Crown Holdings Inc (CCK) 2007 Q3 法說會逐字稿

Good morning and welcome to the Crown Holdings third-quarter 2007 earnings conference call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised that this 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, sir. Thank you.

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 2006 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 cash flow, stock buyback and foreign exchange, after which John Conway will discuss the quarter and outlook for the coming year before we open the call to questions.

Total Company revenue grew 7.6% in the quarter and 10.4% in the nine months, reflecting generally improved volumes worldwide, higher raw material costs passed through in pricing and foreign exchange. Segment income improved 16.9% in the quarter and 13.7% in the nine months over prior year.

Americas Beverage revenue was 4.1% higher in the quarter and 10.4% higher for the nine months over prior year. Segment income at 54 million in the quarter and 148 million year-to-date continued to show improved margins of sales over prior year. While American volumes were lower by approximately 4% in the quarter, year-to-date volumes overall are 1% higher than prior year, reflecting the recovery of volume in North America compared to the first half of 2006. Additionally, continuing plant productivity gains and one production facility less contributed to the improved results.

North America Food revenues improved 4% in the quarter and 3.2% year to date while segment income, up 7.1% in the quarter to 11.5% of sales and up 11.1% year to date, continued to achieve steady improvement over prior year. Volumes were up 2% for the quarter and for the nine months and this along with better productivity and better product mix resulted in the improved margin to sales.

European beverage revenues were 21% higher in the quarter and 19% higher in the year to date at $413 million and $1,095,000,000, respectively. Volumes improved 9% in the quarter and 7% year to date, reflecting strong seasonal demand, supplied in part by the Company's capacity additions installed in growing markets last year. As a result, segment income grew 82% in the quarter to $60 million or 14.5% of sales and year to date to $148 million.

Food Europe revenues were flat in the quarter and up 4% in the nine months compared to prior year. The impact of adverse weather conditions throughout the region resulted in one of the lowest volume requirements in many years. In what is normally the strongest demand quarter, volumes were down 10% in the third quarter, 15% in the month of September alone and as a result, 4% down to date compared to last year. In such circumstances, we were still able to record flat third-quarter segment income, although not recovered the decline in the year-to-date income.

Specialty packaging revenues improved 7.5% in the quarter and 12% in the six months, reflecting stronger volumes, offset by the impact of product mix. Segment income at 8% in the quarter and [18] million in the nine months was flat to prior year.

Nonreportable segments, which include the Asia-Pacific region and worldwide aerosols' reported revenues improved by approximately 14.7% in the quarter and 17% year to date. Asia-Pacific recorded strong double-digit beverage volume growth in the quarter while aerosol volumes improved 1% in the quarter and in the nine months reported 2% volume improvement. Segment income was 19% higher in the quarter and 9% for the nine months. 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 repurchased more than 4.8 million shares in the third quarter for approximately $118 million. Approximately 4.1 million shares were purchased subject to an accelerated share repurchase program. The Company will receive additional shares under the repurchase program, the amount of which will be dependent upon the Company's volume weighted average stock price over the remaining program period, which will complete in the fourth quarter. The Company received the initial 4.1 million shares under the repurchase program at the end of August or two-thirds into the quarter. Therefore, the full impact on average diluted shares will be reflected in the fourth quarter. Actual shares outstanding were 3% lower at the end of September compared to June.

As for foreign exchange, there are two items we would like to discuss. The first is to remind everyone as to how we translate the balance sheet and income statements and the respective rates at September 30th. The second item will be to discuss the weakness of the U.S. dollar against the Canadian dollar.

We translate the balance sheet at the spot rate while the income statement is translated at the average rate built up throughout the year. Using the euro as an example, the September 30th, 2007 spot rate was 142.7 compared to 135.3 at June 30th. So in the third quarter, the dollar weakened by 6.6% against the euro. And since we are a U.S. dollar reporter, this results in all balance sheet amounts being translated to higher amounts on our balance sheet, including our reported net debt, which is $55 million higher than June 30th due to translation alone.

