Crown Holdings Inc (CCK) 2005 Q3 法說會逐字稿

Good morning and welcome to the Crown Holdings third-quarter 2005 earnings conference call. (OPERATOR INSTRUCTIONS). I would now like to turn the call over to Mr. Alan Rutherford, Executive Vice President and Chief Financial Officer. Mr. Rutherford, you may begin, sir. Thank you.

Thank you very much and good morning, everybody. This is Alan Rutherford, and I'm Chief Financial Officer of Crown Holdings. With me on the call this morning is John Conway, Chairman and Chief Executive Officer, and Tim Donahue, Senior Vice President of Finance.

Let me point out that on this call as in the news release we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in our SEC filings, including comments in the section called "Management Discussion and Analysis of Financial Condition and Results of Operations" in Form 10-K for 2004 and in subsequent filings. In view of Regulation G, we do not intend to provide non-GAAP financial measures of performance or liquidity beyond those already contained in the Company's earnings release.

I will comment on the results, and then Tim Donahue will comment on the deconsolidation, tax and cash flow, after which John Conway will discuss the quarter before opening up the call to questions.

As you are aware, we completed the divestiture of our Global Plastic Closure business and consequently have deconsolidated the results of their operation from the Company's results. Tim will comment further on this in a moment.

In the quarter, revenues increased 5.6% and segment income 5.2, resulting in a 12.7% improvement in segment income for the nine months. The divisional breakdown of the segment income reflects the different characteristics of the markets being served.

In the Americas Division, revenues increased 4.5% in the quarter, while segment income improved 10.9, reflecting the continued pass-through of raw material costs and ongoing operational efficiencies. In the European division, revenues grew 5.9% in the quarter, while segment income improved 7.9%, continuing the trend on the second quarter and the recovery of cost increases in pricing also.

Also, with the continuing growth of the business in the Middle East and North African region, we have restructured our organization to ensure coordinated operations and have consolidated our management control position through the region. This allows the Company to totally reflect the revenue and earnings growth in this region in the future.

In the Asian division, revenues grew 10.3% in the quarter; however, segment income declined by 23% or some $4 million. While volumes advanced, the Company could not this year sustain the excellent margins recorded in '04 in the face of sharply increased costs and the prevailing competitive environment.

During the quarter, cash payments for asbestos totaled 8.5 million, bringing the nine months total to 18 for the year so far. The Company has this morning announced a tender offer for the 2011/2013 notes as part of a refinancing. We will not have any further comments to be made during this presentation on the information given in the press release that was issued today.

I will now hand the call over to Tim Donahue for his comments.

Thank you, Alan, and good morning to everyone. As Alan noted, I will review the closure deconsolidation, a brief comment on taxes and also talk about the net debt position and cash flow for the quarter.

On October 12th, the Company announced that it had closed on the sale of its Plastic Closures business. All of the income statement amounts for '05 and '04 and the balance sheet amounts for 2005 have been restated or reclassified as a result of the sale. The sale price of $750 million included the assumption of certain liabilities by the buyer, primarily pension liabilities, and the net proceeds amounted to 690 million. The Company filed an 8-K last night which details the pro forma adjustments necessary to view historical and pro forma financial information to give effect for the sale.

Our tax rate was 16% in the quarter compared to 32% in the prior year third quarter. The primary differences relate to an increase in U.S. pretax income of $20 million compared to the prior year for which no tax is provided and 16 million of foreign exchange gain in France, again for which no tax was provided. Excluding these differences, our rate would have been approximately 24% in the quarter.

Going forward it is probable that our annual effective tax rate should be lower than the U.S. statutory rate of 35% as a result of our NOL position in the United States and our growing business in many emerging market countries which have low tax rates. As we have not completed our 2006 budget process, it would be premature to forecast a rate at this time.

