Silgan Holdings Management Discusses Q4 2013 Results - Earnings Call Transcript

| About: Silgan Holdings, (SLGN)

Silgan Holdings (NASDAQ:SLGN)

Q4 2013 Earnings Call

January 29, 2014 11:00 am ET

Executives

Kimberly I. Ulmer - Vice President and Controller

Anthony J. Allott - Chief Executive Officer, President and Director

Robert B. Lewis - Chief Financial Officer, Principal Accounting Officer and Executive Vice President

Adam J. Greenlee - Chief Operating Officer and Executive Vice President

Analysts

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

George L. Staphos - BofA Merrill Lynch, Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Scott L. Gaffner - Barclays Capital, Research Division

Chip A. Dillon - Vertical Research Partners, LLC

Mark Wilde - Deutsche Bank AG, Research Division

Albert T. Kabili - Macquarie Research

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Operator

Good day, and welcome to the Silgan Holdings Fourth Quarter and Full Year 2013 Earnings Call. Today's conference is being recorded. At this time, I would like to turn the conference over to Kim Ulmer, Vice President and Controller.

Kimberly I. Ulmer

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 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 2012 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.

Anthony J. Allott

Thanks, Kim. Welcome, everyone, to Silgan's 2013 year-end earnings conference call. I'm going to start by making a few comments about the highlights for 2013. Bob will then review the financial performance for the full year and fourth quarter, and then Bob, Adam and I will be pleased to answer any questions.

As you will see in the press release this morning, 2013 was another record year for Silgan as we delivered adjusted earnings per diluted share of $2.77, up from a strong prior year in which we delivered $2.70 per diluted share. While 2013 presented several challenges, we believe that in addition to the improved financial performance, we have further positioned the company for continued success in our market by continuing to enhance our sustainable competitive advantages. Among the milestones leading to the success in 2013 and beyond were: generating $260.7 million of free cash flow, or $4.03 per diluted share, a free cash flow yield as of this morning of about 9%; completing strategic Closures acquisitions; increasing metal food can volumes by 2.5%; negotiating long-term extensions for several major customer contracts; increasing the cash dividend by 17% to $0.56 per share; completing a tender offer for $250 million worth of our stock; issuing $300 million of new 5 1/2% Senior Notes; and refinancing our senior secured credit facility closed in January of 2014.

In our Metal Container business, we've advanced our Can Vision 2020 project to enhance the sustainable cost competitive position of metal food cans, working with our customers to reevaluate costs around every aspect of canned foods. In support of these programs, many of which require significant investments of time and money, both on our part and our customers, we have largely completed a multiyear effort to secure even longer-term contracts with our customers.

We continue to build our global Closure business with several strategic acquisitions in 2013, most notably the Portola Packaging business. As a result, our product range and geographic capabilities in this attractive business are further enhanced. In our Plastics business, the hard work of sharpening our focus on target markets and customers while driving down our legacy cost is beginning to bear fruit.

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 2014 as we expect to deliver earnings growth in the range of 12% to 19% while continuing to deliver strong free cash flow, which will allow us to continue to invest in enhancing our franchises for the long term.

With that, I'm going to turn it over to Bob.

Robert B. Lewis

Thank you, Tony. Good morning, everyone. Each of our businesses faced a series of challenges in 2013, which included significant weather fluctuations from California to Greece, difficult economic conditions across broader Europe, volatile, political and monetary policies in Venezuela and the ongoing work to reposition our Plastics business. In the face of these dynamics, we grew our food can volumes, made progress on improving the profitability of the Plastics business, invested in the growth of our Closures business through strategic acquisitions, reaped the benefits of reducing our investment in working capital for the second year in a row and improved our capital structure by opportunistically tapping the credit markets.

As a result, adjusted earnings per diluted share increased to $2.77, and we delivered free cash flow of $260.7 million, or $4.03 per share. On a consolidated basis, net sales for the year were $3,710,000,000, an increase of $120.2 million, or 3.3% versus the prior year, as sales across all businesses improved. We converted these sales to net income for the year of $185.4 million, or $2.87 per share, as compared to 2012 net income of $151.3 million, or $2.17 per share. However, 2013 includes adjustments reducing our earnings per share by $0.10 while 2012 included adjustments that increased earnings per share by $0.53. As a result, adjusted net income per diluted share was $2.77 versus $2.70 in 2012.

Interest expense before loss on early extinguishment of debt was $67.4 million, an increase of $4.4 million as compared to 2012 as a result of higher average borrowings outstanding due primarily to the September 2013 issuance of the 5 1/2% Senior Notes. We recorded a loss on early extinguishment of debt of $2.1 million as a result of the $300 million prepayment of bank term debt early in the year, while 2012 included a loss on early extinguishment of debt of $38.7 million as a result of the redemption of the 7 1/4% Senior Notes.

Our 2013 effective tax rate of 35%, net of the favorable tax adjustment recorded in the second quarter, was higher than the prior year rate of 32.4%. This increase was largely due to the unfavorable impact of the accumulative adjustments of increases in inactive tax rates, the nondeductible portion of the charge for the remeasurement of net assets in Venezuela and the geographic distribution of international earnings.

Full year capital expenditures totaled $103.1 million, which is lower than the 2012 spend of $119.2 million and lower than our estimate, as we reduce spending in the Plastics and international Metal Container businesses. Additionally, we paid a quarterly dividend of $0.14 per share in December, the total cash cost of that dividend was $9 million. For the year, we returned $36.2 million to shareholders in the form of dividends and an additional $267.6 million in the form of share repurchases, including the tender offer completed in February of this year.

As outlined in Table C, we generated free cash flow of $260.7 million, or $4.03 per share, in 2013, as we continued to focus on working capital reductions across the business and curtailed capital spending in certain areas. These benefits were partially offset by higher cash tax payments.

As we look at each of the individual businesses, the Metal Container business recorded net sales of $200,340,000,000, an increase of $47.7 million versus the prior year. This increase was primarily due to a volume growth of approximately 2.5%, the impact of favorable foreign currency translation of $10.4 million and the pass-through of higher raw material costs. The volume growth was largely attributable to strong U.S. pet food volumes and incremental volumes from the new plants in Eastern Europe, partially offset by the impact of poor pack conditions on the West Coast and in Central and Southern Europe.

