Crown Holdings Inc (CCK) 2009 Q3 法說會逐字稿

Good morning and welcome to the Crown Holdings third quarter 2009 earnings conference call. Your lines have been placed on 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. Timothy Donahue, Executive Vice President and Chief Financial Officer. Mr. Donohue, you may begin.

Thank you, Shirley, and good morning to everybody. Welcome to Crown Holdings' third quarter 2009 conference call. With me on the call today is John Conway, our Chairman and Chief Executive Officer.

Before we begin I'd like to point out that on this call, as in the earnings 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 the press release and in our SEC filings, including comments in the section titled Management's Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2008 and in subsequent filings.

I'll review the quarter. And, as usual, I'll then hand the call over to John for his comments.

Earnings per diluted share were $0.67 in the third quarter compared to $0.70 in the third quarter of 2008. On an ongoing basis without special charges, diluted earnings per-share were $0.81, an increase of 14% over the last year's third quarter. As has been the case throughout the year, all the operations are continuing to perform well; and, importantly, segment income margins rose across all operations. Certainly, that is a positive result in the context of the global recession and the headwinds faced this year from higher non-cash pension expense and currency translation.

When adjusted for currency and pension, segment income performance in the third quarter was up 15% over the prior year. As we detailed in the earnings release and has been the case throughout 2009, currency translation impacts comparability adversely throughout the financial statements. Underlying operating performance remains very good through nine months. So, as we have done for you throughout the year, we'll again provide the following review excluding the impact of currency.

Net sales in the quarter excluding currency translation were up 2% over the third quarter of 2008. Firming volumes and the pass-through of higher tinplate costs offset the pass-through of lower aluminum costs. Global beverage can volumes in the quarter were level to the prior year, which is on the back of 3% volume growth in the 2008 third quarter. For the year, volumes were up 1% over '09.

In the United States, third-quarter volumes improved 1% over the prior year. Volumes throughout our emerging markets businesses continued to grow, the exception being the Middle East, where, after several years of double-digit growth, volumes have slowed, and through nine months volume growth is now at 2%.

Food can volumes saw considerable improvement during the third quarter from the first half of the year. While not quite back to prior-year levels, we are encouraged by the strong seasonal harvest in the United States and the end of destocking. Several of our businesses in Europe, notably those in the Iberian peninsula and North Africa and Eastern Europe, are still feeling the effects of the recession on their export business; but recovery was notable throughout the balance of our European food can and closures businesses.

Adjusted for currency, Americas Beverage revenues were up lower than the prior year by 4%, which was due to the pass-through of lower aluminum costs. Volumes throughout the division were level to the prior year; and, as described previously, in the US were up 1% in the quarter and for the year up 2% over 2008.

Although industry data is not yet available, we believe the industry was down 1% in the quarter and also for the nine months. There was no currency impact on segment income, which remained level to the prior year.

Revenues in our North American Food Can business increased 17% excluding currency year-on-year due to recovering volumes and the pass-through of higher tinplate prices. Segment income improved $18 million due to price recovery, improvements to plant manufacturing performance and ongoing cost reduction programs. The restructuring of the Canadian locations, which was announced with last night's release, will allow the Company to continue to improve our cost structure and manufacturing performance through increased utilization of remaining facilities. We expect full-year annual savings of $25 million associated with the restructuring.

On a currency-comparable basis, European Beverage sales were up 1% compared to 2008, while segment income improved 7% ex-currency with cost reductions and mix offsetting the impact from lower overall volumes. Excluding currency, revenues in Food Europe increased by 3% as the pass-through of higher tinplate costs offset lower volumes. Adjusting for currency, segment income was up 6% over the prior year, the result of cost reductions and price recovery again offsetting lower volumes.

Excluding foreign exchange, Specialty Packaging revenues were level to the prior year, while segment income was up $3 million on volume recovery and cost reductions. Interest expense was $10 million lower in the quarter and $43 million lower year to date as we continue to benefit from lower short-term borrowing rates and foreign exchange. During the quarter the Company paid down in excess of $500 million of debt with an average interest rate of 7%. For the full year interest expense is projected to be $50 million lower than in 2008.

The tax rate on income from ongoing operations in the quarter was 22.5%, and for the nine months is at 23.5%. Our net debt at the end of September was $2.8 billion or $242 million lower than at the end of June and $414 million lower than at the end of September '08. We continue to reduce our net debt; and, based on the last 12 months adjusted EBITDA, net leverage was 2.8 times, down from three times at the end of June.

We believe we remain very well-positioned to improve our financial performance and increase shareholder value. As John commented in the release, you can see we have a number of very good opportunities throughout our global footprint. While demand for food and aerosol cans did improve as expected from the first half of the year, the global recession continues to impact demand for food containers in some European markets as well as beverage cans in the Middle East. We continue to benefit from ongoing cost reduction programs in our business platform throughout the emerging markets.