I also have a few comments on our net debt position at September 30. As noted in the press release, the $690 million proceeds from the closure sale are not included in cash and/or debt amounts at September 30. The $40 million difference in net proceeds received a 690 million compared to the 650 million in our initial press release relates to cash held for sale, which is also not included in our September 30 cash balance. Additionally, as Alan mentioned, we have taken steps to consolidate our joint venture operations in the Middle East from September 1, 2005. In doing so we have consolidated approximately 45 million in net debt from the Middle East. Therefore, the impact of the Middle East consolidation and cash held for sale was to increase our net debt by $85 million at September 30. And with that, I’ll hand it over to John for some further comments.

Thank you, Tim. We had another good quarter, and we continued to show sequential improvement in our overall performance. Our Americas and European divisions produced solid results, and our productivity and operational improvements are being retained by the Company. And in addition, our price initiatives are continuing to come through in the results. Asia continues to grow nicely, but as Alan mentioned, we were unable to pass through all of our cost increases in the quarter. This was largely a China market issue.

With regard to unit volumes, our global beverage and metal closure businesses were well up and in line with their respective geographic market trends. More precisely, global beverage cans increased in units 4.8% and global metal closures were up 5%. We were down slightly in aerosol cans globally at less than 2%, but we were in line with industry trends in all the markets that we served.

Global food units were down 6.2% in the quarter versus third quarter 2004, and we will give you more detail now on this. Food units in the Americas were off about 4% versus the 2004 third quarter. Overall United States industry numbers showed unit volume declines at about that level.

In our case, mix changed to two-piece food cans from three-piece, a conscious decision we made to improve profitability and reduce working capital. As we have said before, there was a significant pre-buy of food cans in North American market in the fourth quarter of 2004, and we believe that food can price increases have caused our customers to exercise heightened working capital controls, which have held down their inventories of both filled and empty cans.

European food cans were down in units 6.8% for the third quarter of this year versus third quarter 2004. The volume declines were in France and the Benelux and resulted from a relatively poor pea and corn crop caused by a wet cool August. Also, in the Benelux, mushroom customers packed less in the quarter as they continued to sell all the very large 2004 packs. All of this should come back next year.

We did have a small market share loss in France and the Benelux resulting from our price policy, but this was planned for and well within our expectations.

We will anticipate questions about cost increases and our plans by saying that we have incurred cost increases throughout the year. And in this fourth quarter, numerous suppliers are pushing for more increases. As we understand the full impact on 2006 costs, we will construct our own 2006 price policy to cover cost increases.

In closing and in summary, we are executing generally as we had planned in 2005 and expect to continue to improve our performance and to emphasize emerging market growth. With that, I think we're ready now for questions.

If you have the first question, please?

(OPERATOR INSTRUCTIONS). Chris Manuel.

KeyBanc Capital Markets. A couple of questions for you. First of all, use of proceeds. If I went through your pro forma numbers correctly that you issued last night, by year-end you should be at -- I think you had about 900 million of cash listed there, plus the consumed free cash flow for the year, maybe around 1 billion 1 or so. Can you talk about what the uses of cash are that you plan on using? Obviously you're going to use some to pay down debt, but can you also talk about potential pension payment and share repurchase, etc.?

Yes, Chris, I think the first thing is be careful when you're looking at pro forma when you're trying to come to a global cash number. The pro forma statements are prepared in strict accordance with the SEC guidelines. So your addition may not be, in fact, what happens. But you're certainly not too far off.

As for what we're going to use the proceeds for, as Alan noted, we are not going to comment any further on the refinancing plan that was announced last evening or the tender offer filed this morning. I think it would be again premature to comment on the use of such proceeds. But clearly it will be used for debt pay down and general corporate purposes.

Okay. John, can you talk a little bit more about what is happening in Asia? Do you anticipate being able to -- do you anticipate being able to offset the costs and get the margin back up there?

Yes, we do, and what occurred was with the very sharp run-up in aluminum prices and other costs as we hit the fourth quarter, particularly in China, we were simply unable to put beverage can prices up this year. But, as we look into 2006, our price policy in Asia is no different than anyplace else, which is we have to recover these costs, and that is our intention.