Income from operations in the Metal Container business was $236.3 million, an increase of $4.8 million versus the prior year. This increase was primarily due to higher unit volumes, lower plant startup cost, improved manufacturing efficiencies and lower depreciation expense, partially offset by the impact of continued economic challenges in Europe, under-absorbed manufacturing cost in the new plants and a less favorable mix of products sold.

Net sales in the Closure business were $720.1 million, an increase of $40 million, primarily as a result of the inclusion of the Portola Packaging acquisition, the impact of favorable foreign currency translation of $10.7 million and the pass-through of higher raw material costs. These benefits were partially offset by lower unit volumes in the legacy business due to lower sales in single-serve beverages and in Venezuela due to economic challenges.

Income from operations in the Closure business decreased $10.1 million to $63 million in 2013, primarily due to the negative impact of the remeasurement of net assets of $3 million and the ongoing operational impact of the political instability in Venezuela totaling $5 million. Lower unit volumes for single-serve beverages and higher rationalization charges partially offset by improved manufacturing efficiencies.

Net sales in the Plastic Container business increased $32.5 million to $647 million in 2013, partially due to 3% higher volumes, as the inclusion of the Plastic Food Container business more than offset volume declines in the legacy business, a more favorable mix of products sold and higher average selling prices as a result of the pass-through of higher raw material costs. These benefits were partially offset by unfavorable foreign currency translation of $3 million.

Operating income increased $7.8 million to $38.6 million for the year, largely as a result of the acquisition of plastic food container operation, improved manufacturing performance and a more favorable mix of products sold. These benefits were partially offset by the impact of lower volumes in the legacy business, the unfavorable comparison of the year-over-year resin lag effect, which benefited 2012, and higher rationalization charges.

For the fourth quarter reported earnings per diluted share of $0.36 as compared to $0.42 in the prior year quarter, we incurred $8.4 million of rationalization charges in 2013 as compared to rationalization charges of $2.9 million and plant startup costs of $2.1 million in 2012. As a result, we delivered historically in-line adjusted earnings per diluted share of $0.45 in the fourth quarter 2013 as compared to $0.47 in the same quarter last year.

Sales for the quarter increased $6 million versus the prior year, driven primarily by the inclusion of the sales from acquired businesses, higher average selling prices from the pass-through of higher raw material costs and the impact of favorable foreign currency translation of $5.7 million and these gains were partially offset by lower volumes in the Metal and Plastic Container businesses.

Income from operations for the fourth quarter of 2013 declined $3.4 million, primarily as a result of lower unit volumes in the Metal and Plastic Container businesses, higher rationalization charges, the impact of under-absorbed operating cost in the new plants in Eastern Europe and the Middle East, and the unfavorable impact from the lagged pass-through of resin cost increases. These headwinds were partially offset by improved manufacturing efficiencies across all of our businesses and a favorable mix of products sold in the Plastic Container and Closures businesses.

Turning now to our outlook for 2014. Our current estimate of adjusted earnings per diluted share for '14 is in the range of $3.10 to $3.30, which excludes certain items identified in the press release. The midpoint of these estimates represents a nearly 16% increase in adjusted earnings per diluted share over the prior year. Reflected in these estimates for 2014 are the following: We are forecasting modest improvements in the Metal Container business as unit volumes are expected to improve slightly as we anticipate more normal pack volumes may be partly offset by a moderation of pet food volumes in 2014 versus the strong gains we saw in 2013. In addition, we expect the continued manufacturing improvement, lower depreciation and lower pension expense will be partially offset by general inflation and the financial impact of longer-term customer contract renewals over the past 2 years. We remain cautious about the economic outlook for Europe throughout 2014.

The Closures business will benefit from the full year ownership of the Portola Packaging acquisition and modest volume growth in the legacy business, though some of this benefit may be offset by the impact of continued instability in Venezuela, which could continue to impact metal supply and currency valuations. We're expecting continued profit improvement in the Plastic Container business driven by a modest volume growth, a consistent focus on operational efficiencies, ongoing restructuring and rebalancing of the customer portfolio and lower depreciation and pension cost. We expect continued benefit from cost reduction and productivity programs across each of our businesses and, in addition, we expect interest expense to increase modestly versus 2013, excluding the loss on early extinguishment of debt, largely as a result of the higher average outstanding borrowings resulting from the 5 1/2% Senior Notes.

We currently expect our tax rate to be largely in line with 2013 and we expect capital expenditures in 2014 to be approximately $160 million, as some projects from '13 will carry over into '14 and we will invest in certain rationalization programs and initiate funding for Can Vision 2020 projects.

We're also providing a first quarter 2014 estimate of adjusted earnings in the range of $0.45 to $0.55 per diluted share, excluding rationalization charges and the loss on our early extinguishment of debt. Based on our current outlook for '14, we expect free cash flow to be approximately $200 million. While free cash flow in 2014 is expected to benefit from improved operating results, headwinds will include higher capital expenditures and increased interest expense. Additionally, we had reduced working capital by about $90 million over the last 2 years, which we do not expect to continue in 2014. And given our free cash flow generation and the strength of our balance sheet, we are well-positioned to continue to reinvest and grow our business through acquisitions and other deployments of capital to drive value creation for our shareholders.

That concludes our prepared remarks. So, Danielle, I'll now turn it over to you for directions on the Q&A session.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Chris Manuel with Wells Fargo Securities.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

A couple of questions for you. First, I mean, it kind of is a 2-part question with respect to what you're seeing out of returns for projects and such, but CapEx ticking up pretty considerably. I mean, do you still consider that 65 to 70 a kind of a maintenance level? And then, are you still seeing or anticipating what you've traditionally had in kind of upper teens, even approaching maybe even 20% for returns on projects in excess of that?

Anthony J. Allott

Chris, thanks. Sure. First of all, the maintenance CapEx, that number sounds about right. Obviously, with acquisitions, it builds just a little bit. We are talking about a bigger number for next year. I think that -- by a sizable $50 million to $60 million potential increase on the CapEx number. And yes, we're still looking for the same kind of returns on that. By the way, this is primarily domestic investment. It is primarily around our existing customer base, largely contract customer base. Can Vision 2020 is one of the things that's driving some of the increase as we see opportunities to make certain investments there. So the same metrics still apply. We're always looking for good returns on our capital, and we view this as just the same old, same old of what we've always done.

