Crown Holdings Inc (CCK) 2009 Q4 法說會逐字稿

Good morning and welcome to Crown Holdings' full year and fourth quarter 2009 earnings conference call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised that this conference is being recorded.

I would now like to turn the call over to Mr. Timothy Donahue, Executive Vice President and Chief Financial Officer. Mr. Donohue, you may begin.

Thank you, Jane, and good morning to everybody. Welcome to Crown Holdings' fourth-quarter and full-year 2009 conference call. With me on the call today is John Conway, our Chairman and Chief Executive Officer, and Tom Kelley, Senior Vice President, Finance.

Before we begin I would 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.

A reconciliation from US GAAP to non-GAAP earnings can be found in our earnings release, and if you do not already have the earnings release, it is available in the Company's website at Crowncorp.com. You will also find a reconciliation from net income to EBITDA, credit ratio computations and supplemental cash flow data on the Company's website.

You will see that this morning we corrected a transposition of two numbers on page 7 of the news release. In the fourth quarter, segment income for European Beverage should read $43 million, not $30 million; and for European Food, should read $30 million, not $43 million.

I'll first review the quarter and full-year performance, provide some initial 2010 guidance and then I'm going to hand the call over to John for his comments.

Firstly, as we look back on 2009, I think we can say the Company had another solid operating year. Despite challenging global economic conditions, the Company reported adjusted earnings of $0.27 in the fourth quarter and $2.01 for the year, increases of 23% and 15%, respectively, over the prior year.

Free cash flow was very strong at $612 million and was considerably higher than the prior year and well ahead of our expectations. Our fourth-quarter operating performance was better than expected, and more than offset a higher tax rate, higher incentive costs, higher pension expense and difficult comps from the very strong fourth quarter of 2008 sales volume levels.

For the year, the Company in total and each of its major business lines achieved higher segment income and margin levels than the prior year, even with headwinds from pension and currency translation. Segment income improved to 10.2% of net sales or 50 basis points above 2008 levels. Net sales in the fourth quarter increased a bit more than 2% as the impact of currency translation offset the pass-through of lower aluminum costs and the 2008 fourth quarter pre-buy, which occurred in our food and aerosol can business. For the year, sales were up slightly when excluding currency translation.

Volumes were firm in the quarter and for the year in our Americas Beverage segment. Income benefited from better productivity, cost reductions and the continuing growth of our business in Brazil. In North American Food volumes were stronger than expected and, although not quite back to the fourth quarter of 2008 pre-buy levels, they were essentially level to the fourth quarter of 2007. Earlier than expected savings from the plant closures we announced in the third quarter and greater efficiencies throughout our North American system, combined with appropriate price-cost recovery, helped drive income improvement in the quarter.

European Beverage sales were up 6% in the quarter due to currency translation, which offset the pass-through of lower aluminum costs. Overall volumes were strong with improved European shipments offsetting Middle Eastern volumes, which were off from record levels in Q4 2008. As a reference, Middle East volumes in the fourth quarter of 2008 had increased 20% over 2007 Q4 levels.

In Food Europe, trends continue to improve throughout the business. However, volumes were down from the very strong Q4 2008 pre-buy levels, which impacted comparable income in the quarter. Overall, we had a really good food can campaign in 2009, and when adjusted for currency, segment income in food was up 11% for the full year over 2008.

Cash flow at $612 million was well ahead of our earlier expectations. The outperformance was the result of strong underlying operating performance, higher net earnings, an aggressive campaign to reduce year-end working capital and lower-than-expected tax payments. As many of you know, we are and have been focused on cash flow generation, and as such we do not run year-end inventory levels ahead solely to gain the benefits of cost absorption.

As a result of the strong cash flow, the Company paid down more than $550 million of total debt during 2009, resulting in a significant improvement in credit quality. Net debt at year end 2009 declined to $2.3 billion or 2.3 times adjusted EBITDA. Interest expense also fell sharply during the year, down $55 million, with our interest coverage ratio improving to 4.1 times from 3.4 times at the end of 2008.

Based on current interest rates in our current capital structure, we expect interest expense of approximately $200 million in 2010. In addition to the Company's improved credit quality, liquidity at January 1, 2010, remained strong at more than $1 billion.

Pension expense is currently expected to be $10 million lower in 2010, and pension funding is currently anticipated to be similar to 2009 levels. Taxes paid will increase by approximately $10 million in 2010. The effective tax rate is currently expected to increase to more than 27% in 2010 from 24% in 2009 as a result of the reversal of the French valuation allowance in Q3 '09. Our current guidance assumes an exchange rate of $1.40 to the euro and $1.58 to the pound sterling.

Looking ahead to 2010, the Company expects volume growth and the continued focus on cost reduction and productivity improvements coupled with lower interest expense to offset the higher 2010 effective tax rate, and the benefit of 2009 inventory gains realized in the first half of last year. As a result, the Company currently estimates full-year 2010 earnings per diluted share to be in the range of $2.10 to $2.30, and for the first quarter of 2010 to be between $0.20 and $0.30.

