Crown Holdings Inc (CCK) 2006 Q3 法說會逐字稿

Good morning and welcome to Crown Holdings' third-quarter 2006 earnings conference call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised this conference today is being recorded. If you have any objections, please disconnect at this time. 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. Thank you and good morning to 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 practices 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 2005 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 release.

I will comment on the results, Tim Donahue will review our recent share buyback, the debt paydown and pensions, after which John Conway will discuss the quarter and outlook before opening the call to questions.

Total revenue grew 7% in the quarter and 4.1 percent year to date over prior year. Segment income at $184 million in the quarter and $459 million year-to-date was flat with prior year. Americas Beverage, with revenues flat year-on-year in the quarter recorded 11.7% income to sales, a substantial improvement over the first six month results. While the nine month numbers still reflect the first quarter volume and price issues, the third-quarter indicates a continuing recovery in both volumes and income.

European beverage volumes improved 6% in the quarter and 10% year-to-date compared to prior year. Margins continued to reflect the impact of higher aluminum costs not totally recovered in selling prices. In this regard, there are two developments to report -- firstly, we have made a satisfactory agreement on one pricing dispute which will result in an income pickup in the fourth quarter and in 2007. Secondly, our European beverage division have, in the last week, been advising all customers by letter that selling price will increase effective January 1, 2007.

Food North America reported revenues up 10.6 in the quarter and 7.7% year-to-date on stronger volumes reflecting a good pack in the markets we serve. Segment income reported solid improvement with the quarter recording 11.2% of sales and year-to-date 8.5%, a 300 basis point improvement, higher than prior year.

Food Europe revenues were basically flat in the quarter and year-to-date. Volumes in the quarter were negatively impacted by a weaker summer pack than planned in some of our major markets made worse by two customers' facilities closed due to fire damage. The result was that segment income in the quarter was lower than prior year and slightly down year-to-date compared to prior year.

While the food results in Europe are disappointing this year, they are more than offset by the improving results in the Americas, reflecting one of the strengths in the Company's geographic portfolio. Worldwide food can sales volumes were up 4.5% in the quarter and 2% in the year-to-date. Revenues for spec pack in the quarter were up 7.1% and flat year-to-date compared to prior year, while segment income for the nine months was marginally improved over the prior year's numbers.

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

Thank you, Alan, and good morning to everyone. As noted in the earnings release, the Company repurchased more than 5.2 million shares in the quarter, subject to an accelerated share repurchase program. The Company will receive additional shares under the program, the amount of which will be dependent upon the volume weighted average company stock price over the remaining program period, which will complete in the fourth quarter.

Actual shares outstanding were 3% lower at the end of September compared to June, as the Company received the initial 5.2 million shares at the end of August or two-thirds into the quarter. The full impact on average diluted shares will be reflected in the fourth quarter.

As many of you know, the Pension Protection Act of 2006 was signed into law in the United States this summer. Among numerous changes, there are provisions for minimum required contributions and funding targets. A review of the Company's actuaries in September reconfirmed that, due to our funding level, which is in excess of 90%, and the accelerated contribution that we made in 2005, we have no projected cash contribution requirements through the year 2011.

Lastly, on December 15, 2006, the Company will pay off the remaining $107 million outstanding on its 7% 2006 notes. With the exception of minimal term loan amortization, the Company will have no mandatory debt maturity obligations until 2011.

I will now turn the call over to John Conway.

Thank you, Tim, and good morning. Reviewing the quarter, I thought it would be well before we turned to questions to cover the notable highlights.

First unit volume sales were strong in virtually every product line on a global basis. Overall total unit sales in the quarter were up a little over 5%. As Alan mentioned to you, our European Food business was down somewhat in units, quarter to quarter '06 versus '05. This was largely a result of weather impact on some of the principal European crops including particularly peas and sweet corn. Europe experienced a very hot, dry July followed by a cold, wet August which stretched into early September.

Unfortunately, this weather adversely affected two of the larger crops for us and our customers, mainly peas and corn. These things happen in the food can business but fortunately, on a global basis, the unit volume decline in Europe was more than offset by the gains in the Americas food can business.

We believe segment income performance, everything considered, was solid. As you can see from our release, our Americas Beverage business was reasonably close in the third quarter to the 2005 third-quarter performance. So as we told you earlier in the year, we have now largely regained units that were lost earlier in the year and improved product mix.