As for the income statement, while the dollar spot rate at September 30th was 142.7, our average rate through the nine months is 134.5 due to the fact that we have been averaging from the opening spot rate on January 1 of this year, which was 131.8. If the dollar-euro stays at the September 30th spot rate of 142.7 through the end of the year, our full-year average rate would be about 136. Importantly, however, we would begin the 2008 averaging at the same 142.7, some 5% higher compared to the 2007 estimated average of 136.

Today, the Canadian dollar is worth U.S.$1.03. On January 1 of this year, it was worth U.S.$0.86. This approximate 20% strengthening of the Canadian dollar or weakening of the U.S. dollar has had some impact on our Canadian operations. Firstly, segment income was negatively impacted by a few million dollars in the quarter as many of our sales are cross-border and Canadian and are U.S. dollar-linked whereas 40 to 50% of our costs are in Canadian dollars. The result is that a rising U.S. dollar helps our Canadian operations. However, a devaluing U.S. dollar hurts our Canadian income.

The good news, however, is that our Canadian operations sell their Canadian Accounts Receivable into the Company's U.S.-based North American Accounts Receivable securitization vehicle, naturally hedging their selling price cost differential. The exchange gain on the receivable securitization is reflected on the translation and foreign exchange adjustment line of the income statement, whereas the cost based differential runs through the segment income. Based upon the activity involved, we believe you should view these items on a combined basis.

Our net debt at the end of September was just over 3.4 billion, essentially the same as at June 30th despite the repurchase of $118 million in stock and an increase of $55 million due to currency translation. We generated $152 million of free cash flow in the third quarter compared to $88 million generated in the third quarter last year. As we discussed with you on our July call, we are a user of cash in the first half of the year as we build working capital before the peak selling months of summer and early fall.

What you now see in our Q3 cash flow is the beginning of the liquidation of that working capital build. Due to higher raw material costs, which ultimately are passed through on the form of higher selling prices, our working capital build in the first half was higher than last year and the liquidation in the second half of this year will also be higher than last year, as initially evidenced by our Q3 cash flow. So all in all, it has been a good start to our collection season and with that we'll hand it over to John.

Thank you, Tim, and good morning to all of you. Obviously, we had an excellent third quarter and it continued what we feel has been an outstanding nine months of performance around the world by our Crown team.

I will not repeat the summary that Alan and Tim just provided. However, as you can see, volumes were good; price cost performance was excellent. Manufacturing performance and resulting efficiencies were outstanding. And very importantly, the positive contributions from our growth capital initiatives were substantial and in accordance with the plans that we laid out several years ago and we have been telling you about. Equally importantly, economic profit or return on our invested capital improved across the board. As you know, this is something that we have been giving tremendous attention to in the last number of years along with generation of free cash and improvement in earnings. And we are very pleased to see that capital deployment has been achieved effectively and profitably for our shareholders.

The outcome of the quarter and our year-to-date performance validates the strategy that we have been pursuing for the last number of years and will pursue in the future. If you will bear with me, we thought it would be worthwhile to remind you what it is we've been trying to accomplish and feel we have largely accomplished.

First, we are consciously focused on rigid metal packaging diversified across the end uses of beverages, food, personal care, and household. And it is our objective to be the best in each of these categories by all objective measures. Second, in mature markets, our target is to improve income performance with careful attention to price policy and cost management, combined with frugal targeted capital outlays. Third, we are growing the Company's sales and profits in emerging markets, using our outstanding global footprint and extensive local knowledge accumulated over many years. Finally, we support our worldwide operations with an outstanding research and development capability, helping us to reduce product and process costs and develop new products to build our customers' brands and enhance our margins. The results achieved confirm the wisdom of this approach.

Because of the performance in the quarter and year to date and our confidence in our underlying strategy, we look forward to 2008 and believe that our positive momentum will continue. As Alan pointed out, our Food business in North America and in Europe performed well in the quarter, even though Europe was restrained by the coldest, wettest weather in more than a decade. With only a return to normal weather conditions in Europe, volumes should come back strongly in 2008 as our customers respond to the immediate needs of the European marketplace and rebuild inventories depleted in 2007. So our food can business continues to perform well and we believe will perform even better in 2008.

