Good morning. My name is Melissa and I will be your conference operator today. At this time, I would like to welcome everyone to the Greif 2016 Fourth Quarter and Fiscal 2016 Earnings Conference Call. [Operator Instructions] Thank you. Matt Eichmann, Vice President, Investor Relations and Corporate Communications, you may begin your conference.

Thank you, Melissa. Good morning, everyone and welcome to the question-and-answer portion of Greif’s fourth quarter and fiscal 2016 earnings conference call. Please take a moment to refer to the Q&A slide presentation we posted to our website this morning. Yesterday, after market closed, we posted our earnings slide presentation and recorded remarks on our most recent results to our website. I am now on Slide 2. Responding to your questions this morning are Pete Watson, President and Chief Executive Officer; and Larry Hilsheimer, Executive Vice President and Chief Financial Officer. Please turn to Slide 3. This morning’s question-and-answer session will contain forward-looking statements. Actual results or outcomes may differ materially from those that maybe expressed or implied. Please review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from those projections or expectations. During this question-and-answer session, certain non-GAAP financial measures maybe discussed, including those that exclude the impacts of acquisitions and divestitures, special items such as restructuring charges and impairment charges and acquisition-related costs. Reconciliation tables are included in our earnings release and the presentation posted on www.investor.greif.com yesterday. And now, I would like to turn the call over to Pete Watson, Greif’s President and Chief Executive Officer, for a few brief remarks.

Thank you, Matt. Good morning, everyone. We appreciate your interest in Greif. Our company is committed to building teams aligned to value delivery, delighting our customers through superior customer service excellence and achieving transformational performance, all with the explicit intent to deliver exceptional value to our customers and shareholders. In Q4, our operating profit before special items was $15 million higher than the prior year quarter. Fiscal 2016 showed improvement of $42 million versus the prior year. In addition, we announced guidance for 2017, which includes Class A earnings per share before special items range of $2.78 to $3.08 per share. I am very pleased with our continued progress, but significant opportunities remain in each of our strategic business segments. We remain focused on unlocking additional value for our shareholders. Melissa, we are ready for the first question.

Thank you. [Operator Instructions] Your first question comes from Adam Josephson from KeyBanc. Your line is open.

Thanks. Pete, Larry, good morning.

Good morning.

Good morning, Adam.

Just a couple of questions about your guidance and then I will get back into queue. On the containerboard price increase, can you just help us understand what net benefit you are expecting in terms of EBIT or EBITDA from the price increase appreciating that there was a previous medium price reduction? So I am just trying to understand what EBIT or EBITDA growth you are expecting? And can you help us understand that?

Yes, sure will, Adam. Thanks for the questions. As you know, we did not give specific guidance to the business, but let me walk through the elements of the inputs that we put in the guidance. So, we expect to have full realization of the containerboard increase through our entire system by the end of January 2017. And for our full year guidance, there are several inputs, let me walk you through those. So, volume wise, we have 550,000 tons of medium in our system out of 750,000. So, if you walk through the price, you have to remember we had the $15 ton reduction in medium several months ago. On top of that, in our guidance, we have RISI published $40 a ton increase for both linerboard and medium. And we have also included the most recent OCC increase on input cost and it’s a blended $10 in the Southeast and $5 in the Midwest and Northeast, which is the fiber basket we procure OCC and that’s roughly a $385,000 impact on OCC. And as referenced for everybody, what we say is for every $10 change up or down in OCC, that’s about $550,000. So, those were all the specific walkthrough inputs that we have used for our guidance for 2017 in the paper packaging price increase.

Thanks, Pete. And just also related to the guidance, you are guiding to about 20% earnings growth. It seems like with little, if any, benefit from improvement in the global economy. Can you just help understand the above the line components and the below the line components? And roughly how much of that 20% growth is coming above the line versus below? And then I will get back into queue. Thank you.

Yes, Adam. So, basically, it breaks down at the midpoint of that guidance range of ops improvements after tax of about $0.27 a share, interest after tax benefit of about $0.12 a share is at the below line; and then just rate change on tax improvement about $0.10 a share.

Thank you, Larry.

Your next question comes from Ghansham Panjabi from Robert W. Baird. Your line is open.

Hey, guys. Good morning. First off, can you give us some more color on end market demand for rigid packaging during your 4Q sort of on a regional basis? Any regions that maybe surprised you either positive or negative during the quarter, obviously, the macro data has been very choppy by region, so just curious on what you actually saw?

