Crown Holdings Inc (CCK) 2006 Q4 法說會逐字稿

Good morning and welcome to the Crown Holdings full year 2006 earnings conference call. [OPERATOR INSTRUCTIONS]

I would now like to turn the conference 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 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 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 then comment on year-end debt, tax in the quarter and year, and pension plan funding at year-end, after which John Conway will discuss the quarter and outlook for the coming year before opening the call to questions.

Total Company revenues grew 6.4% in the quarter and 4.6% for the total year, mainly reflecting stronger volumes worldwide in the year in food and closures and also higher raw material costs passed through. Segment income of $120 million in the quarter grew 11.1% over prior year, producing a final year result of $576 million. During the year, SG&A cost declined from 5.1% of sales to 4.5%, primarily as a result of lower bonus accruals on lower profits and increased top line growth. Americas Beverage, with revenues marginally lower year on year in the quarter, recorded 11% segment income to sales, continuing the improvement seen in the third quarter and resulting in 10% segment income to sales for the year. European Beverage volumes improved 6% year to date compared to prior year. Margins generally reflect high aluminum costs not passed to customers in the year. The quarter results include satisfactory settlement with two customers on pricing disputes, which not only positively impacted the fourth quarter, but will benefit 2007.

Food North America reported revenues up 2% in the quarter, 6.3% year to date, on stronger volumes reflecting a good year in the markets that we serve. Segment income reported solid improvement, with quarter reporting 8.4% of sales and year to date 8.5%, a 300 basis point higher than prior year. Food Europe revenues increase 11.7% in the quarter and ended the year up 2.3%. Volumes in the quarter in year end basically -- were basically flat with prior year. The result was that segment income in the quarter was 7% down on prior year, and lower for the total year on a generally weaker season than anticipated. While Food Europe did not have its best year, this was offset by the improving results in the Americas, reflecting one of the strengths in the Company's geographic portfolio. Worldwide, food can sales volume were up 2% in the quarter and year to date. Revenues for Spec Pack in the quarter up 21% on good demand, and the full-year revenues were up 5.2% compared to prior year, while segment income for the year resulted in a 15% improvement over the prior year.

With regard to our free cash flow during the quarter, we finally obtained all the UK regulatory approvals to make the $63 million one-up payment to the Company's UK pension plan, which has improved the already overfunded status of that plan. You will recall this payment related to our 2005 divestiture of our plastic closure business. Also in the quarter, the Company closed real estate sales with total cash proceeds of $125 million, of which $87 million was paid in the fourth quarter of 2006 and an additional $38 million will be paid in 2008. The Company also recorded a gain on sale, as sales proceeds exceeded book value by $62 million on these transactions. In the fourth quarter, we divested Risdon USA, having previously divested the remaining European plastics business earlier in the year. In addition to divesting the cash flows of these businesses, we also reduced our headcount by 1,600 full-time employees. We did spend cash to exit these businesses. However, this allowed the Company to liquidate the plastic assets and other real estate held by the Company. In all, $38 million of cash use generated $89.4 million of cash, of which $$49.4 million was received in the fourth quarter of '06. An additional $38 million will be received in 2008.

Having reduced our working capital by $750 million since December 31, 2000, we ended this year with working capital flat year on year, which is disappointing, as we targeted a reduction. We closed the year with higher inventories than expected due to building stocks higher than originally planned to ensure continuity of supply to customers ahead of planned realignments in Europe. Also, the tomato crop in Europe was lighter than expected, resulting in a lower draw-down of inventories at year-end. And finally, the volatility in the commodity market, along with certain customer uncertainties, all now are resolved, did facilitate the planned reduction at year end -- sorry, did not facilitate. We will, however, continue to target working capital reductions in 2007.

Turning to 2007, at this time and based upon current knowledge and exchange rates, we expect segment income to grow 12.5% in '07 over '06, to approximately $650 million. Free cash flow we project will be in the range of $330 million to $370 million, which is after capital expenditures, which will be in the range of $140 million to $150 million for the year.