Our global beverage business continues to be very strong. We do not anticipate that the North American nonalcoholic beverage demand softness in the third quarter will continue into next year. We anticipate market demand rebounding to more normal performance and we continue to rebalance our order book for 2008 and believe that our units will grow in beverage in 2008. We continue to anticipate strong profit performance and growth in beverage cans in Europe, the Mediterranean region, the Middle East, South America and Asia. Our other businesses are performing well and we believe that 2008 will continue to show further improvement.

In summary, we're very pleased with 2007 performance year to date and we look forward to an even better 2008. And with that, operator, I think we are ready to begin the questions.

(OPERATOR INSTRUCTIONS). Ghansham Panjabi. Please state your company name.

Good morning. Wachovia Securities. You know, a couple of years ago when steel tinplate prices went up, you and the industry followed with big price increases of your own, particularly in European food cans. It seems clear that steel tinplate looks like it will go up quite a bit in 2008 as well. Given some of the weakness, John, that you are seeing in the European food can business, do you still feel that you'll be able to offset these cost increases next year?

Yes, we do, Ghansham. As you said, we're anticipating significant price increases on both sides of the Atlantic, more so in North America than in Europe. But in the case of Europe, the weakness we think is not anything fundamental or underlying with regard to consumer receptivity to food cans. It's a simple fact that there aren't as much -- there isn't as much sweet corn, beans, peas, etc., grown and to be packed in Europe because of the wet, cold weather. So we think the market is going to rebound nicely and we think that our customers are going to be very receptive to price increases because they, in turn, have been able to impose increases at their end.

Okay and just switching to the beverage can business, focusing on Europe, you guys have been pretty consistent in your strategy in terms of cash flow, occasion towards debt paydown and share buybacks. There is, however, an asset for sale in Russia following a failed bid by one of your competitors. Does it make sense, given the growth rates that you are seeing in Eastern Europe to sort of revisit the capital allocation strategy?

I guess if the question is specifically [Rothstar], Ghansham, no, we don't like overpaying for things and our experience has been so good with organic growth, there's a lot of opportunity in that part of the world. We think the right way for us to capture it is build new plants, add more capacity.

Would that include Eastern Europe in terms of building new plants?

It could in time but we want to be very careful about that. We have a number of other can companies that are already there and although the market is growing rapidly, we're always very careful. We don't want to tip a supply-demand situation into a bad situation.

Okay. Thanks so much. Good luck in the quarter.

Mark Wilde.

It's Mark Wilde from Deutsche. John and Alan, I wonder if you can give us just an update on any capital plans as we look into '08 and beyond. Is there another tranche of the organic expansion that you talked about?

I don't think there's anything to discuss today that you don't already know about. We are building a new plant in Brazil, in the North of Brazil, we think is going to be a real winner for us. It's been a great market over the past number of years and we think growth there is going to continue. We're doubling the size of our very large one line but still quite large beverage can plant in Seville, and that will come online in the second half of next year as will the Brazil plant.

Cambodia is now running and coming up a learning curve so it's going to make a meaningful contribution in Southeast Asia. We're filling out the capacity in Vietnam that we added earlier this year, so that's very positive and of course we've still got room to go in the Middle East, utilizing the capacity that we installed there. If you will recall, we had a massive capital expansion program for us anyway over the last three or four years, doubling the size of virtually every plant in the region and we built a new beverage can plant in Tunisia.

And then we're doing various things with food capacity expansions in specialized niche markets, particularly in Europe. So at the moment we think that's all going to keep us pretty busy through the end of '08 and we're not looking into '09 in terms of specifics about capital at this point.

Okay and then if I could just follow on, any thoughts on repricing of the bev can market in China as we approach the end of the year here?

Well, our experience is we've been sold out in China this year and we anticipate we're going to be sold out next year. We are also seeing that we think pricing is firming for beverage cans in China and we believe margins for us will be better next year than this year. So we are relatively positive on China for '08.

Okay very good. Thank you.

Alton Stump.

Longbow Research. Just had a quick question on the North American bev can business. Was there any hit in terms of the timing of shipments -- obviously the [LME] has dropped a fair amount in the last couple of months. Was there any slight short-term impact from that that was in the 3Q result?