In light of the foregoing, we now project segment income for 2009 to be more or less equal to the 2008 figure of $808 million. On a currency and pension-neutral basis, this is more than a 20% improvement over 2008 and we believe represents a very strong operating result in the context of the ongoing global recession. As for free cash flow, performance continues to be strong and is up $330 million through nine months this year compared to last year. We now project free cash flow for the year to be at least $440 million after capital expenditures of $185 million.

With that, I'll turn the call over to John.

Thank you, Tim, and good morning. As in the past, I will follow Tim's comments with more color about what is going on in the marketplace in each of our three divisions.

First, though, we would characterize the third quarter as another strong quarter, particularly given the general economic environment. The global recession has had an adverse impact on our business in varying ways. Our growing emerging markets businesses have continued to grow but at a reduced rate. Our mature markets businesses of North America and Europe have been adversely affected by the destocking phenomenon combined with the effects of the general liquidities freeze on trade credit, which has a direct effect on international trade and those of our customers who export to regions such as Eastern Europe, Russia and the other CIS states and Africa.

Notwithstanding that, Crown's performance was very solid, even after the significant adverse effects resulting from the relatively strong dollar in the quarter and the non-cash pension charge associated with pension asset declines as of the end of last year. As we look ahead, we expect the Americas division, both the mature markets of North America and our emerging growth markets in Mexico, Colombia and Brazil, will continue to perform well and according to plan. Our business in Asia is also strong and continues on an upward path.

In Europe our businesses have performed well in general, but there are some limited pockets of weakness. We have large food can businesses in Italy, Spain and North Africa, which serve customers who sell in Western Europe, and those who export significant quantities of their products to Eastern Europe, Russia and Africa. This export business, although improving, continues to be weaker than in 2008.

Tim mentioned that our beverage can business in the Middle East has been somewhat slower in the third quarter than we had anticipated after a very strong performance in the first half of the year. We attribute this to two factors. First, there has been a recent general slowdown in the Middle Eastern economies associated with the global credit problems and liquidity squeeze. In addition, western Saudi Arabia typically hosts a large number of religious pilgrims visiting holy sites during the third quarter. This year, the combination of the global recession and fears about the swine flu epidemic noticeably reduced the number of visitors.

Let me anticipate questions that are going to be asked regarding raw material pricing.

First, with respect to aluminum, as many of you know, our beverage can contracts provide for immediate pass-through, up or down, of changes in underlying aluminum prices. There have been no changes in this area, and we will, as we have in the past, continue to pass through aluminum as changes occur in 2010.

As to tinplate steel used in food cans, some beverage cans, aerosol cans and other metal vac enclosures, our suppliers in Asia, Europe and the Americas have announced price increases for 2010. We are still in negotiation with them; however, our current expectation is that prices for tinplate will increase in Asia and Europe, and we fully intend to pass through those increases as required to cover our cost increases.

In the Americas the outcome is somewhat less clear. Although all of our suppliers have announced increases, at this point we believe there may be no more than a modest upward move or possibly a modest downward move in tinplate prices for 2010. In either event, we will change can prices up or down in the Americas to reflect the tinplate price changes.

Regarding demand for cans in 2010, we generally expect all of the markets where we participate, both mature and emerging, to improve over 2009. In addition, the significant new capacity we have been adding in emerging markets will make further contributions to growth and the actions that we have taken to reduce cost through restructuring in North America will clearly improve our cost base in 2010 and the years ahead.

In sum, we regard the third quarter as a very solid performance in a challenging environment, and we look forward to 2010 with real confidence.

So with that, operator, I think we are ready to take some questions.

(Operator instructions) Ghansham Panjabi, Robert W. Baird.

Tim, as it relates to your updated EBIT and cash flow guidance, is it fair to say that you are running in the fourth quarter for cash, more so than normal (multiple speakers)?

I think, Ghansham, if you looked at the performance we've had over the last several years, five to six years, we have been running the Company for cash generation, maximum cash generation. But having said that, we've tried to do it without damaging segment income performance. So I don't think that we would want to say that we are doing it more than normal.

Okay, all right, that's fair. And in terms of the profitability in North American Food, what was the primary variance for the margin expansion? Was it a combination of mix and better than expected volumes or price, or what?

Well, I think, obviously, as John has described, late last year and early this year we did a very good job and a responsible job in understanding what the cost pressures we faced were and adjusting selling prices accordingly to recover or restore margins in the business. Additionally, as you remember, late last year we closed a food can plant in Canada. So the cost base is obviously much better this year compared to last year. And then, lastly, volumes recovered nicely in Q3 with the strong harvest.

And just one final question, on FX for the fourth quarter if rates hold at current levels through the fourth quarter, what kind of variances should we expect on the EBIT line?