This, together with outstanding productivity performance and cost control enabled us to come very close to matching 2005 segment income performance in the quarter. We think this was an outstanding accomplishment by our Americas Beverage division managers.

We are particular pleased with the performance of our North American food business. This is a business which has been receiving a lot of attention over the past several years. Our goal has been to build it to the point where in terms of customer mix, product diversity, and profitability performance, it is equal to best-in-class. We think we have now reached that level.

Segment income in the European Food can business was less than we had expected. The volume shortfall was certainly partly responsible and widespread cost inflation was clearly a major factor. Here I am referring to electricity, gas, transportation cost, raw material cost, among others. We clearly need to adjust prices upward for 2007 and we will be doing so, although no announcements have been made to date.

Our European beverage division continues to reflect mid-segment income performance to difficulty in recovering raw material cost. In this regard we have announced, as Alan mentioned, significant price increases effective January 1, 2007.

So with that, we will open the call for questions. Alan?

Yes. Operator, if we could have the first question, please.

(OPERATOR INSTRUCTIONS). Ghansham Panjabi, Wachovia Securities.

The European beverage profitability -- was that in line with your expectations going into the quarter? I'm somewhat surprised at the sequential margin compression given that 2Q aluminum prices were still pretty high.

Yes, they were. I would say the only exception to that is we had hoped to make arrangements with one of the significant volume customers that Alan referred to in the third quarter and do that sooner than we did. But otherwise, volumes, pricing, margins were as we had expected them to be. Alan, you might want to expand on that.

Yes, I think also what happened a bit was that in the Middle East particularly, we still had some high cost aluminum flowing through the system. In Europe, we sort of have a two week lag and in the Middle East, just due to the logistics, we had about a five week lag. So really what we're looking at is some of the aluminum that was relatively highly costed or priced compared to where we are in Europe at the moment. So although volumes are very strong, we were particular disappointed with the margins in the Middle East.

And just to clarify, in European Food, is that a delay into the fourth quarter? Or are the crops just done for the year? We are expecting a sloppy fourth quarter as well?

No, there will be some delay. We know that sweet corn continued to be packed into October -- the first couple of weeks in October in France were reasonably nice and warm. But we do not yet know what the overall volume effect, but that's the only crop that we believe carried on into October of any significance.

And finally, on free cash flow guidance for the year?

Well, obviously, we're sticking to the $300 million. We believe we can handle it. As you know, we are going to make contribution to the pension plan. It will be a one-off payment, as we have spoken about before. But we think we can largely cover this with anticipated cash flow and then some improved working capital which we are planning.

[Claudia Shanks]

I was wondering if you could just provide a little bit of color on your Asian operations. Maybe a comment on price and volume and the cost situation you are seeing there?

Sure. Asian volumes in the quarter, and we principally have a beverage business there. We're up about 5.3% year-on-year. A little less than unit volumes in prior quarters, but still pretty healthy. Cost prices is, generally speaking, in very good shape with one exception, and that is China. We still have not been able to fully pass through raw material price increases in China. But we anticipate, and again we have announced in China, major price increases effective January 1. That situation is going to be rectified this quarter.

And then just in the North American beverage can business, I was wondering if you might just be able to provide a little bit of color in terms of the strength coming from specialty cans versus just healthy demand for sort of 12 ounce cans and just in general how are your specialty can efforts progressing in North America?

Well, on a unit volume basis we were in the U.S. pretty close in the third quarter this year to Q3 last year. So that was positive and we made up a lot of lost ground. And I think the 12 ounce volume for us, because of our customer mix, was reasonably strong, actually.

Now, turning to specialty cans, we had a very, very good quarter with specialty cans. Specialty cans for us, non-12 ounce sizes quarter to quarter were up 45% in units. So if we continue with this kind of run rate, and we see no reason why we shouldn't, we will have our mix, we think, in line or better than any of our competitors in terms of specialty cans as a proportion of total cans sold. So we think the specialty can program is going very well. When you consider what we have done over the past couple of years, which is add three or four sizes and add sizes in two locations -- one in Canada and another in the southeastern United States -- we think it was quite an accomplishment.

Since we're talking about that kind of thing, I think it is noteworthy to point out that we are now fully converted to SuperEnd in North America. So every End center has now been running SuperEnd for several years. We've completed that conversion entirely and we are getting a tremendous benefit from that. If all of you will recall, our SuperEnd uses 10% less metal in the end than the standard end in the industry. With today's aluminum prices, it gives us a tremendous advantage. In addition, it performs better once it is on the customers' can.