We don't think so. Our story was basically in the third quarter in North America, as you know, nonalcoholic beverage can shipments were down and we tend to be a little more exposed to that than to beer. And although we are moving product mix, our product mix to specialty cans, which are still doing very well, we are rebalancing a little bit towards beer for '08. We were hit by simply that downturn. And I think some of that had to do with some of our customers taking price in the third quarter, particularly in August, September; and so I think that's our explanation for what occurred.

Okay. And then just one other question on the European bev can business obviously had another strong margin gain year over year this quarter. Looking into 2008, does it appear that with the current supply conditions still very tight that you guys should have a pretty good position heading into passing through additional pricing next year?

We think so. We're sold out in Europe and you are familiar with the growth rates there. And demand in the Middle East has been very, very strong. And although we had a lot of success in pushing through raw material and other cost in '07 compared to '06, there is work left to do. And we're quite confident that as we go into '08, we're going to finish the process of passing through all of the cost increases in price. So we're pretty bullish about the European bev can business for '08.

Okay, great. Thank you.

Rick Skidmore.

Goldman Sachs. Good morning. Just to follow up, the European food market is -- you are essentially saying that that crop is essentially done for the year. You're not seeing it pushed into the fourth quarter. Is that correct?

Yes, that's correct. Maybe a little more was filled in the first week of October than last year, but essentially, it's over. Sweet corn is largely done. The peas in the UK never appeared. Green beans -- you can go right through the list. It was just a bad year.

Okay. And then just to clarify, I think initially you talked about operating income being up in '07 versus '06, about 12.5 or 13%. It looks like you're sort of up 14% and you bought back more stock. Can we infer from that that your thinking on free cash flow is at least towards the high end of your initial guidance range or you are thinking about that coming in better than expected?

Well we continue to expect segment income to grow, as you said, 12.5 -- by approximately 12.5% in '07 compared to '06. Free cash flow, we're in the range, 330, 370. But now we expect capital expenditure to be 160 million instead of 150. And this is to accommodate the early spending on the second line in Seville and the new plant in Brazil. And also considering soft food pack in Europe, we now expect to be closer to the mid point of the range.

Okay, great. Thank you very much.

Tim Thein.

Citigroup. The question, just on that last thought there in the European segment, you had said I think in the last quarter that barring some kind of disaster on the weather front that you would have expected full-year operating profits to at least be comparable to '06. Would the weather you experienced in the third quarter qualify as a disaster or a calamity I think you may have called it?

Well, we had been expecting and our customers had been telling us and always perhaps optimistically that they felt that the weather conditions of July and August would gradually correct themselves and we would see a tremendous September, late August and September, and it didn't happen. And I think it's been the -- we said the worst volume year in our food business in a decade. Some of our people say it's the worst volume year in the food business they can ever remember and they've been with the Company for 35 years. I think if you poll our customer base in France, the Benelux, Germany, the UK, they would say exactly the same thing.

So we're disappointed and disaster, I don't know, but it was awfully bad. And now, okay. And the good news is we were able to equal in segment income for the quarter last year. Even better news is that if we just get normal weather conditions next year, we're going to have a very substantial rebound. And then what's going to have to happen is inventories are going to have to be rebuilt. So I think with -- there is good reason to believe we should have a really sharp and positive uptick, a rebound in our food can business for '08.

Okay, good. And then in North America, the impact from the C dollar that Tim spoke about, would that have impacted the -- would that have been the translation line or that negative couple million dollars that, Tim, you mentioned, would that be in the North American food segment or --?

No, the negative impact of the strengthening of the Canadian dollar is in the segment income and that will be in food and beverage. And the positive implication or the however part of that, the benefit we get by selling the receivables into the North American receivables vehicle comes through the translation line.

Okay.

So basically it's the same operating. It's just we put it in two different lines but it is connected.

Okay. So despite that, the North American food had nice year-on-year profit growth here in the last -- at least from a margin standpoint. And certainly the third quarter is well above where it was two years ago. Is it anything other than -- is this just a good pack or was it -- are there other factors that you guys can point to on that?

Well the pack was reasonable. I don't think it was great. It was okay. As I said earlier, I think we've got our factories well loaded. The industrial plant is -- nicely matches demands. Our efficiencies were very strong. The people running that business for us in North America have just done an outstanding job and we've seen year-on-year improvement; we are just happy as hell about it. We've got a good mix of business between two-piece cans and three-piece cans. We think we're the lowest cost two-piece can food can producer in North America.

