meaningful bottom line impact as we look forward. Now that’s not entirely true in Europe.

So in Europe you need to get the price increase through annual contracts in that case but as we sit here today, our expectation is that we will do that. We are out with increases in the market, so we are not expecting anything but passing through the cost on the steel side..

And then over on the resin side, Mark, for the year we don’t see really any significant impacts from resin on the year. There is some volatility right now in certain resin markets that they put a little pressure on Q1 but I would say that’s just more of a timing issue as it flows through the year but on a full year basis, no real impact..

Okay. And then if I could, Bob, can you just talk about what you are factoring in in terms of kind of CapEx assumptions in your targets for the year..

Yes. Actually the targets are built on current rates and as we have talked about pretty extensively over the past history, given the way we are financed, we have some geography changes when FX rates move but not really a meaningful impact to the bottom line.

With the exception of if we get really sizable moves like we had a year or so ago, that can have some impact, but even then on a relative basis it's been pretty small..

And we will go next to Ghansham Panjabi with Robert W. Baird..

This is actually Mehul Dalia sitting in for Ghansham. How does the phasing of cost savings across the both metal food and plastics look in 2017? Any sort of detail on a quarterly basis would be very helpful. And also, is there any cost savings that you are expecting that will roll through in 2018 from the efforts that you have almost completed now..

I will start that in reverse order and I will hit the can business and I will let Adam take you through on the plastic side. So on the can side, really the cost savings began in the fourth quarter of this year and so there is going to be no carryover of that particular set of activities.

Now we are obviously also trying to find other ones but in '18 there would be no implements of that. On a quarterly basis, essentially the line is in and running and so you will get, it should be fairly consistent in terms of the benefit that the line and the warehouse provide to us over the course of the year.

Now as I said, you got a little bit of benefit from that in Q4. So if you want to look on a comparative basis, that will be loaded for three quarters because there will be less difference as you compare Q4 to Q4.

You want to take plastics?.

Sure. And then on the plastics side, we will be ramping up those savings as we go through the course of the year. So as we enter the year, we are not quite at the run rate that we would like to be at and on a full run rate if we jump back to EBITDA margins, it's kind of the journey that we have been talking about.

We should be right around 10%, maybe just a hair over 10% on a full year basis. So we won't start that way at the beginning of the year and we will kind of ramp our way to it. So I don’t have the exact breakdown for you by quarter but it will be a gradual increase.

What we have seen from a financial performance for the plastics business is sequential quarterly improvement now for four straight quarters. We will see that again as we head into 2017. So it will be on a ramp basis to that kind of 10% EBITDA level at the end of the year..

Great. Thanks. And just one last one. Is there any update on the comparative backdrop in U.S. metal food cans? Any share shifts worth noting or any actions by competitors that we should know about..

Sure. There is really not a lot new there, just the history. There obviously is some excess capacity in the market, that’s billion, 1.5 billion units of cans, if I understand it. So call it 3%, 6% of market, something like that.

So as a result there is more calling effort going on as business comes up for bid but there is really nothing new to report on that.

I think as you know the majority of our business is under kind of long term contracts but I think more important, we focus really hard on being kind of superior on the service and quality, delivery to our customers and try to stay out of the fray a little bit, if you will, because of that. And that’s our strategic bent on it too.

It's to where possible stay out of the fray and only when kind of that activity directly affects us do we react and react accordingly..

We will go next to Chris Manuel with Wells Fargo Securities..

Congratulations for a strong finish to the year. I wanted to kind of circle around a couple of comments you made in the press release where you talked about indexed deflation running through the business in '16 and again hurting you in '17.

Bob, could you maybe help us put some, how to quantify or how to think about the impact that that had to you in '16 and what you are anticipating it could be in '17. I mean particularly I am guessing '17 could it be even more meaningful because we are actually seeing inflation now as opposed to continued deflation.

But how would we think about that?.

Well, first of all just to cover off, and it's Tony responding, to cover off the way our contracts tend to work on that side is that we have pass through on -- and really which are [indiscernible] others. So we are clearly not talking about the metals side. We are not really talking about labor where you have got inflation on both sides now.