That’s great. I am glad to do that, Ghansham. So overall, I will really focus on RIPS. So overall, as you saw, we had – net sales were impacted flat volumes for higher pricing and margins and globally, our IBC business and our large plastic drum business had good growth, 11.6% in IBCs and 7% in large plastic drums. Steel was negative 1.8% on volumes predominantly impacted by EMEA. And let me walk you through each region. In North America, our steel drum business was basically flat. And that’s really due to continued sluggish nature of the specialty chemical demand. Just recently, we have seen data that showed production in North America chemical up to 0.04% of a percent versus last year and October was down further than that. We did see plastic volume increases of 7.3% and IBC growth at 10.4%. That’s really relative to two things: one that’s a broader and diverse end-use markets, and that’s in stronger pharmaceutical and food demand in those product lines. And fiber drum was down 3%, really, the ag markets finished faster than they did prior year. If you look at EMEA, we got off to a very, very slow start in the fourth quarter. Our steel volume in Europe and EMEA was down 6% and again predominantly that was impacted by a 6-week low coming out of holiday season. We also saw shorter ag season in Portugal and Southern Spain, particularly compared to Q4, which we had a longer ag season. On a positive note, in Europe, we had a very strong steel demand in Russia and parts of Eastern Europe. The real positive note is both our large plastic drum was up 9.2% and IBCs were up 11.5%, which are continued improvement and that new platform continues to please us. If you look at Latin America, we actually saw some improvement in Latin America. Our steel drum demand was up 4.6%, plastics up 1.9%. The predominant drivers of that, Brazil, we had seasonal juices and better demand in agrochemicals. We also are starting to see a little bit better demand across the balance of Latin America, particularly on ag and food and seasonal juices. I will comment though with Brazil predominantly in industrial demand and chemicals is still very, very challenging. In APAC in the fourth quarter, we had good growth in steel drums, 6.7%. The demand predominantly was surrounding China. We had several weaker chemical and lubricant demand in Southeast Asia, predominantly around Singapore. And while its note that our demand was good in China, it was actually the GDP growth was the weakest pace it’s been in 25 years, but from a perspective standpoint it will still grew 6.7% in the last quarter. So that gives you a little bit of view of the fourth quarter, Ghansham. I hope that’s helpful.

Yes, it’s very helpful. And I guess as a follow-up, sticking with RIPS for 2017. Sort of what are you expecting in terms of the range for volumes for RIPS and then it’s been a while since we had to deal with inflation, but still prices have started to move up quite a bit, how should we think about the sensitivity on your operating income in terms of movements of steel and plastic resin, etcetera? Thanks so much.

Yes. So let me – two points. Let me talk through what we view 2017 to look like. I will do the same thing, I will kind of walk around the world to give you perspective in each of the regions and then I will make comment on some of the inputs on raw materials. So in ‘17, we expect in steel demand to be very sluggish similar to what we saw this year on steel, which is our largest substrate probably anywhere from zero to 1% on a global macro basis. But again, we do expect to have higher growth on our plastics business or IBCs and that will range between 2% and 4%. And again, if you look at a smaller base of business, smaller market shares with more opportunities for the right type of growth. If you look through regionally in North America, data from the American Chemistry Council expects to see slightly better results in the chemical business in 2017 based on housing starts and continued momentum in the automotive production. But still, because of our market share and because of our fact that we are focusing on quality of shares as opposed to quantity of shares, we still expect zero to 1% global – excuse me, growth in North America on those steel drivers with higher growth rates in IBC and our plastic business. In EMEA, we did see more encouraging manufacturing PMI data that came out last week. Our feeling is that in the chemical sector, especially in Western Europe, we expect to see sluggish demand, although when you move over to Eastern Europe, predominantly in Russia, we expect to see similar strong demand that we experienced this year. We do have throughout 2017 some ongoing growth projects we are executing on and that should impact what we are doing in Saudi Arabia in steel drums and our IBC markets. APAC again, I think we expect better demand in China in both our steel business and IBC segments relative to the comments I made about Q4. We have seen slight pickup in the lubricant business in Southeast Asia, so we are hopeful that we will see that continue throughout the year. In Latin America I think the general consensus is broader markets could improve and that’s really from a very, very poor base. As you know there has been significant economic turmoil in that region. We do believe our agro business and food business will grow at 1% to 3% range. And while Brazil is improving, there are still significant challenges in that country. And we do not expect growth in the industrial chemical markets in that region. So I hope that answers your questions, Ghansham.

Yes. Thank you very much.