Robert B. Lewis

Yes, Chris, this is Bob. I may also just make the point here that capital, while it's up year-over-year, if you kind of look at the average of the 2, we're kind of right in the middle of the range. And a lot of that just has to do with the timing of some projects around both Can Vision 2020 and some of those customer-facing capital investments. So it's not like it's outside, it's on a permanent basis. If you look at it over time, it's kind of right in the average.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay, so kind of -- my follow-up relation is with respect to some of the Can Vision stuff, my understanding is that's in concert with some actions that your customers are taking as well. Is there capital that customers are also committing to this, and how is this -- how are they participating in this?

Robert B. Lewis

Yes is the answer to that question. There's a variety of items here and, again, Can Vision 2020, to be clear and I'm sure we'll talk about it again, is a long-term. It was named that for a reason. This will be going on for some period of time. So we're in some of the early stages. So these are more typical kind of investments like maybe reweighting of cans, could have new logistics, et cetera. So these are more traditional in that regard. And these will take some investment on capital and time and effort, process changes, et cetera, by our customers. So very much, this program is us together on it. And that will continue to be true as this develops into more technology-based changes. Again, our customers need to be part of this and that's part of why long-term contracts are an integral part of the effort.

Operator

We'll go to Adam Josephson with KeyBanc.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Bob, Tony, a couple of questions. Can you quantify the lower depreciation of pension expense this year and the benefits you expect to get from Portola?

Anthony J. Allott

Yes. So I'll deal with depreciation first. Obviously, there's a lot of moving parts here. The net is we expect depreciation will be down some $14 million on a year-over-year basis. The primary drivers here are the impact of lower CapEx over the last couple of years. There's some prior acquisition depreciation that's kind of rolling off. There's the impact of a change in asset lives that we did, which I'll come back to in a minute. And then there's the offsetting that is the Portola depreciation around the acquisition and the higher CapEx in '14, which will be somewhat dependent on the timing of when that capital gets spent. So the biggest part of these components here is the change due to the change in asset lives. And as we looked across our businesses, our equipment routinely outlives the depreciable lives that we've assigned to those assets. And this is largely due to operating in stable markets and deploying very good technologies and having a really good preventive maintenance program. Evidence of that shows up in some of the questions that we've seen from investors and analysts regarding the competitive comparability of our operating margins against what are very strong EBITDA margins. So based on those facts, we engaged a valuation expert to study our assets and determine what the appropriate economic life was going to be and the preliminary conclusion that was reached from that was that the useful lives of many of our production assets should be extended by 2 to 3 years or so. And that change will be effective in our numbers 1/1/14. So that's kind of the, again, out of a $14 million year-over-year reduction in depreciation expense. As to the pension, this is largely driven by performance of our U.S.-sponsored plants. As you know, we've made very significant contributions over the years, some $170 million contributed to those plants since 2010. We've had very strong return years in that time, so the 5-year average return for our plan is 13.6%. So as a result, our pension expense has been declining over the last several years. It was kind of a de minimis expense in '13. More recently, asset performance continued to show very strong returns. We returned some 13% in 2013, as well as we saw a move in the discount rate that moved up about 80 points, both of those favorably benefit the pension expense. So as we sit here, we expect to generate pension income in 2014 of something that looks like $10 million. The discrete impact from the discount rate change here is about $5 million of that change.

Robert B. Lewis

And then lastly, since you asked a very comprehensive question, lastly, since Portola -- as we had said on the last call, so we're thinking somewhere in the range of accretion of $0.05 to $0.10.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

So -- okay. So up to $10 million of cost savings or so, it sounds like from that?

Robert B. Lewis

Well, no. No, no, no. To get 10 -- no, $0.10 accretion is the inclusion of the Portola business.

Anthony J. Allott

Yes.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Yes, okay. So those 3 components are a pretty considerable chunk of the earnings growth that you're expecting this year?

Anthony J. Allott

They are, yes.

Operator

We'll go next to George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

A couple of questions. Just following on, if I look at it, and piggybacking on Adam's question, if you're getting roughly, it looks like $0.25 rough math from pension and depreciation off your base. And you did this year, $2.77 if I'm not mistaken, you're into the low 3s as well as approaching the low end of your guidance range. Of the remaining difference, I think Portola is another chunk of that, what do you expect to be the biggest driver and what would be the swing factors in terms of the upper and lower end of your guidance range? Should we expect most of the EBIT improvement to come from your legacy, metal can operations or the other segments?

Anthony J. Allott

No, I think you'd expect -- again, it's -- you've got to break Portola out. So you're going to see a fair amount of improvement in our Closures segment because of Portola coming in. We are expecting some improvement in our Plastics business as we go through this transition. Again, we've been pretty clear, this will be a multiyear effort. There will be some wins and some losses, but we do expect some improvement in our Plastics business. And then the Can business ought to have continued improvement on costs and everything that we always do there, which is we drag up costs, we make the right investments, et cetera. And then offsetting that a little bit will be the fact that we have done a lot of contract extensions. And so you do have some of the price impact of getting -- securing a lot of long-term contracts.

George L. Staphos - BofA Merrill Lynch, Research Division

And that would be, obviously, felt primarily in the metal can segment?

Anthony J. Allott

Correct, correct. But again, the net of all that is, we think, again, solid growth is what we're anticipating for next year. And yes, a part of it comes from the depreciation, the pension. And as Bob pointed out, pension is partly because we've been funding our pension. And so I'm not sure that's a onetime point, by the way. And then beyond that, that's just the nature of our business is we get a little bit more efficient over time. We're not in a high-growth industries -- markets, as we know. And so the rest is more typical.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay, Tony. Next question I had, if we look at Can Vision 2020, and I realize maybe a lot of this will be fairly proprietary to you and your customer dialogues, can you still point to perhaps some areas of particular interest from your customers? You mentioned lightweighting earlier. Obviously, there's been a lot of discussion about that the last few quarters. Is that an area that you're seeing particular interest from your customers? Or what other area, if you had to point to 1 or 2 additional, are more near-term in terms of what's driving interest in Can Vision 2020?