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

Thank you, Alan, and good morning to everyone. As noted in the earnings release, the Company recognized a $121 million tax gain in the fourth quarter. The adjustment was the tax effect of the reversal of a previous adjustment to our minimum pension liability. As the U.S.-defined pension plan was overfunded as of December 31, 2006, there was no need for the minimum pension adjustment. The Company's tax rate from ongoing operations was approximately 20% in 2006, and we project that in 2007 the tax rate will be approximately 26%. Projected profit recovery in higher cash jurisdictions will be the primary driver behind the higher tax rate. Taxes paid were $71 million in 2006 and are projected to be $80 million in 2007.

Total contributions to our pension plans in 2006 were $89 million, which included the one-off $63 million to our UK plan that Alan previously discussed. In 2007 we project total pension contributions to be approximately $55 million. Our reported net debt at the end of 2006 was almost the same as at the end of '05, as common share repurchases, foreign exchange translation on debts and cash consumed by divested assets offset free cash flow. As Alan noted in the earnings release, the contribution to our UK pension plan was more than offset by proceeds from asset sales. Finally, as previously announced in the fourth quarter, the Company successfully completed a consent solicitation and the execution of a supplemental indenture with respect to the first lien 6.25% notes issued in 2004. The effect of the [amendmentcy] indenture is to align the restricted payment test in the first-lien notes with the restricted payments test in the unsecured notes, which were issued in 2005.

With that I'll turn the call over to John for his comments.

Thank you, Tim. We would characterize 2006 as a difficult and challenging year but also a rewarding one, as a consequence of the way that our team and organization responded and the solid results we achieved. The two principle adverse developments over the course of the year were first, sharply increased commodity prices and our inability to fully pass them through in certain markets, particularly with regard to aluminum and steel increases in Europe. And secondly, our beverage can volume loss in the United States and Canada and associated share loss, which required us to rebuild our volume position and prompted us to address our product mix. Notwithstanding these difficulties, we had substantial overall positives. Demand in the markets that we serve globally was generally quite strong. Of equal or greater importance was that our operating performance was excellent. Costs were controlled, productivity improved, capital expenditures were tightly limited and carefully allocated, and capacity additions and new product introductions went very smoothly. With regard to the reduced beverage can volumes in the United States and Canada, over the course of the year we recovered lost volume and market share and ended the year with better balanced product and customer portfolios.

As we look into 2007, we are optimistic about our prospects. We believe volume will be up solidly in all of our product categories in virtually every geographic market. We have addressed the price cost issues in the product and geographic markets where we had difficulty in 2006. Some of this was accomplished during the course of 2006, and our pricing initiatives in the fourth quarter and into this quarter have been very effective. Our positive operating momentum will continue, and we will drive down costs and improve utilization throughout our system.

We thought it would be worthwhile to remind you of the large scope of capacity additions achieved in 2006 and planned for 2007. In the Americas, a major expansion of our U.S. vacuum closure capacity was completed in our plant in Lancaster, Ohio, late fourth quarter 2006, and is now fully operational, producing our ideal family of vacuum enclosures. Growing demand has required a further expansion that is now under way, scheduled for completion fourth quarter 2007. The conversion of two 12-ounce beverage can lines to 16-ounce was completed in our Mississippi and Montreal plants. Production began on the new lines during the second half of 2006. End capacity in our U.S. beverage plants was increased, allowing us to fully convert North America to Super end and to support our South American and European beverage can business with both Super end and other beverage ends.

We are expanding our Brazilian beverage can capacity with the addition of a third can body line, which will be available in the third quarter 2007. In 2006 we moved our Brazilian beverage and production plant to Manaus and expanded its capacity. All remaining end equipment will be transferred during the first half of 2007. In Asia, our new beverage can plant in Cambodia is scheduled to start producing in the third quarter of 2007. This is a major undertaking that further cements our leading position in southeast Asia. Production will begin this month on our second beverage can line in our plant in Saigon, Vietnam. This project has gone very well. It more than doubles our capacity in the south of the country, and it provides significant specialty can volume for the Vietnamese market, which has been growing rapidly. Also in Asia, work began in 2006 to enable us to produce Super end, which will be introduced in the southeast Asian market during the second half of this year. Our European division successfully completed a major beverage can expansion in the Middle East during 2006, which is now fully operational. This involved major projects in Saudi Arabia, Dubai, Jordan and Tunisia. Demand in the region continues to grow strongly.

