Crown Holdings Inc (CCK) 2005 Q4 法說會逐字稿

Good morning and welcome to Crown Holdings full-year 2005 earnings conference call. Your lines have been placed on listen-only mode until the question-and-answer session. Please be advised that the conference is being recorded. 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.

Thank you very much and good morning everybody. With me on the call this morning are John Conway, Chairman and Chief Executive Officer and Tim Donahue, Senior Vice President, 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 on liquidity beyond those already contained in the Company's earnings released.

On the call today, we will comment on the year 2005 and give the Company's initial perspective and outlook for 2006. In the quarter, segment income grew 5.9%, resulting in a year-on-year improvement of 11.5% after increased restructuring charges. In the Americas Division, revenues increased 4.2% in the quarter while segment income improved 18.8%, reflecting the continued pass through of raw material costs and ongoing operational efficiencies. For the full-year, the Americas Division had a satisfactory result with revenues up 5.3% and segment income up just over 20% to give 100 basis point improvement in margins.

In the fourth quarter, European division net sales and segment income were essentially flat year-on-year. However, currency had a major impact on the quarter year-on-year comparison. In the fourth quarter of 2004, the dollar/euro rate was 1.298 while in the same quarter of 2005, it was 1.189. The impact of this was to reduce sales and segment income in the quarter by 68 million and 6 million respectively. Put it another way, without exchange rate impact, revenues would have improved 8.7% and segment income, 8.8. For the full-year, there were no exchange rate differentials and revenues grew 5% and segment income 7.7, giving a 25 basis point improvement in margins.

In the Asian division, continued volume and market growth were reflected in revenues growing 13.5% in the quarter and 17% over the year. Compared to prior year, segment income was flat in the quarter and down 2% in the year reflecting the competitive Chinese market in this fast-growing and still developing region. Following the successful divestiture of our global plastic closure business at the close of the third quarter, we proceeded to refinance our 2011, 2013 secured notes in the fourth quarter, reducing the coupon and improving the maturity schedule.

The average interest rate cost on our debt in 2005 was 8.9%, and as a result of the refinancing, will be 6.6% in 2006. Our net debt at year-end 2005 was 3.1 billion, ahead of our target of being below 3 billion by December 31, 2006. Liquidity was excellent at year end with 770 million of availability.

With regard to asbestos, we ended the year paying cash of 29 million including 13 million of prior year settlements. Claims filed against the Company were 9,000 as compared to 13,000 in the prior year and outstanding things were 79,000 at year-end 2005. Of those 79,000, 70% are in states which now have laws which effectively extinguishes our liability -- those being in Texas, Mississippi, Ohio, Florida, Pennsylvania.

As with each year, we have had our alleged liability measured by an independent expert which we have done consistently for several years, and have concluded the range of liability as of December 31, 2005 is 214 million to 272 million. We reserved for ten years estimated liability of the bottom of the range which resulted in a 10 million charge in the year. The top end of the range at 272 million is 79 million lower than that as of December 31, 2004.

I'll now pass the call to Tim Donahue for his comments.

Thank you Alan, and good morning to everybody. Before I turn the call over to John Conway, I'll take a moment to discuss taxes, foreign exchange, and pensions. In the fourth quarter of 2005, our tax rate from ongoing operations was 29%, and for the full-year it was 21%. Full year 2004 tax rate from ongoing operations was 32%. The decline in the tax rate in 2005 from 2004 primarily being attributable to higher U.S. operating profits and a greater percentage of the Company's profits being generated in countries, particularly the emerging markets, which have lower tax rates. We currently estimate our 2006 consolidated tax rate to be in the range of 25 to 30%.

Our foreign exchange exposure, as we have discussed with you in the past, related primarily to the Company's exposure to U.S. dollar debt in euro subsidiaries. We issued the debt in 2003 and including the $97 million loss recorded in 2005, we have had a cumulative gain of $202 million from 2003 through 2005. The refinancing just recently completed in November of 2005 has essentially eliminated all of the Company's European U.S. dollar debt exposure.