So, all those things I think are working very positively for our beverage division and really setting up 2007 exceptionally well.

And then just finally, on the tax rate, can you just explain a little bit about why it was so low and sort of what -- has the guidance changed, I guess, for the full year?

Looking at the segment data you could see that we did very well in the United States. We did not do as well in Europe, where the tax rates are higher. In fact, in the U.S. we have no effective tax rate given the large net operating loss carryforwards that we have. So it would be higher income in the U.S. came through as tax-free, higher income in other parts of the world -- Southeast Asia, Middle East, where we have low tax rates serving to benefit the mix far better, especially when you consider the European profits were down where the tax rates were in the 35 to 42% range.

I really haven't thought about giving you an updated in terms of our guidance as to the tax rate. I think earlier in the year we told everybody to expect 25 to 30% for the year. I think year-to-date we're in the high teens and it's likely that we will be below 25% for the full year.

George Staphos, Bank of America.

A couple of questions. First of all, just to make sure, on the free cash flow guidance -- our question every quarter -- the $300 million or more includes the pension funding, correct?

That's what I said, George, we thought we could handle it within that target on the basis of what I said earlier.

And segment EBIT growth -- is that still targeted at 5% or better?

I said the midpoint, 7.5%. So we're still sticking to that.

So that suggests the fourth quarter -- I know there was a little bit of restatement in the prior year numbers we haven't recalibrated yet. But that suggests the fourth quarter should be particularly strong, maybe unseasonably strong. I don't know if you agree with that or disagree with that, but help us understand --

It means, I think, that the fourth quarter has to be somewhere like 110, 15. I think if you'll look you'll find that the first quarter of this year -- and remember, all the problems we had was 101. And I think also you might agree that if you go back in time, the fourth quarter is normally stronger than the first.

Last year your basis for EBIT from last year remains 535, so there's some restructuring that won't be in this year's numbers that helps comparisons as well, right?

That is correct.

Now, in food cans in Europe, what changed relative to your expectations from the second quarter? A lot of these factors that you mentioned were the same ones you mentioned in Q2, yet you had expected margins to be up a bit and units to be up a bit. Was it just the weather wasn't as you expected? Or you had some additional customer difficulties? And the volume shift by my numbers looks to be roughly 500 million [or] billion units. Would you add some color and agree with any of that?

Yes. I don't have the exact number of units. But I think the principal thing -- two things -- and plus something Alan mentioned as well. We had two customer fires, one of some significance, PET food customer in Ireland, and that continued to impact adversely. We had expected that that customer would go to contract packing with other PET food can packers which she was not able to do. So that was adverse.

The seasonal effect that I mentioned to you was we had not expected clearly, anybody who traveled to Europe in July experienced an incredible July in Europe. And believe me, August was absolutely the reverse of that. And that was adverse. Particularly where we were very big -- our units in France, it's our biggest food can market. And sweet corn and peas is the biggest market within France. So that was somewhat adverse.

And then the other thing I think -- and we touched on this in the earlier call, but we mentioned it here as well today -- is inflationary costs exceeded our expectations. Everything -- electricity, gas, transportation, logistics costs of all sorts -- were just more than we had anticipated they were going to be. And where we have formula pass-throughs with some of our major customers, they simply weren't adequate. So that was a little bit of a disappointment as well.

Two last questions perhaps to conclude. Can you remind us how much that you have -- after you pay off this $170 million, are you limited at all in terms of debt you can prepay?

No, George, we have about a $700 million term loan that comes due in 2012 which is prepayable without penalty. And we probably have about $100 million out on the revolver, as well, which can be prepaid without penalty and also reborrowed.

How much on the revolver, right now, Tim, did you say?

About $100 million.

Thanks, good luck in the quarter.

Chris Manuel, KeyBanc Capital Markets.

I missed a couple of minutes there, so if you answered this already, give me a pass on it. But in terms of the -- in European beverage, did you have any startup costs or such related to the four new lines that came online that may have unusually hurt you over there?

Well, if you are kind of looking ahead to next year for comparison purposes, obviously when you start a line costs are higher, productivity is much lower, spoilage is much higher and so on. So sure, we did. But I have to say, the lines went in well, quickly, on schedule, the startups were smooth. It's easy for me to say that the Middle East problems were associated with unexpected delays or startup problems and that simply wasn't the case.

I think we did a great job spending the CapEx and installing the lines.