All of these substantial projects -- as all of these projects were under way, we also finished the process of exiting our last remaining under-performing plastic packaging businesses. We sold plastic bottle businesses in France and Italy in the second quarter. Also in the second quarter, we sold our European cosmetics packaging business. During the fourth quarter, we sold Risdon USA., our North American cosmetics packaging business. These plastic sales completed a process that we began a number of years ago. Our analysis led to us the conclusion that, although our plastics businesses included pet bottle, closures, other plastic bottles and cosmetic packaging exhibited growth characteristics, there were short comings that argued that Crown would be better served by focusing on metal packaging. Of course, our position in metal packaging as low-cost producer, with leading research and development capabilities and a diverse product and geographic footprint, supported our strategic analysis.

With all that we've overcome and accomplished, 2000 is shaping up as a good year and one that we think will continue the story of Crown's resurgence in the metal packaging. As a team we have been determined over the last number of years to establish ourselves as one of the world's preeminent metal packaging Company, that executes quickly and effectively in all market circumstances. We think that 2007 will be another positive chapter in this story.

And with that, we're going to turn the call over to questions. Operator, you may proceed with the questions, if you'd like.

Thank you. [OPERATOR INSTRUCTIONS]. I do have Mr. Panjabi from Wachovia Securities, your line is open.

Hey, guys, good morning.

Morning

The margins in Americas bevs seemed a little weak, given the fourth quarter was so strong for the industry. Could you give us some color on this and what the expectations for margins should be in 2007,. as well?

Well, I think the margins in the fourth quarter in beverage were I believe somewhat better than the third quarter, actually.

Right.

And it's just a reflection of utilization, principally. We're, relatively speaking -- certainly relative to the fourth quarter of '05, relatively under-utilized. We think we've corrected that, but that's really what you're -- that's really what you're seeing.

Okay. And John, just looking out at '07 by major business, could you just characterize how we should think about pricing? You know, aerosols, bev cans between U.S. and Europe, and food cans.

Just in food cans? In all the product categories?

Yes, exactly.

Okay. We're pretty bullish on 2007 pricing at this point. We've instituted the price increases that we have to have in food and aerosols in North America to recover costs. We know what our cost increases have been. Steel price increases have settled out for our Company, and the price increases we announced for food and aerosol are necessary to cover those. The price increases as far as we can tell are going through smoothly, so we're very positive about food and aerosols in North America.

Beverage is essentially completed. As you know, we're on cost pass-through models, so there's not much to say in that regard in North America. In Europe, the beverage price increase, which was the most critically important for us, we think has gone also very well. Alan mentioned settlement with a couple of customers, but it was in the context of adjustments for '07, as well. So we're very happy with what we've been able to achieve in Europe. Food, we've begun passing costs through in the form of price increases. So far that's going well also, although that's a little bit longer process in food in Europe. It drags in to the end of the first quarter sometime, a little bit into the second. So all in all, the price environment we think looks good, in part, of course, because generally speaking, demand around the world for metal packaging is pretty strong.

Okay. Great. Thanks so much.

You're welcome. Next question, please.

Your next question comes from Alton Stump with Longbow Research, your line is open.

Good morning.

Morning.

Just had a quick question to follow up on the pricing conditions in Europe. Just want to get an idea of what you're seeing in terms of supply versus demand. Is the market still -- is it still extremely tight and do you think that will help you throughout '07 on your pricing negotiations?

I think the question is principally directed at beverage in Europe and I think the answer is yes. The supply demand situation is very tight and we anticipate that will continue through 2007. The volume additions that we're aware of, we do not think are going to change that balance and that has definitely assisted us on the price front. I think the customers' have turned from a concern over the price increases to concern over a supply. and so that's helping not just us but everybody in the industry.

Okay. And just had one follow-up I guess a similar question, looking at the bev can business here in North America. On the specialty side are you still seeing very tight supply there, as well, or -- I should say very strong demand to keep up with the recently-added capacity there?