So through nine months we've got a negative variance on the EBIT line of $55 million. And then, you could see that in Q3 it's negative $14 million. It was substantially better than -- or less worse than Q2. We would expect in Q4, at today's rates, for the variance to be plus or minus $10 million to $12 million, so it will be a benefit.

Chip Dillon, Credit Suisse.

You had mentioned earlier on the call that you had income up; it was up 15%, and I think you said without pension. Was that for the third quarter or for the nine months?

For the third quarter.

And how about for the nine months? Would you say the income would have been up without the pension?

I think we actually -- let's see. In the news release, we've spelled that out, 20.6%.

20.6%, got you, through the nine months, okay. And when you look at the volume trends, like, for example, in the North American Food Can business, what was that year-over-year in the third quarter?

In North American Food Cans it looks like we were, although improved from the first half of the year, down low- to mid-single digits. And as I talked about earlier, certainly recovering from the first half of the year but notably still down, largely a result of the closure of the food can plant in Canada and us deciding to walk away from some business. So I don't think we are too concerned about where the volumes were; we are quite pleased with the volume recovery.

Go you. And so, with that plant closed, though, do you think that the full-year volumes in the North American Food Can in '10 might be a little bit down, or could it still hold flat?

I think, as John described in his comments -- we expect can demand to be up next year in all the regions we participate versus 2009.

In food?

In food and beverage, aerosol -- every product line.

Got you, okay. And then, if you could just give us an early look into next year, you mentioned CapEx at $180 million. I know you've got a couple of initiatives, the plant in Brazil being an example. What does CapEx look like right now for 2010?

Well, you are a few months ahead of us here, Chip, on guidance for next year. But I would say that our capital requirements for next year will be in the range of the number for this year, perhaps as high as $200 million, so maybe plus $10 million from this year. We've got a number of very, very good opportunities. The emerging business platform continues to grow; and, as John has described previously, we are really well-positioned in many of these markets where we understand the market and we do see further opportunities.

Okay, and the very last question -- I appreciate the explaining what's happened in the Middle East. As you look at that market, obviously you had tremendous growth over the last few years, and it seems to -- and you gave a couple of factors that have certainly slowed it down. I wouldn't expect it to get back to the double-digit levels we saw in the past, unless you give us a reason to expect that. But do you think it will at least get back to, say, mid-single digits or higher sort of on a run rate basis for the next two or three years? Is that reasonable?

We think so. To me, going back to growth levels of 7.5% to 10% is something that we think is attainable and reasonable and we expect to have happen. And, as I said earlier, we were a little surprised with the deceleration in the third quarter, but the Middle East is not immune. Everybody thought that it was in the first half of the year, and now we find that their banks and some of their borrowers and lenders, etc., have problems similar to everybody else in the world. It's going to take just a little while for them to digest all that.

And we do think the issue in Saudi Arabia, which was not insignificant for us, tremendous -- millions and millions of people visit western Saudi Arabia for the Hajj, and that was way down. So we think that's not going to recur. So we think the growth is going to resume not at the 15% to 20% levels that we have had, but we think back to 7.5% to 10% is very achievable.

Peter Ruschmeier, Barclays Capital.

I was hoping you could help to summarize some of your growth initiatives. You mentioned Vietnam and Slovakia looking like coming on in the first quarter of '010. Can you remind us the capacity there and the expected learning curve from those additions?

Well, Vietnam -- let's start with Southeast Asia. Vietnam will be on the order of 650 million, 700 million cans, but it won't all -- we won't sell it out fully, we don't think, next year just because we won't be able to produce that many. But that -- as we said, we are in commercial production of a new plant that we've bought, and we also expect that our other Vietnamese plants will be able to produce more than they have this year and follow the market. So I think Southeast Asia looks very good.

The Thai plant, staying with that -- I think at this point we're probably going to be in production third quarter -- Tim, would you guess?

Yes.

So it will make a contribution late third quarter/fourth quarter. That will be a big boost for us. We have a one-line can plant; we'll go to a two and just start making a lot more money when you're spreading overhead more effectively in that manner.

China -- we are looking at some opportunities. We don't have anything yet to announce; but, when Tim talks about CapEx and opportunities, China is a place that we think perhaps needs some more attention and perhaps more CapEx. So we are looking pretty hard at that.

Coming around Eastern Europe, the Slovakian plant, as we said, actually it's running a little ahead of schedule. We think now we are going to be making first cans perhaps end of February/early March, and commercial cans mid to late March, perhaps even a little sooner. And that market, we think, is going to be very promising. It's down now; we know that. Eastern Europe is generally down. But over time, and we think reasonably a short time, it's going to bounce back. And so we think it looks very, very promising for us.

And then, of course, in Brazil we have been pleasantly surprised with how easily we've sold out our new plant that begin production this year in the north of Brazil. In fact, we are now capacity constrained in that plant. And at the same time, as you know, we've announced we are building a new plant in the south of Brazil, which is due for production probably not until the end of fourth quarter next year. But, if we do decide to do something else in northern Brazil, we can move pretty quickly on that, but we haven't yet decided.

