Crown Holdings Inc (CCK) 2007 Q4 法說會逐字稿

Good morning and welcome to Crown Holdings full year 2007 earnings conference call. Your lines have been placed on a listen-only mode until the question-and-answer session. Also 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.

Thank you very much 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 Discussions 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 tax, LIFO and [retiree] medical after which John Conway will discuss the quarter and outlook for the coming year before opening the call to questions.

Total Company revenues grew 11.6% in the quarter and 10.7% in the year, reflecting generally improved volumes worldwide, higher raw material cost pass-through in pricing and foreign exchange impact. Segment income recorded a decline of (inaudible) .9% in the quarter and was 11.5% (inaudible) for the full year.

However adjusting for the post-retirement and vendor settlement of $7 million in the quarter and year-to-date, the quarter would have improved 6.5% and the year by 12.7% over prior year at $649 million.

America's Beverage revenues were 6% higher in the quarter and 9% for the full year, reflecting volume increases of approximately .05% for the quarter and full year.

Segment (inaudible) in the quarter was solved primarily due to lower production to reduce inventories at year end and the impact of the Canadian dollar U.S. exchange rate. For the year, however, America's Beverage recorded an increase of 13.8% in segment income on firm sales volume and good plan productivity.

North American Food revenues improved 4% and 3% in the quarter and year-to-date, respectively, on volumes which were flat in the quarter and up 1% for the full year. Reported segment income includes the vendor settlement without which income would have improved 19% in the quarter and 13% for the year. Improved productivity, additional volume, and better product mix has helped to improve North America's Food results this year.

European Beverage revenues were 34% higher in the quarter and increased 22% for the full year. Volumes were very robust in the quarter, up 25% over prior year and 11% for the full year with the strong demand being supplied in part by the Company's capacity additions installed in growing markets. The result was segment income growth of 54% in the quarter to 10.9% to sales of $37 million and for the full year segment income was 12.9% in net sales of $185 million, which was 52% higher than last year.

[Food] Europe revenues improved 11% in the quarter and were 6% higher for the full year, reflecting a volume recovery from the very weak third quarter but still resulting in a 3% volume decline in the full year. Segment income in the quarter improved 25% to $35 million resulting in an almost flat year on year comparison at $173 million.

Specialty Packaging did not have a good quarter. Revenues declined 3% reducing the year on year growth to 8%. Segment income recorded a loss of $4 million, a $7 million turnaround from prior year which reduced full year segment income by 39% to $14 million.

The quarter was impacted by two major events. One customer for which we are 100% supplier closed their filling plant for eight weeks to reduce inventory following a weak summer season and we recorded lower deliveries to another customer as a result of contract dispute. All issues were resolved, but too late to improve the results in 2007.

Non reportable segment revenues grew 11% in the quarter and 15% for the full year. Segment income reflected improved aerosol volumes in both the quarter and year-to-date, along with strong results from Asia helping to improve income 20% in the quarter and almost 12% year-to-date.

Corporate and unallocated items in the quarter included a charge relating to the post-retirement benefit settlement.

The reversal of the U.S. valuation allowance reflects the continuing improvements and positive outlook in the Company's financial position in the USA and will result in a more normalized [group] tax rate for 2008 and future years which Tim will review in a moment.

This adjustment along with movements in post-retirement and pension liabilities results in a positive shareholder equity balance at year end 2007 from which the Company can build in the future.

Reviewing 2007 from a financial viewpoint, in 2007, the Company increased segment income by 12.7%; generated free cash flow of $360 million with which we repurchased approximately 5 million shares of common stock and continue to deliver the balance sheet. We settled various disputes to our long-term advantage and returned shareholder equity to a positive balance at the close of the year.

Turning to 2008. At this time based upon current knowledge and current exchange rates, we expect segment income to grow approximately 16% in 2008 over 2007 to around $750 million. We project free cash flow to be in the range of $330 to $370 million after capital expenditure of $160 million for the year. This includes the $20 million of one-time cash settlements to be made in '08 as noted in the press release. Additionally, we are not planning to achieve further working capital reductions in a market where both sales, volumes and prices are increasing. However that does not mean we will not be looking for ways to improve as the year progresses.

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

Thank you, Alan, and good morning to everyone.

As Alan highlighted there were a few accounting adjustments recorded in the fourth quarter of 2007 and as we go through these in a moment, hopefully you'll come to the same conclusion as we did in that these adjustments reflect the continuing positive trajectory of the Company and in the outlook for the future.