So I would just say -- and price cost was positive. We did a nice job persuading our customers that our costs really were running up and needed to be passed through, so just a lot of those things. But not inordinately high demand improvement. I think we talked about 2% or so in units.

Yes.

So that's really not the source of it. It's price cost and outstanding operations.

Okay, well, excellent. Good luck in the quarter.

Chris Manuel.

Chris Manuel, KeyBanc Capital Markets. Good morning, gentlemen. And first of all, congratulations on what was a terrific performance given some really terrible weather conditions in your biggest business, European food.

First question is let's talk a little about European food and traditionally, my understanding is if we have a bad year or a terrible year as we had this year, that typically they plant a bumper crop the following year to make up. What has been a historical pattern with respect to how a follow-up to a bad year from a planting perspective?

Chris, we've never had a year this bad, so, at least, certainly not in my experience with the food business in Europe in the last 15 years or so. So I really -- we know there's going to be a substantial catch-up, as you've just said, but I'm not in a position to quantify it. I just know there's going to be a big rebound. Alan might want to take a stab at it.

You know, what -- obviously, what John says, I agree with. I think, frankly, also, last year wasn't so good anyway. So I think really they must be looking for a real bumper 2008. And as you say, they are probably planned accordingly. Other than that, we really don't know, Chris.

We know it's bad enough so that our U.S. customer base has been receiving inquiries from Europe about imported fill product into Europe, which they say is typically unheard of because our European customers typically like to keep the Americans out of the North America -- the European market. And we know that all of our customers on both sides of the Atlantic feel that they have price power now vis-a-vis their customers because of the concern about this global food can or at least North Atlantic food can situation. So it all looks very positive for next year, but it's been a fair bit of pain this year.

Sure. And particularly I would guess given the state of the currency, it may be easier to actually import some finished product.

Yes.

Sure. Yes.

The next question I had was as you look at the capacity that you've added over the last few years in the Middle East and what you are about to add in southern Europe, I think Spain and Brazil, from your new lines where you put them into place, what sort of utilization levels are you running at today? And is there still some upside from continued growth in those markets that you can still capture?

Yes, as I said earlier, we know that there's capacity to be utilized in Asia, particularly in Vietnam and in Cambodia. I can't quantify Vietnam at the moment, but it's not insignificant. And Cambodia will be substantial. So for those reasons alone, plus demand and firming pricing, we think Asia should have a really very, very good year. As you know, China 2008 is the year of the -- is the Beijing Olympics and we know our customers from talking to them are very concerned about being sure that they have supply of packaging available to satisfy the demands of the market. I think their concern has turned more to that and less to price.

We think the same thing is going on in the Middle East, where although, I think we did a great job performing as we had hoped we would, we are still in some of the plants, in Jordan for example, Dubai, still coming up a learning curve and so we're going to make a lot more cans next year in the Middle East than we did this year; same thing true of Tunisia.

Now, Brazil and Seville are going to be coming on the second half of next year and I know we're going to get a positive contribution but I hate to make too many forecasts about it because they are big projects, but we know we will get some benefit there as well. So I -- we really feel pretty good about how these beverage can capacity additions have turned out, about as well as we could have hoped for, frankly. I don't know, Alan, how do you feel about it?

Well, yes, and I think the way we've been structuring it, we've always obviously have Saigon and now Cambodia coming online. We have the Middle East, which has obviously helped us this year, which is really investment in '05, '06. Now rolling in, we're going to have the second line in Spain and then following on from that, Brazil. So we have had a nice sequence and I think it's fit very well with the market demand and it's obviously added to our profits.

Yes, we're looking out into '09. We're just not at a point of deciding precisely where and how, but we know there's more to come.

Final question is given the way currency has moved and where you are putting some of your new plants, would it be unreasonable to approximate your CapEx next year in '08 should be close to the 160-ish, where you are going to be this year?

Yes, I think next year at the moment we think we will be around 160, the same as this year.

Okay. Well, congratulations, again on such a terrific job of executing this quarter and this year in some challenging markets and still hitting your goals.

Sangita Jain.