So we've got a lot of good opportunities and things that we haven't even discussed with any of you around the world, principally in the emerging markets, I have to say, although we are beginning to look at some other small acquisition opportunities in Europe. And of course, we may have something here in North American Beverage. But we'll see.

And, John, you mentioned in the release that 72% of sales are generated outside the US. Do you have a vision for us looking forward? It sounds like the emphasis in growing emerging markets is only going to boost that number, looking out three to five years.

Yes, but honestly, we don't have a vision that we can quantify. Our idea has been, let's get in all the emerging markets that we think are truly attractive -- good economies, good governance, growing middle-class with more disposable income -- and then follow those markets in a natural way, but don't force anything. We're not trying to accomplish a grand vision here; we're just trying to make money in the markets that are growing markets.

So we know that the international business will continue to grow. Exactly at what rate and where, we are a little uncertain. But we hope and we believe it's all going to be profitable growth.

Tim, you mentioned net debt to EBITDA has obviously come down nicely. And at the rate you are generating cash, that's going to continue to the point you could be underlevered, I think, within 12 months, I guess is a high-class problem.

Aside from the growth opportunities, can you just share with us, maybe John, your priorities for free cash flow, whether to the extent you consider eventually dividends, buybacks? Or is it really just kept for deleveraging and for growth?

Well, I think, obviously, we do have significant free cash flow. And I think we're very confident in our free cash flow and our ability to continue to generate that. We will, obviously, as we always do, continue to look at the appropriate uses of that cash flow for not only the benefit of the shareholders but all of the Company's stakeholders. So nothing is off the table.

I will say that, at 2.8 times leverage -- and clearly, I think, by the end of the year, as we've previously described, we think we are going to be at 2.3-2.4 times that leverage -- in the context of the environment we are in and the global banking situation, whether you believe that's better or not. I don't know what the appropriate level is, but we certainly would feel better moving down closer towards two times and trying to approach some ratings upgrades.

But obviously, we are well aware of the fact that there are other shareholder enhancing uses of the cash and we'll continue to review those.

Tim Thein, Citi.

Good morning, this is actually someone else on Tim's team filling in for him, but just a couple quick questions around your commentary in Europe. First, we've been hearing from some of your peers that what has been a pretty rational pricing environment may be getting a little bit sloppy, particularly in the French market. Have you been seeing anything along those lines in either the food or bev can side?

No, we have not. We think, as far as we can tell, pricing continues to be disciplined than rational, and we have not seen that.

Okay, great, that's helpful to hear. And, second question -- with regards to your adding capacity in Spain, the line in Seville, particularly -- if that's up and running, given your comments regarding some of the weakness in the Spanish market, particularly on the exports, where are you guys seeing that volume from those capacity expansions going? Is that just placing domestic volume? Is it going into the export market? And how are you seeing that play out?

When we were talking about difficulties in the Iberian peninsula, North Africa, etc., Italy, associated with demand weakness and exports, we were really referring to the food business, largely fish but also olives and tomatoes. And the beverage situation has not changed over the course of the year. It's true that the French market has been down -- I mean the Spanish market, beverage market, has been down pretty much throughout the year. But nothing adverse happened in the quarter. If anything, actually, the third quarter was a little better in Spain than it's been. So it seems to be coming back.

So what we were describing does not refer to the beverage business and doesn't refer to capacity utilization in Seville.

Got it. And final question, I saw during the quarter that you guys took out some of those euro-secured notes that had sort of been providing somewhat of a natural currency hedge to some of your European operations. How do you think about your currency hedging position going forward? Would you look to establish something more on the side or switch some of your financing more into the European market or anything, other strategies around those lines?

We obviously always look at the capital structure, not only in terms of how much leverage we have but in what currencies. As we continue to delever and reduce overall debt, it will only be natural that some of the euro debt comes down with it. But we are well aware of the currency mix. In a rising currency environment or a weakening dollar environment that we seem to be entering right now, we are not overly concerned about that. If and when we see or forecast the dollar to restrengthen, we may be more willing to explore placing more euros in the capital structure.

George Staphos, Banc of America.

If we look at the increase in the free cash flow guidance and also look at the trend in the EBIT growth guidance, which are the one or two key factors behind each of the changes? For example, on EBIT, is it the issue that you are having in Europe, or is it some other factor?

I think, obviously, we came into the year, George, and in the face of some very big headwinds as it relates to currency and pension, we tried to establish a target that we felt was demanding for our operators and managers who have done a phenomenal job this year, and was also a fair number to give our stakeholders -- shareholders, bond holders, etc. We did not try to put a number out there that was a lowball number and beat it. Obviously, volume -- the extent of the destocking that many companies have described was far deeper and the recession seems to be far deeper than perhaps anybody anticipated at the beginning of the year.