As we briefly described in the earnings release during the fourth quarter, the Company made the determination that we considered it more likely than not that we would realize the benefits of our U.S. deferred tax asset through future income from operations. Several years ago in 2001, the Company established a valuation allowance on certain deferred tax assets including net operating loss carryforwards. The U.S. valuation allowance has now been reversed with the corresponding positive income impact being reported of $479 million or $2.94 per diluted share. As Alan noted this is not only a reflection of the continuing improvements, but also reflects the positive outlook for the future of our U.S. businesses.

It is important to note that the reversal of the valuation allowance is an accounting adjustment only and has no impact on cash, taxes paid and we still maintain the benefits of our net operating costs carryforwards. Net operating costs carryforwards totaled approximately $1.1 billion and will continue to serve as a tax shield for the Company over varying periods of time in the future. We have up to 20 years to use the NOLs in the United States; and in France, the NOLs have no expiration.

We currently estimate the cash taxes paid in 2008 will be $80 million which is down from the $90 million in 2007. The reduction is due to our already having paid the taxes related to the sale of the Spanish real estate.

Having already recorded the $479 million of tax benefit to income we will no longer be reporting so-called tax-free book income in the future, but we will be required to record book tax expense on future U.S. pretax income. Previously there was no tax charge on income in the United States as it was offset by the valuation allowance. The impact of this will be an effective tax rate for 2008 of 29%, which reflects a more normalized rate than the 17 to 20% we have recorded over the last two years.

You should still expect a higher rate in the first and fourth quarters of the year and a slightly lower rate in the second and third quarters where we do generate more pretax income.

For the fourth quarter 2007, the Company changed the accounting method for determining the cost of its U.S. inventories from the last in first out method or LIFO to the first in first out method or FIFO. The Company made the change for many reasons including that we believe that the FIFO method better matches revenue with expenses; yields an inventory balance that more closely approximates replacement cost; and reflects the actual flow of goods. That is, the first inventory in is the first inventory out. And finally the use of FIFO now makes us consistent with much of our peer group.

For the full year of 2006 we had zero LIFO expense. Had we not made the changed LIFO expense would have only been a $200,000 charge in the fourth quarter of '07. As now presented with all prior periods being recast on FIFO, there is no LIFO income or expense in the fourth quarter or full years of 2007 and 2006.

Litigation covering retiring medical benefits for certain retirees was settled in the fourth quarter. Several years ago we embarked on a strategy to consolidate the numerous planned designs we had in place for retirees and existing employees into a single Company wide benefit program for union and non-union employees and dependents.

The resulting consolidated planned allows the Company to reduce and control its administrative burden for health care and provides the Company the ability to leverage economies of scale. For example, a negotiation of discounts for services.

Since the litigation dispute has been resolved, the Company has completed all of the necessary communication to the affected retirees and the consolidated plan is effective January 1, 2008, for those groups. The impact of the settlement is as follows. We recorded a one-time charge of $4 million in the fourth quarter of 2007 and as noted in the release will make a one-time cash settlement expenditure of $14 million in 2008. Most importantly, however, the Company's long-term liability for retiree medical benefits has been reduced by $101 million as reflected by the fourth quarter gain we reported to the comprehensive income component of shareholders equity.

Both cash outlays and expense for retiring medical are each expected to be reduced by $9 million per year in 2008 and future years.

Lastly for 2007, at December 31st there were no outstanding borrowings under the Company's committed $800 million revolving credit facility. So as we begin 2008 liquidity remains very strong. Hopefully that helps. If any of that is still not clear please do ask during the Q&A and I will now turn it to John for his comments.

Thank you, Tim, and good morning. As you can see, and Alan and Tim covered so comprehensively, we had a very solid fourth quarter. And of course it concluded one of our best years ever. Performance in all of the businesses was good with one exception which I will discuss in a moment.

We are obviously very gratified that things turned out as we had expected that they would at the outset of the year. Most importantly, we achieved these excellent results in the right way for a manufacturing company in the rigid metal packaging business. Volume was solid throughout our product lines and in certain cases, such as international beverage, simply outstanding. Productivity improved throughout the Company. We maintained price discipline and achieved price where it was necessary in almost all of the businesses. Our application of capital to achieve these results continue to be very efficient and very frugally and carefully managed.

Finally, we are getting outstanding sales and income contributions from the new capacity that we have been adding.

2007 was truly one of those years where we can look back now and say with some conviction that things turned out really well, not exactly as we had thought in each business, but overall very, very well and all that we could have hoped for.

I'm not going to go into a lot of detail about the various segments in the fourth quarter for the full year. Alan has given you a lot of information already in that regard.