As part of our refinancing plans, a decision was made by the Company to make accelerated contributions to its U.S. pension plan. This decision was made because we determined that a greater positive impact on cash flow, liquidity, and earnings would be realized as opposed to paying down debt and reducing interest costs. The [pre-funding] also improved the security of benefits earned and accruing by our employees. The U.S. plan, even in today's low discount rate environment, is now more than 90% funded to its projected benefit obligation. Note that our non U.S. plans are more than 100% funded.

The accelerated funding also allows at the Company's discretion funding holiday through 2011 under current and proposed funding regulations. In addition, the accelerated funding combined with solid asset returns for 2005 at 13%, and for the last three years at an average of 16% have resulted in a $15 million or 16% decline in 2005 pension expense as compared to 2004. For 2006, we currently estimate that the pension expense will approximate $44 million, some 37 million or 46% below 2005.

With that, I'll now hand the call over to John Conway.

Thank you Tim and good morning. As you can see from the numbers and Alan's summary of the year, we had a very good fourth quarter and it caps a solid year of performance versus prior year. I thought it would be worthwhile to try to summarize the reasons for our success in 2005, which will also lay a foundation for discussion about 2006.

First, performance was good in 2005 because volumes were generally firmed up in all of the markets which we do business. Where volumes might have declined, this was pursuant to plan either because margins were deemed by us unacceptable or because of movements by our customers. For example, some migration in food cans from Western Europe to Eastern Europe. But generally speaking, volumes were firm and in fact growth in the Middle East and Asia exceeded our expectations.

In addition, we continued to improve productivity across our operations thereby reducing costs. Also, innovation initiatives were very beneficial in the areas of new product introduction and process improvements. We continue to roll out our SuperEnd which, as you know, is a lightweight beverage end which uses 10% less aluminum than our competitors who still utilize the old standard beverage end. Our easy open food end technology continues to be deployed and cost reduced.

Our proprietary patented metal shaping technology is finding increasing favor with our customers, and allows us to improve margins through a higher technology product which is unique in our industry. Our patented shaping technology is now applied by us in beverage cans, food cans, and in aerosol cans.

And finally, our new metal vacuum closure technology is growing. You will recall that we have had a great deal of success with our [ideal closure], a composite of plastic and metal, which gives the customer significant marketing in performance advantages. And our new family of baby food closures is being introduced in Europe this year.

Finally, our spending controls continue to be exceptional. And here, I refer to every element of spending from working capital controls and reductions to capital expenditures. All of these things contributed in 2005 to profit improvement in a stable to growing volume and price environment. With regard to pricing, during 2005, we were generally successful in passing through cost increases in our product prices. So after a very good fourth quarter and a solid full-year of performance, I know that you're concerned about 2006, and we thought we would anticipate many of your questions.

Obviously, the major area of concern expressed by our shareholders has been how Crown will protect and increased profits year-on-year in the face of dramatically increasing raw material costs. Without question, raw material costs have increased sharply worldwide over the past several years. And in certain cases, with increasing velocity over the past 12 months to historically high levels.

For example, the specialty chemicals, printing inks, lacquers, and ceiling compounds that we use in our containers have increased in price in certain cases approximately 40% from January 2004 to today. Announced increases for packaging grade steel have been from 30 to 40% since January 2004. And aluminum ingot prices have increased from an average of $1700 a metric ton in 2004 to $2600 a day, a 53% change.

The reality of the situation is clearly apparent to everyone, including our customers. The steel prices, price increases have been prominently publicized. Specialty chemicals prices are less obvious to our customers, but they are well aware that increases are occurring because they are often impacted in their own businesses and because the underlying price of oil has risen and drives all of the specialty chemical prices. And finally, the aluminum prices are set openly on the London Metal Exchange and are published for everyone to see.

We are reacting comprehensively to this rapidly escalating raw material price situation. We have four strong elements to our plan to maintain profitability in the face of this sharp escalation. First, we are constantly driving productivity improvements to lower our costs in all of our operations. Secondly, we are realigning or pruning underperforming or high cost assets. This is a relentless process and yields progressive cost reductions.