Having said that, we are still doing quite well, and volumes have recovered, although it's clear to us as we sit here today at the end of three quarters that volume is not going to be at the level for the full year that we thought. So I think it's appropriate that we, not in a large way, bring the number down. I think the guidance adjustment we've given you here is about $25 million on segment income, and that's just a reflection of volumes which, while recovering, are not going to be where we thought they would for the full year.

It's not a compliant; I just want the color.

George, in a nutshell, it's what we already discussed. We had expected food can demand in Europe across the board to come back more strongly than it did. It came back in a number of segments and a number of geographies, but it didn't come back in the ones that we mentioned earlier. And as to beverage, we saw extremely strong, relatively extremely strong demand in the Middle East in the first and second quarters and the slowdown in the third has been a surprise.

So what we are really doing is we are taking those two trends -- food and beverage -- and we believe we are not going to get a bounce back in the fourth quarter. We think we will, in 2010, but it's going to take a few more months to right itself.

Understand. One question regarding cash flow. Now, cash flow went the other way; it went higher. Within the business, where are you getting the best cash conversion relative to what your expectations would have been? And in a related question -- was there any kind of inventory charge in the third quarter that makes for lower EBIT but better cash flow?

Well, on the cash flow side we bumped the guidance at the end of Q2 (technical difficulty) bumped it here. And that's really largely on the back of two things. The tinplate reduction that we experienced on July 1, that obviously will result in the carrying cost of inventory being a bit lower at the end of the year than we would have thought at the beginning of the year. And obviously, we have a lot more confidence at this point, with nine months behind us and a fairly good performance through nine months versus nine months last year.

On your comment as it relates to cash flow outperforming relative to segment income, we didn't have any inventory charges. But I think it would be fair to say that, in the context of the recession we are in and some of the challenges that are faced by many industries, and certainly some of our customers in the markets that John described, Southern and Eastern Europe, we have been fairly prudent and cautious and we have made a couple of provisions for receivable collection. But that's just something that you do in the ordinary course of managing your books.

Okay, that's helpful Tim; a couple more and I'll turn it over. Realizing that, again, you've already covered this to some degree, that volumes are improving but you won't get back to where you had been, say, a year ago, what does the fourth-quarter tale look like the harvest in some of your key regions? Should it be pretty normal versus year ago?

I'm sorry; I'm not sure I understood -- tail? What do you mean by that?

Well, October you are still harvesting -- not you, but your customers are, presuming there isn't some sort of weather, freeze-related complication.

No, no, [icy] -- story. There's nothing unusual. We had a relatively strong pack in the third quarter in North America. It carried into the first couple of weeks of October. We think the pack is essentially over, a little bit of filling, but not much left. But it was a good pack in North America.

Generally speaking, aside from demand in Europe, the same was true of France and Britain, packs over there as well. So we would expect to see, generally speaking, a fairly normal demand quarter around the world, with the exception of the food businesses we earlier mentioned. And we don't see a bounce back in the Middle East in the fourth quarter.

The last one there on the Middle East, there was a pickup with -- I want to say it was Pepsi in the third quarter with some of their Mideast volumes now. I realize it can be very local. But should we read some of the positive bottler comments that we have seen to be ultimately a positive for you demand-wise, if not fourth quarter, into next year?

I think, as a general description of what we believe the soft drink, carbonated, non-carbonated are going to do in the Middle East, it's reflective of the fact that we think demand is generally strong and so on. Keep in mind, we've got about a 75% market share through the region. So Pepsi can be doing relatively well and somebody else can be relatively poorly, and we are directly affected by it. So I'd have to take a look at Pepsi's numbers in real detail to understand apparent outperformance.

Claudia Hueston, JP Morgan.

Just a couple of questions; one, just on the restructuring in Canada and just maybe how we should think about those savings coming in as we look to next year, and then just generally have you would assess your North American food can/aerosol footprint at this point.

I think the saving -- as we said in the release, the full-year expected savings around $25 million from the activities were the actions we took. And I'd say that we get close to two thirds/three quarters of that next year. These are fairly easy changes to implement. In fact, we are going to be moving most of the volume back into other facilities in the United States, so we'll convert those savings very quickly.

As it relates to the footprint, I think we feel pretty good about the remaining footprint. We have essentially four aerosol can facilities in the United States, and taking out two higher-cost, underutilized Canadian facilities in food really sets us up well for the future.

And then just wondering if you could comment just briefly on the trends you saw in Asia. You talked a lot about the Middle East and some of the other emerging markets, but not as much about Asia and what you saw there in the quarter.

Well, as John has described, activity continues to be very strong throughout Asia, especially Southeast Asia. Beverage can volumes were up 4% to 5% again in the quarter and for the year are up over 5%. And importantly, we have a very -- while it's a small business, it's a very important business for us, a food can business in Thailand. And volumes were up about 10% in the quarter there, so we're doing quite well throughout Asia.