Really, we are talking about other costs and you tend to pass those through on some index like a PPI. And what we have seen over the last couple of years is the negative PPI number, depending on what period your contract works off of. So you got that deflation you are passing through and of course your costs are generally not deflating against that.

And so if you kind of scale that in '16, there was some $6 million of impact in '16 on that and I have to say it's hard to get pure. Very easy to get at what's the pass through impact. It's not quite as easy to pullout what did you, on the cost side, benefit from that. So the numbers are not quite as accurate as it might sound. But roughly $6 million.

The reason that it's not greater as we see it right now in '17 is that the PPI has gotten better. In fact some now show inflation. So you don’t have -- even though there may be as more inflation on the market, the PPI is getting closer to reality at least.

And so we are thinking something in the range of $4 million as sort of embedded in the numbers right now around that..

And just to help me with this. You passed that through, is it on about a 12 month lag or....

Yes..

Did you adjust -- okay..

Yes. So they vary on what they look back at but it's basically you are looking -- for next year's contract you are looking back at some period and doing index on that. So certainly it would look to us by '18 we should begin to recover some of what we are talking about here..

Right. Okay. That’s helpful. And Adam, thank you for the color on kind of directionally the improvement in plastics. So it sounds like it's kind of moving from a EBITDA in the 8% range in 1'6 towards for full year you said 10%.

Do you have a sense on -- whichever one of you wants to respond -- on the metals side, I know the EBITDA and EBITDA have come down a little less a year or two but can you give us a sense of how you look at improvement in that business.

I mean are we talking about, if I look at a few years back, at least on the EBIT side, you guys are in the 11%, 12% margin range. You have been kind of running in the 10%.

Is it feasible to get back closer towards 11%, 12% now you have everything kind of behind you and actually have the savings and improvements you think?.

Yes. There is a lot to that question. You have got a lot of moving parts going on there. So obviously you are getting some improvement. If you look back over the last couple of years, you have had these costs that we are investing again. And so the improvement that we are talking about this year is sort of straight to the bottom line.

Now you have got inflation of raw material at the same time going on, so that mitigates some of that. But I think you are getting a bit of a step this year and what we are looking at all the time are other ways that we can costs out of the system and improve that numbers. But we really don’t manage to that number.

What we manage to is cash and cash out and so I am not sure I can give you a much more specific answer on that. We are looking everyday finding those opportunities. We will make some headway this coming year on it and we are always looking for ways to increase most the return on capital we put into the business..

Okay. That’s helpful. Just one last question on the new dispensing business. You have a best guess is to when that’s going to close.

Is that towards -- do you think that will close by the end of 1Q or is that, what's the targeted date?.

Yes. We are targeting to get it done by the end of the quarter. Now it may be right at the end of the quarter but that’s our target that will come into Q2 with it, clean into the numbers..

We will go next to Anthony Pettinari with Citi..

Sitting in for Anthony. Just two quick ones. With the Burlington plant largely qualified and running, is there a chance for additional plant rationalization on the metal container side given the 1 billion to 1.5 billion in excess capacity floating around in North America. We will start with that one..

Sure. So we already did that. So we already shutdown a plant which roughly -- so again the $1.5 billion, which you are right to quote that number.

We basically took out nearly 1 billion of capacity already and what we said is, the rest will come out of the collection of our system and so we are working at that all the time and trying to get that out of the system. So that is our intention is to get the bulk of that out..

Okay. Okay. And then just switching over to the plastics side. I think you have previously indicated that EBITDA margins could be somewhere around 10% in 2017 and then the long-term target is 15%. And I know you have stated that this [indiscernible] just pass where kind of a critical stage for this whole process.

So are those targets still valid and can you just update us on the process as a whole..

Sure. The targets are still valid and we just said by the end of the year for '17 we are anticipating kind of the next hurdle being a 10% EBITDA margin for the business, going to a 15% EBITDA margin for the business in the future.

And Tony alluded to this as well, the business will need to see top line growth to achieve that and one of the things that we have talked about over the course of time is that we really did kind of slow our selling efforts in the business as we were focused on getting the footprint optimization complete and insulating our customers from any of the activities that were going on on our side of the fence.