Yes. To give you a little sense, as a share of product mix, specialty for us has almost doubled from '05 to '07. And so, clearly the demand for other than 12-ounce sizes continues to grow and we haven't seen a change in that.

Okay. Great. Thanks, guys.

You're welcome. Next question, please.

Thank you. Next question comes from Claudia Shank with JPMorgan, your line is open.

Thanks very much. Good morning.

Morning.

Just had a question on the Americas bev can business. The margins have been gradually returning over the course of '06. As you think about that improvement, how much of it is specialty cans versus strong underlying growth versus some of the catch-up in the contractual pass-throughs?

The contractual pass-throughs have been helpful, but they really are designed to cover cost increases. So in our case it's been more a recovery as volume as the year has unfolded and the change in the package mix to more specialty.

Okay. And then just in Europe as you look at volumes for 2007, obviously they are very strong in '06. How do you think about volume in '07?

We think it's going to be strong again. We're forecasting in our Europe even business good volume growth depending on the category for every business that we're in, so we think it should be a very solid year.

Perfect. thanks very much.

You're welcome. Next question, please.

Thank you. Next question comes from Richard Skidmore with Goldman Sachs, your line is open.

Two questions. First on the corporate expense line, can you just talk to why that was up quarter over quarter and is that kind of the normal run rate or should it go back down going forward?

No, I think compared to Q3 you're talking in Q4 -- I think that the number you see in Q4 perhaps is a little bit elevated than what we'd have in normal run rate. I think Q3 is probably a bit too low, so somewhere in between would be the normal run rate.

Okay, thanks. And then just secondly, you talked about a number of projects outside of both the Americas and Europe. Can you just help us understand how -- when you would start to see the benefits of the -- I think the new line in Vietnam. I think you mentioned it's going to start up early '07 and some of the things that you're doing in the Middle East. Can you help us understand how that will progress through '07?

The Middle East, the benefits from the capacity we'll see in the first quarter of this year. As to southeast Asia, Cambodia, we won't begin to see it in a significant way until the third and fourth quarters, and so those two projects, that would be the outlook. Vietnam, we'll start to see in the second quarter but probably not the first. We'll be coming up learning curve in the first.

Okay, great. Thank you.

You're welcome. Next question, please.

Thank you. Your next question comes from George Staphos from Banc of America Securities. Sir, your line is open.

Hi. Good morning, everyone. Just wanted to go through some of the volume numbers for the fourth quarter. First of all, we got some of them, but not all. You said that worldwide food volumes were up 2%, I think, for the full year. I think you said European food was flat for the quarter and North American food volume was up. Could you give us a percentage there? Could you give us a percentage for North American beverage can volumes for the quarter?

George, would you mind repeat -- which volumes do you want?

North American food I think you said was up, but you didn't specify a percent. And North American beverage for the quarter I didn't hear that if you said it.

Yes. Okay. '06 versus '05.

Yes, 4Q.

George, we were up mid single-digits in food and we were down mid single-digits in beverage versus '05.

Okay.

Now, that's for the Americas entirely. It's about that for North America as well.

But probably a little bit worse.

Probably.

Okay. Now, as we look at guidance for this year, you're being a lot more precise than last year. You're looking for 12.5% EBIT growth versus the prior range of 5% to 10%. I think the implication from that -- and please add what you'd like -- is that you feel a little bit more comfortable with the outlook and you feel a little bit more bullish on your ability to recover costs. Would that be fair and anything else you'd add?

If you'll recall, George, at this time last year we were describing to you the volume loss in the U.S., the price difficulties in beverage in Europe, and the steel industry's remarkable consolidation in price power and so forth, and -- so you're absolutely right. We're far more confident of '07 than we were of '06.

Okay. What was currency in the quarter? Do have you that, by any chance?

I don't have it in front of me, George.

It wasn't a lot, George. For the whole year it's almost nothing. We've ended up with two averages that are almost identical.