I may have missed this as well, but did you go through, or can you go through, globally what your volume numbers were by food -- North America, Europe beverage, North America Europe, etc.?

Well, I think I've got the principal categories here, so I can do some of those, we can do some of those. Globally -- and I'll just give you the numbers, I'm not going to try to adjust for things that were consolidated or not consolidated or added or not added. Beverage volume quarter to quarter total globally was up 6.8%; in the quarter, down 1% in the Americas, up 23% in Europe. You can call Tim later, he can talk about consolidation effects in the Middle East -- up 5.3% in Asia.

Food, the other major reportable segment, was up globally 4.5%; The Americas was up 16%; Europe was down 2%. Asia is a small business, it's up 35%, but it's a small number.

And then the last question I have is with regard to your European food can business. There hasn't been anything, aside from these few issues with the customers and fires, etc. -- nothing has fundamentally changed that would make the can less popular in Europe or no market share losses or things of that nature that would have made your franchise less?

No, nothing at all. In fact, as we sit here and begin our planning for price increases for the food business in Europe, and believe me, we are well into that. And of course, we're not going to announce anything until the steel industry clarifies what they are going to be doing with tin plate pricing in Europe. That will be the basis for what we're going to do.

As we look at the competitive landscape, if anything, it has improved year-on-year. As you will recall, the number two food can producer in Europe, Impress, made two acquisitions over the last fifteen months -- the U.S. can operations, both aerosol, but more importantly, food, and the [Alcans] food can business in the UK. So there has been some further consolidation there which should be helpful to us for next year.

Mark Wilde, Deutsche Bank.

Alan, I wondered if you could give us just a little bit more detail on some of those cost pressures over in Europe? What kind of the key elements were. And also, what your look forward might be for those costs over the next few quarters?

Well, I think, the ones John mentioned were in the utilities area, things like this. There's been substantial increases especially in the U.K. but in Northern Europe in utility costs.

Obviously, it's been across the board in raw materials. John was just saying here natural gas was another one in utilities, where we had much higher pricing. And all of this has sort of put general pressure on our costs, of course. Therefore, has risen the need that we put the prices up. And as John just said, we are really waiting to get some clarity from the steel companies and what they're proposing before we, in fact, move ahead with it.

You'll have to excuse my ignorance but the utility rates over in Europe, do those move around? Or is that a regulatory issue, where once they've been raised they're likely to sit there for at least a year or two? Same thing with natural gas?

Many of the markets are now deregulated. But electricity went from a process of being regulated to deregulated. So those prices have gone up and we do not expect they are going to come down. Probably they are only going to continue to go up but not at the rate that they have been. Natural gas is natural gas. And higher than we had anticipated it would be, although it traded off a little bit. But nothing in Europe like it did here in North America.

And the increases that we've seen have been, for want of a better word, substantial in Europe because there was some regulation we came off and as a result, all the cost just went up. Many industries have commented on this, not only ours.

Dan Khoshaba, KSA Capital Partners.

The agreement that you reached with this large beverage customer in Europe -- is that going to be retroactive to the beginning of the year?

Yes, Dan, it is.

And let me ask you -- just kind of roughly, if that agreement had been in place, in other words, the customer had been paying you what you thought you kind of deserved for those cans, what kind of impact would of that had on the most recent quarter?

To be honest, I don't know on the most recent quarter. It might --

It was reasonably significant. We are guessing probably at least one margin point, one percentage point of margin.

Really? It's that big?

Yes.

Yes, well --

For the fourth quarter then, that customer is now paying the higher price?

Correct.

And the beverage can price increases, John, that you talked about earlier in the call -- those have already been announced?

Yes they have, Dan.

And that's for January 1?

That's right. They've been announced for January 1, they cover all of our customers in Europe and with the exception of those who are already on formula pass-through. But all of them -- and it covers steel cans and aluminum cans, and it's Europe, the Middle East, North Africa. So it's absolutely, totally comprehensive. We've gone out with a real good full explanation to all of our customers. They all know exactly how they are going to be affected and why. They're all being put on formula pricing. If they would like us to fix forward raw material pricing for them, we are prepared to do that. It's their choice. We don't yet know how they are going to opt, but they all clearly understand the choices.

You've been talking to your customers about this, about them having a choice being on formula or the other option for some time. I suppose that some of these customers, if not a lot, have already told you what way they prefer to go and have to some degree -- you've reached agreements with. Is that accurate?