And do you anticipate recovering those costs -- I realize you don't want to comment about what is ongoing negotiations for steel right now -- but your anticipation is that in 2006 you will be able to offset higher steel costs and aluminum costs with price. Is that --?

That is correct.

And any update for your guidance?

No, Chris. I mean the guidance that we had was 10% improvement in segment income, and I think we're on track to at least achieve that.

Okay. Still 200 million of free cash flow?

Yes.

Ghansham Panjabi.

Wachovia. John, could you give us some more color on the beverage can growth distribution, you know, U.S., Europe, Middle East, etc.?

Yes, I can. For the quarter, the Americas was off 1.8% quarter to quarter. Europe was up 17.8, but that does include some consolidation I believe. And 9% absent the Middle East ventures. So a nice healthy growth there, and Asia was up 11.2% in units.

I’m sorry, Europe was up 17.8%?

I think on a comparable basis 9% (multiple speakers). Yes.

And in terms of PET prices being up quite significantly recently, while aluminum has been relatively stable, do you foresee any favorable impact in your bev can business either here in the states or in Europe?

Well, we have quite a few customers talking about changing their mix and emphasizing multipacked cans more so than PET. Honestly we have not seen it yet in our numbers, although that is not a surprise because it takes them awhile to make these transitions. But generally speaking, most of our customers, particularly in Europe and North America, do have significant excess can filling capacity. So they have got the capability to change. We hope that they have got motivation as a consequence of the PET resin run-up, but we have not seen it yet.

Okay. I think they do have motivation. And just one final question for Alan, where should we expect receivable securitization to end the year?

At the moment, we think around 220.

220 and then 120 a year ago, right?

Yes.

Amanda Tepper.

J.P. Morgan. First, just a net on the cash flow, when you say 200 million in free cash flow, is that excluding any proceeds from the securitizations?

I mean really it excludes that, and it excludes any impact that the refinancing that we announced this morning may have.

Right. That is a clean number on the old (multiple speakers)?

You know, in line with what we would have been before all these events that are taking place.

Okay. That is great. On this Middle East consolidation, can you give us a sense on how that will impact earnings and free cash flow going forward?

I think from an earning standpoint the only earnings impact from the consolidation will come from the growth in the market, and that is why the Company is determined that it is important for us to consolidate and have the proper controls in place to consolidate. Because we were previously picking up in equity earnings the results of those operations.

Well, the results of your ownership, and I'm trying to get a sense of the size of the business. Is it a couple of hundred million in revenues, and what kind of margin is it -- (multiple speakers)?

(multiple speakers). In '05 it is approximately 300 million in revenues.

Of which we did not consolidate about 122.

In the first half?

For the whole year.

Okay. And the margins are better than what you're reporting now for Europe?

Say that again? Sorry.

The operating margins are a bit better than what you're reporting now -- (multiple speakers)?

(multiple speakers) -- an impact in the quarter of 3 million.

Okay. And then CapEx, I know there is a bunch of lines planned for next year, so that will be consolidated as well?

Correct.

Is it going to bump up your CapEx in the fourth quarter?

It may a little bit. On the other hand, the CapEx in the fourth quarter is also going to go down because we sold the Plastic Closures business.

I guess one last question then. How much CapEx for the first half of the year was associated with the plastics business?

Up just for the nine months about 30 million.

30 million, okay. Okay. And then back on the Asia-Pacific, it basically sounds like that whole market was tough. So even though volumes are growing, pricing was not able to keep up with cost. Is there over-capacity still in that market for beverage cans in China?

I think that our experience in China was where we had margin compression in beverage cans. In Southeast Asia we were able to pass through the cost increases in price. So there is not -- there is some excess capacity in China, but it is greatly reduced. I don't think that was so much the issue. I think the issue was that the cost run-up was just more than anyone had anticipated, and in a reasonably dynamic market and in midyear, there was not much we could do. As I said earlier, our plan is to correct the situation with our 2006 price policy.