Okay. Last question and I'll turn it over. On free cash flow, at one point in time with a guidance of $300 million you had assumed that you could hit that number even while funding the UK. I think the UK probably came in a little more than you'd expected. It is what it is. When you look at the fourth quarter,, was all of that free cash flow short fall in inventory? Could you tell us if, at all, you tried to perhaps take advantage of some opportunities in the market ahead of, perhaps, higher costs or whatever you -- feel comfortable sharing at this juncture in terms of why you missed, and how comfortable do you feel about '07?

Most of it, George, was in working capital and as I explained in the regions that I indicated. Obviously we spent a little more on capital than we initially expected, ending at $190 million. We were talking about $180 million, $185 million. So there was a little bit extra there as well, and primarily that was -- they were the differences. As far as this year's concerned, as you've just said and as John just indicated, we're more certain on the segment income. And on top of that, I think we have some work to do on working capital, which we're going to be looking at. And we feel pretty confident that the range $330 million, $370 million is certainly doable.

One thing, George, to just add. We do not believe we had any buy-ahead to speak of in our fourth quarter numbers for a variety of reasons. First, we were scrupulous in not permitting it, because we and everybody else is aware of the increase in raw material prices and we simply could not permit it, we didn't feel. The other is just to remind everyone, we do not run in the fourth quarter or in any quarter to try to make a quarter's EPS numbers. That's a bad habit that we used to engage in. We do not do that. So the inventory increases Alan's referring to had nothing to do with any sort of effort to run into inventory.

I was thinking more in terms of making sure you have enough supply for '07 for what you need to produce. But that's fine, guys. I guess the last thing I'll ask, you're bullish on pricing, you're bullish on volume and products. And all your products in all your geographies, would it be fair to say that you -- there are no guarantees, I realize that -- you expect to be up in segment earnings in each of your key products and geographies this year, would that be fair?

Yes it would, generally yes.

Any areas where you're not as comfortable, then?

No.

Okay, thanks, guys, good luck.

Next question, please.

Thank you. Our next question comes from Chris Manuel from KeyBanc Capital, your line is open.

Good morning, gentlemen.

Morning.

And congratulations on a very good quarter.

Thank you.

Couple questions for you. First of all, John, could you -- you did a very good job of going through where all you're adding and some timing. Can you help us a little bit with amounts of capacity? If memory serves it was somewhere between about two billion units on the bev can side and can you help us get our arms around maybe a percent that the closure's capacity is increasing as well?

George, I didn't -- I didn't write capacities in here and I don't have all the capacities. I could give you a sense of the beverage where we think we'll be globally in beverage year on year. We think units for us in beverage year on year should be up something like 8% to 10% for the year, and so that will give you some sense of capacity that we added. We're about 40 billion units globally this year, so we've added an awful lot of beverage can capacity around the world, and end capacity. Food, all the other -- as we said earlier, we think globally all our other units are going to be up as well, but not as a consequence of capacity additions, with the exception of our metal closure business, which has done very well back in closures.

Okay. And then Tim, if you could help us a little bit with the pension. It looks like -- now that you're overfunded here in the U.S., does that imply -- can you help with us the year over year maybe to change in pension income versus expense, how that might pan out?

Yes. You are right, there is a pension pickup, so implied in the segment income number that Alan referenced earlier is a lower pension expense in '07 versus '06. I think in '06 we were at $38 million. and I think in '07 we should be around $14 million or $15 million.

Okay. And then the last question, when we think about the uses of your fabulous free cash flow in 2007, how do you think about the balance between debt pay down, share repurchase and any thoughts -- as you've now got the house clearly in order and in great shape, any thoughts about areas where you might want to either do more expansion or potentially acquisitions?

Well, I think frankly on the free cash flow our thoughts on the moment is are we would take about a third of it to buy back stock and the other two-thirds we will continue to delever the Company with. That's our sort of plans at the moment. Obviously we have to speak to our board of directors about that as we go along, but initially that's the way we see it. We don't -- go on, John.