Anthony J. Allott

Sure. Some of it is what I just said, which is that it's the near-term ones are going to be around the can itself and the design and the make of the can. And around logistics and how we work with our customers, how products moved around, which is a big part of the cost component here. So now to go back, when I'm talking lightweighting in this case, predominantly, I'm just talking about taking some material out of the can. I'm not -- I think our conversations have been around pressurized cans and whether that makes sense in the U.S. market. That is not what I'm talking about in the early stage by any means. So this is more of the traditional, you just downweight the metal some percentage over time. That's what you'll see early on. As we've said, we are looking everything from the steel all the way through to what our customers do as they go into retail. So those will be further out. Those are a little more proprietary in nature, so we probably aren't going to be really clear on those points. But they'll take longer, they'll take customer involvement and investment, but we're still quite hopeful on the opportunities.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay. Tony, the last question and I'll it turnover, and again, on returns, over the last few years, and this isn't necessarily a fair question just because I'm looking at my model, you don't have it in front of you, but your return on capital has come down several hundred basis points in the last few years. EVA has dropped as well for the company admittedly from high levels, which is props for your performance, if you will, through 2010, 2011. Should we think of Can Vision 2020 as basically allowing you to fight off a secular trend that's negative in returns? Or do you think this is going to be contributing and ultimately we should see incremental return on capital for Silgan move back to prior level?

Anthony J. Allott

Okay. Let me start with the end of that and then I'll -- I'd like to say a few more points on it. The first thing is no, we don't see it as fighting some kind of secular trend down on returns. We do look at Can Vision 2020 as a way to get a good return on the investments we make. And our thinking is that there's going to be cost savings that come from that, that are sufficient for us to get that return and to continue to drive competitive advantage à la lower price to our customers over time. That's the first one. I think the second part, George, because I did see your note this morning, and you've been constant on it, and as you know, we like talking returns, we think a lot about it. Let me just say a little more on it. Internally, we tend to think a little bit more about EBITDA than net asset, partly because it's controllable by us, right? It doesn't take equity markets and stuff into account. And it's cash-focused. And the first thing I'd say is that, that cash focus is part of what's driven us to 8% to 9% free cash flow generation for the last couple of years, which I think is pretty unusual in the packaging market. So the first thing I'd say is it's been -- we've generated a lot of cash through that. The second thing you raised, which is when you have a very high absolute number on returns, you have choices. One choice is to continue to try to trend that up and another choice is try to increase the base of which you get good returns even though that the rate may come down some. And I think we've always been clear that our view is if we can find opportunities to get good returns even though it might lower the absolute rate for the company, we're going to make those moves. And so that's what we've been doing. If you look in -- so by our metric, we look and we say our returns are actually up a hair in '13 even though we had Venezuela problems, even though we had Europe problems, even though we were making investments in new businesses. So modestly but by our math it's getting better. The second thing you and I talked about is that the acquisitions are different in this, in that you just can't get the 2-, 3-, 4-year, 5-year payback on an acquisition. It is a lower return at first, and what you do is you increase that base and you give yourself the opportunity to make those kind of 3-, 4-, 5-year payback investments as you go forward. So when you do a lot of acquisitions, and this has been true for Silgan as you go back, that the returns go down post acquisition and then we use that to try to climb returns up. And so that's where we believe we are. I'll add to that, that the European move we made was much more strategic than that. It was much more long-term, which is exactly what we said. So it's that in spades, right? It's clearly going to take time to get returns at a level we like. As on the side, our timing wasn't great on that and so there's a fair debate to be had about the European investment on its own. We still think it's the right thing in the right spot but, again, timing was not great. But come on back to capital, because I think what I heard in the notice issued about invested capital, I would tell you I think we are incredibly disciplined as a company about what kind of returns we get on capital, investment capital, and it's through contracts where we know we're going to get paid back on that. And I think that has not changed one bit and that's kind of why we have the cash generation that we do. And so -- by the way, I love the return conversation. I hope we have it every call because it is the right thing to be asking about.

Operator

And our next question will come from Ghansham Panjabi with Robert W. Baird.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

For 4Q, can you just give us a breakdown as to how volumes were -- how they shook out in Europe between metal and then maybe other businesses there, too?

Anthony J. Allott

Sure. The -- again, if you look at Q4 in the metal, the can business, I assume you're asking about, we were basically off about 5.5% in total. That was very close to in line with what we had seen in the industry in total. So, I mean, we were in line and the primary part there was the soup industry in the U.S. As to Europe, we were -- we're looking as we speak to be perfectly honest with you on this, we're basically -- you're looking at it right now?

Robert B. Lewis

Yes, I'm trying to get to it. I see, for the quarter, the international volumes were up a bit, and that's driven largely by the new plants. The sort of the legacy business was probably flat to down a little bit.

Anthony J. Allott

Down a little bit, because you had a little bit of the harvest still carrying on in Q4.

Robert B. Lewis

Correct.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then in closures?

Anthony J. Allott

Closures in Europe, actually, Ghansham, we were cycling over a pretty weak fourth quarter last year. So our European closures or international closures were up probably mid-single digit versus prior year. Again, not that we had a great volume in 2013 fourth quarter, it was more about what happened in 2012. And then when you come back to the U.S. business on closures, essentially flattish versus prior year. And I'll jump over to Plastics just to finish off all 3 businesses. Plastics, in the quarter, when you look at pounds, we were down mid-single digit in our Plastics business versus prior year on the legacy business.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay, got it. And then in terms of -- you gave us some ways to think about Metal Food in the U.S. for 2014. Are you assuming that European food is also going to be up? I mean, it would seem like you have some pretty easy comps and the economy seems to be sort of a little bit better. But curious on your perspective there.

Anthony J. Allott

Yes, that is not our assumption. Our assumption remains guarded on Europe, broadly. You can definitely assume that you're going to have a better harvest and we do have a bit of that embedded in it. But against that, we're just -- we're going to leave ourselves a little cautious on Europe right now. Again, remember, we're more Eastern and Southern. And so there's not all that much sign of recovery yet. And lately, you might even say developing markets probably look a little more volatile at this moment.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Yes, that's true. And then just finally, Tony, just curious as to any progress on BPA-free coatings, both in the U.S. and also in Europe. I know you don't have a lot of Western European exposure there but just with the ban in France coming up in 2015, and the potential spillover effect on the rest of the countries in Europe, can you just kind of update us as to what your customers are thinking there?