It's accurate that we've been telling them about major price increases and we've been telling them about how we are going to do this. We've asked them to start thinking about what they want to do. And I would say the sentiment in Europe appears to be -- but it's a little early days -- appears to be that most of the customers will want to fix-forward raw material costs and take out price fluctuations in their packaging costs over the course of the year. But that could change. That's just the reaction that our sales group is getting as they are speaking with the customers to date.

Bruce Klein, Credit Suisse.

I'm wondering if you can help us just -- what the restricted handbasket might [be meant] for further [action] and then just remind us what the buyback plan is remaining?

After the latest buyback we have just under $250 million authorized by the Board over the next several years. Under the unsecured notes, we have significant amounts available to buy back. Under the first lien notes, the restrictions are a little tighter, where we don't have as much available. But we do earn as we make net income and as we have other benefit plans that have needs for shares. So I don't have that number in front of me. But that's a significantly lower number than the new notes -- the unsecured notes.

Would the first lien allow the full 250, though? Do you know?

Not right now, no.

And what in terms of the North America on the beverage side, what's driving that? I guess volume -- did you say was flattish, I guess? In American beverages?

I'm sorry, what's the question again? We are having a little difficulty hearing you?

The American beverage growth -- that was down 1%? Is that the number you gave earlier? Towards the Americas volume in beverage?

Yes, I did. And those were our sales. And that's just -- we have spoken about this in the past -- it was just a continuing reflection of the market share that we lost earlier in the year and that we have been in the process of regaining. So we've come back to virtually the same number of units in the Americas in third quarters, as we had third quarter '05, which we think is a tremendous achievement compared to where we were in the first quarter of this year -- that's all it is.

Where do you see the end market doing, separate from your own?

The market looks about -- the United States looks about flat. The Mexico through South America is growing. And of course, within the market in North America, specialty continues to grow pretty dramatically. I don't know offhand what -- not the rate that we're growing, but certainly specialty continues to grow very robustly. And 12 ounce continues to be somewhat down.

Is the specialty taking share from what?

Well, it's -- reflects a product mix change by our customers. Less traditional carbonated soft drinks and more juices, teas, isotonics, energy drinks, and so on. More healthy drinks, I suppose you might say to some degree.

Bob Kaynor, Ramius Capital.

Just a quick clarification on the '06 free cash flow number of $300 million. What is the CapEx implied in that number?

I think we are about -- we're being around $180 million, $185 -- somewhere in that range -- $180-ish.

And when you break down that CapEx, how do you break it down, between I guess what you would call maintenance or growth CapEx?

Well, as we explained and perhaps you haven't heard this but normally we expense all of our normal maintenance, which is about $300 million a year. Included in the $180 therefore is normally things for environmental, health and safety. And then over and above that it's really just additions -- the new plants, such as the ones we've just built in the Middle East and are building in Cambodia, and additional equipment to help us to promote SuperEnd in our plants or new product lines that have been developed by our Research and Development. So on principal, most of our quote maintenance we expense every year.

So when you look out into '07, are there any new plants contemplated?

We have one that is underway, and that is in Cambodia, which will really only be completed in the fourth quarter of next year. We have another line going into Saigon, which I think will largely be completed in about the first quarter.

It will be operational in the first quarter.

And other than that, we don't have any major issues at the moment -- major investments at the moment.

So do you have an expectation currently for '07 CapEx?

Well, we are still, obviously, working on our plans but we think probably in the range of 125, 150, and we'll know a bit -- more clarity as we go through the rest of this quarter.

You mentioned the U.K. pension payments included in this year's number. Is that a $60 million number?

Around $55 million. It's a one-off payment relating to the sale of the closure business last year.

So the step up in free cash flow in '07, and free cash flow by virtue of lower CapEx and the pension payment going away gets you somewhere in the neighborhood of $400 million in free cash for next year?

I think I would prefer to leave any comment on that until we've got our plans in place in the fourth quarter and we talk about as we normally do in February of next year.

The implication, I guess, for your $300 million in free cash flow this year implies that you are going to do something north of $400 million in the fourth quarter. Is that correct?

Yes.

I think last year in the fourth quarter we did north of $400 million as well.

And then can you just kind of go through the priorities for free cash as you look at what you're going to generate next quarter and next year?

I think the first priority is to obviously invest in the business where we see fit, to continue to grow the enterprise value of the business. After that, continue to [deliver] the balance sheet and when management and the Board sees fit to buy in some shares.