So we have now turned back, kind of process back on and we are back out actively selling in the marketplace and we are seeing our pipeline start to rebuild but as you would expect, that pipeline doesn’t just simply appear overnight. So it does take a little bit of time for those to come through and commercialize.

But we are feeling good that we have kind of hit the objective that we have set or the hurdles that we have established and we do think we will be back to that 15% EBITDA rate here in the not too distant future..

But, so the 10% is the '17 target that we have put out there pretty clearly. The 15% is not necessarily, don’t read that as an 2018 answer. Read it as, we are embarked on the journey, actually in '17 we are already beginning the journey but we are embarked on the journey in '18 and moving forward.

But as we said, if we don’t think this business can get to kind of a 15% over a period of time, then that takes its own separate assessment. We think it probably can and that’s our belief right now, but we got to deliver on that..

We will go next to Scott Gaffner with Barclays..

This is actually John Dunigan sitting in for Scott. I first wanted to touch on the free cash flow. Maybe you can provide us with some clarity around the $58 million of other cash that you generated in 2016. And I see that the changing, the outstanding checks balances was about 10% of 2016 free cash flow generation.

I guess just generally, how should we think about those two items going forward..

Yes, I think -- and we have had this conversation before. If you think about the outstanding checks and the changes thereof, just think about that as accounts payable. And so it's a little bit of an odd presentation that we do. But essentially it's nothing more than the timing of accounts payable.

So it really is -- it should be incorporated in the working capital. So essentially what's driving it is a little bit of a lower CapEx on a year-over-year basis and improvement in working capital..

Okay. [indiscernible] you said, obviously was a little bit higher this year in 2016 in particular in the fourth quarter than anticipated. With $140 million to $150 million expected in 2017, is that going to be the new normal or the expected new normal given the footprint optimization program is now winding down..

Yes. There is no question that both '16 and '15 were relatively higher CapEx as a result of the footprint optimization and the three new facilities that were being built out. And we do expect it to come down to 140 to 150, probably still has a little bit of room as we move forward.

So, yes, kind of that, low end of that range does get back to a more normalized level..

Great. Okay. And then one last one on plastics and I will turn it over. I am sure you saw that the polypropylene prices jumped in January about 10%. Would you guys expect any impact from that and I guess how should we think about that as the year continues. .

Sure, John. It's Adam. Obviously, we did see the polypropylene spike in January and there is a lot of discussion going on right now about that increase and it goes back to the comments I made earlier about just resin in general. If you look at the full year, we are not anticipating much of a change year-over-year in polypropylene prices as well.

So there is a timing impact of that. So it could create a little bit of a headwind for us in Q1 but you will see how it plays out but before the end of the year we anticipate that coming back in line with kind of historic levels or in 2016 levels..

We will go next to Adam Josephson with KeyBanc Capital Markets..

Bob, just one on cash flow. You are guiding to 220 for this year. That seems to be based on normalized CapEx for you pre-acquisition. And then you talked last week about the acquisition adding 40ish of cash and then you separately mentioned you gave a $300 million number that you would eventually get to.

So can you help us understand how you go from the $220 million to which you are guiding this year, the $300 million. .

Yes. Sure. I think during the acquisition call I referenced the ability to approach $300 million of free cash flow. I think in context that was not necessarily set out to be a 2017 forecast or even a near-term forecast.

That was basically assuming that you had the acquisition fully integrated, fully synergized and that we were able to start to get the benefits of the delevering capacity of the pro forma business. So I think if you build up from the 220, you are right, I said $40 million plus of free cash flow from the acquisition. So that gets you to 260 plus.

And then as you start thinking about the opportunities across the combined business to reduce CapEx, improve working capital and lower cash interest to the delevering, you pretty quickly get there..

I got it. Okay. And that 260 is based on fully synergized acquisitions. You are talking 2019ish number, right, for the 260ish.

Right?.

Yes. We said that the synergies would come in over the next 24 months or so. So, yes, depending upon when it closes, it could drag you out into the '19 timeframe..

Okay. Just one about your EPS guidance for this year. You know a decent range.

Can you just walk us through how you get to the high or low end? Is the pack the greatest source of uncertainty, is it something else?.