Yes. If you want to make comments on the input costs and particularly in steel, so we have seen since probably our second quarter of 2016 going through what we know today and what we expect throughout 2017, to see systematic trends of price increases globally on steel, cold rolled steel. And as you guys know, it’s predominantly, there has been tariffs and duties by governments in the U.S. and Europe to restrict some imported steel from targeted countries. There has been also some improved demand mainly in automotive sectors Germany, China and the U.S. And there has also been reduction in supply and trying to equal out demand and supply ratios across the world. So we expect that to continue to improve. Again as you know, predominantly, we have pass-through mechanisms so we will be very diligently in executing on those pass-through mechanisms as we go through the year. This was not unexpected. Our sourcing and supply chain has positioned us very well in each of our regions with good quality, strategic suppliers to serve our needs. So we are in good shape in regard to how we respond to rising input costs in that business.

Okay, perfect. Thanks so much.

Your next question comes from Chris Manuel from Wells Fargo Securities. Your line is open.

Good morning and first just one general comment. I mean thank you for the added disclosure that helped with the currency stuff in the back and a lot of the commentary thus far on what’s happening at some of your materials and regions is very helpful and the improved disclosure is very helpful.

Thank you. Good to hear it from you.

I did want to ask about a couple of things. One, one of the things you mentioned, just let’s start with the big picture question was looking at opportunities to re-grow within the portfolio so there is a couple of natural questions come out of there. One would be what sort of leverage rate are you targeting to get to and would you be comfortable operating in. And then two, what types of assets would you consider as core or would you look out within the portfolio and as targeted areas to grow, is it effectively doing what you are doing now or are they want to borrow an old term core adjacencies or what have you that you would look at. And then are there any other things as you look through your portfolio that might be added to lease?

Hey Chris, it’s Larry. It’s nice to hear from you and thanks for the compliments on the disclosures. We are trying to be good at serving you guys, our customers and listening to what you need. Hopefully, we are being responsive, so thank you for that. Second, on our leverage ratio, we remain consistent to our view of appropriate capital structure for us outside of a time when we may do an acquisition and drive it up for a short period of time to go back down. But in that 2 to 2.5 range is what we have consistently stated and what we continued to target. Relative to the things that we might look at, as we said at our last earnings day and I think we have been fairly consistent, we want our teams focused 100% on completing this transformation. We continue on our path of Pete and I and a very small group focused on okay, assuming that we do accomplish that, which we believe we will. Then we would look forward and so we continue to explore what areas of interest we would have, what adjacencies, what other opportunities. And we are still in the midst of working through that Chris and we plan to talk more about that at our Investor Day in June. And the – we will tell you by then what we have determined. I would say and we have consistently said that it’s not like we don’t answer the phone. If people are calling us about opportunities, we will listen. And I would say though that it would have to be a very, very attractive situation that we would feel very comfortable with which would mean very aligned to what we already do. And with current pricing in the markets for opportunities, they are pretty rich. There is now of course, incremental cost of capital is pretty cheap. But right now, we are not actively in the market looking for anything.

Okay, that’s helpful. And then one other question for you Pete, so you have got, it looks like or from industry publications, 40 of the 50 in there for corrugated increase, what’s your feeling of is the other ten likely going to go through, are you – I think you talked about that hitting you next year, how comfortable are you with where things are on a price cost metric, I know that energy costs continue to move higher and OCC moves higher, just any thoughts you have along those lines?

No, that’s good. Thanks for the question Chris. So when I referenced our guidance, in our guidance calculations, we are just putting in what the RISI published index went up. When we talk about what we are doing in the market, we really did not disclose any specific pricing actions because that’s confidential as it relates to our individual customers. As you know, OCC just did go up. We have had an escalation of natural gas, so the input costs are increasing. Our demand is very, very healthy right now and we are really focused on how do we execute and get the price increase through our system completed by the end of January, which I am very, very confident that will happen and then that leads to what might happen later in the year. So, the input costs continue to grow and demand stay healthy and again, I would try not to talk about hypothetical situations. I am just dealing with what we got to do to execute in the current environment and are real pleased with the progress our team is making on that front.

Okay, it’s helpful. Just one last question and it’s – post-election, there has been a lot of discussion of having more protectionist world whether it’s NAFTA, whether it’s what have you and trade different places. Any, I guess, big picture question is any thoughts of how that may relate to Greif and things that could help or hurt you? But in particular, one of the areas I am thinking about is it’s been difficult at times to quantify what happens when raw materials like steel move up, move down, because you guys moved quite a bit of material cross-border, different directions to try to take advantage of opportunities here or there. So, does this A) any thoughts of election? B) Does this maybe encourage you to rethink the business model or as to how you do that to make things more local or more direct pass-through resort or any impact along those lines?