Okay, and one last question. Beverage can volumes in the Americas which were negative in the quarter, are there any volumes that you know of that you would be losing next year on a specific contract?

Well, we're at that time of the year, the latter half of the year, going into the fourth quarter where we inevitably, we tend to and I think everybody does, experience some volume moving, and it is still a pretty fluid situation. And so we know some business is going to be moving geographically, but we do not yet know what the year-on-year situation is going to be.

But does the price in this market seem firm to you at this point?

It is a little premature to say. There could be a little price weakness in the North American market, and we are unsure of that and to what extent that is true.

But you are trying to be firm?

We have never changed our policy. We are not market share driven in mature markets with basically flat unit volume growth. We think it is an absolute fool's game. We proved it repeatedly in the European food can market, and that has since corrected itself, and that is our policy globally, and it is the same policy we have in North America. We could care less if we're up 0.5% or down 0.5% or 1% or anything like that in terms of units in the North American market.

Do you think some capacity will have to come out over the next year or two in North American beverage cans at this rate?

Well, I mean as an industry we have said repeatedly we think capacity utilization is 94, 95%. There's no real reason for capacity to come out, you know, if everybody behaves rationally.

Now we know that -- already know that in the North American beverage market units are moving for us somewhat out of Texas more into the Midwest. So we are contemplating closing a plant that we have in Western Texas -- Abilene, Texas. I'm not absolutely sure of that, but we may well do it to reflect the way volume is moving for us. Generally speaking, there is no real need for further capacity to close.

Okay. Thank you very much.

Arten Stump (ph).

(inaudible). I have two quick questions on your soup can business in Europe. First off, I just want to know if the mid to high-teen price increases that seem to be passed through at the first of '05, if those are still holding up at those levels or if you have seen any weakness there at all?

No, there has been no backsliding on price in food cans in Europe.

Okay. And also I have heard that one or two of your major competitors over there has already talked to its customers about raising pricing at the first of '06. Do you think there will be any problem for your competitors in supporting a price increase next year in that business?

Well, our plans are to put prices up if cost increases require it, and generally speaking we are under a lot of cost pressure globally. So we plan to support whatever price increases seem to be required by the industry in Europe.

Okay. And then I guess on that topic, do you think mid to high single digits is probably a pretty good guess for that business next year? Do you see pricing go up, or is it too early to say anything yet?

It is really too early for us to say.

George Staphos.

Banc of America Securities. I just wanted -- most of the questions have been asked already. We had heard that Abilene was, in fact, closing. Is that still not a done deal, and how much capacity would be associated with the closure of that factory?

A little under 2 billion cans, and we have not totally decided, George, that we are going to do it. I’d say there is a strong possibility. We have alerted the workforce, but we have not finally decided. But I would say on balance it would look like it's going to be a substantial closure for sure if we don't close the entire plant.

Okay. Fair enough. If the industry is running, by our numbers, low to mid 90s in terms of operating rates, you are likely close in capacity. The industry appears to have been behaving rationally. What has happened recently such that it would appear at least from some of your comments to some of the other questions maybe things have gotten a little bit weaker? (multiple speakers) -- some of the share shifts.

Well, George, it is just too soon to say. I mean, you know, we have some large customers, and for strategic reasons, sometimes they move volumes around. But I think it is too soon for us to say what the overall net effect or net intentions in the industry are.

Okay. Now one thing we've always used as a rule of thumb -- I don't know if it is applicable now -- is that your customers on the selling side maybe have 10% excess capacity or maybe better said, swing capacity, that they can move from PET to beverage cans. Could that be the incremental pickup, or what would you say the right number to use would be -- (multiple speakers)? Exactly.

George, I really don't know. We have not polled customer by customer. I know some have more than others, but we really have not done that.

But earlier you were saying you think it is substantial. So --

I tend to think so, but that is talking with customers somewhat casually. We really have not surveyed them customer by customer, but my feeling is with the move over the past couple of years with PET gaining a little bit in package mix, and I know that can filling capacity has not been taken out, we are thinking that there is an opportunity here year on year.

