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Executives

Alan W. Rutherford - Vice Chairman and Chief Financial Officer

John W. Conway - Chairman and Chief Executive Officer

Analysts

Timothy Thein - Citigroup

Alton Stump - Longbow Research

George Staphos - Banc of America Securities

Mark Wilde - Deutsche Bank Securities

Claudia Shank Hueston - J.P. Morgan

Ghansham Panjabi - Wachovia Capital Markets

Christopher Manuel - KeyBanc Capital Markets

Richard Skidmore - Goldman Sachs

Joseph Naya - UBS

Unidentified Analyst

Joe Sivilotti - Goldman Sachs

Andy Fineman - Iridium Asset Management

Crown Holdings, Inc. (CCK) Q3 2008 Earnings Call October 16, 2008 9:00 AM ET

Operator

Welcome to the Crown Holdings’ third quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Alan Rutherford, Executive Vice President and Chief Financial Officer.

Alan W. Rutherford

With me on the call this morning are John Conway, Chairman and Chief Executive Officer and Tim Donahue, Senior Vice President, Finance. Let me point out that on this call, as in the news release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in our SEC filings, including comments in the section called Management Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2007 and in subsequent filings. I will comment on the results after which John Conway will discuss the quarter and outlook for the coming year before opening the call to questions.

Total company revenues grew 10% in the quarter and year-to-date September compared to prior year reflecting strong volumes in beverage and food cans along with a pass-through of higher costs in selling prices and foreign exchange movement. Segment income at $276 million in the quarter and $677 million in the 9 months grew 28% over prior year reflecting improved margins in most of the segments of the business. America’s beverage revenue at $496 million in the quarter was 9% higher than prior year and for the 9 months 6% higher at $1.4 billion. Segment income was flat in the quarter at $54 million and for the 9 months recorded a 4% improvement over prior year at $154 million. Volumes in North America; that is the USA and Canada, were up 1% in the quarter and flat year-to-date compared to prior year.

European beverage revenues at $454 million in the quarter and $1.3 billion in the 9 months were 10% and 17% higher than prior year respectively on improved volumes up 6% in the quarter and 9% year-to-date. The increased volume and improved operating efficiencies resulted in segment income in the quarter increasing 23% to $74 million and 44% to $213 million in the 9 months over the prior year.

North American food revenues grew 1% in both the quarter and year-to-date to $270 million and $670 million respectively. Food volumes in the US market along with firm pricing resulted in segment income improving 13% in the quarter to $35 million and 8% in the 9 months up to September at $66 million.

Food Europe reported a 19% increase in volumes in the quarter to $685 million and 16% year-to-date to $1.7 billion. This reflected stronger volumes in the quarter, up 9%, and a pass-through of costs in selling price. Segment income at $89 million in the quarter improved 62% over prior year and at $191 million is 38% higher in the 9 months reflecting both price and volume. Specialty packaging revenues of $127 million improved 5% in the quarter and 8% in the 9 months to $357 million over the prior year. Segment income in the quarter at $8 million increased 14% and the 9 months income at $20 million was an improvement of 18% over prior year, primarily as a result of better efficiencies and cost reductions in the operations.

Non-reportable revenues at $337 million grew 6% in the quarter and 4% in the 9 months to $974 million. Segment income at $51 million improved 60% in the quarter and 42% in the 9 months at $138 million, reflecting strong beverage and food can demand in Asia and continuing good results in aerosols worldwide.

It is worth noting that the combination of our food, aerosol, and specialty packaging business which represents approximately 52% of revenues worldwide improved segment income by 44% in the quarter and over 28% year-to-date.

With regard to the company’s guidance for 2008, we maintain the guidance given; that is, basing upon current knowledge and current exchange rates, we expect segment income to grow in the range of 24% to 28% in 2008 over 2007 or to around $800 to $820 million for the full year. We expect free cash flow to be in the range of $350 to $390 million after capital expenditure of $185 million.