Next, we believe innovation as we practice it does allow us to improve profitability. We've talked review in the past about our industry-leading research and development capability and the evidence of it we think is there to see in the improvements that we have made in profits in recent years. By innovating, we're able to change product mix, reduce the material that we use in our products, and differentiate our products from our competition.

And finally, over the past several years and in 2005 as well, we have developed and followed price policies that are sensible, transparent, and necessary to maintain reasonable returns in an environment of rapidly escalating raw material prices.

Coming now to the specifics of 2006, we want to describe to you the price environment for 2006 and our product lines and the various geographies in which we operate. First, we have been largely successful, we believe, in passing through raw material and other price increases in our food can, aerosol can, and metal closure businesses in all of our geographic markets. Just to remind you, I am referring to these product lines in Europe, both Western and Eastern; North Africa; North America; South America; and Asia.

Now, let me turn to our beverage can segment our expectations for margin maintenance and profit improvement. At the moment, there is a mix of results in this product category. In North and South America, the Middle East and Southeast Asia, we have achieved appropriate cost pass-throughs. All of these markets do not behave in exactly the same way.

For example, as you know and we have discussed with you in the past, the North American pricing model that we use and is generally followed in the industry provides for full aluminum cost pass-through. In Mexico through South America, we have a similar convention although formulas are established contract by contract, and sometimes vary in terms of timing of increases. But the general proposition is clearly understood and accepted.

In Southeast Asia and the Middle East the process is more informal, but we have been able to pass through aluminum price increases and other cost increases in our pricing in 2006. And we are pleased that our customers in these regions recognize and understand that no single participant in the supply chain can shoulder the run-up in raw material costs, but rather they must be passed through into the marketplace.

The two areas where beverage pricing remains challenging for Crown in 2006 are the markets of Europe and China. We're now in discussion with our customers about what would be appropriate with regard to price increases for beverage cans necessary to reflect the dramatic and unexpected increase in all raw material costs, including particularly aluminum.

We think that it is very fair to say that planning and discussions with our customers in Europe and in China in 2005 in preparation for the 2006 calendar year clearly did not anticipate the very rapid and unexpected increase in these costs. So significant upward adjustments must now be made to beverage can prices in those two regions. We believe broad-based price increases are necessary.

We also believe that for some period of time, formula pricing may be required. By that, we mean adjustments which will occur regularly to our beverage can prices to reflect raw material price changes. This may result in declines in can prices during the course of 2006 if and when, for example, aluminum and other prices fall.

I'm going to anticipate your questions about how successful we think we're going to be. First, the entire can industry is experiencing the same increases in raw material prices as is Crown. We are a very large global buyer of all of the materials that we use and we have no reason to believe that any of our competitors are better situated than we.

An additional [recently anticipated] success is that profit margins in beverage cans in Europe and in China have been declining for the past several years. All of you have seen this in our Asian division results, which reflects primarily China as Alan mentioned earlier, and the same is true in our European Division beverage can business. Again, our experience, we believe, is not unique to Crown. We cannot continue to absorb cost increases in our beverage can business in Europe or in China, and we must now past pass cost increases through in selling prices.

So in summary, 2005 performance and a strong fourth quarter continue the positive sales, profit, and free cash momentum of recent years. And we are very confident that we remain on an upward trajectory in 2006 and that we're looking forward to a very successful 2006. So with that, I'd like to turn back over to Alan and he will describe our anticipated 2006 financial performance.

Thank you, John. As has been our normal practice, we will give our current view for segment income growth and free cash flow in 2006. We believe that segment income will grow by between 5 and 10% in 2006 over 2005, including a charge of $4 million, $0.02 per share for the adoption of FAS 123R accounting for options.

On free cash flow, we expect to generate at least 300 million. This after capital expenditures of 175 million, interest expense of 250 million, and asbestos of 25 million. This free cash flow will be used to continue to delever the Company and buyback stock under the plan approved by the Board of Directors in December 2005. That concludes our formal comments and we'll now open the call up to questions please, operator.