Yes, it’s a really good question. And in regard to the political action, I think it’s really too early to determine what may or may not happen. In regard to trade, we are certainly seeing currently the next plane, what’s happened in the steel markets and putting protectionist – protection tariffs on export import steel. We are in good shape with that. We are positioned very well for it. Most of our sales around the world is inter-region or inter-country, so I don’t see that being a huge impact. In regard to pricing, I think anytime in any of our businesses, you have raw material increases and decreases and we continue to look at how we get better contracts and price adjustment mechanisms to ensure we are fairly rewarded for what we do. So, we feel really comfortable with how our team executes on those and making sure we have the right types of mechanisms in the right businesses in the right geographies. So, we can be successful. And I will let Larry make some any other comments he might have on that.

Yes. I would have just two. I mean, as Pete said, I think, it’s too early for us to predict any different impacts on our business, if any, for the policies being discussed. But clearly, tax policy is important to us and we would be quite pleased with improvement on the corporate tax structures here in the U.S. and that would benefit us quite a bit if the maximum rate is dropped in anywhere in the magnitude that they are speaking of as well as being able to have more free flow of earnings around the world. Both concepts would be something we would be much in favor of. Outside of that, I mean, to the extent that it drives up raws, obviously, it drives down the percentage of margin, whereas the PAMs adjust up, but it protects our dollars in those contracts. So hopefully, that’s helpful, Chris.

Yes, thank you. Good luck, guys.

Thank you.

Your next question comes from George Staphos from Bank of America/Merrill Lynch. Your line is open.

Hi, everyone. Good morning. Thanks for all the details. And I would agree with Chris again, really appreciate the additional details. You guys have done 180 on the last couple of years on this, so thank you. I want to – for my two questions, and then I will turn over and come back, I want to hit on pricing. What opportunity – to start, what opportunity do you think you have to further drive and sustain the price mix performance in RIPS? And any sort of qualifying discussion around that would be helpful. That’s number one. And then switching gears and I will turn it over. As regards taxes, the effective rate we calculated on an adjusted basis was somewhere in the mid-40s. You mentioned there were some corrections identified through controlled measures, I believe, that led to that. My guess is also there was some from your verbiage, there was some earnings in regions where you didn’t have deductions. Can you comment on what drove that? And I am really more interested really in the controlled measures and hopefully, there won’t be anymore corrections down the road? Thanks.

Yes. George, I will take the first part of the question and hand the second over to Larry. But in regard to what we can do, really, I believe you are getting ahead. We continue to drive our gross margin improvement and it’s really a couple of levers. It’s already been mentioned, there is some more upward volatility in pricing in most of our key raw materials and all of our businesses. So, it will be really critical, we execute on our price increase and price change strategies throughout the region. And that’s – we have a real good strategy and it’s been ongoing actually for the last 6 months. So I am very comfortable with our ability to execute on that. And when you look at other levers to improve that margin, it really comes back to all the elements and gross margin management it’s margin and product mix management. So, what we want to do is ensure that we are selling into the right markets with the right products and we do extensive evaluation on what our profitability is on certain products throughout our portfolio and that’s been a big push for the last year and I think it’s part of our gross margin expansion. We also have significant opportunities in operational efficiency and our focus is really on process stability and process reliability. One large lever we have across all our business is how do we reduce and eliminate unplanned downtime. There is a lot of upside margin opportunity inside our four walls. And then another large lever is just our sourcing supply chain efficiency. I would tell you, we are very, very good in sourcing. We have opportunities across our business portfolios on how we can be better on supply chain efficiency. We are moving to centralized management of our supply chain on inventory management and controls. And there is a significant focus on how we improve our margins in that regard. So, there is as much opportunity in margin inside our four walls as there are in the market and really, at this point, very pleased with how our teams reacting to that and executing in that. But again, as I mentioned, I think, there is still more opportunity for us to control those levers that we can control and I think that’s where you will see some of the improvement. And I will turn the balance of the question over to Larry.

Yes. Thanks, Pete. Thanks, George for your question. On the tax area, I think it would be an understatement to say that the tax arena has become more and more complicated for any and every country or company that is international in nature as foreign jurisdictions continue to just enhance their sophistication, not only in their laws and regulations, but also in their enforcement. You combine that with us being relatively complicated in structure because of the global nature of our business and us not having what we believe was appropriate controls on a worldwide basis in the tax area. So, we have significantly enhanced our control infrastructure for our tax function. And one of – that’s the good news. The bad news is as you work through that and you take into account items that perhaps were not considered appropriately on a consistent basis and also the changing nature of court developments in foreign jurisdictions and that kind of thing. All of those things came together in this quarter and identified things that led to about a 6.5% increase in our adjusted tax rate for changes in our uncertain tax position estimates. Some transaction-related tax expense items related to some of our shifting of cash between entities and then just some items in looking at our deferred tax analysis. But we also disposed of a majority interest in one of our businesses that we were not the rightful owner for in a jurisdiction that does not permit any tax benefit on a loss on the sale of a business. It was one of our targeted activities that we did not think we would get completed in the fourth quarter, but did. And so that’s why it was not in our initial forecast. And your calculations are roughly correct, George. For the fiscal year, our book rate was effectively about 47%. Our adjusted tax rate is more like 33% and our fourth quarter rate – book was an outstanding 81.3% and our adjusted was about 43.4%. But also note that some of the tax items we identified were actually related to joint ventures And factoring that in as you adjust through our NCI, that annual tax rate on a book basis, GAAP base was actually dropped about 45.2 because there was a higher proportion of tax items related to those interests. But I do then address your comment at the end that you hope things are less volatile in the tax area going forward. We share that wish. And I do believe that the control structure that we have now put in place will drive that only to be mitigated by, as I indicated substantial changes in jurisdictional issues and tax enforcement and tax laws around the world.