For 2010 we currently project free cash flow of $500 million and for capital expenditures of $205 million. When combined with our 2009 performance, projected free cash flow is over $1 billion in this two-year period. This excludes any potential impact from transitioning to the new accounting rules related to accounts receivable securitization.

Our current CapEx estimate of $205 million is up $25 million from the 2009 levels and reflects the many growth opportunities we continue to see, which John will now speak to.

Thank you, Tim, and good morning. Tim has done a thorough job of briefing you regarding our various businesses during the fourth quarter 2009 and for the full year. We had another strong year. Profit performance was excellent and free cash generation was superb. At the same time we expanded our capacity around the world in multiple major capital projects and paid down a significant amount of debt.

As we look ahead to 2010 and subsequent years, I truly believe the Company has never been in better shape and we will go from strength to strength in the years ahead.

We thought it would be well to say a few words to frame and summarize the opportunities the Company sees in 2010 and beyond. First, regarding our consumer packaging businesses in the markets of North America and Western Europe, we see continuing steady growth that will produce solid profit improvement and excellent free cash generation. Our asset base is in great shape. We believe that our people are second to none, and our research and development capabilities continue to provide us with competitive advantage. Our market shares in all of our product lines are significant and provide us with competitive scale of operations. We are a major buyer of all of the raw materials that we use. Our geographic coverage is good.

All in all, we have a very strong business in North America and Western Europe that we are confident will perform well in 2010 and the years ahead.

Also very significantly, we have leading metal packaging businesses in virtually every promising emerging market economy which has a significant and growing middle class possessed of sufficient disposable income to enjoy the benefits that our packaging provides. These businesses have now grown to a substantial size and will continue to grow at rates significantly higher than the North American and Western European businesses. The result is an expanding base of profitable businesses that are generating new growth opportunities at an accelerating pace.

To remind you, we have leading metal packaging positions, principally in beverage but also in food, aerosol and metal vacuum closures, in China and Southeast Asia, Mexico, Brazil and Colombia, Eastern Europe, North Africa and the Middle East. These markets were affected in 2009 by the global economic slowdown. However, positive growth still occurred but at a reduced rate. In 2010 GDP growth rates and increases in consumer disposable income are trending up, and the fundamental strategic idea at Crown, which is to grow at least as rapidly as these markets or faster, continues to be, in our view, a very exciting value creating proposition for many years into the future.

We have been present in most of the emerging markets that I mentioned for many, many years, often as long as 30 years. We have extremely well-positioned plants which today are large and low cost. Our management and our work forces are drawn from the countries in which we do business, and we are fortunate to have hired and retained outstanding talent. The experience that we have in emerging markets, the size and quality of our human and physical asset base and the tremendous customer relationships give us, we believe, an outstanding platform for growth now and into the future.

So in summary, Crown is exceptionally well-positioned to perform well in consumer packaging both in mature markets and emerging markets. Our balance sheet is now strong. Free cash generation is powerful. Operating margins are among best in class and, in particular, our spending controls and capital utilization, we believe, lead our industry. The result is that we are fully capable of taking advantage of the many growth opportunities that we see, and we are seeing an increasing number.

So with that, operator, Jane, you can open the call to questions, please.

Peter Ruschmeier, Barclays Capital.

Thank you, good morning and congratulations on a strong 2009. I was hoping you could help to quantify the benefit that you may have realized in 2009 in the form of inventory holding gains.

Pete, I think that's a number we haven't disclosed or quantified all year, and it's not a number that we prefer to quantify, for obvious reasons. Obviously, there was a benefit. You may be able to see the benefit in Q1 and Q2 in food can businesses in Europe and North America. But certainly, as we described in our prepared remarks, we fully believe we can overcome those inventory gains going forward.

So it's a modest headwind as we think about '010, a little more difficult comps related to that, but something that you think you can overcome?

Yes.

Okay, that's fair. And, Tim, do you have any securitized receivables? What was the balance at the end of the year?

You should be able to see that in the news release, so I think on page 2 or 3 of the news release, we actually give you the accounts receivable securitization. It was -- page 3, $232 million at the end of the year, which was down slightly from the end of the prior year.

Okay. And just lastly, in light of your forecast of $1 billion of free cash over a two-year period, I'd be curious, John or Tim, how you think about priorities for free cash flow. In particular, can you comment on how you think about dividends, buybacks, internal growth versus acquisitions? Obviously, presumably you think about all of them. But can you help us with an update on your thoughts there?

Yes. We obviously continue to review the best uses for our cash, and we are aware that that may include some form of return to shareholders. As John described, we believe we have many attractive investment opportunities. That could be organic or otherwise. We would like to take our net leverage below two times, and that certainly is well achievable by the end of 2010. I think, based on the guidance we've already given you, if we did nothing but apply all of the free cash flow to net debt, we'd be below 1.8 times by the end of 2010. So I think there is some scope for some of the other items that you've mentioned here.

Chip Dillon, Credit Suisse.