At the end of September 2008, the company’s net debt was $3.2 billion, as reported, and with the last 12 months EBITDAR at $1.2 billion, the company was 3.1 times levered compared to 3.9 times levered at September 30, 2007. For the full year to December 31, 2008, we currently project to end the year at approximately 2.6 times levered to net debt compared to 3.4 times at December 31, 2007. Leverage has declined rapidly over the last 2 years from 3.9 times at December 31, 2006, due to EBITDA growth of 30% and a decrease of more than $400 million in the net debt.

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

John W. Conway

As Alan reviewed with you, Crown had another excellent quarter. Demand for our products was strong and unit volumes were very solid across virtually all of the businesses. Our costs and spending were very tightly controlled and our operations ran exceedingly well. Pricing was firm and held up throughout the quarter with no adverse moves. These positive trends were evident across all of our businesses including food cans, metal vacuum closures, beverage cans, aerosol cans, and specialty metal packaging. In addition, all of the regions in which we are active performed very well including North America, South America, Europe, North Africa, the Middle East, China, and Southeast Asia.

We believe that our performance in the quarter supports our strategy of specializing in a broad range of products within the metal packaging category and maintaining and developing a diverse geographic presence in both mature and emerging growth markets. This mix of businesses and geographies gives Crown unique strengths within the packaging industry.

Given the current economic environment, we think it is worthwhile to direct your attention to the end uses of our customers for the packaging products we sell to them. We are manufacturing metal cans for food, for beverages, for personal care, and for household use. Crown does well in all economic climates, but we do particularly well in a relative sense when economic growth slows because our cans are largely take-home, value-advantaged consumer packages, and the storage capability and product quality characteristics of cans for food and beverages are unparallel.

As we look ahead, we remain confident in the future. Demand for our products is firm. We have begun our 2009 pricing initiatives based upon cost increases which we foresee across all of our product lines. We believe we will be successful in our pricing goal of passing through what are significant price increases from our suppliers particularly with regard to tinplate steel.

As Alan mentioned, our balance sheet has grown stronger and we anticipate it will continue to improve. Cash flow from our operations has been very good and free cash continues to be very substantial allowing us to aggressively reduce net debt and leverage. Our liquidity position is excellent and we have no refinancing requirements until 2011.

All in all, Crown has delivered another excellent quarter of performance which is enabling us to accomplish our objective of creating value for our shareholders.

That concludes my remarks, and operator, you may now open the call for questions from our callers.

Question-and-Answer Session

Operator

We will now begin the question and answer session. (Operator Instructions) Our first question comes from Timothy Thein with Citigroup.

Timothy Thein - Citigroup

Two quick questions here; one, if you can just maybe give a little bit commentary around the European beverage can segment, maybe you gave the volumes I think for the segment as a whole, maybe if you could split that, maybe by region, west, east in Europe and then Middle East, and then secondly; on the aerosol business you had nice growth in non-reportable, Can you may be give a little bit more commentary there in terms of the breakdown between the Asian business and then aerosols, specifically looking at the volumes that you saw in the aerosol business in the third quarter.

John W. Conway

Well, the non-reportable, Tim; obviously we reported this way because that’s how it’s being laid out. Beverage cans did very well in Asia as I said and the aerosol business, the volumes are a little better, but it really was that we have some better pricing.

Alan W. Rutherford

Tim, I think your question with regard to European beverage cans, we don’t have a break out by region, but I can generally say that Western Europe relative to the Middle East, North Africa, the Eastern Mediterranean was somewhat weaker and those regions were a fair bit stronger, but the entire region is up nicely.

Operator

Our next question comes from Alton Stump with Longbow Research.

Alton Stump - Longbow Research

I think you mentioned some comments on food can pricing heading into ’09 with some pretty hefty, it looks like cost pass-throughs coming; just wanted to get an idea of whether you think that the market will be rational in Europe, not just for yourselves, but also like your major competitor in that region next year?