Larry, that’s great, very complete. I will come back with the next couple. Thank you.

[Operator Instructions] Your next question comes from Justin Bergner from Gabelli & Co. Your line is open.

Good morning everyone.

Good morning Justin.

Hi Justin.

First question relates to I guess the improvement in price in your rigid – price mix in your rigid segment, I guess it was on the order of 10% this quarter for primary products and if I recall sort of the slide from primary products that was then corrected to all products last quarter, it was about 5% of price mix, so can you sort of talk about what’s driving that price mix increase, is it just sort of passing through higher raw materials or is it more sort of walking away from certain business and why didn’t we see more margin leverage from that increased price mix?

Yes, that’s correct. Thanks. So really two points and you mentioned the first, we have seen and have experienced really for the last four months to six months increased input costs on steel and mainly with steel and some resin. And so we had been passing through our material cost increases on our price adjustment mechanisms all around the world. And that’s been fairly constant in all the regions, so that’s one. Second, there has been a very large focus as we have talked about on the quality of our market share pursuit as opposed to quantity of our market share. So we have increased margins on pricing and on what products we sell and what markets to get the right value that we believe we serve and provide to the customers that we are in. So those are two big drivers. We are very pleased with the progress we are making, particularly on a focus on the quality of market share and what we are doing in regard to customer service excellence and how we are driving improved attentiveness meeting our customers’ needs, which is hand-in-hand with that value over volume of quality of market share focus and how that improves margins.

And the only thing I would add is and I have said this earlier and I think you are aware of it, but just to reiterate it is, as those – as we pass through the raw material price increases, obviously if we maintain the margin dollars through those elements, our margin percentage drops slightly.

Okay. So in terms of the acceleration from 5% to 10% versus the prior quarter, was that mainly raw material costs, because I know you have been sort of trying to price per value last quarter as well?

It’s predominantly been raw material increases, correct.

Okay. Thank you. And just one more question, if I may, how much restructuring costs outside of the adjusted EPS are you factoring in for the – just started the fiscal year and sort of what’s the adjusted tax rate that you are using?

Sure. Justin, so we are right now expecting that we would have restructuring expense for book purposes of about $15 million to $20 million while we would end up with restructuring cash outlays of $20 million to $30 million because some of the expenses that we took this year you have delay in the payments. And I will just go on to indicate that as we have said previously, we anticipate that we will be through these kind of restructuring activities and those type of things in the beginning ‘18. So hopefully, we are down to just nominal levels as the game plan, although you always have some as you work through and try to continuously improve operations. And that also assumes no rapid path of acquisitions where you might do some things like that. On the tax rate, we would expect that our GAAP book effective tax rate in 2017 will be 34% to 38% range and non-GAAP more in the – being 4 points, sort of 3 points to 4 points below that.

Okay, thank you.

Your next question comes from Adam Josephson from KeyBanc. Your line is open.

Thanks Pete and Larry. One on just the seeming disconnect between your global industrial demand that you have talked about is being tepid, including in your steel drum business in the U.S., with this a very healthy containerboard and sheet demand that you are talking about, can you help us understand why the two trends are so different at the moment, what exactly is picking up in your containerboard and sheet business in the U.S. that’s not picking up seemingly elsewhere, including in your rigid business?