Just on that last question, just so I understood you, Tom, you're saying that, given that you will get below that two times EBITDA number which is -- or net debt number, which is fantastic compared to where you were just a few years ago, could we actually see you take actions this year on a return of value to shareholders, or is that more of a 2011 event?

I think what we have is a high-class problem. We have cash, we have a balance sheet. As John mentioned, it is very strong. We have a lot of opportunities, and obviously we want to continue to exploit the regions that we are well-positioned in and continue to grow, as John mentioned, at least as fast as those markets. There could be acquisition opportunities. We always look at those opportunities. Certainly we're looking at them the more keenly now than ever before. However, we will remain disciplined as relates price and the quality of the asset.

In the absence of attractive growth opportunities, there is a possibility we could move on that front, as you mentioned, sometime this year.

And also, when you look at your CapEx budget, I know you all have either recently completed or are about to complete a couple of plants in Vietnam. I think one was acquired. I think you are active in Eastern Europe as well as in Brazil. Could you just review where your spending is and where maybe your next capacity would be?

And then, lastly, would European Food can be on the higher half of the list of where there could be acquisition opportunities?

Maybe it would be worthwhile to give you a quick reminder of what we would regard as significant capacity-expanding projects in 2009, and then I'll discuss what we see in 2010. I think all of these have been announced; maybe one or two have not.

You'll recall we built a major new beverage can plant in Slovakia. Look at the map and you will see we are right in the heart of Eastern Europe, we think extremely well-positioned to reach up into Poland, but in other directions as well, Hungary and so on. And that came onstream in terms of first production in December. If anything, we are ahead of schedule, going very, very well.

We expanded in capacity in Dubai in 2009. We began our new beverage can plant in Brazil in the north; Estancia is our plant there. We began making cans in March, 2009, so we are going to see a full contribution in '10. But the plant came up exceedingly, exceedingly well. We've been really pleased with it -- again, head of schedule, under budget.

We've expanded beverage ends in Brazil as well, in combination with that, and we'll probably need to do it again.

Vietnam, we announced that we bought a beverage can plant from a good customer who decided he would prefer to focus on his own business and not canmaking; this is the so-called Dong Nai plant. And we've begun commercial canmaking there as well. We began in December, but we're coming up a learning curve and coming up nicely. So we're very pleased with that.

So that gives you a sense of why we're so enthusiastic about emerging markets. You can see that the capacity expansions range across all of our divisions -- Americas, Europe and Asia.

Looking into 2010, things that we've announced, we're doubling the size of our beverage can plant in Thailand, and that project is underway. We are making a significant capacity addition in our food can business in Thailand, focused on food. But it will have a knock-on effect. Now we are going to be able to do some other things with fruits and vegetables as well. So good business, strong business, growing for us. We've decided -- and we haven't announced this, but we've decided we will be announcing it probably reasonably shortly. We are going to double the size of our plant in Dong Nai. We need more capacity, and so we would be putting a second line in, and that project is underway. So we'll have another two-line can plant in Vietnam, which is going to be great, generate a lot of cash, a lot of profits, we think, for the Company.

We are going to be making a major ends expansion in Vietnam. We need to do it to keep up with the growth in the market. We've announced, as you know, a new can plant in Hangzhou, southwest of Shanghai, that's still underway. We've purchased the land. That project is going ahead. In the south we announced we are putting a new beverage can plant in the south of Brazil, and we have bought land, we've broken ground, we've leveled the site, site work has begun. We hope to have that plant in operation first quarter 2011.

So that gives you a sense of the breadth of our activity. I could go on into 2011 because I've got a list here that's 2011. But of course, we are still selecting the best of the projects that we see for 2011. So we've got a lot of ways to go, we think, in terms of capacity additions, expansions in our emerging markets business.

You asked about Europe. We've talked before about our view that there is opportunity for further expansion or, rather, consolidation in the food can business in Europe. We are the market leader there. We've done exceptionally well with the business. We are very pleased with it. It's growing in the East, Eastern Europe. It's growing in southern Europe -- a little setback in 2009, of course. But it doesn't change our mind that it's a good, solid business that we have a strong interest.

And so we're looking at things, but we're going to be very, very careful about anything we might do. We are demanding solid returns, not speculative returns. And part of the reason is that I think, as you all know better than I, we've got a lot of very good uses for our cash. We just described the emerging markets opportunities. We're well aware of what paying down debt does in terms of earnings and, of course, share buybacks, something this Company is very, very familiar with in its history and why they are beneficial to the shareholders.

So we're going to be very careful about doing anything in Europe. It's going to have to be very, very good returns. And we think sellers are becoming a little more reasonable and motivated, in light of what's going on around the world.

Got you, thank you for that rundown, that's terrific.

Alton Stump, Longbow Research.

I just wanted to ask, first off, looking at European Food can business from a pricing perspective, any commentary on how the first of your negotiations have gone so far, whether you are getting a full pass-through or not? And if so, if there might be some additional net pricing potential power there like there was last year.