Yes. I think the pack is certainly one part of it, that’s very important as we think about it. I think the other elements are going to be around -- you got what's interest rate going to be. Obviously, we are going to increase our leverage as we did already through the buyback. That will be even more so through acquisition.

Little bit of tax rate volatility around it. And then volume broadly is always something that can move you. So this range is very typical for us and as you have pointed out, and you are right up, that it moves even from that. And so we give you our best look at any point but we know it can move around. In fact we know it will move around..

Right. Thanks, and Bob, just one back to what you said on the last call about you think you saw plastics would be up 15ish, metals containers up 9ish on EBIT that is. Are you thinking anything different today? I mean it sound like based on the EBITDA margin target for plastics in that similar 10% to 15%ish ballpark for plastic.

I just want to see if any expectations have changed since last time..

No, I think that’s what you are seeing reflected in the guidance that we have put forth. So I think that is the benefit we are seeing on the operating line.

What's influencing that to the downside is you have got change in interest expense driven by the fact that we came in with incrementally more leverage because of the tender offer and the forward yield curve on interest rates is moving up. So there is some $8 million to $10 million of incremental interest expense on a year-over-year basis..

Okay. Got it. And just on pension, Bob.

How did things shake out such that -- what are you expecting in terms of a change this year?.

Moving into '17?.

Yes..

Yes. So we have had really good asset performance in last year, some 12% plus percent returns on the asset portfolio. So that’s certainly helping us. This is a little bit of a tale of two cities depending upon the geography. As you think about the U.S.

and I am going to lump pension and post-retirement benefits together here, because they are moving in opposite directions to some degree. So you probably have a pretty nice headwind spread across the U.S. business on pension offset by a little bit of -- sorry, a tailwind of pension in the U.S., offset by a headwind post-retirement benefits.

And then in the European businesses, which aren't funded so they don’t get the benefit of returns, that’s been a headwind or will be a headwind next year. So there is some $4 million to $5 million of net benefit coming largely across the U.S. businesses on a year-over-year basis.

So I will point out that at pension it is income for us because of our funded status. We are some 116% funded. So it's not expense but income..

Sure. No, thanks. And just one last one on the macro. I know you are not the most economically sensitive business but any thoughts you have about just the macro outlook going into this year. If you want to opine on Mr. Trump by all means. Any thoughts you have about the degree of uncertainty heading into this year versus any previous year..

Well, certainly you would have to say that foreign exchange is going to be -- has the risk of being more volatile in that you are right that we are less exposed to that then others. And so that’s got to be the number one thing you would think about as it moves around. Tax could be, who knows, a huge benefit. I don’t really know.

Trade restrictions would have certainly some impact as product does move over borders etcetera. So I think all of that is to be seen. And it's even hard to say which direction it's headed.

But I think, I will go back to your main point is, if we compare ourselves against pool of companies, we tend to be a little North America centric and so probably that helps us on a comparative basis but those are still things to be dealt with..

We will go next go Debbie Jones with Deutsche Bank..

I appreciate you don’t want to speculate on the pack, I am just wondering. I am getting a lot of reports about people declaring that drought is over in California. It's hard to imagine that this isn't positive for you.

I was wondering if you could just walk through the puts and takes on that because I do understand that this could adjust kind of what's in your customers focus on by region or products. If you could just comment on that and also remind us of your west coast exposure is..

Sure. Well, first of all as a skier when I hear all the snow reports out west, it does excite me. I will admit. But I think that is what I understand that the drought has come a long way to being behind us. That would have some impact, we do have exposure on the fruit side, fruit side including tomatoes on the West Coast.

So that would be important except for the fact that most of our customers have irrigation and have been using that over that time. And so it really, the drought, even though we talked a lot about it, never had huge impact on the outputs. So I don’t know that it will be a meaningful change.

It might help our customers because from a cost side it may give them some benefits, which is great. But I don’t know that they will have any other significant impact on us..

Okay. Thanks. That’s helpful. And then if I could just return to the comments you made about CapEx. Little under normal in 2017, maybe it can go up in the outer years. When I think about where you are going to spend your money going forward, no legacy business.