Finally, I don't know if you have any read yet on how we should be thinking about pension for next year. I know it's really early.

Well, you know and you can see the markets. And whichever index you look at, whether it's something as narrow as the Dow or some of the broader indexes, the Russell 3000 or the S&P, all the indexes are certainly performing extremely well compared to March. But even if you go back to January 1, they are still up. And we are doing really well on the asset side and the pension.

What we don't know, obviously, is where the assets are going to end up for the year. But assuming they don't give anything back, the big wild card right now is the discount rate, which we will mark off of the 10-year treasury. And that currently is lower now than it was at the end of last year. So it is a bit early, and I think we need to wait until we see where the discount rate goes.

Alton Stump, Longbow Research.

Could you give us an idea of what exactly volumes were down in both food and bev cans in Europe in 3Q?

In beverage cans in Europe, Western Europe was essentially flat and the Middle East was off a few percent. So overall, we are down a couple percent in our European business.

In food cans -- I'm looking here. In food cans, it looks like we were down mid-to high-single digits again in the quarter.

Okay, thanks, and then just one quick follow-up. With the cost moderation that was announced at July 1, and I think you guys made the comment that you think we could see pricing go higher in Europe at the first of next year, how has that back half of that year price decreased? Has that been passed on fully? Is there any potential margin pressure or benefit, potentially, from that in the fourth quarter?

No. You are right; steel prices generally adjusted downward during the third quarter, and we reduced our food can prices as we ran through inventory on both sides of the Atlantic. So we think we adequately protected margins and we anticipate that, as prices move back up in Europe and Asia, and we are quite convinced they will, we'll have to make adjustments in food can prices again, we think, to be successful.

And as I mentioned, in the United States/Canada, we are seeing a little different situation. And there we are a little unsure whether there might be a slight upward move or a slight downward move. But in either event, we're going to adjust food can prices. And again, we don't think -- we won't see any margin erosion in the fourth quarter as a consequence of any of this.

Chris Manuel, KeyBanc Capital Markets.

First, as we think about the restructuring you announced today, the $25 million-ish, can you give us a sense as to timing of when we'll start to see that? Is that a 2010 event? Will some of that come this year, or does some of that leak potentially into 2011? Can you give us a little color there?

You won't see any this year, and you will begin to see a fairly substantial proportion next year and then all of it in 2011. We've been looking for some time at our Canadian facilities, thinking, when you take a look at the currency disadvantage and some of, frankly, the labor cost disadvantages that we've had, we've been hanging on there, thinking that for the Canadian market it would be useful to continue to have Canadian manufacturing plants, and the Canadian customers would like to see that.

Now, what we've seen over the last couple of years is that maybe it's not as true as we had hoped. And so we're just going to have to regroup and, as Tim said, move production to lower-cost US facilities and ship north. So that's how we came out on it. It took us a while. We hope we wouldn't have to do it, but we have had to do it. It's going to lower the cost base, and we think it's going to be fundamentally very positive. But it's always a shame to shut plants.

I understand. I don't want to get too granular, but let's say approximately half, then, next year and half in 2011? Does that sound --

I think what we -- to a previous question, Chris, I said we'd get about two thirds of it next year and you get the full amount in '11.

Okay, I apologize, I had missed that, I (multiple speakers) few minutes late. If we could turn a little focus to the European bev market for a second, it sounds like overall industry volumes remain a bit soft there, and it sounds like your plant is coming a little ahead of pace. Is there any thought as to -- I believe your plant was scheduled to be sold out as it came online in Slovakia. Just to keep supply-demand remaining tight and in good balance there, is there any thought to maybe slowing some of the ramp up of that plant? Or how do you think about that?

Well, the Slovakian plant, as we've said, is sold out. And we must start and produce in accordance with our plan, or we are going to have problems with some customers. So we are proceeding with Slovakia. We think it will be one of the most modern plants, beginning as a high-speed one-line plant but with capability to go further.

So we are committed to that. We have to go ahead with it. And we don't, frankly, know what the impact to the region is going to be. But we do know that there are a number of small, one-line can plants dotted around the region that, in some cases, were installed as much as 10 to 15 years ago, and some of them a little bit remote in terms of location. So there may need to be some adjustment, but we are not going to be able to slow down the Slovakia plant. We've got to go ahead.

Okay, that's helpful. And the other question I had was, it sounds like, from your dialogue and given you borrowed about $400 million earlier in the year -- it looks like you paid off a little over $500 million of debt here in the third quarter. Would it be fair to assume now that the focus primarily that you're working on is on internal growth, organic projects, adding lines in different areas of the world, adding a few new plants, what I would consider more internal-used to stuff as opposed to acquisition on the outside? Or, how should we think about what that focus is?