The discussions with our customers, we think, have gone quite well. We are, we think, so far successfully handling the cost issues with regard to food. We don't think we are going to see adverse effects as a consequence. So we are pretty pleased. They've been a little slower this year than in the past because the steel negotiations have been slower than in the past. We have been resisting increases, really, in North America and in Western Europe. We're hopeful that we are going to come out of our steel price negotiations at essentially no increase -- no decrease, probably. But the negotiations continue.

But so far, in terms of pricing with food cans, both in Europe and in North America, I think things are proceeding fairly for us and fairly for our customers.

And then just one quick follow-up to that business on the volume front. Obviously, it was a difficult 2009. Any color, or is there any confidence if we we'll see volumes grow off of that easy comp in '010, in European Food, I mean?

Yes. European Food, we had a very -- and Tim mentioned it -- we had a very large '08 pre-buy in advance of very high price increases because the European steel companies were extremely aggressive in terms of price as we went from '08 into '09. So the fourth quarter comp obviously is not particularly good. But we're seeing a bounce-back in all of the markets, and -- food markets, that is. And so we are anticipating we will definitely have a better volume year in '10 than '09, possibly not quite back to 2007 levels. It may take us, frankly, another year to get back to those levels. But clearly, a definite bounce back.

Chris Manuel, KeyBanc.

Good morning, gentlemen, and congratulations on a very good 2009. I missed what your free cash flow guidance was for 2010.

$500 million.

Can you talk for a moment -- 2009 looks like a [6-12] number. What drove the massive amount of upside versus what your guidance was just a few months ago?

As you could tell throughout the year, I think we raised free cash flow guidance a number of times throughout the year. So we knew we were performing better than we had initially hoped for at the beginning of the year. Obviously, the steel price decrease in July helped reduce some of the amount of cash that's held up in working capital from the large increase at January 1. But the two biggest upsides were tax payments were a bit lower, about $20 million lower than we had anticipated. And, more importantly, whereas when we began the year we thought working capital would be a significant use of cash, it turned out to be a significant source of cash, owing to really quite a fine effort by most of the managers across most of our businesses. You can see from the cash flow statement that working capital was a source of about $65 million. And throughout the year, when we began the year, we probably thought that number might have approached a use of cash of a similar number and it slowly worked its way down. And only as we got later in the fourth quarter did we realize what the potential or the power was to reduce that number.

Okay, that's helpful. And from -- given your numbers, it looks like 2010 is going to be another outstanding year, too.

John, a quick question on where you stand with emerging markets. You went through a lot of detail there. Given all the new capacity coming online, and I'm assuming many of those plants will be at a pretty good utilization rate out of the gate, could you give us a sense of where you've finished the 2009 with respect to percent of your revenue from these developing markets and where you might end 2010?

I think we can. Tim will give you a shot at that. And always keep in mind, and it always confuses me, that currency and raw material pass-throughs always affect this, so year-on-year comparisons are a little tough. Tim, you have -- we don't have the (multiple speakers) but we'll make a stab at it.

I don't have it in front of me, but it will be somewhere between 25% and 30%, Chris. As John mentioned, the dollar was certainly stronger in '09 than '08, so that had the impact of reducing overseas sales and, specifically, emerging markets sales in reported terms, but certainly not in volumes.

And then, by and large -- I don't want to say all, but by and large, the emerging markets businesses we have are aluminum beverage cans. And aluminum was lower in '09 than '08. And tin plate was higher in '09 than '08. So you have a little bit of a mix, that the tin plate sales are inflated versus '08 and vice versa for aluminum. But I think that as we go forward, certainly over the last couple of years the number in emerging markets has accelerated from 18 to 22 to 25, and I think we can quickly see our way to 30% here in the near-term.

Okay, that's helpful. And the last question I have is, as you look at opportunities to redeploy cash, you mentioned internal growth opportunities, so adding more capacity in many of those regions, you indicated. It sounds like, on the -- more on the acquisition side or looking at growing the business via consolidation, that that's more into developing or more into, I shouldn't say developing -- more to established regions versus developing regions. Is that a fair way to look at it?

Well, not really, Chris. We are looking at acquisition opportunities in emerging markets also. In some cases our market shares are so large and our presence is so large it becomes a little bit difficult in some of the emerging markets to make acquisitions. But we are talking to a number of people as we speak in the emerging markets about opportunities and their interest in perhaps selling. So we're looking all over. And we've got a really excellent feel for what's going on in the emerging markets as well as the developed markets. Our people are doing a wonderful job, not just staying very, very close to the customers and their plans and their growth aspirations, but also staying very, very close, talking to our competitors about the opportunities, particularly for some of these family-owned companies perhaps to cash out.

Ghansham Panjabi, Robert W. Baird.

Last quarterly call you commented on some weakness in the Middle East. It sounds like things have stabilized there. Is there any reason that gives you incremental pause as you look out to 2010, maybe a little bit of uncertainty in Eastern Europe, etc.? Can you just give us some color on that, please?

Yes. We think the Middle East volume declines have stabilized. We talked about them with regard to the third quarter and here again in the fourth quarter, and we talked with you about what some of the problems were. But the volume down trends have stabilized. We're now expecting a rebound in the Middle East. We think the first and second quarters the comps are going to be tough because we had a tremendous first -- second quarter, as you know, in the Middle East in '09. But by the third and fourth quarters, our view is we're going to be back on a solid upswing, and so we feel very, very positive about that business.