Very briefly, our America's Beverage group had an outstanding year. Volumes were solid and income was up substantially. Our North American food team made another tremendous effort with resulting improved contribution and we are extremely pleased with the fine leadership and what they have been able to do with our food can business.

Our European Beverage sector had an outstanding year. As you can see, as the year progressed the new capacity that we have been adding in Europe and the Middle East made an accelerating contribution to quarterly income performance. This was a reflection of the large effort that has been underway for a number of years and has culminated in a very solid and substantial positive benefit for Crown.

Our European food can business had a disappointing year as a consequence of a very poor, wet summer in Europe. Nonetheless the fourth quarter was relatively strong and we think it's set up what should be a strong recovery in 2008.

We were not happy with our European Specialty Packaging business in 2007. While the problems are not pervasive and Alan mentioned to you two significant issues that applied to the fourth quarter, it is quite clear that we have several business units within the Spec Pack sector that need substantial attention and we are going to straighten out those areas. We have plans to do so, we have in place a new and energized management team to lead the business and we are confident that it will turn around in 2008.

Finally, our global Aerosol business in Asia-Pacific region had a very good 2007 and just did a great job. All in all things went very well in 2007.

I will characterize very briefly for you our expectations for 2008 that underlie the financial results that Alan described to you for segment income and free cash flow. We have laid a good foundation for 2008's improved performance. In 2008 we expect somewhat improving volumes in our America's Beverage business and continued productivity and careful price cost management in North American food.

There has been good price achievement and there will be further significant volume growth in our European beverage business. European food can sales will return to more normal levels and we expect good price cost realization.

The Spec Pack business will rebound in 2008 and we will have another solid year of performance in our Aerosol business and finally we believe Asia will really take off in 2008.

We continue to have opportunities for growth, principally internationally. We plan to pursue these opportunities in a very careful, focused, disciplined manner. We look at many more opportunities than we decide to execute. We will not abandon our objective of highly effective application of available capital and the absolute requirement to achieve maximum capacity additions with minimal capital dollars spent.

At this point we would like to note and review some key management changes that have occurred recently. First, as we previously announced Frank Mechura, the President of the Americas division, retires today. I have known and worked with Frank for the past 34 years and I want to thank Frank for his leadership and dedication to the Company. With Frank's retirement each of our operating divisions - Americas, Asia, and Europe - have seen their respective presidents retire over the last 12 months and be replaced by highly qualified and experienced operating managers.

Ray McGowan now heads our Americas division. In Europe we have an excellent leader in Chris Homfray, who has been in place for about a year. Asia is led by Joseph [Silas] who took over it the division mid 2007. We believe our 2007 results and 2008 outlook are a testament to the strength of our global management team.

In closing the 12.7% segment income growth in 2007 and free cash flow generation were outstanding achievements for the Company. The performance levels which produced those results in 2007 give us great confidence that we have an opportunity to build on the 2007 success by doing even better in 2008 and increasing segment income approximately 16%. And once again we will generate very substantial free cash for application in the best interests of our shareholders.

We had a great year in 2007. We think 2008 will the another great year. And with that, Operator, I think we can open it up to questions.

(OPERATOR INSTRUCTIONS) Ghansham Panjabi.

Good morning. Wachovia Securities.

Just a couple of clarification questions. The [114] of segment income that you reported, how is the $7 million charge allocated by segment? Is it corporate expense or somewhere else?

Well as I said before it is in the corporate and other nonallocated and that's why of course it's [40] and up a bit and the other three is in North American Food.

North American Food and how much do you estimate the inventory drawdown cost you in terms of margins or dollar amount?

I think if we wanted to take a look at what we could have ran -- what cans we could have ran in the fourth quarter both in the U.S. and European beverage cans it's probably in total it's cost us close to $10 million.

$10 million in operating income. That's very helpful.

But having said that as John made very clear on the third quarter we don't run inventory at the end of the year to make earnings per share, right? That's not what we're trying to do here.

Right and just in European Specialty, what was the product line that the customer closed? That was (multiple speakers).

What happened, Ghansham, within our Spec Pack business which is, to a large degree, industrial but we also have some highly stylized shapes, highly decorated containers, some for food products and some for promotional items, things like high-end brandys and Scotch whiskeys and so forth. One customer that makes a special product in France it's really actually a beverage, kind of like a squash if you know the UK market at all. Had a poor summer as a consequence of the wet weather and simply didn't continue to run in much of the fourth quarter and that hurt us. And the other had to do with some promotional containers in the UK.