Lehman Brothers. I have a question on North European food. You guys talked about weak volumes this year from weather and volumes were kind of weak last year also. Are you seeing some kind of structural shift in the market in terms of where the crop is being grown? Do you think that could be playing a part here?

No, we don't think so. We really don't. That's not the feedback that we're getting from our customers and we just haven't seen that at all.

Okay. And also a quick follow-up on European beverages. Can you share with us some early insights on how the next year is looking like? Are you still aiming for same kind of volume gains as we saw this year? Or are we going to see more normalized mid single digit based on what you are hearing from your customers?

Our situation is we are sold out in Europe -- Western Europe.

For '08?

For '08 and we were in '07. So the volume gain that we're going to see in Europe is going to be a function of the extent to which we can get the new Seville capacity running. Unfortunately, it won't be added until second half of the year. The Middle East, on the other hand, is -- we feel demand growth is going to be strong there. As I said earlier, we have capacity that we can more fully utilize as our people become better at running multi-line plants, and they are. So there I think we're looking at fairly significant unit volume growth. Off the top of my head, I'm not in a position to say how we think '08 is going to compare to '07, but we know it's going to be better across the board. We think it will be better price cost, and, for the reasons I said earlier, and then unit volume should be stronger also.

Great, thanks so much.

George Davis.

Banc of America. Just wondered if maybe you could tie the bow then on the outlook, as much as you can have one at this juncture, for free cash flow next year? You are expecting a better '08. It sounds like productivity will be improving. You will have some positive price costs, obviously, it looks like right now. Volumes should be positive and CapEx stays flat. So is there any reason why your free cash flow range wouldn't be higher relative to the current 330 or 370?

Well, George, you know, for the last few years we normally give any guidance for the current year when we're giving the final. So you know we're not going to get into forecasting this for a very simple reason. And that is we're currently working on finalizing all our targets for next year so I'm not going to confirm or deny what you just said.

Okay, but necessarily I wasn't looking for a target but just looking for reasons why it wouldn't grow since it seems like there are a lot of reasons why it would grow. Is there any working capital issue or any other issue?

No, there's not. I agree. Generally the trend is the way you're saying.

Okay. Now when we look at the global beverage can market, if it is global, do you think that the growth in emerging markets is having any beneficial effect on supply-demand in more developed markets, excluding North American here, so thinking about Europe? Are you seeing any pull-through of demand from developed -- from emerging markets into Europe, traditional Europe, if you will?

Well, George, I'm speculating that the excess capacity in Germany has been going into Eastern Europe. We all know about that but I think the right way to look at that now is that Germany, Eastern Europe are kind of one market for beverage cans. But other than that, as you know, it's pretty difficult to ship beverage cans very far.

I understand.

So I don't think so. The one thing we've been able to do and I suppose others may be doing is we are attempting with regard to beverage ends, we're trying to use our low-cost beverage end production centers to supply other markets where we can. So for example, we are running flat out now and plan to continue to do so maybe with increased utilization for beverage ends in North America for Europe, been very positive. We do the same thing with regard to North America for Central America and Mexico. So that kind of thing is happening, but in terms of beverage can bodies, I mean the -- to me the movement from mature markets to emerging markets is pretty small.

Okay. I mean we've heard the same thing on ends for a couple of other markets as well. When we look at then the incremental profit growth, the profit growth in Europe in particular, did most of that incremental profit come from price cost or was it truly volume plus productivity as we think about it?

It came from all three things, George. And I don't have a breakdown here. Maybe Alan would want to take a stab at it.

Obviously it came from what -- I agree with John, but if you look at the Middle East for instance, George, our volumes were up 20%. So this reflects all of the new facilities really coming on full line and producing well. And with volume increases like that you can see a reflection in the numbers.

So probably volume has been the bigger contributor to your profit and perhaps profit versus budget relative to price cost?

Yes, some of it is price, but certainly volume was a big driver.

Okay, two last ones and I'll turn it over. On the one hand, we had these fairly large steel price increases out there. Recent history suggests that the industry has been successful in offsetting that. Do you have any price increases currently in the marketplace to offset tinplate, either in the U.S. and Europe? And if so, could you share that with the audience here?

George, our situation is that we have been keeping our customers abreast of what appears to be developing for tinplate pricing in Europe and in the United States.