If you just take a look at the demographics, the proportion of people that are under 30 years old and the tremendous wealth generation simply resulting from raw materials, if nothing else -- and there are other things going on as well -- we are still very, very bullish on the Middle East, the Gulf in particular.

Eastern Europe, everything was down -- food, aerosols, beverage, etc. But medium term and long-term, we have a lot of confidence in Eastern Europe. So again, we're forecasting a rebound. You've been reading the same thing I have, which is a number of Eastern European economies, Poland and others, have done remarkably well through this credit crisis. And pretty much everything we read is for positive GDP growth in Eastern Europe in 2010 and beyond. So we feel pretty positive about these markets.

Looking at what you've accomplished over the last five years -- you've paid down over $1 billion of debt, you've pre-funded the pension plan, you've divested non-core assets and you've clearly benefited from the growth investments in emerging markets and each of your major businesses is now generating close to record operating margins. So as you look out over the next five years, do you still feel there's room for incremental margin expansion? Or is operating income going to be more fully driven by volume growth? How should we think about those two?

Well, I don't know. This is the famous normalized margins question. If I took a look over the last 10 years in the can business and if you asked the same question of our peers in various companies, I don't know who thinks they know what a normalized margin is. We certainly don't.

So I think -- personally, I always think there's an opportunity for margin expansion, particularly in metal packaging, where now the business is such that capital increments to do things efficiently are quite large. The opportunity for new entrants to come into the business is there, but it's not very likely. So our customers have been consolidating, our suppliers have consolidated dramatically in steel and aluminum over the years. The industry itself has consolidated. So I always think there's an opportunity for improvement if there's good price-cost discipline and people are trying to make money. So I think we can always do well there.

On the growth side, you know the story. We still think that mature markets are going to grow population growth or a little bit better. In Europe we've got the benefits of package substitution still going on. We still have the benefits of drinking and driving laws being enforced more dramatically. By the way, this is something that's going on in Brazil as we speak. We still have the issue of the smoking ban causing people to stay home and have social gatherings at home more than out, and that's still a good positive for us. And this is all just in the mature markets.

And then the emerging market is a whole other thing. So I'd say both things, we believe, are going to be opportunities for improvement.

Claudia Hueston, JPMorgan.

I just wanted to follow up on your comments earlier on working capital and just wondered what you are assuming headed into 2010 for working capital.

In the $500 million free cash flow guidance that we provided, we've assumed working capital is flat year-over-year.

Perfect, thank you. And then just on margins in the North American Food can business were better than I had expected. And I know, Tim, you mentioned that some of the cost savings from your plant closures were coming through a little earlier. I was just wondering if there was anything else that drove the margin strength there, and then how much more cost savings should we still expect to roll in, in 2010?

So, as we described in Q3, we closed two plants in Q3. And if you recall, at the end of 2008 we had also closed a food can plant. So there's been a number of rationalization plans to streamline the industrial base across North American Food. I think that's, in large part, what we have as well as volumes were, for us, certainly, better in Q4 than perhaps the market. I think our volume decline in Q4 was probably less than half of what the market decline was, so we had a pretty strong volume performance. As I said in the prepared remarks, our volume in Q4 was level to Q4 '07, which is the first time we could say that this year, given the destocking and the other issues we had.

Lastly, we've taken a business over the last several years and we've tried to be extremely disciplined with respect to price-cost. And I think we have now pricing levels in the business which are more appropriate, given the amount of risk and investment we have.

If I could just add a little something to what Tim said, I think we really have a little jewel -- it's not even so little anymore -- a jewel in our food can business now in North America. And one of the reasons is, as he mentioned, with the restructuring we've been able to load the plants that we are currently operating far more effectively than we did in the past. And in addition, the plants that we currently have are truly very low cost in the context of North America. They are running exceptionally well. We've been very, very fortunate. We've got an outstanding management team and have had in food for a number of years. Efficiencies, material utilization, spoilage control, etc., has just been improving year on year.

So we really have an exceptionally good group of plants, a great fleet, and it gives us a lot of strength.

Tim Thein, Citigroup.

Question, Tim, on the price-cost, specifically in Europe Beverage, can you segment that in terms of Western Europe versus the Middle East as you look into 2010? That has certainly been a big contributor here in the last couple of years in terms of the margin improvement. And your comments about the Middle East -- I believe that's a region that has attracted some capital in the last couple of years in new capacity. So I'm just curious in terms of what you see with regards to your outlook for 2010 on the price-cost balance in that segment.

And then maybe you can give it for the Company as a whole, and what your guidance in terms of EBIT for 2010 assumes.

Well, I'll take a crack at price-cost, and then Tim can handle whatever he wants to regarding EBIT for the Company.