Is it about projects for more efficiency savings incrementally or is there some concern that you are going to need to continue to take capacity out in North America just given the oversupply situation..

No. We already said that there will be some capacity opportunities we got to keep looking at. But those are primarily embedded as part of plants and so I don’t -- it's not obvious to us that there is an immediate, another plant to be thought about here, which is where you have more cost.

By the way that would less be capital and more like to be restructuring cost anyhow. But on the capital side, I think it's probably going to be around three categories. One there is just the regular maintenance that’s got to be down.

Two, that we are always looking at productivity investment and so I think there will be kind of back to the more normal level of just investing in productivity in order to drive the profitability of the business and service our customers etcetera. And then there is always an element of growth.

We are always looking for opportunities to invest where our customers what to grow. And so that always sits there as kind of the third bucket. But all of that has been true historically and that’s why we are saying we think it will perform more at the historical levels. We don’t see big new plants necessary in our businesses as we sit here today..

Okay. And just one last one. I know you talked about this before. You talked about the smaller can sizes and can you just remind me how is -- it sounds like that is a negative impact but it's something that you have been calling out for the year. So can you just walk through that, I just have trouble remembering that..

Sure. That’s a great question because it does and it bugs me every time I see it. It sounds negative and we don’t mean it that way. The problem is we give you a volume metric and then we have a mixed. So on a per dollar drop through, these are lower revenue cans.

They are not necessarily marginally -- on a margin basis they are not necessarily different than the bigger ones. So really I would think of it as almost an offset to the volume number when you hear it. It's more of little cans rather than big cans and that’s the way to think about it.

And the drivers there are, as you know, we do more protein today than historically we had done. We are more into areas that have been growing, like pet food and protein. And so those are smaller cans that have growing. Through acquisition of Van Can we picked up, again, small protein cans. We picked up [sturdo] [ph] cans etcetera.

And so the mix is more of a smaller can but it's not meant as a plus or minus in terms of the profitability mix of the business..

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

One are we haven't talked about, I guess in a while is the European food can business in terms of -- I know a couple of years ago there were some struggles there with some of the political issues that were happening in Eastern Europe and it seems like things have settled down a bit.

And could you just talk a little bit about how that whole area is doing for you and what kind of expectations, how much will that contribute to the metal container growth in 2017..

Sure. So, you are right that some of the issues we were dealing with have abated somewhat. But, generally they are pretty similar. So, for instance, we still have a plant in Jordan. It is still very much affected by Middle East situation, borders closing, opening.

So I would say that one is definitely, while it's a great plant, great workforce, really interestingly situated, it's not been a big profitable performer for us thus far because of that. So that situation still sits there kind of unchanged. Now it's also not a cash drag. So there is logic for hanging on for a period of time. Question is for how long.

I would say the rest has been kind of stable around that. Certainly we are seeing good growth in Russia but there are political volatility that does affect that. We have already moved ourselves out of Ukraine. So that’s a case where it's impacted. If I try to come back to your basic question, look at that business in total.

I would say that it basically had, if you go back last year, it performed more or less where we wanted it to. Had really done a nice job recovering etcetera. If you look at '16, the big issue was a miserable pack across the region. So I think what we are expecting improvement, we are expecting the improvement on the pack coming back.

And so in aggregate we look at the business and say we kind of like where it's performing and positioned. And I think that’s it and the rest of that we will just have to deal with some of the national issues..

Okay. And Tony, I know you mentioned CapEx I '17 would be a little below normal which I would think is up close or your 160.

If we look at -- and I know it's early days, but if we look at the businesses in closures that you are acquiring, I know that their CapEx has been about half their DD&A and I know there is some purchase accounting from before, but they were spending around $25 million.

Do you see that as a -- therefore do you think that the company moves up to like $180 million to $190 as we look at what normal would be? And secondly, I would imagine that just given the priorities of the seller of that business, not that they let it go because I know the previous, before their merger, they had spend a lot of money there.

But do you think that there is any one time capital that will have to go in and you have to put in there to kind of get the facilities up to your standards..

Yes, Chip, this is Bob. I think as we look back at that business and the CapEx that’s been spent, they did make some pretty sizable investments over the last several years, which we think positions it pretty well for the customer pipeline that they have got going right now. So that’s the positive side.