Well, we think the focus hasn't changed, which is that, as Tim mentioned, our geographic spread and product spread in growth markets is so extensive and, we think, fundamentally sound -- we're not in any stinker countries or economies. So the opportunities as a general proposition for very good return growth projects are sufficiently extensive that that does remain our focus, that and a combination of strengthening the balance sheet by paying down debt somewhat further.

Now, we are getting to the point here, obviously, where we have some flexibility we haven't had before. And if we could see some very good, reasonably priced, good return consolidation opportunities in the mature markets, well, we've got a higher level of interest than we've had. We've been looking at them now. We've shifted our attention a little bit to the extent that we are now analyzing those opportunities. But the fundamental focus has not changed.

Rick Skidmore, Goldman Sachs.

The new capacity that you're bringing on -- is there any reason that that capacity would have a significant difference in margin relative to your other businesses?

No.

And then just second question with regards to North American beverage, what are you seeing out there with regards to pricing in the North American beverage market?

Very stable. We are not seeing any activity that we think would adversely affect margins. And if anything, perhaps they could improve somewhat. So we're seeing stability.

And do you have any business up for contract renewals coming up through the end of this year?

No, we do not.

Al Kabili, Macquarie.

Just a question on the European food business. The sequential decline in operating margins there -- typically, with the seasonal strength, that expands. Can we conclude that that's just really driven by the low-cost inventory benefit that you had in the first half of the year with respect to tinplate?

I think it's a combination of that and, as I previously responded to George's question earlier, we did make some provisions for receivable collectibility in southern and eastern Europe. So it's a combination of both.

Okay, and how much did the receivable provisions negatively hit EBIT in that segment during the quarter?

I think we provided around $5 million to $6 million in the quarter in European food.

Okay, got it. So in other words, from a sustainable margin perspective, we could add back that $5 million to $6 million if we think about, on a go-forward basis, what normalized margins might be?

I'm going to be careful how I answer that, but you can add back what you like, yes. You're the analyst.

Fair enough. And the other question is, on Europe Food, did you get pinched at all in terms of -- with tinplate prices decreasing in July, did that hurt your margins on inventory losses in the third quarter in Europe food?

No, it did not.

No.

And then just wanted to switch to North America Food, and you mentioned walking away from some business there. Can you talk about how much of an impact in terms of year-over-year growth in volumes the walkaways from business was?

It wasn't substantial. There was some business, however, in Canada that we just could not continue to enjoy, given our Canadian cost base. But it wasn't substantial.

Okay, and was that new in the third quarter, or was that business that you walked away -- was that a beginning-of-year event, or is this kind of incremental happening in the third quarter?

It happened at the beginning of the year.

Two quick housekeeping questions -- on the restructuring, cash expenses related to the closures. When does the timing of those cash expenses occur?

Maybe a little bit this year. The majority will be next year.

Okay. And then, finally the tax rate -- lower than I would have expected this quarter. What do you think about the full-year tax rate this year? And any initial thoughts on what the tax rate might be looking like next year?

Well, as we said earlier, from an ongoing perspective we are at about 23.5% through nine months, which is a little bit lower than the 25% guidance we gave you at the beginning of the year. And some of that has to do with country mix; that is, where we are making money and the tax rates in the countries we are making money versus our initial forecast. Certainly, as John described, the Iberian Peninsula, some of the food can volumes were lower. Therefore, the profits are lower, but the tax rates in those countries are generally higher. So that really goes hand-in-hand with operating income.

So I think 25% for the year. I don't have a really -- I don't have a basis to change the estimate for the tax rate this year, and it's far too early to give you an estimate for next year.

Joseph Naya, UBS.

Thinking about volumes in food can for the fourth quarter, obviously last year we saw some pretty significant buy-aheads that increased the volumes in the quarter. Do you think that the price increases that are pending out there could drive a little bit of additional buy-ahead this year? Or just how would you suggest thinking about the volume trends there?

I think, in North America, the answer is no because of our estimate of what may happen with tinplate prices. And even if there is an increase, it's going to be sufficiently modest. I don't think it's going to change anybody's behavior. And frankly, I think the same thing in Western Europe and Europe and Asia. The new price increases would be more significant. But again, we do not think that they are going to be such that customers are going to want to carry excess working capital going into the year.

Dan Khoshaba, KSA Capital.

Jim, when does FX -- assuming, let's say, the dollar stays in this range that it has been in -- it has weakened considerably, obviously, in the last few months. When would FX no longer be a headwind, but actually be neutral to positive for you guys?

It will be a tail wind here in Q4. I think I said earlier that that segment income could be as much as $10 million to $12 million positive in Q4. Then obviously, for the first three quarters next year, based on the rates today, the first three quarters next year would be a tail wind as well.

So for the fourth quarter, it's expected to actually go to a tail wind?

Yes.

Okay. And it was, what, a negative $14 million this quarter?

Yes.