(OPERATOR INSTRUCTIONS). Ghansham Panjabi, Wachovia Securities.

It looks like you're attracting some more competition in the Middle East both with [Kantac] adding capacity and Rexam making an acquisition there recently. Do you feel the competitive dynamics in this market are starting to shift away from your favor?

No, the demand/supply situation we think in the Middle East continues to be very, very healthy. The reference to Rexam Egypt versus an acquisition of in existing on-line can plant in Egypt -- and Egypt, as you know, is North Africa. It's not a part of our business in the Middle East and the Gulf. And if anything, we think it validates what we've been doing out there. It was phenomenal price for a one line can plant without ends and says a lot about our values, so we are complemented by it. [CanPack], I'm less sure of what their intentions are or what their ability is to do anything.

And just the volume breakdown by business? I usually ask this question, so --

Let's see -- for 2005 I guess is the reference?

Or 4Q would be good too.

Okay. Let's see. I think Alan's got it.

Yes, in the quarter, for the total Company, beverage can sales were up about 3%, worldwide that is. Food cans were soft to down to about 3% overall. Aerosols were flat. This was in the quarter. Year to date, our beverage cans were up about the same, worldwide about 3%. Obviously, we have a lot of growth in Asia and various other places. Americas was flat year-on-year. That's all of Americas -- North, South, and everything. Food, we were again a bit soft, 4% down for -- aerosols flat, metal closures flat. So strong in beverage cans, but flat in food and the rest of it was sort of -- [not] soft to not much change.

Okay. And do you anticipate -- have you lost any market share in a meaningful way in beverage cans?

I don't think so. We're looking at next year and we think our beverage cans were going to be up in the good single digits. Food cans look like they're going to have a strong year from what we can see, and our metal closure business is doing pretty well as well. So we expect to see improvement in margins -- sorry, in volumes worldwide in 2006 compared to 2005.

Chris Manuel, KeyBanc Capital Markets.

A couple of questions for you. Can you help us put productivity -- it was one of the four pieces, John, that you mentioned in your methods that you're using to offset price or to offset inflationary costs. Looking into 2006, first of all, do you assume that you'll have to give back some of your productivity to potentially offset some inflationary costs?

No, not at this point I don't, generally speaking. There was a little bit of the decline in beverage can margins in North America as we go into 2006. We regained a fair bit of that with cost reductions end what we anticipate as further productivity gains and material usage declines. But generally speaking globally, we are -- we think in very, very good shape. And of course what we highlighted for you were the two markets and the two product lines where this is all little bit still a work in process, and that is to say European beverage cans and in China. And that is a problem that has been there now for the last several years and we need to address it and correct it, and our view is now is the time to do it.

Okay. Can you help us maybe quantify what are typical productivity -- maybe as a percentage of margins that you normally get each year, or maybe as dollars -- how we can get our arms around that a bit?

I really can't, Chris. In this call across this multitude of products groupings and all of these different geographies, I can just tell you that -- and we're not unique in this, but the application of what we call our world-class performance process which encompasses Six Sigma and [constant] material reductions and labor cost reductions and so forth is ongoing globally. It's integrated globally. We benchmark across all of our operations and with who we think are the best performers in the industry, so we are constantly driving down costs through productivity.

Okay. Last question I wanted to ask you was with some of the capacity that you have realigned or have announced that you are deploying in developing markets, can you give us a sense as to what your utilization rates will be like in both North America? And now once you have these three, four lines up and running in the Middle East and other places, are they effectively -- are they going to be sold out when they come on-line or will you have a little open capacity as volume comes up?

All of the high-growth emerging markets we are sold out to oversold, bringing cans in from other regions where we're able to do so and live with the freight costs. And in the mature markets, generally it's true as we have told you in the past, we are -- capacity utilization is in excess of 90%.

Okay. In the growth markets with the capacity you are adding, I think you've announced two or three lines that are going into the Middle East, I believe one into -- somewhere in Asia Pacific. Those lines are also going to be sold out once they start running throughout this year?