Alan W. Rutherford

Yes, we think so. From what we can tell on both sides of the Atlantic, our European and North American food can businesses are facing very very significant tinplate price increases, and we think that that’s true of our competitors and of ourselves and we think it’s quite uniform. We think, as you will recall, the tinplate steel industry in Europe and North America is extremely consolidated; only two large tinplates suppliers in North America and three in Western Europe, all of them have been facing significant cost increases of their own; so, we are going to have to aggressively put up our prices for food and aerosol and metal vacuum closures, and we are out to our customers already telling them about that, we think prices have largely settled for tinplate steel on both sides of the Atlantic, so we’ve got real good visibility on what we’re going to have to do, and we have announced this to our customers, they understand it, the price increases are going to be effective January 1, and we’re just not in a position to make any exceptions given the size of the increases.

Alton Stump - Longbow Research

Okay, and then just one quick followup on the beverage can side; typically in Europe, obviously the stock price has fallen off sharply the last couple of months; is there any opportunity for there to be some benefit there on the margin front or is that just simply indexed pass-through.

Alan W. Rutherford

Alton I missed something, what has fallen off?

Alton Stump - Longbow Research

The price of aluminum falling off, the stock price, is there any opportunity for a potential cost benefit there or will that just simply be adjusted downward, particularly in Europe where you have a frequent pass-through.

Alan W. Rutherford

As you know with all of our commodities now we are on a pass-through basis and so the decline in aluminum prices are going to accrue to the benefit of our customers and declining can prices, it would improve our margins of course, but it won’t improve actual profitability.

Operator

Our next question comes from George Staphos with Banc of America Securities.

George Staphos - Banc of America Securities

I guess on the question of Food Europe, I would take a different swag, the industry or at least some companies in the industry took prices up in the middle of the year in Food Europe; is that the first time you’ve seen that thing done John, and I don’t remember over the time that I’ve covered this sector, but typically you see annual contracts or just incremental price increase, I would suggest is positive, but what’s your take on it?

John W. Conway

Yes, I think it is probably the first time that I can remember that the food can industry and the aerosol industry in Europe increasing prices not just at mid-year, but at the onset of the fourth quarter as well, and it was cost pressure caused by many of those customers who didn’t fully contract for tinplate over the course of the year and who bought spot or underestimated their requirements having to put prices up to cover costs. I mean it’s very very positive, it really sets the January 1 price increase up nicely; the customers understand that this would not have been done if it weren’t critically necessary for the food can and aerosol can industry in Europe; so I think it’s very positive.

George Staphos - Banc of America Securities

Okay, fair enough. As we look out to next year, and again the company’s ultimate strategy or one of the points anyway of trying to further improve returns to a level you think is fair and that in turn engendering perhaps the need to get prices higher than where they already are; do you see a need within Crown for your own purposes and need to reduce capacity, and if so, I know this is difficult to talk about perhaps on this type of forum, would we see it in beverage, more in food, you know, in which geographies; help us to understand how you’re thinking about that going into 2009?

Alan W. Rutherford

Our supply-demand situation around the world we think is in very good balance George, and so a region does not immediately comes to mind that needs a lot of attention; now the obvious issue it seems is what’s going to be happening with carbonated soft drinks in North America over the next several years; we on balance tend to think that the declines in carbonated soft drinks are going to start to stabilize. We can see some of our customers feel that they’re going to have to take strong efforts to try to ensure that that occurs, and we think they’re going to be more successful than a lot of people think, but if we had to put our fingers on one place where there may be a little bit of excess capacity that may need to be removed, I suppose it could be North American beverage; we look at it constantly, we are determined we are not going to be reducing prices, we know that, we can’t afford to do that; so if there’s one way to go or the other, our direction would be take out capacity if we ultimately feel that we need to do it.