So that's $24 million. Okay, good. And then, let me ask you this. At what point do to you -- I know you've been making great progress in terms of delevering the Company. You just raised your free cash flow target to a pretty big number relative to a lot of things. When do you start to think about other potential uses for some of your cash, maybe some modest stock buybacks? Or, is it really just continue to focus on the debt for now?

Well, we always think about it, Dan, and certainly, we have five board meetings a year, and we discuss it with the board and the board discusses it with us at every board meeting. And we are very committed to trying to use the cash to enhance shareholder value, in whatever form that may be. And as John described earlier, we have not had, in the past, as much flexibility as we now have to consider other opportunities. So there are a number of opportunities, including potential share buybacks, that we will continue to review as we go forward.

Lastly, just a little kind of discussion about -- you said maybe some acquisitions, North American beverage -- I think everyone knows North American beverage can only mean the piece, the smaller piece that's left of the AB business. We know -- Ball got a pretty good deal. I think it's accretive by $50 million to cash flow and accretive to earnings, by my estimate. People liked that deal.

I would expect that, because the business has now been cut in half, so to speak, that the buyer of the assets that are remaining would get at least that kind of deal, if not better. Or why do that deal, right? Because the value of the business, to some degree, from the seller's perspective has probably decreased a little bit. Right? It's not as big, more regional.

How do you think about potentially doing a deal in that space?

I'll let John comment in a second. Obviously, we look at all the opportunities we have. And as we've described, throughout the year and in previous years, and today we have a number of opportunities around the world. So we look at the return characteristics of each potential transaction, whether it's a greenfield site, adding a second line to an existing facility, an acquisition in Vietnam or a potential acquisition in Europe or the United States.

So, while it may be good, we don't have unlimited uses or unlimited capital available to us, and all of these opportunities may be positive. But having said that, we obviously review the opportunity.

I don't have much to add. As Tim said, we're in the fortunate position of being able to prioritize, frankly, at the moment, a lot of very attractive opportunities. And as you pointed out, metal container, what's left of it, is one. But it's got to get up towards the top of the list before it's something we think is actionable.

Right, right, okay, great. In terms of your pension, there's a big head wind this year because of expense of the market kind of last year. When do you actually flip the switch on pension? Is it at the end of the year, in terms of making the adjustments which ultimately determine whether or not it's a tail wind or a head wind? Because I would imagine that there's a significant potential change there as well.

Well, everything is marked to market. As you know, we don't smooth assets. And so we mark to market everything based on the closing values of not only the assets but also the discount rate. We'll select the discount rate effective December 31. To use your term, the switch gets flipped January 1, first quarter next year. And as we've previously described, the assets are doing extremely well this year, certainly well above our expected return rate. And we are probably doing well above even the market, whatever index you want to use, just based on the managers we have in place. We're doing a good job.

But what we are unsure of at this point is where the discount rate is going to fall out. And, as I said, currently the 10-year is lower right now than it was at the end of last year. So we don't know how much a lower discount rate, if indeed it stays lower -- that can also move between now and the end of the year. We don't know how much that will offset the asset gains that are above our expectations.

Right, and pension this quarter was a negative 20-what?

It's a negative 120 for the full year, Dan, so it's roughly negative (technical difficulty) each quarter.

These are sizable potential moves, if you were to flip the switch on it, in terms of where you are now.

Yes.

Chip Dillon, Credit Suisse.

I just had a couple quick housekeeping questions. Did you mention -- I might have missed it -- the volume changes in both European beverage and European food in the third quarter?

We did. On European food, mid to high single digits down. And on European beverage, the Western European businesses were largely flat. The Middle East was down a few percent. So overall, we were down a couple percent in Europe.

Coming back to the potential -- and I know it's early, and we are not trying to pin you down. But your stronger free cash generation -- it looks like, obviously, that's going to have some impact on interest expense next year. And while we wouldn't necessarily expect it to be $50 million lower, if we looked at what you expect in the context of $440 million in free cash flow, and let's just say for a moment you don't buy back stock next year, would it be reasonable to expect your interest expense to maybe be down another $30 million or $40 million in 2010?

There's two things that led interest expense to be lower this year compared to last year. Obviously, lower short-term borrowing rates, that is, the fed funds rate which our floating rates are based off of. It's hard to see those getting any lower than they are. So that we've benefited from. Currency has also reduced interest expense. That will flip around and go the other direction next year, however.

So, having said that, if you look at the actions we took late in the third quarter to reduce fixed indebtedness, we'll get the full benefits of that next year. So just those two bond repayments, I think, save us about $25 million next year. We'll see what we do with the cash flow we have for the full year and where currency -- but in general terms, I think a number -- if you had to guess a number right now, $30 million to $40 million could be reasonable, if fed funds stay where they are at today.

At this time I'm showing no further questions.

Okay. Thank you very much, and that concludes the call today. We thank all of you for joining us, and we'll speak to you again early next year. Thanks very much.

This does conclude today's conference. We thank you for your participation. At this time you may disconnect your lines.