As far as expansions and acquisitions, we think that the capital that we have allocated, $140 million to $150 million should be more than adequate to accomplish what we want to accomplish. I think one of the purposes in our describing to what we've done over the course of '06 and have planned for '07 as to demonstrate that we don't need to or want to spend more than the CapEx that than we're currently planning for '07. Now that could always change, but I think it's unlikely to change. As to acquisitions, we're not looking at anything. We don't see anything currently that is attractive to us, certainly nothing that's more attractive than continuing organic growth off the platform that we have. It's been a very successful theme for us over the last number of years. We've been improving our return on invested capital in that fashion, and we think it's the best use of our cash, but only in '07 we think within the constraints that we've already announced.

Okay. Well, thank you very much and congratulations again and good luck.

Thank you.

Thanks.

Next question, please.

Thank you. Your next question comes from Mark Wilde from Deutsche Bank, your line is open.

Hey, John, Alan, Time, it's Matt. Good morning. Sort of piggybacking on the last question, could you remind us what capacity is right now in the Middle East and in Asia? And just talk about little bit more specifically what you've -- just sort of remind us what you've done this year and what you're planning on doing next year? And sort of piggybacking again what thoughts you may have for '08 and '09, how you view those two regions?

And you're referring to our capacity in the region?

Yes, your capacity, not industry.

Well, we're -- we're all scrambling here, but roughly speaking our capacity in the Middle East is between six and seven billion cans and Asia between four and five. So that's it. And the projects I've described I think I don't really have a lot to add to the list, except to say that it was an awful lot of work. I mean, these were going on all over the world, the things that I've been describing to you, and brings us back to the thought is we'd like to enjoy the benefits of all that work in 2007 and, therefore, we come back to the CapEx numbers, which we thing are perfectly appropriate, given what we've accomplished.

Are you -- you'd mentioned before that you -- you really like these markets right now, but you were somewhat concerned about competitors coming in. Are you still -- I mean, is that something you've still got your eye on? Is it as big of a concern to you now as it was six months ago? Are you seeing the same kind of activity?

No, the only -- the only market I think I mentioned was that a portion -- western Saudi Arabia, I mean I wouldn't -- let's not overdo this. It's a great big region with an awful lot of people. Generally speaking, demand continues to grow in Asia and in the Middle East between 10% and 15%, often between 15% and 20%, and so we don't see excess supply forming in any of those markets at this point.

Okay. Thank you very much.

Thank you. Next question, please.

Thank you. Our next question comes from Dan Khoshaba from KSA Capital Partners. Sir, your line is open.

Hi, good morning, guys.

Morning, John.

You kind of answered this question with your last caller but if you take rest of the world bev cans -- Middle East, Vietnam, China, some of your eastern European infrastructure there -- do you anticipate, John, that you might be able to achieve kind of a 10% plus or maybe high single-digit organic growth rate in those regions for 2007? What do you anticipate growth to look like?

In those areas you mentioned -- and we don't have much of a presence in beverage in eastern Europe so unfortunately our friends enjoy that -- but in the Middle East, Asia, we would anticipate growth rates in excess of 10%.

Okay, so that's organ -- the market is still growing organically --

Yes.

-- 10% or better.

Yes.

Okay. Good. And the operating rates there, John, they were good enough, evidently, for you guys to improve the pricing picture there as well in '07?

Yes.

Okay. Okay. And what's happening more specifically -- last question -- in the Chinese beverage can market?

The unit volume growth was very good in '06, pricing for us was a little disappointing. We had some difficulty passing through price increases, cost increases. We're going to do a little better, we think, in China. That's the one market of all the ones that we've talked about where supply is quite a bit above demand, even today.

Right.

It's that old problem of the promise of the country seems to draw capital faster than demand increases, even though demand increases a lot. So -- but nonetheless, we think operations will improve and profitability improve year on year.

Okay. Great. Can I ask one more question? I apologize. Just real quickly. Alan, the cash flow for 2007, assuming let's call it your midpoint for your target, $360 million, something like that, and you pay down debt and you buy back some stock, the way I figure it is you're going to be close to being only three times leveraged by the end of next year, early 2008, let's call it. How far do you want to take debt down? At what point do you say it's efficient for us to have debt, we really don't want to go below a certain level -- and maybe that number's $2.5 billion, I don't know -- and therefore you change the ratio of debt pay down from the stock buy back or maybe even down the road, I don't know, maybe even implement a dividend down the road.