But you haven't announced a price hike?

We have not announced a price hike. We know that there are going to have to be significant price increases on all of our steel packaging in North America, probably very significant based upon the announcements that we've received from the steel industry to date. They don't show a lot of signs of backing down. Now we're going to fight them tooth and nail and do everything we can to contain their ambitions, but so we know it's going to be substantial. We're telling our customers that. We're preparing them for it. And so that's pretty certain. In Europe, we're going to get significant increases -- we don't think as substantial as North America, but they're going to be significant. Again, we're talking to all our customers. But we have not yet gotten to the point of knowing precisely what we're going to do. But we are going to be increasing prices on both sides of the Atlantic in all of the steel packaging products.

Okay. And on rebalancing volume or mix in North American beverage, could you give us a bit more detail? You suggested that maybe you're moving a bit more into beer, but how and with a bit more color, how are you rebalancing?

Well we continue to focus more on specialty and -- because that offsets carbonated soft drink. And so we're going to do a little more of that next year. And we are gaining a little more beer business next year, not a lot, but a little bit more. And if you will recall, our overall objective in North American beverage has always been to be at about in terms of units and market share, where we were in '05 before we had a little downturn in our unit volume sales going into '06.

Did you pick up any volume with Miller?

No.

Okay.

And so we think in '08, we're going to pretty much right on the 2005 number, but with a mix change, which I think is going to be beneficial. So we had hoped to get there this year. It took us a little longer than we thought, so it will be next year.

Okay, thanks, guys. Congratulations.

[Mark Masters].

J.P. Morgan. I just had a quick question on your tax rate. It was a little bit lower than we had been expecting this last quarter. And I was wondering what kind of -- what you were expecting for full year '07 and possibly into '08?

Yes, full year '07, I think we're going to stay with the 24% that we gave you on the second-quarter earnings call. A little bit too early to talk about '08. I wouldn't describe the rate here in the third quarter as being lower. I think it was right around 16%; we're right around 20% for the year. And if you recall, we mentioned to you that given the NOL situation and the valuation allowance, valuation allowances on the NOLs, that we typically run with a higher tax rate in the first and fourth quarters and a lower rate in the second and third, so still on 24 for the year.

Okay, good. Thanks a lot.

(OPERATOR INSTRUCTIONS). Joe Stivaletti.

Goldman Sachs. I just had one little question left and that was, incorporated into your free cash flow guidance for '07, I was wondering if you could just shed a little light on what you expect your cash tax component to be?

Cash tax is I think around 75, 80 million.

Okay, that's helpful. Thanks a lot.

Andy Feinman.

Thanks. Iridian Asset Management. How much were the securitized receivables at the end of the quarter?

I think they were almost the same as they were at the end of the third quarter last year, so --

Around 260?

No, no, no. September last year was 320 and this year in September was 324.

Okay. So given that you -- the free cash flow guidance this year you said the midpoint of the range, so 350 million, if you spent 118 of it buying back stock so that leaves 230. So what are we likely to see given, let's say the dollar stays where it is right now and you come in right at the 350, what would the debt and securitization be at the end of this year?

Roughly I would think the debt is going to be about -- net debt --

Net debt.

Net debt about [2.950], [2.940, 50] and the securitization about 240.

Thank you very much.

Joel [Spungen].

Merrill Lynch. I just had a couple of quick questions for you on the European beverage can performance. I was just -- I don't know if you said that the Middle East volumes were running about 20%. I was wondering if you could just give us a sense of what they were in the Western European market.

They were up -- we don't have it -- I don't have it -- I don't know if Alan does. I don't know that we do.

I would say we were up about something like about 7%, 8%.

Right. Okay thank you. And then just with regards to the capacity you are adding in Spain, how much actual capacity will that add when it's sort of up and fully up and running?

About 850 million cans. It will have two 2000, two 2100 can [minute] steel lines. It will be between 1.8, 1.9 billion, 2 billion. I think it will be the lowest cost can plant in Europe. And if you can make an adjustment for currency, probably the lowest cost can plant in the world.

Right. Thank you very much.

Thank you. So that concludes Crown's third-quarter -- Crown Holdings third-quarter conference call. We thank you for your interest in our Company. Thank you.

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