Bruce Klein.

Credit Suisse. I was wondering on the recovery I think you mentioned that I guess in European food can the recovery was holding in place and pricing was holding. Would you echo those comments also on the steel tinplate side for aerosol and some of the beverage in Europe also?

Yes, we would.

And then I guess in Asia the aluminum passed through I thought different than tinplate, which I think is more annual. Aluminum I thought was much more frequent, more in the monthly, and I think you mentioned Asia, some of the pass-through pressure there, and I was just trying to square those comments.

Asia is -- generally speaking the can maker takes the aluminum risk and takes all cost risks. So typically prices are set -- attempted to be set on an annual basis. But there can be some movement over the course of the year. The China market in particular that I'm referring to is quite fluid and always is quite fluid. So we don't have the convention in China, for example, that we do in North America with aluminum cost being totally passed through twice a year.

And Europe is closer to the way the U.S. works, is that right?

Europe is an annual negotiation. But you don't have the price fluctuations during the course of the year that you tend to have in China.

I mean aluminum is on the LME. Why would it not fluctuate similar --?

I was referring to the can prices. Can prices in Europe tend to be firm for the entire year. That is not necessarily the case in China.

Okay. Was there FX? I mean the Euro was stronger -- weaker, I'm sorry, Q3 versus Q2. What was the impact, do you know?

On which line?

Maybe on operating income or segment income.

I think the Euro probably cost us a couple million dollars on the operating income line.

Sequentially?

Yes, 2 million.

Okay, and is there any thoughts -- the latest thoughts on just you mentioned PET versus beverage can in the terms of the latest thinking on just maybe the economics of substitution, however which way you think is most appropriate to look at it. Have you guys sort of looked at that lately at current prices or --?

Well, I mean in a relative sense, and I don't have the numbers here, but in a relative sense, clearly cans have become an even more economical way to take soft drink to market. So we are hopeful.

Joe Stivaletti.

Goldman Sachs. Hello. I was just wondering could you give us your updated CapEx number without the plastics business in there in terms of what you think the full year will be, and I don't know if you have an '06 framework?

We do not have an '06 number. I would say this year with (inaudible) out and Middle East in probably about 180, 190.

Okay. And the other question I had was just on the obviously the cost inflation side of things, I just was wondering, I don't know if you track it exactly this way, but could you give us a rough idea on a year-to-date basis for the nine months, what your cost inflation has been in terms of a number -- you know, millions of dollars? And how much of that you estimate you have been able to pass through?

I don't think so. No, I think the straight answer to the question is no, we cannot, not for the total company. Obviously like everyone else we have had some small impacts on utility costs, etc. and freight. But the utilities are less than 3% of our cost of goods sold. But it has been varying as we've gone through the year. So my answer is no, I cannot give you that information.

But what we can say is that we have been able to pass through as a companywide the cost increases, and you see that in the margins. And the notable failure, of course, was what we talked about, which is the China beverage market.

So in rough terms then would you say, including everything on a global basis where you have indicated China has been a little bit of a struggle in the short term, would you say you pass through somewhere between 80 and 100% of the cost increases? Is that a good sort of rough idea in terms of how to think about it?

We think we have passed through basically 100%.

Anod Aaron (ph).

Barclay's Capital in London. Just in terms of your annual tinplate contracts, have your suppliers announced any sort of price increases just on that item for 2006?

Certain of our suppliers have expressed an intention to go for increases. That has been more the case I think in Europe than it has yet been in North America, although there have been some expressions in North America as well. So yes, they are indicating they want reasonably significant price increases for '06.

As significant as last year's?

I'm sorry -- not -- we don't think quite as much as last year but meaningful.

Okay. And just in terms of 2006 items which are maybe a little bit more certain, is there any guidance on CapEx asbestos pension for 2006?

No, there's not. It is too early for that.