Tim has the number.

I think, Dan -- I think at the end of '06 here on a net debt basis we're levered about 3.9 times, and I think if you just took -- if you work up your own numbers, what you might get to EBITDA based on Alan's segment income guidance and what we do with the cash flow as he's described, you probably come to about 3.4, 3.5 by the end of next year.

From then on in, Dan, I think we'll still be planning to delever a bit further. And I agree with you, it is possible as we go along that we may put more of the free cash into stock buy back than one-third and a little less into debt pay down. That's true.

And then this year, you're thinking, what, maybe $150 million in stock buy back?

Well, I said about a third, so I'm talking about $110 million, $120 million of the cash flow.

Spread out throughout the year?

We haven't decided that yet.

All right. Great. Thanks, guys.

Thank you. Bye now. Next question.

Thank you. [OPERATOR INSTRUCTIONS] And I do have a question from Tim Burns from Cranal --

Cranial Capital.

Thank you very much. It is now open.

I knew I should have changed that name.

Morning.

Good morning, guys. John, I wanted to ask you a question. It's got to -- how do you feel about running a Company that's really one material type global presence? I mean, it's kind of a good to great story, isn't it? I mean, the ability to focus, to allocate capital, to really dig down into this one sector. Has that been part of your success story?

It feels great. It feels absolutely great. As big as the Company is, in as many countries as we're in -- and it is two materials, steel and aluminum --

Got you.

-- we as a management team have our hands totally around everything that we're doing and we all understand it completely. So it's been -- it's great. Now, I don't know whether that's been part of our success or not, but we feel it helps us.

Outside of management it's probably been a very good thing. The other question is Abramowicz and his team, you talked about specialty, there's always stuff going on, are there -- I mean, Super end's been big, there's been a lot of shaping that's kind of come through the pipeline. Can the momentum continue and will it continue to enhance your profit mix?

We think so. As you know, we're always very cautious about this because we're working with a container that's been around for a couple of hundred years, so -- but we think we've got a few more big things in the pipeline and one of which will be rolling out this year, so we think there's more to come.

Okay. And then with your expansions into the Middle East and Asia, if I recall, you have some very material relationships with people that do bottling in those areas. Is that correct?

Yes, we do.

Okay. So to the extent -- an caller asked about the competitive situation. It's never going to be totally locked up at Crown, but you've built facilities tailored to these strong relationships and their volume needs, I assume?

We have, but you shouldn't overdo that. I think specifically we have a relationship with a bottler in China and a relationship with a bottler in Saudi Arabia. And what's happened, of course, is those markets in general have grown so rapidly that the volume that we supply to each of those bottlers has really come way down as a proportion of what we sell. So what we now have is business partners with a great knowledge of the region who help us in that respect, Tim, but otherwise, we're selling into the commercial market like everybody else.

Got you. And then last question, you deal with a lot of portfolio managers and hedge-fund types, when you look at your business, you're really looking at a global portfolio, right? I mean, in one market you're cutting costs. In another one you're building capacity. In a third you're trying to manage price. Is this kind of how you look at your metrics and maybe it's not that specific -- although I know Tim can do it in the back of his mind, like a computer -- but do you guys factor all this into your model?

Well, we're keenly aware of all of these markets with differing growth rates and differing opportunities and problems. So to that extent, we're not attempting to run our various businesses around the world in precisely the same way. I mean, you can imagine capital allocation, starkly different by business, by country issues, whether it's labor costs, et cetera, vary as well. So we're trying to keep that all in mind and we've got very good strong regional managers, as well. Our model is we typically want our businesses in various countries to be run by people from those countries. We minimize attempting to spread Americans around the world, for example, and it's worked very well for us and we plan to continue to do that.

Great. Listen, nice talking to you guys and have a good quarter.

yes, thanks. Next question, please.

At this time I am showing no further questions.

Good.

That concludes Crown's fourth quarter and year call and we thank you very much for your interest our Company. Thank you.

Thank you, and that conclude's today conference call. You may disconnect at this time.