So as Alan said we are over those problems. We think they are going to return to satisfactory levels. Those two customers for 2008, we know we solved that. But we are not kidding ourselves here. We are not happy with Spec Pack. We think the industrial -- the underlying industrial businesses are not doing as well as they should be. You can see that pretty clearly when you see the effects of these high margin items that I just mentioned.

So we are going be putting a lot of attention to Spec Pack as we have been for the last number of months; but it is going to be renewed and we are going to straighten Spec Pack out.

One final question if I could. Your operating income forecast '08 versus '07 is $100 million higher. Your CapEx is pretty much the same. I understand there's a $14 million settlement charge but why shouldn't we expect free cash flow to push closer towards 400?

I think as Alan mentioned on his notes as he was talking, we've not made any assumption that we are going to generate significant working capital sources of cash in '08 as we did in '07. We are certainly going to drive, but our initial assumption is having generated over $100 million of cash from working capital reductions in '07 that that will be a bit flatter in '08.

[Claudia Houston].

JPMorgan. I was intrigued by your comments around Asia for 2008 and I just wondered what gave you confidence that Asia will really take off?

We are finishing the year with very strong demand, Claudia. That is the first thing. The second is, we are doing well as a consequence of capacity utilization supply demand in the region. We have done quite well on the price side. We anticipate we know Southeast Asia is going to be sold out for us. We are going to be sold out in China and as everybody knows in the beverage can business, with higher demand, you find a way to run a little bit more effectively and efficiently.

So we are pretty confident things are going to go real well for us. We also have a very strong food can business in Thailand. We don't talk about it a lot but the demand there is also very strong.

And I just wondered in terms of European volume, I wondered if you could maybe give any regional breakdown there? Was there any sort of specific region that maybe contributed more to the volume increases in the fourth quarter?

Tim is going to be our volume person here this morning so Tim -- (multiple speakers) .

As Alan said we were up 25% over 25% in the fourth quarter. I can tell you that not only was the Middle East very strong but the volume results coming out of Greece and Turkey and Spain, in fact almost every region that we produce and supply cans, we were up over 20% in almost every region.

So pretty broad-based. Then just finally could you remind me what your percentage of fixed versus floating rate debt is?

The floating rate debt right now is approximately one-third of the total debt. Keep in mind that at year-end the floating rate debt is much lower than it is on average for the full year because the revolver sits at 0 and then we use the revolver as we go through the year. So think about 30% at year end and it -- on average, then for the year perhaps 35 to 40%.

Richard Skidmore.

From Goldman Sachs. Just wanted to talk about Europe and how you are seeing the outlook for European Bevcans and also the capacity that you are bringing up in Spain, how that project is progressing and timing of that?

Yes. The -- for next year, we are anticipating that the European division is going to have another strong volume year in Beverage; and we think it is going to be spread throughout our regions, so we anticipate growth in the Middle East, North Africa is going to continue to be very strong. Southern Europe and so on. So we are pretty confident of that.

We think supply demand is in quite good balance. We are sold out in Europe and we are going to be pretty close to sold out, we think, in the Middle East. So that looks very positive.

The Spanish project is online, but you need to remember that we are anticipating that we will be making first cans in approximately September/October and so we will be coming up learning curve and you won't see a lot of contribution in Spain and we are not planning for much contribution in Spain. We are looking ahead for the Spanish investment to start making contributions in 2009.

So you just, in general, I think all of you need to remember one line additions are great, but they don't happen that quickly and there is a learning curve factor.

Thank you and just to follow-up on Europe's Beverage Can primarily with the other -- with some of your competitors adding capacity, are you incrementally more concerned about the supply demand balance or are you feeling pretty good about how that shapes up over the next couple of years?

No, we feel pretty good about it. I mean, we are as concerned as you are and every time we think of doing something or we hear of a competitor who is doing something, we of course instantly compare it to our model and we are probably more conservative about invested mark -- anticipated market growth than others. But we haven't heard or -- of anything -- anything that we think is going to upset good supply demand fundamentals over the next three to five years.

Tim Thein.

Citigroup. I apologize. I missed Alan's presentation, just the first introduction there. Did you review at all the volumes in the European Food Can segment?

We did and what Alan had previously mentioned in European Food we are essentially flat in the fourth quarter and down 3% for the year.

So, no -- doesn't look like there is any pull ahead in terms of trying to buy ahead of the price increase, obviously?

It was a nice turnaround in Q4 and should lead to a good rebound in '08.

And Tim, what is your expectations for both pension expense in the cash impact as well as this corporate line. And that there are a lot of things that move it around. But what is a good number to use per quarter?