Anthony J. Allott

Sure. So the progress question, there's sort of 2 parts to that. And on the technology side, we continue to advance. We've got alternatives that for almost everything that we sell, there is an alternative in place although it's in trials in many cases. In some cases, it will shorten shelf life. It will increase not just the cost of the coating, but it could slow down our production and so there are definitely costs around that. So as a result, as we've said in the past, our customers are moving at a fairly guarded manner on that as well because they don't really want to embed more cost in their package if they can help it. And by the way, the science has not really gone anywhere here. If anything, it would seem that the science continues to be supportive that current levels are safe. So it's a little hard for our customers to want to jump out and do too much too quickly here. So the answer is if we have to, there are solutions that can be put in place for almost everything. It will add cost. And so I think it will happen probably slowly, France perhaps being the exception because they'll have to do something there.

Operator

Our next question will come from Scott Gaffner with Barclays.

Scott L. Gaffner - Barclays Capital, Research Division

Just want to go back to North America and metal container outlook and talk about what you see as -- what you sort of forecast as a normal food pack. I mean, we had a little bit of a disappointment in the food pack in 2013. I just didn't know if you were being more cautious in your outlook this year on what normal means for the food pack. Or maybe you could sort of give us your thoughts on how you're thinking about that.

Anthony J. Allott

Sure. We're -- we really -- we aren't -- we're being middle of the road. So we're not assuming an incredibly robust pack and we are listening to our individual customers. So the truth is there's a little bit of customer view in all of this as well. But if you drop back and look at it, I think you'd say it's kind of a reasonable pack, is the assumption that sits here. The other part and we've alluded to it, but I want to hit it head on, is that on the pet food side, to be clear, pet food is definitely a growing market. There's nothing that's leading us to another answer than that. The only thing we're guarded on for 2014 is it was so strong in 2013. On an industry basis, it was up 7.5%. Our only view is that, that rate may not hold and so you may have some giveback in '14. But nonetheless, we feel very good about the pet food industry.

Scott L. Gaffner - Barclays Capital, Research Division

Okay. And then on input pricing, tinplate steel, what are you seeing right now in your contracts? I assume you just completed them or are completing your supply agreements?

Anthony J. Allott

Yes. Actually, we're in the throes of kind of those negotiations as we speak. It's probably running a little bit later than normal. There's just a lot of posturing going on across the industry in terms of what's going to happen to pricing. I think as we sit here today, we would expect to see some slight to moderate inflation in the U.S., call it low- to mid-single digit kind of increases. And then probably Europe being a little bit more moderate than that. But to be clear, those negotiations are not done, and there's a lot that's happening in the market that will have some influence there. But that's kind of the way we see it right now.

Scott L. Gaffner - Barclays Capital, Research Division

Okay. And then just lastly on -- you mentioned in your prepared remarks, you had completed some longer-term or longer-lived contracts with some of your customers that pushed margins down slightly. Does -- are those margin reductions coming from increased investment on your part? Or is it just the price you pay in order to lock in certainty of customer for an extended period of time? What exactly drives the lower returns there?

Anthony J. Allott

Sure. There's a lot of history here. We have -- again, we've always had a heavy concentration of long-term contracts in our Can business. So we kind of usually throw a metric around about 90% of our North American business under long-term contracts. In answer to your question, partly because of the need for Can Vision 2020 and having long-term contracts in place and partly just the calendar had us doing a fair amount of renewals here. So we sit here today at a spot where 95% of our U.S. business is under contract. Nearly 80% of those were with 5-year or greater term. And if you look at our top 5 contracts, they've got nearly 8 years to go on them. So it is kind of an unusual spot we've gotten ourselves into for a lot of different reasons. We're pretty heavily under contract at this point in time. The -- and what typically happens in that is that you give some incentive to your customers, which is basically the competitive advantage that you drive in the business to secure that long-term contract, and exactly what you said is what we secure for ourselves is some certainty of supply and a long runway where we can make the investments to drive further cost reduction and get our returns on the investment we make. So this is -- other than there being quite a bit here for those reasons, it's very typical, it has proven to be good for Silgan and good for our customers, because we keep driving down lower cost for them. And so it's normal other than there's a few more here at this point in time.

Operator

We'll hear next from Chip Dillon with Vertical Research Partners.

Chip A. Dillon - Vertical Research Partners, LLC

Tony and Bob, first question is you mentioned as part of what you were just talking in terms of driving a lower cost and having that certainty and, obviously, we're going to see the beginning of an up-ramp in CapEx in 2014. As you kind of think about the next maybe 3 to 5 years, would 1 60 [ph] based on your footprint today be sort of a new normal for CapEx sort of beyond '14? Or do you think it's -- it would ramp up even further or possibly taper off?

Anthony J. Allott

I think I'd say -- Bob made a point before, which is one thing to keep in mind is you've had very low CapEx in '13, for example. So some of it is nothing more than a shift a little bit between the years is one point. But I guess if I think about the 1 60 [ph] and assuming that we have some certain amount of investment to continue to go on the Can Vision 2020, I can imagine that or maybe just a little less than that as being sort of a sustained level here for a little bit.

Chip A. Dillon - Vertical Research Partners, LLC

Got you. So maybe another way to look at this is that it just looks like, if my math is right, that you'll still be spending about the level of depreciation even with this incremental spending and with the lower depreciation rate.

Anthony J. Allott

That's -- yes, that's about right.

Chip A. Dillon - Vertical Research Partners, LLC

Okay, so even though there's new technology and maybe you can help me, maybe there's a different impact on others out there, but it seems like spending on new technology while required, even with maybe stretched depreciation rates, it's not like you're ripping out plants and having to put in new plants to satisfy your customers?

Anthony J. Allott

Not at all. We made this point before, we'll say it again. If you talk about manufacturing technology, the new technology that we keep getting questions about is essentially technology that the majority of what we make is already in that technology. There is little about of our footprint or our assets that need any changing in our Can business. Now geographically, there might be things that change. There are -- so there are some capital items, but those really all fall into return projects.

Chip A. Dillon - Vertical Research Partners, LLC

Got you. And, Tony, you might have actually answered this, but I just want to make sure I got this right, is -- on this whole return question and, of course, we keep in mind that interest rates and I guess hurdle rates should be lower because the cost of money has come down, but -- versus what it might have been 15, 20 years ago, but when you look at potential investments, do you compare that with the free cash flow yield of your stock? I mean -- and I know that's a tricky question because your stocks are going to move around, but sort of is that at all part of the equation? And is that sort of the linchpin? In other words, if you can make an acquisition that with using some modest debt will result in a higher, if you will, free cash flow yield on the at least equity component, that makes more sense than not making that investment.