We believe so.

Alton Stump, Longbow Research.

Thanks, guys. I had two quick questions for you. First off, and I missed the first part of your call so I apologize if you might have already said it. But I just wanted to get an idea, if you could give an outlook on what the pension expenses going to be in 2006. I assume it will of course be down quite a bit.

You did miss that. We said it was 44 million for 2006.

Okay. Thanks. And then just last the question I had was of course there's been a lot of talk of there being some pretty hefty cost increases on the food can side in Europe. And I just wanted to get an idea for what the competitive landscape is there, if you think you'll be able to offset that and if you are seeing any increased competition in that business.

Well, the steel industry has been determined to get what they've announced as between 8 and 10% price increases in Europe in steel that we use for food cans. And we are equally determined to pass it through, and I think we've had -- we're having very good success in that regard.

I guess that regard, of course (indiscernible) last year as they in the past have not been very rational or was very rational, are you seeing the same type of strategy by them this year?

Yes, as far as we can tell at the moment, pretty much the entire food can industry in Europe is trying to behave in a rational manner and pass through cost increases. We're not seeing any silly marketshare gain efforts or short-term kind of weakness, so we are feeling pretty confident about the European food can situation.

Okay great. Thanks guys.

George Staphos, Banc of America Securities.

Congrats on the year. I guess specifically regarding Asia and Europe, do you have pricing letters out to your customers? Could you comment on magnitude if you do? And do you think your competition is out with letters yet, or are you still more in the -- telling your customers you are going to the out with something safe at this juncture? And I had a follow-on.

Yes, as we speak, George, we've begun conversations with our customers -- salesmen to purchasing person and we will within the next several days have letters to all the customers clearly outlining precisely what it is we have in mind. We don't know what the competitors are going to do. What we have told you, of course, is we have an expectation that saying a thing be done by them but we simply don't know.

We know that they have got exactly the same cost issues. We know very well that their prices and profits have been declining. We've had some recent evidence of that within the last several weeks. So we know that everybody is exactly in the same situation as we, so I have a very high degree of confidence that we're going to be successful.

Okay, and when we do expect to have visibility on that John? Sometime by second quarter or I should say first quarter call?

The way these things work, George, you have support or you don't have support pretty fast. So I would expect within the next ten days, we'll have a pretty good sense of what's going to happen. But it could be as much as -- then it drags on, it could be towards end of the quarter before we really understand.

Okay. The other question I had, then I will turn it over, just regarding the segment earnings guidance down 5 to 10% -- if you could parse that a little bit for us. On the one hand, you have some incremental pickup from a consolidated standpoint from the Middle East. Is that included in your 5 to 10%? And what else might be puts and takes on that 5 to 10% growth?

The answer is yes; of course the Middle East is included. And I think we gave the range, George, and what we think is if we are successful with what John was just talking about on pricing and all of the rest of it, then we will be more towards the high-end of the range. And if we are less successful, we will be somewhere from the high to the low-end. That's why we've given a range because there's a certain degree of uncertainty here that we have to deal with.

Okay. Would there be any other reason other than the continued inflationary costs that are giving your little bit more of a headwind on the segment EBIT growth this year?

No, I don't believe so.

I don't think so. [Some] volumes have moved around in North America, but at the end of the day, the pickups that we've had in all -- when we consider all of the product lines in North and South America, we've all said that, so we do not have a big volume issue here, George. What we have is -- what we're facing is some very specific price increases and issues and we think we'll still have a real good year even without the price that were talking about. But we know that the appropriate thing to do is to make these adjustments in the regions we discussed.

Right. Thanks for the color, good luck in the quarter.

Thank you. Next question please.

Amanda Tepper, JPMorgan.

Good morning. My first question is about the severance charge and the fact that it is across the U.S. and Europe. Is the several plant closings? Because it sounds like more than just productivity.

In fact, there were no plants closed. As John referred to earlier, it's numerous productivity gains whereby we take out heads as we become more efficient and/or more automated across several different product lines.

Are you looking at any plant closures? You had mentioned that on your last call.