Too early. And just a small item. The 3 million restructuring charge in the quarter, in which division was that?

In the Americas.

The Americas. Okay. And just let me try one about the tender. If I understand correctly then on your second and third priority notes, you do have the option to tender them as a make-whole premium?

(multiple speakers). I think the tender document speaks for itself. It has been filed. We are just not going to comment at this time.

Right. Okay. Was there any change if I am looking at the red of the notes like from 2003, has that (indiscernible) that changed sometime along the way?

I'm not sure what you are referring to.

Can you say that again?

I'm looking here at the red of the operating memorandum statement -- (multiple speakers)

(multiple speakers) 2003. (multiple speakers). Yes, I'm sorry, but -- (multiple speakers)

You do have that option, so I'm slightly confused. Would that change sometime or --?

I don't have the red or the file in front of me, so I cannot answer the question. But again, we are not going to comment on the tender. It is filed and stands on its own.

Andrew Gundlach.

Artemis Advisors. Good morning, gentlemen. Congratulations on the quarter. A couple very quick questions.

Just with respect to the sale of plastic consolidation in the Middle East, give us a sense of where you are in terms of your corporate strategy. Are you still looking to divest certain properties, perhaps not as good -- as big as plastics, or are you starting to find niche acquisitions in the emerging markets? Just give a sense where you are in terms of the overall strategy.

Well, we think with the plastic closure sale we are with the assets that we plan to run and grow going forward. So we don't have any plans for further divestitures of any significance at all. There might be a little thing here and there, but fundamentally we plan to go forward with what we have.

And the strategy remains unchanged. We have expressed it over the course of the year, which is run the mature market metal packaging businesses for cash, good profitability, stay about with our current share and grow or decline with the markets, and aggressively push the emerging markets. Unfortunately there are many of them -- South America, Eastern Europe, Southern Europe, the Mediterranean, the Middle East, Asia and so on. So that is the course that we are on and we plan to stay on it.

Even with -- I mean by the end of the year, your Company is going to look substantially different than it did three or four years ago, close to investment-grade, you know, much improved earnings, substantially reduced cash payments to asbestos, etc.

You know, I mean the growth that you are talking about does not requires -- it gets funded out of operating cash flow. You are painting a scenario if pricing stays firm of a substantially different free cash flow generated than even in the past.

Well, our prospects look very good, and you are absolutely right. We think that we have so many good opportunities that coming around to your question of acquisitions, we don't see any that look nearly as attractive as our growth opportunities that are organic in nature. So we are going to stick with that.

And then the second question then really goes to the industry, and you mentioned the competitive dynamics in some countries. You now have a situation in this industry we have not seen in awhile, which is basically four investment-grade companies are pretty close in some cases, and the inventory situation is obviously much different than it was a couple of years ago. You know, how can as outsiders who are not day to day operators in the industry, what gives you comfort that the pricing stays rational and does not revert to irrational behavior as we have seen in the past? Particularly in markets like the Americas where, as you say, it is too tough to figure out where the pricing of marketshare could be going?

Well, you know, we understand how we view the situation and we know that it is fundamentally sound and correct and the right thing for us to do, and we have got to assume that our competitors are as perceptive and intelligent as we are. We have no reason to believe that they are not.

But aside from relying on your competitors, is there something that you see more substantially in the can lines being taken down or converted to different types? You know, are Rexam in Berlin converting to aluminum as opposed -- out of the tinplate -- you know, things like that which give you a sense that the supply/demand situation is still favorable?

I mean capacity utilization in the mature markets, and let's call those Western Europe and North America, are over 90%. There is no capacity utilization issue. We don't have a great excess capacity washing around in the mature markets that should be disrupted.

So that has not changed, and we don't think it is going to change. And if we, in fact, for example, decide that we are going to take out this 2 billion can plant in Texas, that is just one more favorable indication of rational analysis and behavior.

When would you make that decision for Texas?

We will make it most certainly -- probably this quarter.

And that is a bev can?

Yes.