Great question. On pension expense I think, for the year, we are probably looking at about $17 million in 2008 and the cash contribution will be right around $70 million. So the numbers -- the cash numbers are very similar to what we had in '07 and the expense number is up a bit in '08 versus '07.

And then on Corporate?

Yes. Corporate. I think the corporate numbers we are looking at for next year are probably a little bit lower than we had in '07. You know we had $120 million for the full year. We are probably right around that number, maybe a touch lower, a touch higher. It's hard to say with any certainty, but it's right around that number.

So what you said 17 for pension expense and 70 (multiple speakers).

For cash.

Chris Manuel.

KeyBanc Capital Markets. Couple questions for you. First, John, sort of a big picture question. A number of your competitors have been very busy, making announcements of adding capacity, particularly in Eastern and sort of northeastern Europe. I know you are adding a line in Spain that you spoke about earlier and continue to do work in the Middle East.

As you look around the globe, are there other areas where you think CCK could use some more presence or beef up -- add some lines? And I know you've done a lot of capacity recently in the last couple of years, but what do you think looking forward the next few years? Is there more capacity for you to add?

Yes. I mean, as you just said we are adding beverage can capacity as we speak in Spain and in Brazil. We just finished within the last couple of years a major capacity expansion program in North Africa, in the Middle East. Also a major expansion in Southeast Asia with a new plant in Cambodia and doubling the size of our big plants in Vietnam.

So I think we are very pleased with the regions where we are active in beverage and I -- you shouldn't anticipate that we are going to be making ventures into South Asia, for example. That's not particularly of interest to us for the time being. We are well established and we are growing rapidly where we are.

We have a pretty large, relatively speaking, Food Can, Aerosol, Metal [Vac] closure business in Eastern Europe, including even in Russia. And so we kind of watch it a little bit to see maybe the time will come to do something in beverages. You know we are in Greece and in Turkey, so we are pretty familiar with the Balkans well up into Eastern Europe and so that is something that we look at.

But we don't want to do anything as we've said before that creates problems for us and we won't. But there could be an opportunity there. But, otherwise, I would say we are growing extremely rapidly where we are. I mean we are in the best countries in South America, we think we are in the best part of Asia, and we are extremely pleased with what has happened for us in the Mediterranean region and North Africa and the Middle East. So we think we are going to keep growing in those areas.

Then one other question with respect to price, particularly in Europe. With the markets continuing to be so tight there for Bevcan, would there be any reason to believe that you couldn't continue to favorably work the price lever over there to your advantage?

No, there's not.

Last question I had was, Alan, with respect to your free cash target for '08, 330 to 370, what do you anticipate in your debt levels gotten to -- I would almost argue a more reasonable level here or stable level. What are your anticipated objectives for free cash in '08?

To be honest, Chris, we haven't really made a decision on that at the moment. Obviously the stock market and the financial markets are a bit volatile. We are a user of cash as you know in the first half of the year. So we really have time to consider our position.

As we get later into the year, we will decide if we are going to buy shares or just use the cash to pay down the debt. We're going to keep ourselves a bit flexible at the moment. I think we have the ability to do that.

And just to add, Chris, because you know our debt maturity profile we don't have any debt coming due until September of 2011. So it is, as Alan said, gives us the flexibility.

Mark Wilde.

Deutsche Bank. I wonder, John, are you seeing any signs yet of your customers in the U.S. in the Beverage market perhaps shifting the mix a bit more to cans as they maybe focused more on promotions with the slowing economy?

We haven't seen that yet. I mean, I can tell you that we are having a pretty good January from what I'm told, but I think it is way too soon to draw any conclusions. I mean we are assuming for North American Beverage Cans that the market is going to be up maybe about 1%, and we think we will be at least in line with the market. And of course our mix has been changing a little bit as I've told you in the past. We are trying to move a little more towards noncarbonated soft drinks and we've had some success in that area.

So -- but I haven't -- I haven't yet -- we haven't yet felt a strong move as a consequence of the economy or rapidly increasing resin prices and glass prices either.

Would you expect to, John, if the economy were to either go into recession or something close to recession?

I don't know we took a look at I think the last 28 years of volumes in Western Europe and North America, the food cans, aerosol cans, beverage cans, versus GDP growth or contraction. And we can see almost no correlation. So I kind of think, yes, there ought to be a little bit more demand as a consequence of the things you are referring to. People eating at home more, being more value conscious and so forth.

But we are not planning for it, but if it turns out that way, great. Our numbers are all predicated on a pretty normal situation.

And just as a follow-on, can you talk a little bit about what you see city going on in the tin plate market right now?