No.

No.

Okay. And then on the pension side, are you going to be making any cash contributions this year in pension?

Not in the United States, but we do have pay-as-you-go plans in Europe and we do have a [UK] plan which requires some cash even though it is fully funded.

Does that add up to about 40 million or so?

In that range, yes.

[Dan Khoshaba], KSA Capital Partners.

I have two questions. Tim, the first question is, did you to say that pension expense would be $37 million less than it was in 2005?

Yes sir.

Okay. The second question is as I look to the press release, in the segment where you reconcile gross profit to segment income, you show segment income of $90 million, but then you have a provision for restructuring of 13 million. So if I exclude that, the segment income is actually 103 million which is closer to $0.10 a share rather than $0.03 or $0.02. In that a mistake? Or why is that restructuring 13 million in that segment income number?

It's not a mistake. It's -- the restructuring happens within the operating segment and that's why we're reflecting in that reconciliation for you. But if you exclude it as you say, the number would be 103.

Why wouldn't the restructuring be excluded?

It's just the way we have defined segment income.

Okay good. And for the full-year, we're looking at interest expense of about 240 to 250?

250 I said, Dan. Next question please.

Anat Earon, Barclays Capital.

First question is regarding the sales trend in Europe; you mentioned before that net of effects in the fourth quarter, there was a 8.7 increase in sales. How much of that is coming from the consolidation of the JV's in the Middle East?

I would say about three of the eight would be coming from the consolidation.

Yes, about 3%.

Okay. Thanks. (multiple speakers).

The question was how much of the foreign exchange was --

Excluding the exchange was 8%.

Excluding -- yes, from the underlying, how much is --

Yes, at about 3%.

Okay, and going back to the 13 million restructuring charge, what is the split of that between the Americas and Europe?

I have that. Actually it's about 50-50.

Okay.

I am just saying (indiscernible).

All right, but 50-50 for now is --

50-50, I'm right.

Okay, and last question, if I remember correctly, you don't have beverage can operations in Germany. Is that right?

Correct.

Is there any indirect way that you could benefit from the World Cup in the summer months? Are there German clients that are buying from your other facilities or -- and so on?

We, frankly, are very skeptical about the proposition that the German market is going to improve year-on-year in any meaningful way. I think as we told you in the past, we don't have any beverage can production facilities in Germany. We have a large beverage can plant in Northern France, so we are indirectly affected by the German market. But we have nothing in our guidance. And Alan certainly was not including anything when he described what we thought segment income improvement was going to be. We have nothing in there for any positive German impact. We hope it turns out that way, whether it's [deposit laws] or World Cup, but we're not planning for it.

Andy Simons, Arabian Asset Management.

So your asbestos cash costs are going to go down from maybe -- from 29 to 25, so does that mean the asbestos expense which was 10 million in 2005 will be maybe 8 or 9 million in 2006?

It could be, Andy. We just don't know because what we do, which we have just done, is we have this measurement made by an expert every year. Obviously 10 is a relatively small number. I agree it could be somewhat less, but I think the good news from our point of view on asbestos was that the top end of the range went down so -- by almost 80 million, which is sort of the measurement of the long-term liability continuing to decline.

Absolutely, but I'm just trying to build (multiple speakers) my model here -- so maybe I will just estimate that it is flat at 10 million. (multiple speakers) And the other thing is with the joint venture now being -- joint ventures now being consolidated, the minority interest -- how do we estimate that? It was 39 million this year.

It is going to be more, obviously, in 2006 as we have a full-year consolidation from the venturous.

Okay.

But I don't think we are prepared to give you that --

That is all right. I'm just trying to get it straight. That was all I really needed. And the last question I have is you mentioned in your text that now you're going to be able to continue to pay down debt and also buy back stock, so stocks moved up a lot. Is it accretive for you to buy back stock at this level, and would that be true if you continue to do well for a while? Do you care to bracket any kind of range or give us any guidance?