No, that’s a good question. And so let me answer it this way. So if you look at our rigid industrial packaging business in the U.S., our end use market segments are very, very narrow. It’s predominantly chemicals, chemicals and byproducts of chemicals. So how that chemicals sector plays and how that impacts small packaging, which is drums, is more concentrated. When you go over to our paper packaging business, as you know we are a raw material supplier to box plants, both independent and integrated box plants. And so the end use markets we end up serving are very, very broad and very diverse. So that diversity helps us in regard to growth. But I will tell you from a – if you look at our growth in paper packaging and kind of what the facts are behind that increase in volume. And I think the CorrChoice volume of 9.7% is really the indicator because that pulls the mill volume. But if you look at maybe three parts of that that explain it, so we have had really strong demand for our strategic customers and growth with those people are very, very healthy. Our specialty products grew 21% versus prior year and that’s predominantly in triple oil packaging, which again is a broader segment of industries we are serving. And the litho-laminated graphics packaging, which is more consumer end and retail shelf ready in our quoted linerboard sales. So the growth is really based – also the growth is based on some of the recent investments we have made in the past 2 years. So if you kind of strip out the specialty products growth and you strip out that sixth corrugator we put in Charlotte, North Carolina, the business still grew 7.5% versus prior year. So again I just point to the fact that we are aligned to customers that are very entrepreneurial. They are very focused on their customers who demand specialty value added, high service oriented packaging requirements. And those strategic customers, predominantly independents are winning their fair share of the market. And because we serve them and because we do a great job serving their needs, we are in turn, growing with them. So that’s how I see the difference in the U.S. in those two businesses.

Thanks Pete. I have one cash flow question, but just before then, are there specific end markets that your customers are seeing a pickup in? Again, I am back to this, if chemicals is not really picking up and industrial at large is not really picking up, what are these paper end markets that you see really picking up just based on what your customers are seeing?

So where we are located, obviously in the Midwest and Southeast, there is a lot of automotive, Tier 2 and Tier 3 automotive suppliers. But as you know, I think the automotive production was 17.3 million cars, which I think was equal to a record. So, that’s been one example of end use that is a little different than what our rigid customers would be in.

Okay, thanks, Pete. And just one on cash flow, in fiscal ‘16, your adjusted net income was about $140 million, your free cash flow was about $200 million, so obviously, there was a big gap between the two. It seems like you are expecting that GAAP to close pretty significantly in fiscal ‘17 just based on your earnings and cash flow guidance. What would you say is the normal conversion rate over time from adjusted net income to free cash flow? Thanks very much.

Yes, fair question. And I would first point out that a big driver of this cash flow improvement over the last 2 years has been our concentrated focus on managing working capital. And so you can have some pickup, obviously, in cash flow just from improved results, which is what you are mentioning. But then to the extent that we manage that inventory levels and receivables and payables well, which we have done a great job of improving in the last 2 years, that’s driving that gap or has driven that gap. So, then as that lever becomes less of a driver, because at some point, you are just trying to manage it so that you don’t increase working capital as you increase sales to help it be a cash generator, then you are going to migrate back towards what’s happening in your EBITDA. The more difficult element become taxes and I would say that because GAAP taxes are based on providing for taxes no matter when they will end up being paid. And the secret of tax planning over time is more about differing when you pay taxes than it is about eliminating taxes, because the latter is not a very easy thing to do. So, looking at net income can sometimes be difficult. I would say focusing on EBITDA and trying to understand where cash taxes are would be a better way to look at it. But I do think we will, as you stated, be migrating more to our income and EBITDA being an indicator of our current state cash flow, which we laid out in our transformation commitments that we believe that will be in that $205 million to $225 million level now that has not yet been impacted by further currency and factors at this point, but that’s where we see this business on a recurring basis in its current state.

Thanks a lot, Larry. Best of luck.

Your next question comes from George Staphos from Bank of America/Merrill Lynch. Your line is open.

Thanks very much. Maybe sticking on cash flow, my next two. First off, what drove the timing factors that you cited that created the excess cash flow in ‘16? Obviously, you guided us for ‘17 so we know where you are targeting, but just wanted to understand the mechanisms there. Then I had a market question for you.

Yes, sure, George. So, let me first talk about how it improved just in the fourth quarter from the $160 million, $190 million range we have given in the last call. Operations were better. That drove about $4 million on up above the higher end of that range. Our working capital management was actually – we had talked about something in 0 to 20. We ended up with a $24 million pickup for the year. And CapEx was slightly lower and that was not any intentional delay. It was just timing on when did orders for equipment and that kind of thing. No conscious manage that down, no heroic activities or anything else. We are trying to be very prudent managers of working capital. We did have the benefit and we spoke earlier in the year of the fact that we were going to have lower tax – cash taxes this year of $20 million just from the timing of payments related to some of the discrete tax planning opportunities that we had. So, the working capital management, the operations improvement and that tax idea really what drove the significant improvement in our free cash flow for the year, George?

Okay, appreciate that. Just as an aside, can you remind me what is the guidance for CapEx for this coming year and the markets are suggesting the economy is getting better whether or not you are seeing it in industrial. Do you see a need to maybe ramp CapEx ahead of what might be an improving demand picture?