Thank you for your comments and congratulations again.

Andrew Fineman (ph).

Meridian Asset Management. So the net proceeds were 690, but you said that the gross was 7 -- (multiple speakers) -- what, 70, huh --?

That is the purchase price. The Enterprise value of the business that was sold was 750 million.

Right. So what is the pension liability that went to the buyer?

They took certain liabilities, primarily pension as you can see. It was close to $50 million of pension.

And can you say how much that costs per year? Cash?

It is a few million dollars in cash and earnings, but those -- that savings and pension goes with the earnings of the business as well. So that is why we have not talked about it.

Okay. Amanda said you have a bunch of new plants or -- that was her word, a bunch. So I'm just curious.

Well, I think the reference is to -- I will just roll it up is our new plant in Tunisia, which is starting production in September, and the capacity that we are adding in our beverage can plant in Dubai, our plant in Jedda, our plant in Jordan, and then idle capacity that we had in the Eastern part of the country that we are bringing back on stream. So I think those are the references.

And the Eastern part of what country?

Saudi Arabia.

Right. I think it is fantastic that you really do seem to have quite a franchise and a lead in the Middle East. And, you know, I think that definitely it appears like you are going to get a pretty good return on everything you are doing there. Did you have to pay to consolidate those partnerships or whatever they were, equity investments I mean in order to up your percent ownership?

There was a small purchase in one or two debentures to get the ownership level to the right point. The other more important issue was that we gained board control across the Middle East structure, so that we actually control the running of the business.

So you're going to get board, but you are going to have to own over 50%, right?

Well, we can own close to, at or above 50% as long as you have board control the accounting literature prescribes at that point that you consolidate.

I see. And then I just want to say that I know closing capacity is a difficult thing to do, and I don't want to seem heartless to the people in Abilene, but I'm sure that if you make the decision to close that entire plant, it will be because you have analyzed it and made the right decision. So, you know, whatever you do, I am on your side.

Good. Thank you, Andrew.

Dan Khoshaba.

KSA Capital Partners. Alan or John, can you comment on what you're hearing in Germany about the beverage can -- beverage can market coming back perhaps in later 2006, and what are your plans for volumes there?

Dan, I really -- we are not terribly well educated on it. I mean we get reports, of course, from the European management, and there is a hope, as you know, that '06 will be the year that a functioning returnable deposit system is going to begin to operate, but we are not planning for any significant rebound in German volumes. And I think as we told you before, we are kind of -- not kind of -- we're really tangentially associated with it.

We have no capacity in Germany. We have one plant in Northern France that has had a very small position in the German market. So we are hopeful, of course, that the German market comes back. It will take a little pressure off the market generally in Western Europe, but we are not experts. And it does not really -- we don't think affect us very much.

When you look, John, at the new plants that you have coming on stream, and I believe there was -- correct me if I am wrong, I'm sorry -- but one in Spain?

Well, the Spain is -- no, the Seville plant, but it is fully on stream this year. So it is not incremental.

Was there capacity added there?

No, not yet.

Okay. What is the incremental volume capacity that you expect in 2006 related to the new capacity?

Well, the capacity that we are adding will be coming on stream through the first half of the year. So annualized about 4 billion cans of incremental capacity -- annualized.

And then -- so 4 billion cans. That is quite a number. And, John, is that basically with existing customers feeding markets that are growing, or what is a dynamic that is consuming those 4 billion incremental cans?

They are all existing customers, all of whom are experiencing significant double-digit volume growth.

Primarily in growing emerging markets?

Yes, it is the Gulf -- the Emirates, Saudi, Jordan and right across North Africa.

Fantastic. Last question, if I could just switch tracks here real quickly, there has been some talk about maybe some price surcharges. On the other hand, you're getting close to when you would start to talk to your customers about pricing for next year. You are in the fourth quarter already. Do you just wait, John, and talk price for '06, or is there any attempt to do something on the surcharge side?