I think, Andy, the strategy we have is not a one-year strategy. It's a multi-year strategy with respect to what we're going to do with the capital structure. And it certainly makes sense to buy back shares along the way as opposed to waiting three years from now to buy them all back then. But I think is certainly is accretive if you look at this from a multi-year strategy.

Tim Burns, Cranial Capital.

Good morning. I was on the call, but I must have missed it. The free cash flow for 2006 was how much again, Alan?

At least 300 million.

And that was after --?

CapEx of 175, interest of 250, and asbestos of 25.

Got you. Okay, and then I have a question for John if it's okay. There's been a lot of talk about movement from one material or substrate to another based on, let's say, resin being higher costed than aluminum. But it looks like that game has kind of gone away with where aluminum has gone. Have you seen any substitution victories for your volume account?

We really didn't. At one point last year we talked about as resin was moving up so sharply, perhaps that would occur. We didn't see it. And then, of course, as you point out with the now even more rapid move in aluminum, no reason to believe that we're going to see it. So we're assuming there just is unlikely to be any substitution. Whatever substitution occurs or doesn't occur is going to be as a consequence of the marketer's decisions about what product suits them best, not as a consequence of relative change in prices.

Got you. Okay. And then the shaping, SuperEnds, high tech decoration, whatever, is it -- is it winning business, maintaining business? Is it enabling your margin account to grow at the expensive, let's say, the general cans in the marketplace? The [C&B] and the Crown assets in Europe have always been outstanding at doing that, but can you put something in the bank on that?

It's doing all three things, and increasingly. So yes, we're really pleased with it. You're going to see more shaped cans in more categories over the next 12 months for example. We have got SuperEnd now essentially rolled out across North America. You know the beverage can business. Think of the cost advantage that we have as a consequence of that. So those are just two small examples. Yes, it's working great for us.

I can see a World Cup football tribute can that would cost about $50 apiece somehow finding its way to Germany. How about you?

That's a great idea. You're hired.

Can I ask kind of a more serious question? It appears -- and I'm not a speculator or an oracle anything, but it appears that is going to be some ownership changes and possibly some industry consolidation in the two major markets. A, is that good? B, should you be consolidating? The beverage can industry has had a really nice run with some good behavior and some real focus on profitability and returns. But does that kind of long courtship run out? Do people start acting goofy again? I know it's a dumb question but I have to ask it.

We're still doing fine. And we're happy with where we find ourselves, so I don't think we need to do a lot in that regard. Maybe some others do, but we're -- we feel very comfortable with where we are.

Okay. Well listen, I look forward to 2006 and I wish you guys well.

Andrew Shirley, Ivory Capital.

My question was answered.

[Robert Scott], [Axiom Partner].

Congratulations on the quarter. It's Robert Scott from [Axicon Partners]. My question goes to asbestos, and that is regarding the expectations of management for favorable resolution from a (indiscernible) (technical difficulty) [feel]. Have you looked that issue and at the (indiscernible) (technical difficulty) and if so or not, how does this impact [transport]?

Well, obviously we're following the issue and if you're asking us to handicap the bill, we really can't any better than you can. It's clear of course that Senators Spector and Leahy want to put it into the Senate. It's clear that there's some opposition. And beyond that, we really can't say although it does appear as if this thing is coming to a head and we'll have some sense of how the Senate is going to act within the next two to three weeks. If it passes, it will be positive in the sense that we'll have a certainty, although if it doesn't, we think our cash requirements may not be too much different. So the certainty aspect, though, that we would certainly like to have resolved in our favor and so we're still pulling for it, but it's not critical.

With respect to -- if the bill were to fail you believe that you properly reserved and have proper amount of cash to [handle] your liabilities?

Yes, we -- our reserves and analysis of our problem have never taken into account the potential passage of the FAIR Act.

[Max Feldman], WestLB Asset Management.

Good morning to you in the U.S. First question is regarding the tax rate. You mentioned that it will be 25 to 30% in 2006. And I'm wondering what we can expect in the following years.

Sorry, could you just repeat that?

The tax rate. (multiple speakers) Well, 25 to 30% is what we said for 2006. I don't think we're in a position to give an estimate for 2007 or beyond this point.