We're seeing a little bit of compression, price-cost, in Western Europe and in the Middle East. Not surprising, really, to me, anyway, with demand having trended off a little bit from previous growth rates. So we're seeing some of that, but I wouldn't say it's extreme. It doesn't worry us, and I think we're going to come out of it just fine. The capacity additions that you've mentioned in the Middle East are pretty much confined to the area in western Saudi Arabia around Jeddah, and a lot of it has to do with the market in that immediate area. And these tend to be one-owner, one-plant operations. So we feel we are going to compete very, very effectively with them. Remember that most of our customers in the region are either major multinational beverage companies or large regional beverage companies. So there's a lot of reason for them to want to supply and buy from major companies that have operations throughout the area and are very reliable in terms of quality and service. So I think we're going to come out of that just fine.

And Tim can talk to the broader, deeper aspects, perhaps, of the performance for 2010.

I think we've probably given as much guidance as we want to give. I think we were fairly elaborate in the guidance we've given. We want to try to stay away from too much discussion about what our prices are going to be for various products in various regions, in 2010 or even in 2010 as it relates to 2009. Obviously, there's a number of moving parts. We have several product lines across several geographies, and even within those geographies there are different geographies, as you mentioned, even in Europe to the Middle East. But I don't think we want to get too much more into prices.

Okay, fair enough. And just real quick, in Europe Food, two of the significant competitors there have announced their intention, anyway, to go public. Have you seen any change in the competitive landscape with regards to pricing and maybe an approach towards volume or the balance between the two as a result of this?

No. So far, really very little. We are all familiar with the kind of bias that you might tend to see in companies that are trying to tee themselves up. But no; they have been pretty sensible. And generally speaking, we welcome this. It's nice to have them out there publishing financials and out of the hands of private equity to some degree. So I think it's going to be very positive.

George Staphos, Banc of America/Merrill Lynch.

Congratulations on the year that's closing and good luck in '10. I guess the first question I had, guys, when we look at the conclusion that the majority of the US tax cuts you can now realize in future operations before their expiration; within the business, what was the change in the longer-term view? Do you view or do your accounts view the beverage can business as potentially, longer-term, more profitable than it had previously been? Or if you could help us parse what the change in credit was and what the implications are, that would be great.

Sure. I think, as we look out over the next five to 15 years, and that's the period of which we're talking about here, whether or not we think we can fully recover the NOLs and the credits, we certainly gain an increasing amount of confidence in the profitability of the Company, not only as the business is operating much better. And then, very specifically, as we continue to pay down debt and we reduce that fixed cost element of interest expense in the United States, it accretes all to the bottom line in the United States. And largely what you are seeing here is the benefit of deleveraging.

Okay, that's helpful, Tim.

But I don't want to -- obviously, you can tell from our prepared remarks and John's prepared remarks, we still have, we believe, considerable upside in the mature markets, which, obviously, the US would be one.

Okay, we would have expected that, too. Within minority interest, it obviously dropped in the fourth quarter. My guess is that was largely related to the Middle East. But could you refresh my memory in terms of what that variance was?

And related, I think, to Tim's question from before, and Ghansham's, given that there's been perhaps some price compression in Europe and in Eastern Europe, would you still, nonetheless, expect EBIT dollar growth in Europe and in the Middle East in beverage cans for 2010?

So I think the answer to your second question is, at this time, yes. The answer to your first question -- very strong results in Southeast Asia and Brazil, offset a touch by the Middle East.

Okay, thanks for that. And just lastly, would you happen to have any of the volume trend data from the fourth quarter for your major businesses? If you had mentioned it earlier, buys, I had missed it. Thanks, good luck in the quarter.

Thank you. I have it here, if you find this so interesting. So in US beverages we were down about 1% in the quarter, which is a little bit better -- I think CMI data was down 1.5%, we were down 1.25%. And I think overall, for the year, the market was down a little more than 1%. We were largely flat.

In Europe it looks like we were down a couple percent, which is really up 1% to 1.5% in Europe and down about 3% in the Middle East. Asia -- volumes were flat in the quarter in Asia and up 3% for the year. What else -- we have food cans, here we go. So I think in US food cans, I think CMI data, you would have seen, had US food cans down about 10.1%. Were down about 5% in the quarter and about 6% for the year.

And Food Europe?

Oh, I'm sorry. Food Europe, down double digits in the quarter, about 13%-14%. As John mentioned, we had -- you'll remember last year, George, the exceptional selling season we had at the end of the year last year, the pre-buy, and so down about 13%-14%, and for the year down just over 10%.

Asbestos certainly doesn't look to be trending from a cash standpoint any worse than prior years, yet the charge and the obligation went up. So what in the longer-term data are you seeing that leads to the incremental accrual?

I think, as you know, every year at the end of the year we actually engage an independent third party to review the demographics, claim filings and settlements surrounding the liability. And we adjust the reserve accordingly. Just to remind you, our reserve is a provision for 10 years, and it's not discounted. The claim filings, as you can see in the release, declined in 2009 versus 2010. And as we pointed out in the release, we expect payments to be similar to that of the last several years. But all in all, the change in the reserve that you note, when you review it from the perspective of a 10-year reserve, has only been adjusted by $2 million to $3 million per year. So incrementally, not very much on a per-year basis.