Well, steel companies in North America and Western Europe were very, very successful in getting the price increases they set out to achieve. And so we have had to absorb that and pass it through and we've been quite successful.

I've seen nothing that argues that they are not going to be able to continue to push price and -- here or in Europe. So we are anticipating that we are going to have to continue to maintain discipline and push price to cover cost.

Sangita Jain.

Lehman Brothers. Just as a follow-up -- good morning -- just as a follow-up to Chris's question, if you guys were to decide to do a stock buyback, should we expect the same kind of lump sum accelerated stock repurchase you have done in the last couple of years? Or is it going to be more opportunistic, do you think?

Yes, possibly. We found it a very good way to do it. So it's possible we would consider that again, yes.

George Staphos.

Banc of America. I wanted to come back to the economic question maybe with a different take. If you go back to the late '90s, in some of the emerging markets you saw a shift, particularly in South America, back towards returnable glass and returnable packaging overall. I think you saw a little bit of it in Europe as well and then it had some volume impact -- probably more in bottles and cans.

Did you have any effect at all realizing those markets were perhaps much smaller for you then? And they've matured since then. But do you remember seeing any effect there and would you expect any effect going forward if in fact that's what we see?

Well, George, we've got a lot of history in the industry, so you remember it too in the early '90s in particular, win there were some extremely sharp downturns in Brazil and Argentina, for example.

It is true that there was a movement back to one-way or rather returnable glass in soft drink and in beer when there were sharp economic downturns. But that was at a time when cans were a very small proportion of the mix and their relative cost was quite high. That is no longer the case. Now the can share, beverage cans, in particular, share the mixes. It is quite high. The customers become very (multiple speakers) convenience and value and so forth.

In addition, relative prices come way down. Remember that the aluminum cans are priced in dollars and so although aluminum prices have run up, in many, many local currency terms they've actually -- flat to gone down. Also the size of the plants producing cans in these so-called emerging markets are now large and highly efficient. So prices are very reasonable and very comparable to North America, Western Europe in many of the markets.

So we don't -- we just don't think that if you are referring to the potential of a global slowdown, having a significant adverse effect on one-way packaging, the can, namely the packaging, we really think that that is a very slim probability.

And I guess to some degree, too, it's a lot like once they see TV how do you keep them back on the farm? So again people get more acclimated to the convenience (multiple speakers).

The disposable income is so much larger.

Yes. Within your EBIT guidance for the year plus 16%, I don't know if it's possible since you are in so many geographies, so many product lines, but how much of that do you think comes from net price? How much of that do you think comes from productivity? How would you have us think about how you bridge that 16% growth for the year?

You know, we really don't -- we don't really have it broken down. We've done a good job we think as far as we can tell on price covering cost and we think volumes are going to be strong. Every product category for us we are pretty well positioned. And the other thing I think that you need to keep in mind is and we are still aware of it and to your point, our product mix is so diverse now. And our relative positions are so strong and the parts of the world in which we are located, we think are fundamentally good.

And we've reminded you in the past, we are not there by accident. We used to be in some places that we've gotten out of over the years. And so, we think it's largely just a consequence of good strong demand where we are doing business.

Sure. Maybe if we think about it differently. Again, thinking about the 16% growth, which of your major segments would you expect to be growing better than that rate? Which might be below that rate? I would assume that you are not expecting any of your major segments to be actually flat or down from a segment EBIT standpoint. How would you stack rank?

I think that's fair. I mean Alan could -- (inaudible) obviously the beverage business internationally we think is going to do extremely well. Europe, we think, is going to come back to a good solid year, on and on. But Beverage is growing more rapidly just unit volume and as a consequence generally it is doing very well.

So the Beverage business is stronger and probably European Food ahead of U.S. Food (inaudible)

And Asia also. As John said earlier I think we are going to have a very good year in '08 in Asia.

Last question, just housekeeping. Should we assume $25 million or so for [asbestos] cash growth for '08? I missed it if you (multiple speakers)

Yes. $25 million.

Joe Stivaletti.

Goldman Sachs. Following up to your -- the question about your application of free cash flow, if you were to come across some opportunities to expand through acquisition, do you have sort of any leverage targets you could share with us? Obviously you have gotten that down to (multiple speakers) times which is a lot of progress. I mean is there any willingness to increase that if the right acquisition came along? Or should we be thinking much more along the lines of smaller transactions?

Why don't I comment on the acquisition trail if you will and Alan will talk about -- Alan [and Tim a little] about leverage and ratios etc..