Yes, thanks for the question, George. So right now, we would say that we are going to be very similar in capital expenditure next year. We are probably in a pretty narrow range, $95 million to $105 million. And we believe that with our consolidated shrunk down footprint of less plants and the fact that we expanded a significant amount of capital in our paper business over the last few years that this level of CapEx spending is very sufficient for what we would like to accomplish. That said, what we have also indicated to our business unit leaders is that, look, if there is a very compelling project that you can bring to us and demonstrate and be held accountable that produces excess return for us, we are going to listen to it. Because as long as we are confident that we are going to drive the operational improvements that we see this year and the working capital management that we see, we feel very comfortable about our cash flow situation and really comfortable about our balance sheet leverage. So, we are not going to be what we would call foolish and turndown a nice opportunity if someone brings it, but we are also going to be extremely tough on scrutinizing any additional projects that get brought to us. So maybe an indirect way to answer your question, George, that yes, we are open to looking for things that will allow us to produce top line growth, but we are going to be very stringent on handing out that capital.

Okay. You know what, let me turn it over and I will be back. Thanks, Larry.

Your next question comes from Justin Bergner from Gabelli & Co. Your line is open.

Thanks. Good morning and thanks for taking my follow-up. In regards to the sustainable free cash flow number coming out of ‘17 or the run-rate, what is the difference between the 2017 guidance on free cash flow and the 2017 run-rate commitment? And maybe if you could just sort of talk about the difference between booking cash taxes that are baked into your cash flow assumptions that would help clarify things as well?

Yes, let me take the latter first, because on things like impairments, restructuring charges, those kind of things there is – and depending on where they are, Justin, oftentimes, we get no tax benefit for things that we are taking write-downs on. So that drives that GAAP rate higher just because the denominator is lower. And we have spent a lot of time in the past talking about various operations where we had valuation allowances, because we had tax losses in legal entities that don’t have prospects for turnaround some of those things are impactful. Although if we are able to turnaround operations in some of those, we could have a tax – book tax benefit because we would not incur tax expense on those, so there is a lot of the detail behind that. But let me come back to the difference between our cash flow guidance for ‘17 and our transformational guidance. So, all of the transformational guidance that we laid out in June of ‘15 and then updated in June of ‘16 is on a run-rate basis coming out of ‘17. So, things that we do this year, for example, to improve the efficiency of our back office operations, for example, if we identify things, let’s say, we would reduce headcount by 5 or something in June and I don’t have a specific thing I am referring to there. But if we did, then we would only be receiving a partial year benefit in ‘16 – or in ‘17. But then, it would be for a run-rate rolling out, you would get the full year impact. So, that’s the differential. It’s those type of items that get implemented this year, but will have permanent impact for us, Justin. So those are the two differences.

So the 2017 run rate coming for free cash flow is not tied to the 2017 EPS guidance, it’s tied to something better than the 2017 EPS guidance?

Correct.

Okay. And then just to clarify, on the 2017 guidance for free cash flow, is there – beyond sort of the net income and the difference between CapEx and depreciation, is there any additional boost from working capital or cash taxes versus booked taxes on the adjusted basis?

Yes. Let me walk through at just at a high level. And there are so many puts and takes on elements of cash flow that – this is very high level, but I think it might help you and the others. So we ended up this year with $200 million of free cash flow. We have had this tax benefit of $20 million over what would be a normal level of taxes. So say that takes you to $180 million from operational improvements that we are building into our guidance for next year. Net of tax, that’s a range of like $14 million to $28 million in our guidance range. And then working capital will go anywhere from a negative because of increased sales on the higher end of that operational performance to a benefit of two. And if you put all those things together, you will get the range of $180 million to $210 million. And obviously as always, we will be working hard to do better than that on both the operational side and the working capital side. And I am always challenging our tax guys to come up with better planning there to reduce it. But right now, that’s our best guidance at what we expect for cash flow for this year.

Okay, thank you.

Your next question comes from Chris Manuel from Wells Fargo Securities. Your line is open.

Thanks for taking the follow-up. I wanted to, if I could dig in for a second on the flexibles business, if I look at the year-over-year improvement, as you have given us on the slide, I think it’s nine, when I look at what comes through probably in SG&A and what’s come through and up in the gross profit side, it appears that was kind of split evenly and so it’s call it ten in each for round numbers, if I remember from your last Analyst Day, I think you talked about having maybe $20 million, $25 million of SG&A savings to come out of the business. And I kind of posit this from the position as we look forward to ‘17 and beyond is that about what we are thinking about as the opportunities in incremental $10 million to $15 million of improvement in EBIT out of that business and if so, how are you thinking about the growth angle, are you starting to see some growth, could that be incremental on top of that?