Dan, we just don’t know yet. Clearly we think that price increases effective 1/1/06 are clearly going to be required and merited. We have not yet decided whether we feel that a surcharge will be required or not.

Good enough. Good job, guys. Thanks.

Tim Burns.

Cranial Capital. For somebody who's not very perceptive or intelligent, could you just reiterate the size of the Middle East business that has been consolidated? I heard 300 million to be consolidated, but I also heard 120 not accounted for yet, so is that 420?

No, Tim. The size of the business in '05 is about 300 million. We will consolidate this year about 150 million of that business, taking into account we started to consolidate from September 1st. But the impact on a full-year basis year-over-year is about 200 million, meaning that we will pick up fourth-quarter and third-quarter revenues from the consolidation from September 1.

Got you. Okay, thank you for that. And you're talking about a contribution to segment income at about the 10% margin rate, is that right?

Well, it should be at least that. It should be at least that.

And, John, you don't seem to mind to go operate in that part of the world. I know you guys have been there for a long time. Some companies would not do it, but you have very good contacts and historic relationships there so and it is definitely hot. I guess you can drink a lot of liquids all year-round.

Well, you know, as you have said, we have been there a long time. We've got a wonderful partner, great customers. The customers are very very dynamic. Excellent businessmen, and there has just been a tremendous amount of investment that has been going into the region over the past two or three years. So we are very happy with the markets, and we're not strangers to them.

Got you. And then switching gears, we are in an environment where it sounds like more and more customers are -- of all types of packaging -- are looking for ways to reduce their exposure to the highest cost materials, in this case largely plastics. We're seeing paper cups being used in lieu of new plastic ones. We are seeing gabletop cartons used in lieu of plastic containers.

Metal packaging, especially beverage cans, has been a very, what I would say cooperative material. You know, it tends to ship along with whatever is hot, i.e. plastics at the one end and let's say glass at the other end. Cans have always coexisted. Will this continue do you think, or will it be exercised to the point where your mix share grows rapidly?

As we said earlier, we don't know. But we do know that customers for the first time in the last several months in North America in particular are thinking actively about what their package mix ought to be and how they want to go to market, and they are seriously considering what they want to do.

I mean now as principally can producers today we have always wondered at how the 2 liter package could continue to occupy an awful lot of shelf space for all the obvious reasons, and it is now high-cost, in addition to being low quality in terms of the product that it delivers. So we think there is a good opportunity, but we have not seen it happen yet. We have just heard a lot of talk.

And what does this say for innovation? I mean one of the other stories at Crown is not just 2 or 3% more unit volume, but an ability to get your price mix aligned to a higher return through shaping, decoration, easy open ends. Has innovation -- is it being put on the shelf while they just figure out how to get product to the market in the cheapest way?

Well, it depends on what you are talking about. I think the brewers internationally continue to be very interested in innovative packaging for appropriate beers, premium beers principally.

At the soft drink level, of course, there is an awful lot of interest now in customized sizes, if you will. Sizes other than 12-ounce or 33 cl. So we think that is going to continue. But the shaping story and interesting graphics appears to be confined to the brewers for the time being.

Got you. Great. Well, good quarter, guys.

(OPERATOR INSTRUCTIONS) Andrew Shirley.

Ivory Capital. Your run-rate pension funding of approximately 90 million in the U.S. looks temporarily inflated as you make catch-up payments. Is there any visibility into this contribution level coming down?

Not at the moment, no. We think we are sort of on track for that number.

In terms of looking into 2006 or for 2005?

We don't know yet. We're waiting for the actuaries to come up with the numbers for '06, and when we do, we will have a better handle on that. We won't know that until we get to it to November time when the actuary starts looking at the numbers.

Okay. Thank you.

Next question, please.

Sir, at this time I'm showing no further questions. I will turn the call back to Mr. Rutherford.

Thank you very much. That concludes Crown's third-quarter conference call. We thank you very much for your interest.

Thank you. That does conclude today's conference call. Thank you all for joining. You may disconnect at this time.