We feel we have been very, very successful with our organic growth strategy and there are a variety of reasons for it. Of course, we are wonderful managers. We have got a great company and all the rest of it, but we are located in excellent markets where we do have real good organic growth opportunities and we have got critical mass every place that we are. Which is to say, we can employ our capital effectively. We are not breaking into greenfield situations in countries in which we have never done business with all the delays and all the governmental problems; and we are very familiar with all of those things and they are not insignificant.

So we think that our capital application as a consequence has been proven to be very efficient, very frugal. We get a lot of capacity for the money that we spend. We compare ourselves and benchmark ourselves constantly to what we are hearing about others' activities and how they are doing. So we have got such a good -- such a good strategy going here and we are executing it so effectively, we are extremely reluctant to move away from it.

So any time we think of an acquisition in the Can business frankly we are thinking about asset value. Somebody wants much more than asset value, we can't figure out why it is a better use of our cash than doing what we are doing. So Alan can maybe elaborate on that and talk about it as it relates to the balance sheet.

On the leverage front, obviously at the year end, our Net Debt is just below $3 billion. We are about 3.4 times [levered] on a Net Debt basis. With the numbers that I gave earlier our EBITDA in '08 is going to be something like $970 million. Obviously we are going to generate a lot of cash. So we see our leverage going down probably to 3 perhaps even a tad lower, but probably around a 3.

In the past we have said that that was our target. However there is nothing magical about it. Some of our competitors are less than that. But in principle, we believe that this year we are going to get the debt down to a number which -- the leverage, [sorry], down to a number which we are going to be very comparable with.

Andy Feinman.

Iridian Asset Management. Did you say earlier that your pension funding was $70 million this year? I'm sorry I missed it.

For '08 I said 70, yes.

And can you tell make how much the dividend to the minority interest was for this year?

I want to say it is about $35 million.

Now if the dollar stays where it is today, at the end of the year how much would that inflate the value of your debt? And is there anything you can do to hedge that because -- so that you get the benefit of the free cash flow in your enterprise value?

The balance sheet as it is presented in the $2.980 billion of Net Debt that we reflected to you in the earnings release is where the dollar was vis a vis the euro and the sterling and the other foreign currencies that we borrow in as of December 31st, 2007, and certainly the dollar has moved a little bit from the end of the year. But more or less the debt that we have is valued much like it was at the end of the year.

I think you need to be careful when you think about hedging the debt. We do have some hedges in place or some swaps I should say in place where we have swapped dollar debt that we've issued to euro debt. We get the debt in the right currency where we generate the cash flows and we also get the lower [euro] LIBOR versus LIBOR borrowing rate. But I don't think there's any reason to think that right now we are going to embark on a large hedging program that certainly will cost us money in terms of what we pay the banks. And we don't know where we are going to go.

What we have tried to do is put the debt where we generate the cash flows and I think that is the right strategy.

So the answer is 0. If the dollar stays where it is then you'll get all the benefit of your free cash flow and your enterprise value?

Right.

[Joel Spongin].

Merrill Lynch. I've got two questions for you actually. The first which you may have said this at the beginning, I'm afraid I missed the first couple of minutes of the call. But could you just give us a little bit more color on the volume growth in the Americas division? Particularly if you can elaborate a bit on the Northwest and South America?

You are referring to '08?

No I'm referring to '07 actually the year just finished.

I think as Alan said in our beverage can business and in the Americas we were up about .05% both in the quarter and for the full year. (multiple speakers) flat in the quarter and they were up about 1% for the full year.

And within that one, was there any -- can you give us any color on the performance of South America business versus the U.S. (inaudible)?

Yes I think, certainly the South American business -- particularly for us, Brazil and Colombia -- were up more than the North American business. The North American business was flattish to up about of 0.025% to 3/10 of a point and the South American businesses while they are a bit smaller than the North American business were up about 5 to 6% in the quarter, and it looks like about 8% for the year.

Also just interested in the European businesses looking at the strong profit progression there over the course of the year. As you probably know some of your competitors have had issues in their business at the moment dealing with raw material costs and transportation costs and things like that. I was just wondering how you've managed to sort of avoid those problems and how you feel looking into '08?

We -- and beverage cans in particular but food cans as well, I mean we have been on about a two-year course now of insisting on formula pricing with our customers because of the volatility of the very items that you just mentioned. And our impression is that so is the industry generally. So when we hear these reports, we assume there must be some other issues because we are not experiencing these issues.

So your guess is as good as mine as to what is really going on. We don't really know, but I suggest you look someplace else because we don't think it is there.

[Bruce Kline].