George Staphos - Banc of America Securities

Okay, so you don’t see necessarily a need to do it now, you wouldn’t roll it out either as you look out the next year?

Alan W. Rutherford

No, absolutely not.

George Staphos - Banc of America Securities

Okay, I guess the last question and I’ll turn it over; you’ve had thus far a very good year and you should be congratulated for that. Packaging companies don’t typically grow earnings 20% and 25%; is the business and the end markets selectively such that you think you can still grow EBIT next year off of this, obviously very difficult comparison at a time when clearly the world is slowing and perhaps turning negative in terms of the growth which you see in many many markets; how would you help us think about that as well?

John W. Conway

Two things George, we think because of the nature of our business, we think unit volumes will be up next year across virtually all of our product lines, and for the reasons that we mentioned in our opening remarks, on the food side, clearly cans with a value package and to the extent people stay home and consume it home, cans are very favored and we think one of the reasons our units were up so much is not because the weather was good in Europe and North America because our customers were anticipating higher sales as well, and we think that that’s going to continue. So, we think that is very very positive for food. It is also true for metal vacuum closures; most of our closures go on prepared foods for glass. So, I think that’s really good for us. On the beverage side, it’s the same story really. As people stay home and they consume more at home, cans are the preferred package for both beer and for soft drinks. You can take home multi packs, you can store the product almost indefinitely, but certainly up to a year; so, it’s very very positive for us. So, the unit side we think is going to be surprisingly good; maybe the growth won’t be quite as much as it’s been for the last several years because of what’s going on in general economically, but I think it’s going to be positive.

On the price side, I think you need to remember that we’re still talking about prices that in real terms are very very low over the last 10 years, and I think that that’s one of the things that helping us with price increases. Our customers look back at what’s happened in real terms, food can prices, aerosol prices, even beverage can prices over the past 10 years, and they realize they’ve had a screaming bargain, and what’s now happening is some adjustment. We’re still talking about pennies a can. So, I think that we’ve got price power still, the industry is very consolidated, all of our competitors are facing cost pressures at least equal to ours, don’t forget we’re the biggest tinplate buyer in the world, so at least equal to ours and so, we think that there is room to move these prices further and that’s our objective; so, as we look into ’09, it’s too soon to say how much, but yes, we think we can continue to improve profitability year on year and we plan to do that.

Operator

Our next question comes from Mark Wilde with Deutsche Bank Securities.

Mark Wilde - Deutsche Bank Securities

John, can you just recap for us new capacity that’s under construction or going to be ramping up over the next 12 months; in my notes I think I’ve got Spain, Brazil, and Morocco.

John W. Conway

For Crown, the capacity by the end of this year will be essentially completed. It will be Brazil and Spain and the new capacity that we’ve indicated we’re looking seriously at the moment is Morocco and Slovakia in Eastern Europe, but that will not be ready until 2010, that will not make a contribution in ’09; so, other than incremental capacity speed-ups and better utilizing our existing beverage capacity, the only two significant new capacity additions for 2009 are Brazil and Spain.

Mark Wilde - Deutsche Bank Securities

And just in order of magnitude, can you give us any help in thinking about what the impact of those two facilities might be?

John W. Conway

Well, the capacity is about a billion and a half cans and then with the learning curve, etc., but as Tim said, 2.5% to 3%, something like that, in terms of units just from those two facilities on our global capacity.

Mark Wilde - Deutsche Bank Securities

Okay, and then just turning a couple of financial issues; is it possible for you give us any guidance at this point in terms of tax rate and CapEx for ’09, and is it also possible to give us maybe a little guidance in thinking about foreign exchange, whether you would still expect CapEx to be a positive impact in the fourth quarter?

John W. Conway

CapEx, you’re talking about next year right?

Mark Wilde - Deutsche Bank Securities

Yes, exactly.