Anthony J. Allott

Yes, we -- a version of that, right? What we have always said is -- we've set sort of a base line of if we redeploy our cash back to our shareholders, that essentially sets the baseline for us. And so the things we do other than that need to be a better long-term financial solution or else, we ought to be returning the money to our shareholders. So said slightly differently, I think it's the same point. Now that does not mean every acquisition is going to meet that standard, right? And it goes back to what I said to George, that you -- the initial return on acquisition is only part of the storyline. It's also the ability to spend more capital over time and get higher returns on those spends. So I would not want to say every single thing we do models out to a better answer than returning the cash to shareholders. But our -- obviously, our long-term view on our alternatives are better.

Chip A. Dillon - Vertical Research Partners, LLC

Yes. Or maybe said differently, maybe initially it doesn't return more than returning the cash, but I would think pretty much everything you do would eventually provide those superior returns?

Anthony J. Allott

That's better said. We just -- we wouldn't necessarily model all those future CapExes into the acquisition decision itself. If you did, then you're right. What you said is exactly so.

Operator

The next question will come from Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

Just kind of going back to that renewal on the customer contracts, I think one concern that's been out there is that there's maybe been some jostling around already in the market with some of this new capacity that's coming into the Can business. Are you seeing any of that? Or because of the sort of contract-oriented nature of your business, you're not seeing much of that?

Anthony J. Allott

Let me start with the easy answer to that which is none of the contract stuff I'm talking about as anything to do with any competitive activity that might or might not exist in the market. So that's the quick answer. I think the longer answer is that what we know is -- what we know and have seen is that a particular piece of business we believe has been taken and that some capacity is going to be put in place for that. I don't know -- we don't know that there's extra capacity or not. And so all that is speculative at this point in time. Nothing's being been built yet. So the only other thing I'd say to that is as to this concern about the future, if we were in that position and we saw a piece of business, I could definitely imagine that putting in new capacity, you would put in a economically viable amount of capacity. So I can imagine you might put in more capacity than you need for the individual customer because that makes sense. But if it were us, you'd then look at it and you'd say, well, what would I do with that extra capacity? I can either -- and the first thing we would try to do is look at the rest of our business and restructure our higher-cost assets into that business. That's the first thing that we would do. The second thing that we have always said is what you try to do is grow with your customer, drive competitive advantage to the existing customers in place and grow with your customers. And so that's the second thing we would do. And what we wouldn't do is go try to hit market with that, thinking under incremental economics that you got a pretty low cost base because you got this extra capacity. Because in a mature industry, it's just -- it's a short-term focus that will never reward in the long run. And for us, as a global player in that industry, it's not good for us. It's not good for the customer because the customer ends up in an unsustainable position, right? Because you can't reinvest at that level. And so ultimately you're going to come back around and need to get that back. And so all of that plus the fact that we are -- we have the low-cost position in the market, in the North American market. We've got long-term relationships with all these customers. I didn't say contracts. That's an aside point because the contract is nothing but a recognition of what we've delivered and what our customers think we will continue to deliver for them. But we have long-term quality relationship, supply relationships for these customers. They know we're waking up every day trying to find ways to take cost out of the system and deliver that to them. And so as we look around, we just don't -- we're not that worried about whatever else might be happening in the market. We feel very good about our position.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, all right. And when you talked about some of the things you're doing to take cost out, you mentioned taking incrementally some metal out of the can, but you also mentioned logistics. Now does that involve just re-siting some of your production facilities so they're closer to a customer and there's less freight involved there? What exactly do you mean when you talk about making logistics adjustments?

Anthony J. Allott

Well, that would be one. Two is you got kind of where warehousing happens and how it happens, where we make it in our system and whether there's better ways to do that. So there are a bunch of answers there. But even the -- yes, the situation production itself is part of that.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, all right. And are you seeing -- as you should talk with kind of customers about the long-term in the metal can, is that whole pressurized can thing, is that something you're finding that other people are looking at right now?

Anthony J. Allott

No. We've said it's just -- it's -- again, I don't think there's that much to it. There's a lot of technology around here. The U.S. market is a very different market. So right now, the answer to that is a clean no.

Mark Wilde - Deutsche Bank AG, Research Division

Yes, okay. And the last question I had, Tony, can you just talk a little bit about sort of what the growth trajectory is looking like in that plastic food packaging business that you bought?

Adam J. Greenlee

Sure, Mark. It's Adam. The business has performed quite well this year, with our first full year of ownership and, basically, right in line with our expectations. As we talked about, the growth prospects for that business longer-term are going to be more on the international side. And I think with the convenience package that we present to the market and the price point at which that product sells into the market, we've seen some challenges growing internationally. We've got a lot of good irons in the fire right now. But at this point, we're not seeing the international growth that we're hoping for on a longer-term basis. Outside of that, they've done an outstanding job in the U.S. and the domestic market and are hitting all the kind of markers that we had to set for them at the time of the acquisition.

Operator

We'll hear next from Al Kabili with Macquarie.

Albert T. Kabili - Macquarie Research

Just wanted to circle up quickly on the contract extensions. If I got it right, it sounds like you're largely through that at this point and you wouldn't expect that to be much of a factor in '15 or beyond. Is that fair? Or if you can just give us some color on that?

Anthony J. Allott

Sure. I think we've been clear that there's been a sizable amount done. There's always some of it. It's just this is a very big element, so I think you'll have some in '15, but not -- it's not -- against those sets of numbers, it's not a big percentage.

Albert T. Kabili - Macquarie Research

Okay. All right, got it. So it will be some -- still activity, but not to the degree of this year. Okay, that helps. And I wanted to clarify the depreciation commentary. I think you said down $14 million. Is that with the additional depreciation from acquisitions as well? So if we were just looking at the impact on the useful lives accounting, is it $14 million there? Or are you netting that against additional depreciation with the acquisitions?

Robert B. Lewis

Yes, the net change in depreciation on a year-over-year basis is $14 million. So the impact of the useful lives is a bit more than that. So that benefit is being offset by the Portola acquisition.

Albert T. Kabili - Macquarie Research

I got it. And can you help us, what is it? Is it in the mid-20s then, X acquisitions? Just on -- if we just looked at the useful lives piece of it?