So no underlying change or trend that we should watch?

No.

Mark Wilde, Deutsche Bank.

I wondered, just on the 2010 guidance, if it's possible to get any color on just how you're thinking about volume in percentage terms in each of those businesses and whether you think, across your business, whether there's some pantry restocking benefit in 2010.

Well, let me say broadly, and Tim can add to this, we're, across the Company, '10 versus '09, we believe we are going to have unit volume rebound increases, demand improvements, part of this, of course, resulting from better supply for us in emerging markets, in every product line that we have, and some of them quite significant.

So we believe that we should have quite a good volume year.

Unclear to me, coming to your second question, do we think the supply chain could still refresh itself? I think so, I think so. I think if we are not back to normal in our view in terms of inventories being held through the supply chain, if you regard 2007, for example, as a -- or even 2008 as a normal year. But I think that's going to take a little more time. And that was what I was saying earlier. We are expecting a rebound in food, for example, in North America and in Europe. But we still don't think we're going to be back to 2007 levels in 2010.

So there's more to come, we believe, beyond -- in a number of our businesses beyond 2010. But, Tim, you might want to add to that.

No, I think you've covered it.

Tim, if I could, you mentioned that you want to get a leverage below two times. I wonder if you could just give us some thoughts on where you'd like to see that leverage level over time. Are you going to remain below two times, or do you have a comfort range that you'd want to point us to?

I think certainly under two times is -- probably fits us in very nicely with the leverage by some of the other highly rated packaging credits. You do run the risk, and we are well aware of, that the value you get from deleveraging starts to disappear when you get too low, i.e., we can return a lot more value to the shareholders by using leverage, especially given the confidence that we have in the cash flows that we are going to continue to generate over time. And so we'll continue to review that in light of organic and other opportunities we may have for the business. And we'll always look at the best use for our cash and the best return for the shareholder, whether that is to continue to delever or whether it is to return money to the shareholder, depending on where we see the value at that time.

Joseph Naya, UBS.

You guys obviously outperformed the industry. But it seems as though overall North American Bev can volume was off in 2009, and at least part of that seems to be some customers perhaps focusing more on price versus volume. Do you see any kind of a change in the trend going into 2010, maybe some increased promotional activity from customers? Just curious what you might be hearing on that issue.

We think so. Taking a broader look, we think that our customers, particularly in soft drinks but also on the beer side, are acutely aware of unit volume issues in their businesses in 2009. So we think, across the board, beer and soft drink, we could see, will see, increased promotional activity with a view towards trying to rebalance a little bit what's happened in their price-volume equation. So we think there could be some benefit there.

Looking at the broader industry, do you think there could be any opportunity to pick up volume as a result of some of the consolidation we've seen in North America here recently?

I'm sorry. What are you referring to?

Just in terms of as a result of the Metal Container acquisition, if you think you might see some volumes shake loose and if that might present any opportunities.

No, we really don't. I don't think the Metal Container proposition provides us or anybody else with any particular opportunities. So we've seen pretty much total stability post that transaction.

Al Kabili, Macquarie.

I just wanted a question on inflation. With energy prices up this year versus last year, how much of a headwind do you think that is, given some of your PPI type of escalators are backwards looking, and if you think productivity and cost savings can offset that?

The energy itself will not be a big issue for us. We are able to hedge, as you know, gas and electricity if we choose. And energy as a percentage of cost of goods sold is really not substantially meaningful in the absence of massive price moves. So we're okay there. And to the extent that we have longer-term contracts that are affected by PPI, we will -- in our view, we're going to overcome that with productivity gains and other gains, any adverse movements there in terms of PPI versus actual cost changes. So we feel pretty good about that in North America.

If you could also talk about where the pension funded status ended up at the end of the year?

I don't actually have that in front of me. I can tell you that, as you would expect, we did very well from the standpoint of asset returns. I want to say that our asset returns in our US plan were north of 25%-26%. But as you will have noticed from just general market data and some other companies, perhaps, you talk to, discount rates were reduced substantially year on year. I think across our plans we've reduced discount rates anywhere from 1% to 1.5% year on year. And that has an impact on liabilities, so I would imagine that our funded status is lower at the end of '09 than it was at the end of '08, largely due to what we described as an artificially low interest rate environment. And that artificially increases liabilities.

But in our view, we believe rates will ultimately rise to more appropriate levels, and we'll benefit from it at that time.

With respect to the commentary in Europe and a little bit of pricing pressure, can you give us a sense of roughly, order of magnitude, how much the European business repriced in 2010 and how much could, roughly, reprice in '11?

Well, we haven't really talked about that. I think the thing to remember is a substantial portion of our businesses under multi-year contract. So that has not been adversely affected. And the balance is not terribly significant. And our fellows are quite confident that to the extent that we had to move a little bit in reaction to competitive pressure, we are going to recoup that with productivity cost savings. So we are going to be in pretty good shape, we feel, in Europe in 2010.