John W. Conway

At the moment we’re looking at a range of about 125 to 150. We haven’t finalized that yet. As far as foreign exchange is concerned, as we’ve said often enough before, we sort of have a nice balance in our income statement, and for instance if the Euro stays at 135 next year, we reckon that net-net down at the bottom line, it might cost us $0.05. That’s because a lot of the segment income would decline, interest would decline, taxes would decline, and we’d end up with about a 5% net impact of that. So, yes it’s $0.05 but it’s not a large number.

Mark Wilde - Deutsche Bank Securities

Finally the tax rate?

John W. Conway

Yes, I think on tax rate, Mark, this year earlier in the year we told you to think about 29% tax rate; probably two things have happened in ’08. You saw that we had the one-time tax credit in the UK of $5 million which is worth about 1%, and there’s generally growth in income in a lot of the markets we’re in driving the rate down; perhaps you want to think about 27%, 27.5% for this year and I would say for next year we’ll probably back up around 28%, but again, far too early to say, but if you’re trying to put a model together, it’s a good place to start.

Operator

Our next question comes from Claudia Hueston with J.P. Morgan.

Claudia Hueston - J.P. Morgan

Just two questions; one, I was just wondering if you could comment on trends sort of over the course of the quarter particularly in North America, just wondering if you saw any signs or sort of changes in the demand trends both in beverage cans and food cans in the Americas sort of as the economy got worse and worse over the quarter?

John W. Conway

No, I mean, our demand from our customers was reasonably strong and we’ve got a pretty diverse customer base now; we’re not exceptionally reliant on any particular customer and we have more beer business than we used to have, specially held up, so no, we didn’t notice anything abnormally over the course of the quarter.

Claudia Hueston - J.P. Morgan

You’ve done a good job bringing the specialty packaging business sort of back up and running at a better level; are your efforts pretty much done there or is there still more room for margin improvement in that business?

John W. Conway

No, I think we’re going to continue to improve that; that’s one of the businesses where we felt that the operational management could be improved and it has been; I think you’re seeing the effects of that, but in addition, that’s an area where I think there’s a lot of room for price improvement and we’re going to be pushing that harder.

Operator

Our next question comes from Ghansham Panjabi with Wachovia Capital Markets.

Ghansham Panjabi - Wachovia Capital Markets

Just looking at your business profile for this year, it looks like European food and beverage were the leaders for this year in terms of year-over-year profit improvement; John, how should we think about 2009; assuming a generally weaker economic environment that probably presses your Western European beverage can business, what do you think the big drivers will be in 2009?

John W. Conway

For profit improvement?

Ghansham Panjabi - Wachovia Capital Markets

Right.

John W. Conway

Well, we think a number of things; first of all, all of our steel packaging products, food, aerosol, metal vacuum closure, specialty; there is good opportunity for profit improvement through price activity next year, and we feel strongly about that, and at the moment we feel very confident about it for the reasons I said earlier. We’re moving prices to levels in real terms that are probably still below 10 years ago, but certainly inflation adjusted terms, customers are getting a great deal still on anything, we know that. And the other is, because of our position with regard to steel buying, tinplate buying, we know what’s going on in the industry generally, we’ve got a pretty good sense of what’s going on with our competitors, so we know everybody is facing cost pressures that must be passed through. So, we think there’s a good opportunity there around the world. As far as the beverage business is concerned, North America maybe it’s going to be flat again, hard pressed to tell, but there’s no erosion in price that we can see, so we got to be okay there, and we continue to believe that units are going to grow outside United States and virtually every place, and although we’re a little bit capacity constrained in many markets, we still have room to move up; and so we feel very positive about next year in spite of all the things that are happening generally economically. Taking a look at how our customers are doing, pretty much the same message, which is to say, in the emerging markets any market of that type, and there’re a lot of them that we’re in, practically everyone as a matter of fact, now that as we think about it. Our customers are relatively bullish for next year and so are we.

Ghansham Panjabi - Wachovia Capital Markets

Just a question on the P&L; given all the fireworks in the market, how should we think about pension expense, ’09 versus ’08?