Robert B. Lewis

Yes, the discreet benefit coming from the useful lives study could be as much as $20 million.

Albert T. Kabili - Macquarie Research

Okay, got it. All right. And then the last question that I had is just on the commentary on soup being down in the fourth quarter. And it was actually beginning of the year, you had kind of started off pretty well. And I was just wondering, what your thoughts were on the weakness in soup in the fourth quarter, if there was an inventory adjustment that drove a lot of that, because it was a pretty weak number.

Anthony J. Allott

Well, that's a good question. I think, first of all, if you go back and look, we were always a little bit guarded on the strong performance in the first 3 quarters. And I think that's as much as anything because there's a lot of work to be done to change consumer sentiment around it. And so I think our view is that while we think that our customers are doing all the right things, it's just going to take time. And so that's part of why we were a little guarded on Q4. I'll add to the fact that in some of our customers' cases, they're not calendar years and so they do -- and this is an important season for them as you come into the cold season. So -- and in addition to that, you had one of our big customers who had just shut down 1 of their 4 processing plants. And so you had a little bit of uncertainty around what was going on, on inventory around that. So there's a lot of moving parts here. So I think the simple answer is that we feel good about what our customers are doing for soup, and we think that could, in fact, lead to improvement in soup. You are already seeing it on the ready-to-serve soups. You're seeing growth there. Condensed is a little bit trickier, but even in that case, our view is that the right things are happening. But it's going to be small numbers. You're not going to be up 4% or 5% in soup sustainably.

Albert T. Kabili - Macquarie Research

Okay, that's really helpful. And just one more if I could, is just the Closures improvement, year-on-year, was that all Portola there or -- help us sort of just parse out the contribution from Portola, either Tony or Bob.

Anthony J. Allott

That's a good question. It's actually a little bit of in spite of Portola. Remember, Portola had the purchase accounting going on. So Portola, as expected, was dilutive in the quarter, call it about $0.02 dilutive in the quarter. So that's just a little bit better performance on the rest of the Closures business, relatively good finish and so it's a bit of a positive sign. We'll wait and see more come.

Operator

Your next question will come from Alex Ovshey with Goldman Sachs.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

A couple of quick questions for you. One is on the secular trend for U.S. metal food cans. As I look at that market, it has been -- it's like a decline, I use the word has as I look at shipments with the industry. In the mid '90s, you were sort of north of 30 billion cans and I think you finished 2013 with about 27 billion cans. '13 was up a little bit over '12 though and you think '14, at least for you guys, will be up a little bit over '13 and just listening to your tone around the future of this market, seems like you think there's some growth. So with all that being said, how do you guys think about the secular trend in food cans in the U.S.? What do you think has changed that may drive better growth over the next 10 years than the last 10 years?

Anthony J. Allott

Well, first of all, let's just go back and -- the 30 number you -- and I don't have every year in front of me, but that was a, I think, a peak number. I think if you go back to when Silgan really originally entered into this business, there was some 28 billion cans. So it's been a little bit up and down through that. Now we've talked on these calls a lot, there are some products that were in cans that made a lot of sense to switch. You think about large-size coffee, for example, that's not cooked in the can and so that made a lot of sense. They were competitive packages, they were lower cost, et cetera. If you look at what's in metal food cans today, it is predominantly things that go through a very rigorous retort process that is a pretty -- we think a pretty defensible area. Secondly, I think that it's -- you've got customers who are very focused on finding growth for those products who are spending a lot of time and effort on formulation of their products, flavor changes, finding new demographics to market to. So we think there's some hope. But to be clear, we are not here saying we think this is going to be a big, growing market. I think we tend to view it as flattish and are thinking it will be flattish that it has been historically, particularly if you look at these retorted products.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Okay, I got you, Tony. That's a helpful refresher there. And then just on the plastics business, I'm curious, if you think about the legacy Plastics business, which is more oriented to the consumer products separately from what you guys acquired from Rexam, and if that is the case, I mean, I'd like to see -- I'd like to hear you guys talk about sort of the margin profile for the legacy business relative to the acquired business over the next couple of years, if you can.

Anthony J. Allott

Sure. Yes -- I wasn't sure if you were asking for us to talk about it more in the future as we go or now. But to be clear, the -- we are doing transition to that legacy concept. So we are seeking more to specific customers that we think there's more long-term growth opportunities. That focuses on certain markets that we think helps a little bit better, food being a particular one of that. Some of the health-care side being another element of that. And so we are in a transition process of that business that we believe will drive some improvement on margins. We're also getting at costs as well. So we are seeing improvement in the margins of that business. It has been modest so far because we're going through this transition and that takes time. But we are -- we do anticipate improvement from the legacy business.

Alex Ovshey - Goldman Sachs Group Inc., Research Division

Okay, Tony. And just one last quick one for me. The incremental CapEx in the U.S., is any of that going to be for easy-open or most of that is just around -- more on the cost side?

Anthony J. Allott

There's not -- there's some easy-open in there but it's not a huge element of it at this point in time. But easy-open then continues to penetrate. And so there will come a time when we'll need another big segment of capital, but that's not in '14.

Operator

And our next question is a follow-up from Chris Manuel with Wells Fargo Securities.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Just a quick one. It kind of sums up with the new contracts and things. Traditionally, I think you pointed out when you do renew contracts, there's a little bit of a give back and then you work at productivity over the next years. With these last couple of waves of contracts you've done, just to make sure I understand it correctly, has there been kind of the traditional givebacks or have you kind of kept them status quo and now get to kind of move forward from there?

Anthony J. Allott

Well, there's been some -- we're mentioning it because we're saying it's going to have some impact on the performance of the business in '14. I would say that all that is very modest, what we're talking about, fractions of a percent of our top line. And so I would say that, again, the value that we're bringing to our customers continues to be reinforced by the fact that our customers see the value to stay with us long term and to have us in a position where we can make these investments for further cost reductions. So it has not been a big item.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. And then the last question, too, is, you mentioned Venezuela. Just refresh us, how big was the drag in 2013 and I think there were some quarters it was helping you, hurting you, just so we have the cadence appropriate for 2014?