Okay, but there's been a likelihood that it can come back to around 40% or wherever you have been --?

No, I would not anticipate that it would go near 40%.

Okay. The second one is on working capital. What do you expect there in 2006 [or] outflows or --?

We believe that we should be in the position to take some funding out of our working capital -- probably a small amount. We've done a lot in the last few years. So we would expect that we can probably pull our working capital down somewhat and we are thinking about probably $20, $30 million.

So inflow or outflow?

Inflow.

Okay great. In terms of [your] understanding, you mentioned that your cash payment for asbestos in 2006 will be 25 million?

Correct.

Correct? And then in another question you stated something with the asbestos expense of 10 million. What is this 10 million, please?

Well, the 25 is the cash. 10 million is the amount that we have to accrue in the fourth quarter to get our reserve to 214 --

Okay.

So when you see our balance sheet you'll find out we have a 214 million reserve, and that covers the next ten years of liabilities.

(OPERATOR INSTRUCTIONS). Aaron Cowen, Karsch Capital.

Good morning guys, just a couple of quick questions. Just on the tax rate, does that includes some of the benefits you have of NOLs? Can you just elaborate a little bit more on the NOLs you might have?

Well it does. It's an all-inclusive rate from the operations that are ongoing, and so where we are generating profits that we're able to offset the tax with the carryforward of NOLs or in circumstances where we are reducing the loss, they both of the impact of reducing the tax rate. We have NOLs in the United States primarily arising from past pension contributions and/or asbestos payments. So we'll be able to carry those forward for the next 15 to 20 years.

Okay, so that -- just the lower tax rate, because I think most of the Street is at 33% or somewhere around there, is potentially due to those NOLs running through and --

And also the number of operations in the growing business we have been numerous emerging market countries which have lower tax rates than the U.S. statutory rate of 35%.

Right. My second question is the pension you said is 44 million. How much was the cash -- and you said most of that would be cash. How much was the cash contributions into the pension this year pre the overfund?

Pre the overfund, I think about 134 was the required cash contribution. The total contribution we made this year was 400, so the overfund it was 266.

So your -- so essentially your cash pension needs are dropping 90 million year-over-year.

Roughly, yes.

And then a final question is just remind me what you guys guided to last year in terms of cash flow guidance, and sort of what it ended up being this year.

Well, the guidance we gave was at least 200 million. And we believe obviously what we sold, the part of the business -- as you know, the closure business -- and we refinanced. And if you take all of that out, we believe that our free cash flow that we actually achieved was around 240, 250 million.

Okay, so you guys tend to be -- (multiple speakers) can be conservative.

Correct.

[Andy Fineman], [Iridium Asset Management].

Sorry to bother you again. So if I understand correctly, that last question about the tax rate means that the reported taxes are going to be the same as the cash taxes? Or if not, then what is the rate?

We haven't given you an earnings model or a pre-tax income or a book tax number. In fact, we haven't given you a cash tax number. What we've told you is that we expect the tax rate to be 25 to 30%.

All right, but that is reported tax rate. I mean, that is -- you're talking about what -- on the income statement.

(multiple speakers) -- confused as to how you are coming to the tax rate being the same as the cash taxes.

No, it was just my understanding of how you answered that guy's question when you said that 25 to 30% included benefits of your NOLs and it's all in there. And so I thought maybe that meant that what you are saying was that it was going to be the same as the cash tax rate. And anyway, it doesn't matter. All I really wanted to ask is will your cash taxes be less than your reported taxes?

You're asking a question we have not given you guidance on, and so that goes to pre-tax income. I don't think we are prepared to answer that.

All right.

(multiple speakers) Cash taxes should not be much difference in 2006 as to what they were in 2005, and you will see that when we publish the 10-K in a few weeks.

Okay. Thanks.

No more questions, operator?

I'm showing no further questions, sir.

Okay, well thank you very much. That concludes Crown's fourth quarter and 2005 earnings conference call and, we thank you for your interest in our Company. Thank you.