I think as we look at it on a go forward basis, as we said on the last call, kind of the 5% to 6% of sales range for CapEx, which would kind of get you to the, call it $25 million to $30 million kind of range. Sort of makes sense to us.

I think as we pull all that together, given some of the capital that we have spent and capital that they have spent, there is probably at least near-term some opportunity to get to a consolidated number that’s a little bit lower than what you just articulated, at least for a short period of time..

Okay. And could you remind us what your -- you mentioned getting your leverage back down from the 43, I think it is down to your target range.

Could you just remind us of the target range?.

Sure. It's unchanged from what we have said for a long time. That 2.5 to 3.5 times is sort of the spot where we think is the longer term goalpost that certainly the business could handle more leverage and the 43 doesn’t necessarily concern us, particularly given the free cash flow profile of the business.

But getting back in to sort of meet the appetite for the equity investors and keep returns where they need to be and give us flexibility to look at future investment opportunities, is the discipline that we bring to the business.

So I see no reason why we can't and won't and our discipline will be directed at getting back into that range in pretty quick order..

We will go next to Tyler Langton with JPMorgan..

Just had a question on the plastic business. Could you quantify a little bit more about the type of volume growth you are looking for this year? I know you said modest. And then should those new volumes, should we see mix improve with sort of the customers that you are targeting. Just any details there would be helpful..

Sure. It's Adam, Tyler. Good question. I think as we talk about the business that we are kind of growing in 2017, it would be at higher margins. I mean obviously that’s what we are targeting as we go forward.

So I think it would be a more favorable mix of products coming in and our modest volume growth, I mean whether that’s 1% or something around that, we are not anticipating a significant growth year for 2017 as we are just turning back the pipeline back to on, if you will, for the business.

But we anticipate that we have got a very disciplined approach to our going back to the market and a lower cost platform to take with us. So it should be good business as we bring it on board..

Okay. That’s helpful. And then, I guess, Bob, just a question on the 220 of free cash flow for this year.

Will working capital be a benefit to that number?.

Yes. I think there is puts and takes there. I think it's certainly something that’s a focus for us. So I think we are anticipating a little bit of a benefit on working capital and a little bit lower CapEx..

We will go next to Brian Maguire with Goldman Sachs..

Just wanted to follow on that last question. It looks like most of the free cash flow guidance, most of the growth is based on the lower CapEx and you think maybe working capital might be a little bit of a benefit that you are getting for some earnings growth.

Just wondering what some of the offsets on the bridge might be if it's just more of pension contribution or are there any other buckets that would keep it from growing less than the CapEx cut..

Yes. No. No pension contribution required. As I have pointed out earlier, interest expense is going to be a bigger hit to us. So that’s kind of the big ops against those other items. And then obviously tax will be higher as well given the profitability..

Okay. Great. And then I think you mentioned some inventory reduction. A little bit confused.

In the metals can business, is that your inventory, is it your customers'? And just what's sort of driving that?.

Sure. That’s our inventories. So we had actually been doing some bills a year ago versus reduction in this year. Which is exactly what we said we would do. As the new line came on we had to build some inventory to be ready for the transition around that and shutting down a plant and in that we have the opportunity to start to more pack some inventory.

Also I would say that we have some of that opportunity in '17 as well. It does have P&L impact, so the rate at which we do it, it will be partly dependent on what we can do and partly dependent on the impact of the P&L..

Okay. Appreciate that. One last if I could. Just on the dispensing business you would be acquiring, just wondering how raw material pass through works there. Obviously, you got a pretty good mechanism in place on the metal can business. But a little bit of a different business there.

Just wondering how sensitive to raw changes that business is?.

Yes. I think we are going to hold anymore conversations until it's our business on that. So we will be happy to answer that question once the deal is closed..

And we will go back to George Staphos of Bank of America with a follow up..

Joined the call late just because of a dueling conference call and apologies therefore if you have already answered these. First question, when you look at how end markets have been developing for the food can over the last 2-3 years, Tony, and obviously there has been growth in pet.

That’s been certainly offsetting a lot of the weakness that we see in other human food area.