Okay, thanks, and then final question is, Tim, with respect to an earlier question on volumes, can you give us just a little bit of commentary on what you're seeing in the aerosol business and if you are seeing any kind of improvement there with a little bit better consumer?

Well, certainly we've seen improving trends throughout the year in aerosol. We started off the year -- it's not a very big business for us either in the United States or Europe, although it is very important to us and we spent a lot of time managing the business, and it generates a lot of cash. So, as I say, it's important. But early in the year, certainly, with the substantial amount of destocking occurring in the recession, volumes were off double digits. But as we came through the back half of the year, our volume declined, I think, in Q4 was mid-single digits, which brought the overall volume decline for us to just north of 11%-12%.

Richard Skidmore, Goldman Sachs.

Just to follow up on the capacity question, based on your announced projects and the timing of startups, what would you expect your global production to be up in 2010 versus 2009 and also in 2011 versus 2010, based on what you've announced so far?

We don't have that here with us, but these were all major projects. So virtually everyone that I mentioned involves capacity additions in the beverage side of the from 500 million to 800 million cans annually. But we haven't really added it up, and then we have to get into where are they on the learning curve, when are they going to start and so on and so on and so on. So I think we just don't have that available for you.

But the purpose of the recitation was to give you a sense of the number of opportunities that we have, the number of opportunities we've been taking advantage of and the obvious fact that, as the base grows, there are more and more opportunities. So it's just, directionally, going very well for us.

Just to follow up on the emerging market question, how do the margins in the emerging markets in these new facilities compare to your overall Company margins? And then secondly would be, what kind of returns are you seeing on those types of investments?

I think, as you would expect, in many of these emerging markets there is a fair amount of -- or there is more risk that we're taking in those markets than you would perhaps take in western Europe or North America. And for that reason part of the return equation is that margins need to be a bit better in the early years to recoup the investment. So margins are a little bit better, but that takes into account the amount of risk we are taking.

Returns are actually quite good on these projects. I would say that on a cash basis we're recovering the investment over a three to four-year period. So we are pretty satisfied with that.

And following up a little bit to what Tim said, and it's one of our issues, which is when we compare our emerging markets opportunities and history and how we've done, with the consolidation opportunities that we see in the mature markets, they don't compare very well. The returns are simply far better in the emerging markets, which isn't to say that we are not interested in some consolidating acquisitions, because we are. But our return requirements are going to be driven by alternate uses of cash.

Dan Khoshaba, KSA Capital.

Good quarter, guys. If you were to take the Middle East, South America, Asia, perhaps Eastern Europe, really your emerging market exposure, how much would that represent of the roughly $8 billion you guys had in global sales for '09?

I don't have it in front of me, Dan, but it's going to be somewhere between $2 billion and $2.5 billion.

It's that big?

Yes.

Okay. And if you were just to look at it that way, are we talking two times, three times the growth rate of North America, Western Europe? Or how do you think about the growth opportunity in those regions?

Well, the emerging markets can be volatile also. But having said that, if we look back over the last five years, and we're principally talking beverage -- and I'd have to -- but I'll just guesstimate here a little bit, so don't hold me to it too much. But I would say growth rates in the emerging markets have been, minimum, three times mature markets. And I'm probably being conservative. Tim, what would you say?

You probably are being conservative, but it feels safer to say that.

Okay. And it sounds like, from the payback estimate that Tim gave earlier, that it's probably at least two times the returns that you are getting in the mature markets.

Yes. The great thing about building out the emerging markets business is that return on the initial capital increments is reasonably good. And as you add to it, it accelerates. And of course, not only do you build out capacity in a particular factory under one roof, but then your visibility as to other regions in the country and where the customers are growing and who are the good customers, etc., also improves. So there's just a lot of -- synergistic isn't the right word, but there's just a lot of flow from having a good, strong position.

John, you mentioned earlier that you were seeing more opportunities in the market for acquisitions. What do you attribute that to?

I think people are becoming more realistic about what assets are worth today. And on the private equity side, it's the whole rate financing issue. How are you going to get out? And some of the private equity guys have adopted strategies that, frankly, you can't carry on with very long in a mature market. So if you've got a market share growth strategy or whatever you happen to have, you've found a weakness in the market, you exploit it -- well, after three, four years, you can't exploit it anymore.

So I think there's a lot of that. Family-owned companies -- I think we talked about this earlier. But with the consolidation of the supply chain -- aluminum, steel, in our case -- and the customers and then the retailers, it's harder and harder for the small family-owned companies to do well. At least in Europe this is true, maybe not so much here in North America.

So there's going to be a lot of opportunity, but it's going to have to be at the right price.

Great, nice quarter, guys.

Jane, I guess you said that was the last question?

Yes. I'll turn it back over to you for closing remarks.

Thank you very much, Jane. That will conclude the call today. We'll ask you to note before we depart that the first quarter 2010 conference call will be scheduled for Tuesday, April 20, at 9 o'clock Eastern time. We thank all of you for listening and we look forward to speaking with you again in April. Bye, all.

That does conclude today's conference. Thank you for participating, and you may disconnect at this time.