Yes. So Chris on the growth, we think there is nice growth opportunity mainly around organic growth. So we have opened capacities inside our current footprint. And so we expect to have a much higher organic growth rate on just outselling and winning customers and wallet share in customers because we have a more stable operation now. We have restructured our commercial teams, so that becomes a bigger part of it. We would not talk about any strategic growth until we feel very, very comfortable that we have met our transformation commitments and feel very, very strong about the strength of that business.

Yes. And Chris I would just say and I would point back to the transformation guidance we gave on FPS back in June, where we talked about coming out of next year with SG&A at $38 million to $43 million and trying to drive up to our gross profit level. We remain committed to those targets right now. And with the improvement that the new management leadership team in FPS has, we are more comfortable with that. There is still – they still have a lot of work to do, but we are very pleased with the progress.

I mean Larry, does that sound about right that there is, call it, $10 million to $15 million left in SG&A costs to come out in that business?

Yes. I think that’s in the right range, Chris. And that’s, obviously we have always said that the transformation plan for that business goes through 2020. So looking further out, we think there is more. But yes, for the commitments that we made, you are correct.

Okay, that’s all I had. Good luck guys.

Thank you.

Thank you.

Your last question comes from the line of George Staphos from Bank of America/Merrill Lynch. Your line is open.

Thanks. A couple of questions, guys. On the Customer Satisfaction Index, obviously you are at or above your target in paper, are there any learnings, any things that you are doing in paper that are replicable – clearly you are making progress, but are replicable either in flexibles or rigids. And then my other question would be you are seeing good momentum in plastics and IBCs, what sort of market position do you want to get to in those businesses over the next couple of years, how important is reconditioning to growing those businesses over time? Thanks and good luck in the quarter.

Yes. So the first question around Customer Service Index, so we are very, very pleased with the progress we are making both in our Customer Service Index and Net Promoter Scores, just making sure to better understand this is a long journey. And it’s really important that we fundamentally improve our capabilities to serve our customers. Paper Packaging is best-in-class in both Net Promoter Score and CSI and we do use best practices from that business throughout the organization. We also have best-in-class performance individual plans or regions in our rigid industrial packaging business and flexible business, so that’s a big focus, how we have learned sharing to improve our overall system. I would also comment that we believe very strongly that excellence in customer service, there is an alignment to really good performance. And when you look at our paper packaging business, they are best in class in customer satisfaction and they are very good at executing in their business performance. In regard to your second question about IBCs and plastics and market share and growth, I just want to reiterate what we are trying to do, it’s less emphasis on what market share position we have, what we are trying to do is how do we improve the value we drive out of those two businesses, particularly IBCs. So we want to grow the business, but we want to grow the profit and the value in the business. And if that means we will grow market share, that’s great, but that’s not the whole intent. The comment on reconditioning, reconditioning is very, very important and specifically in IBCs. That’s as much a supply chain business where you had new gauges, new bottles and how you collect those cages and bottles and repurpose them is a big part of the value chain that we deliver to customers and to our business. So you will see a continued emphasis on how we improve the reconditioning component, particularly in IBCs around the world.

Okay. Would you say – and Pete, just to follow-on, would you say that in recognizing that profit and cash flow is more important than market share, would you say that growing that business collectively is perhaps a bit more crucial, given your existing position in metal, which may be has less of a strong growth curve from an industry standpoint down the road and you are obviously a very large player in that market or would you not disagree – would you not agree with that and why? Thank you.

No, I think that’s a good statement. And another big part of having a diversified portfolio in our rigid business, so it’s steel, plastic, IBCs and fiber is we are able to grow with our strategic customers when they have migration of products from one to another. So we are really had no bias to what products they use. We just want to be in a position to serve their needs. I will tell you IBCs are growing at a much faster pace around the world than any of our substrates in rigid industrial packaging. So it’s important that we are in that. It’s important that we have the capability to serve our global customers. And I guess my point is we have to become better at returning our cost of capital beyond in that business. So when we grow, we grow our top line as well as our bottom line. So we will grow intelligently for value similar to our quality and market share versus the quantity of market share. But in summary, that’s an important part of our business. We have to grow and we have to grow from a value position first.

Okay. Thank you very much, Pete.

Yes. Thank you, George.

There are no further questions at this time. Mr. Eichmann, I will turn the call back over to you.

Thanks a lot, Melissa. That concludes our discussion for today. The replay of this question-and-answer session will be available later today on our website at www.investor.greif.com. We really appreciate your interest and your participation today. Thank you and have a great remainder to your week.

This concludes today’s conference call. You may now disconnect.