Are there any issues that are concerning you at this juncture in terms of getting not you but the industry too heavy in one end market and therefore too susceptible to any kind of conversion that might or might not happen? I know it's a broad-based question but I was interested in your thoughts if there is anything that’s in your mind right now..

Well, George, it's a good question. I think you are right, there has been shift of where the food can goes. I would tell you that’s sort of the history of the food can from the beginning of time. So it's not new. Really, it's still predominantly in [indiscernible] areas and so there is huge infrastructure still, whether that’s pet or human food.

Huge infrastructure behind a particular package. It's growing in some of those areas for two reasons. I said we think protein, human protein, it's a very cost effective way to get much needed to a wide audience. And that’s an area that’s been growing and I think that makes great sense. It also suits the taste changes of the U.S.

market, particularly in that case. And then you talk pet and it's a highly valued package for the consumer. And so I don’t particularly worry more about it because I see the growth opportunities and I see how our customers feel about it. And again, our business has always had a certain concentration to markets.

So not really, but it certainly deserves watching..

Okay. Appreciate the review on that. Just as an side, as you were mentioning it, it triggered the question. There have been times in the past where food aid in cans from emerging markets has been raised as an issue and nothing has ever really materialized at least of significance that I can recall or remember.

Is there anything in the works in that regards that you think might be helpful to the longer term secular outlook for the food can down the road that that’s real and not pie in the sky at this juncture..

I think that -- first of all, it's absolutely real and we do, I won't name a customer, we have a customer who we do a very specific program on that is a great program for doing that. But is that going to be huge unit volumes for the food can that’s going to change the course of food can, I sincerely doubt that.

It's a good opportunity for humanitarian effort and we are happy to be part of it but that’s I think the length of it..

All right. Well, get working on that Tony, that’s all, come on. Two last things and I will turn it over. One, and I apologize again if this has already been discussed.

What's the latest, greatest on BPA? Do you think at all with perhaps a new administration and its views on regulation, whether that means anything or is it really more of a consumer perception issue. That’s question number one. Question number two and perhaps as you were answering Brian's question maybe I have got my answer here.

But back a couple of years ago, more than couple of years ago, the prior owner of Home, Health and Beauty and dispensing had an analyst day on packaging and there were some really interesting unique engines that they talked about for their dispensing business. Clearly you have probably looked a little bit at them.

Can you talk at all in terms of what the opportunities are there because they didn’t really seem to have much volume effect at least that we could see. And here I am thinking about things for fragrance and for pharma. Thank you..

Okay. Sure. Thanks. First of all BPA, I think as we have said all along, our view is that the science was not well supported for the argument on BPA but there was always a consumer perception issue and now it's a little bit of a state regulatory issue as well. So I think all that holds and we really don’t see much change.

New administration can't really stop that either, I don’t think. So our view is that the BPA shift is the shift away from BPA added content into the lining of a food can is going to continue. Our expectation is we are going to be primarily out of BPA by the end of '17. So 85% plus of human cans will not have BPA added as a content in the system.

Of course I phrase it that way because BPA is ubiquitous and it's in the food, it's in everything. Hence that descriptor on it. On Home, Health and Beauty, I think kind of two things. One, we want to be careful not to get too deep in a business, again, that we don’t own.

I think what we said on the call and we believe is that the business has made really good inroads in some very interesting higher value markets. And I think they have done that through some of the unique engines that you are talking about and that’s our view.

There has been other shifts in the business which again we view as being partly just a bit of a focus issue for the business and a bit of it having to get at its cost situation and get it's footprint the way it needed to be.

So over time, I think, you actually did see a shift and so while you may not see a top line that’s moved as much as you had expected, our view of that is that there has been shift to a good solid markets and that what management has done over the last couple of years plus the focus we think we can add, we think we can kind of help that part where it's maybe lost some share and meantime let it continue to do what it's doing on some of those markets.

But a lot more to talk about on that after getting closed..

And with no questions in queue at this time, I will turn it back to management for closing remarks..

Great. Thank you, Debbie. We will talk to you all at the end of April on our first quarter and go Patriots..

Thank you, everyone for your participation. This does conclude today's conference. You may now disconnect..