Anthony J. Allott

Yes, I would say the help and hurt is probably more of a comparable discussion between '13 and '12. And that was all largely just due to the timing of when raw materials are available in country because of the monetary policy. If you look at the negative drag that we experienced in '13, there was the $3 million right off the top for the devaluation in the currency. And then there's some $5 million to $6 million incremental hurt that came through the operating numbers because of that inability to regularly procure steel. And in a country like Venezuela, it's -- the costs are essentially fixed. It's hard to furlough employees or shut the plants. So ultimately, when you don't have the raw material, you incur those costs anyway. So the expectation is that we don't see it improving significantly in the near term. If anything, I would say with all the press that's out there, there's probably some downside risk against it, but particularly against another devaluation of the currency.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay. So on a full year '14, '13, it may actually even be modestly higher. We just have to kind of wait and see as we look at progression quarter-to-quarter?

Anthony J. Allott

Yes, look, I think -- if I were to try and take a guess here for you, it could cut either side. The way we've got it forecasted is kind of no real change on a year-over-year basis from the real raw number. But again, with a lot going on there, it could get -- if they free up cash, it could get steel, and it could have a pretty nice year. If they devalue the currency, we'll have to bear that brunt, too. There's a lot of discussion that happens around Venezuela for a business that's really quite small for us. It's probably a USD 15 million equivalent total investment in that business. And it is profits -- it's not losing money, but it's not making a lot of money right now either.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay, that's helpful. Last quick one is, I know you did a pretty sizable repurchase in '13. As you look forward here into '14, is there a preference or how do you think about balancing, doing chunky ASRs or Dutch tenders versus kind of normal ongoing in the marketplace?

Anthony J. Allott

Yes, there's really nothing changed about our investment profile, if you will. We're probably sitting at the end of the year just a touch under the midpoint of our leverage ratio that we kind of put out there, as the optimal spot. We'll generate a couple of hundred million dollars in free cash flow, which should bring that down by the backside of '14. I think we've continued to look for opportunities to invest strategically around the M&A environment and in the absence of those, we're kind of right back where we've always been in terms of returning value to shareholders as we delever. I would still say my own personal lean is still toward the share repurchase and just for sheer timing, probably toward a larger type of tender if we were to do it again. But again, that's a board discussion that needs to be had.

Operator

And next, we'll go to George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

One last question, piggybacking off of, I guess, Alex's question on plastics. Where do you think you are in terms of migrating the legacy plastics business towards the appropriate customer base? You mentioned food and health care. And when do you think you'll be in a position to know if the program -- from a growth standpoint, because it looks like on the margin side, the operations have been doing well in the last 2 quarters. When do you think you'll be able to determine whether the program was successful or not for plastics in terms of getting to these new markets and establishing yourselves -- not new markets but you know where I was going with that?

Anthony J. Allott

I do, I do. It's a good question. I think the financials will lag this of course. I think we will have a pretty good sense. Give us another year. We're going to have a pretty good sense by the time we come out of '14, are the contracts and customers and investment opportunities on flow or aren't they. I think we'll begin to have a sense. If the year goes by and we don't see the new customer flow coming in at the rate we want to in the kind of investments that we want, that will be pretty obvious to us. Now I'll say the early days, but we do like what we're seeing in terms of order backlog. That sounds a little more firm than I mean it to. But in terms of the opportunities that we are looking at right now, we do feel a little bit better about it already. The only other point I was going to make is we didn't say this, but as we did this whole depreciation work, one of the things that kind of came out is that the plastics, which makes sense to me, was particularly being burdened. And so if you look at us versus other plastic companies, we had a lot of depreciation. So we sit here and we talk about these single-digit EBIT numbers. But if you look on an EBITDA basis, the business is in the 12, 13, range now, which is not that far from other plastic businesses that we see. Now that does not mean I think we're done, et cetera, but I do think in fairness to the business, when there does come a point we need to kind of recharacterize it and say we might like a little bit better, but it's getting us pretty good returns as it is and it's not that far off the market.

George L. Staphos - BofA Merrill Lynch, Research Division

So plan B, Tony, if in a year, you don't get quite the volume momentum you expected in your legacy businesses, what I'm hearing you say is it's still a good cash-generating business, but it might be less likely to get reinvestment going forward? Would that be fair?

Anthony J. Allott

Yes, I -- a version of that, yes, in a way. I think it'll -- we will probably continue to be -- make it be targeted. Because, as you know, we always talk about sustainable competitive advantage. And so I think there are clearly some places where it is sustainably competitively advantaged. But it's not everything it does. So you are right that we -- if it doesn't succeed here, I could imagine we'd just keep crimping the capital on it for only the things where we think we need to get paid for what we're uniquely good at.

Operator

Our final question comes from Adam Josephson with KeyBanc.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Just 2 -- one of the new credit facility, Bob, I guess. Obviously, it's -- you get more favorable pricing but you also talked about significant additional borrowing capacity, longer maturities and greater flexibility. Can we -- should we read anything into that in terms of M&A repurchases, et cetera?

Anthony J. Allott

No. I wouldn't read anything different than -- it wasn't like our old credit agreement was terribly restrictive around those types of things. This was just kind of tapping the market at an opportunistic time to make improvements against what was already a fairly good credit agreement. And I think there is some benefit of -- we got a pricing down on the grid and some more room in some of the covenants. So it's -- I would say it's -- it was good economics against marginal improvement for that extension. And it moves our amortization or our bullets coming out a couple of years as well. So we've got no real near-term amortization in our capital structure today.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Okay, great. And, Tony, perhaps one last one on capital deployment. Obviously, you've done a terrific job along those lines over the past decade, in part via acquisitions. Would you say it's become any more difficult to find value-adding acquisitions since you've largely consolidated U.S. food cans? Or would you quibble with that notion?

Anthony J. Allott

Well, I quibble with the notion in that -- if you're talking about highly synergistic acquisitions where you can really get the next year, your returns are already where you want them to be, those are getting harder for sure. But as a result, we've done some other things that branch us out a little bit, take our plastics food container side or Europe. And so now you have opportunities perhaps to do synergistic things with those. So I think net-net, probably the opportunities look the same that we will find synergistic -- in fact, the Portola acquisition is a good example of a fairly synergistic one that we did in the Closure side.

Operator

And with no further questions in queue, I'll turn the call back to Tony Allott for any additional or closing remarks.

Anthony J. Allott

Great. Thank you, everyone. We appreciate your time and we look forward to talking about our first quarter in late April.

Operator

And, ladies and gentlemen, that will conclude today's conference. Thank you again for your participation. You may now disconnect.

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