[Mike Best], Eagle Capital.

Last quarter you discussed pretty significantly the metal pass-through look back and the potential to get some revenue this quarter going back to March. And I was wondering if you had received any of that revenue yet?

Well, as I said in my opening comments, we have made an agreement with one of the parties that we are in dispute with, only recently. And as a result of that we will have a pickup in the fourth quarter and it obviously will help us in '07.

So one of the disputes we have, we have in fact resolved that issue. The other dispute that we have is ongoing. We obviously hope to settle it in the next month or two. If not, then we have a court date in November.

So there was only two parties that you had this metal pass-through issue --?

Correct.

And second question -- how large exactly are the NOLs in the U.S.?

It's 700 million. And in Europe -- 300 and -- about 300.

About 350 in [francs].

So in the U.S. we have about 700, and as Tim was saying, with the way the profits are running here, we're obviously beginning to dip into them. And obviously with the benefits, as you can see, to our tax rates.

And just going forward, the energy costs have come down pretty nicely this past quarter, just at least in the U.S. in gas. Have you quantified or can you quantify the impact that's going to have on the gross margins going forward?

No, we haven't. We have to say that utility costs in our costs are running about what? 3 or 4%, thereabout.

No, we have not.

We have not.

[Andrew Bauer, Pembroke Fund Management]

John, back in July on the second quarter call you had said that you expected European [bev-10] margins to continue to improve in the third quarter as well as the fourth. Now you referenced there may be 100 basis points of margin that you are expecting from the settlement of one of your European beer customers that maybe didn't happen until the end.

But that still leaves about 100 basis points. Can you talk about what changed over that time?

I think a big thing that I didn't anticipate perhaps as well as I should have, is this lag effect that Alan was referring to the Middle East, where because the supply lines are so long and we tend to order aluminum well in advance, we were still processing in the third quarter in the Middle East aluminum that essentially much of which had been purchased in the May/June period, or priced in the May/June period, fabricated in the third quarter. And I think that -- we missed that. I certainly missed it. That's the only significant thing that I can recall.

So then if we were to try to recalibrate the European beverage margins looking into the fourth quarter, could we expect improvement off of that second quarter as a base now that both of these things seem to be resolved?

We could in a sense, but you need to remember that fourth quarter from a unit/volume production standpoint, is the softest quarter in the beverage business for us in the Middle East, Europe, and North America, for that matter. So fixed cost recovery is pretty poor. And we don't run ahead into inventory any more. We're not going to run for the purpose of trying to dress up the fourth quarter. So yes, but you've got to remember cost utilization.

Right. But you did about 12.5% in European beverage last fourth quarter. So I guess I was just wondering if somewhere around that area is reasonable once again?

Well, it's subject to -- the Middle East should do quite well except for the capacity issue that I just mentioned. And of course in Europe, we still have this issue of trying to get fully passed through because we have a major customer who has not yet agreed to price adjustments. And so that's going to -- we don't know when that's going to complete. It may carry over into next year.

And then finally, as far as getting an update of how the pricing initiatives are going, would it be reasonable that we couldn't expect for anything until you reported the fourth quarter? Or will it be sort of updates along the way?

Well, we won't plan any updates along the way. But I think we're trying to make it clear, and we are making it clear to all of our customers, given the volatility and raw materials, we must resolve price issues for first quarter '07 reasonably soon. We are not going to be ordering very high priced volatile raw materials not knowing whether our customers wish to buy from us or not. So, that's going to be our message. Our sales organization understands it. We think our customers understand it. So we're hoping for an early implementation. But we're not going to be coming out with anything until we talk with you about the fourth quarter earnings.

Operator, one more question.

Chris Manuel, KeyBanc Capital Markets.

Just one quick follow-up. Can you give us an update on -- you've given us an update for the CapEx number, but D&A and Tim, I think you already indicated interest would -- or tax would be down a little from your previous guidance. But with the change in the debt, do you have a new estimate as to what your interest cost will be for the year?

I think previously we had said that the interest cost is about $250 million. Given that we've used a significant amount of a cash flow already to buy back shares, it will be a little bit higher than that. But it will still be in that range. So, perhaps $255 and I think D&A is in the $230 to $235 range. But that's just an estimate. We'll see how we finish the year.

Thank you. And that concludes Crown's third quarter earnings call. We thank you for your interest in our company. Thank you.

Thank you. And this concludes today's conference. You may disconnect at this time.