Credit Suisse. Just two questions, one on the template. It sounds like -- I mean do you -- are you fully recovering what was announced by the CO guys in U.S. and Europe?

Yes we are.

Do you know yet or is it too soon?

We largely know. I mean the -- as you may know from past calls, at this point we are usually estimating to a degree because we won't finish with price activity particularly in food cans until about April. But based on how things have gone so far in food, aerosol, metal vacuum closures, it's clear to us that our competitors are getting the same kinds of steel price increases, etcetera, as we are. And it looks to me like everybody is as determined as we are to push it through. And so we think we are going to be very successful. But we are already largely into it.

Second question is just the carbonated and soft drink volumes. I think in '07 were down on a mid to -- maybe [above] mid single digits. I'm wondering how your numbers sort of in America's Beverage square with that and what you would say about the carbonated soft drink or maybe how much business also it is of you guys in that segment?

Yes. We did a little better than the industry. Overall we did about the same as the industry which is to say we were up 0 to 1% in the U.S. for the year and we've got a fairly diverse mix of customers in that industry. We're spread across quite a few customers many of whom have a strategy of pushing cans as a value package. So we did quite well with soft drinks, actually.

Do you know why? I mean, the end market for CSDs was down a lot. You're saying (multiple speakers) .

Our customer base just did a good job of pushing cans in '07. So we were just the beneficiaries of that.

Any sense if CSD -- your view of whether CSD will continue sort of mid signal trend down in '08? You have any feel for that?

We think as a general proposition some of the bigger users of cans didn't push cans very hard in '07. We anticipate they are going to push them harder in '08. It is a great way to move volume and with the slowdown in the economy and so forth, you could argue -- although we don't see any superhard data -- but you could argue that they should do that, should be able to do it. So we still believe the overall North American market will be up about 1% year on year in beverage cans. Beer and soft drink, energy drinks, teas, all the rest.

Wayne Cooperman.

Cobalt Capital. Did you guys give interest expense guidance for '08? And if not could you because I am a little not sure why it is as high as it is?

I'm not sure why you are thinking it's not -- why you think it's not as -- quite as high as it is, is because we did not give any guidance.

No. For last year, but -- you gave us some guidance for '08. Could you just walk us through what -- your average debt and average interest rate?

I think if we looked at where we at right now we would project interest expense at about $285 million.

Given where your debt is I know it builds and then comes back down. It still seems your average interest rate is pretty darned high and could you talk about ability to bring that down?

You have to remember that you've got seasonal borrowings. Much of the cash as Alan mentioned earlier, much of the cash that we generate every year -- and as you can see, this year in the fourth quarter we almost generated $500 million of cash in the fourth quarter -- comes in late in the year. So the average carry is high for the year and you have got to remember that you have got to add the securitization into that because you are paying interest on securitization.

So the reason why it was a bit higher this year perhaps than you were expecting, you have got to remember currency. Currency had a huge impact. As we mentioned earlier we have debt placed in numerous other currencies, the euro and the sterling for example and -- .

How much of your debt is floating with LIBOR? Because I know LIBOR went up a lot in Q4, but it's come back down quite a bit.

As we said earlier about 35% of the debt floats.

So you should get a benefit that it's come back down?

Correct.

[Daro Norian].

Blackrock. More a comment than a question just regarding the release. I thought it was pretty confusing and could be improved. I think if you look at some of the sell side notes that also seem to have some confusion and I would just suggest perhaps in the future when there are so many non-recurring items, a tabular format -- maybe something like what Owens Illinois does -- would be helpful.

And then also on the LIFO impact side of things, mentioning that it really didn't have an impact within helpful as opposed to have just leaving in out there for people to not know. So I just wanted to mention that and hope you take that guys into consideration going forward.

Thank you for your suggestion.

[Gary Marks].

(multiple speakers) I was wondering if you could provide some additional color on the asset impairment charge?

Asset impairment charge. The asset impairment charge was the European closures where we had a goodwill write down. About $103 million I think.

And to follow up with Alan. We had a little bit of a tough year in the business in '07. It is in the European Food segment. In part it was a consequence of -- in a large part it was a consequence of the weather, but also we just had some operating issues. It led to the conclusion that we had to do that.

Did you actually shut any plants down over there or -- ?

No, we have not.

It's just evaluation that is done in accordance with one of the issued FASBs and the accounting requirements require us to after that valuation exercise to take the charge.

That was our last question, Mr. Rutherford. I will turn the call back over to you.

Thank you. Well, that concludes Crown Holdings' fourth quarter conference call. We thank you very much for your interest in our Company.

That does conclude today's conference. You may disconnect at this time.