John W. Conway

I have been waiting for this question because I think there’s been some incorrect information written about this. If you take a look at where we’re at at the end of ’07, all of our defined benefit plans were extremely well funded to the extent of overfunding about $400 million. There is no impact on earnings or cash flow as related to pension for 2008 from the previous guidance we had given you; that is to say that pension expense this year is about $20 million and pension funding is about $70 million. For 2009, we don’t expect any material change for our funding requirement keeping in mind that we made a large accelerated contribution for US clients in 2005 and we had a significant credit balance, so we don’t expect any change to that, and in the UK we’ve just recently completed an agreement among the company and UK trustees, a 3-year funding requirement; so, no material change expected to the funding requirement in 2009. As for the earnings side, I think we’re going to have to wait and see where the markets close on December 31st. It’s a point in time issue and certainly while the equity markets are down, credit spreads are much wider as you know and that’s going to lead to a higher discount rate which helps lower our pension obligation. So, I think it’s a wait and see, but certainly from the cash flow side, no material change expected.

Ghansham Panjabi - Wachovia Capital Markets

Alan, just to confirm on the FX, if the dollar versus the Euro stays where it is right now, that is $0.05 on an annual basis on the EPS for ’09, is that right?

Alan W. Rutherford

What I said was for ’09, if the Euro was 135, it would be $0.05 on an annual basis, correct.

Operator

Our next question comes from Christopher Manuel with KeyBanc Capital Markets.

Christopher Manuel - KeyBanc Capital Markets

Congratulations on an excellent quarter. Couple of questions; first, can you help us a little bit with your food can business in Europe with, what are you predominantly levered to; is most of the business in fruit, vegetables, is it more soup and pet food things that nature; can you may be give us a little bit of a dissection maybe on how the European food business sets up?

John W. Conway

Chris, it’s a wide range of end users and so it’s a combination of what the Europeans refer to as ready meals which are soups and stews and so on; vegetables in Northwestern Europe; peas, green beans, sweet corn in France, Eastern Europe; tomatoes in Italy; olives in Spain; fish; I mean it’s an extremely extremely wide range of products, and one of the reasons is that we’ve got a small presence in every single segment in every single country. We’ve got quite a large food can business now in Eastern Europe. We’ve got a very strong food can business in Morocco, for example. So, it’s a great business and what you’re seeing this year is that our people over there doing a tremendous job with this and we think that it will be better next year.

Christopher Manuel - KeyBanc Capital Markets

But compared to your business in North America, I think you are more levered to; is your can ready-to-eat meals or ready-to-cook meals, is that fair; you are more levered to this in Europe, which is a good thing given the trade-downs by consumers.

John W. Conway

Yes.

Christopher Manuel - KeyBanc Capital Markets

The next question I had was with your free cash guidance this year, I know reiterated it, but year-to-date I think and I should say we’re behind a little bit, but would employ and get to the bottom of it and little more to $600 million of cash flow in the fourth quarter; that’s considerably more than I think the full rate that you did last year; has most of that come out of working capital; can you help us with what makes that number?

John W. Conway

Yes. I think what you are referring to is if you just wanted to compare against 9 months last year, we’re about $120 million behind last year, but keep in mind that revenues are up almost $600 million year-to-date, and you saw the considerable results that we had in both European and North American food as well as European beverage where again a very strong quarter and a very strong back half of the third quarter leading into the full pack; it has extended into early October, so we’re still shipping cans, and so the answer is that it is sitting in inventory and it has been raw out of inventory.

Christopher Manuel - KeyBanc Capital Markets

Okay. So it’s just a conversion...

John W. Conway

If you look at the revenue increase of $600 million and working capital increase of 1.5 against that year-to-date is, I don’t think we’re too concerned about that.

Christopher Manuel - KeyBanc Capital Markets

That’s fair. That’s what I needed to know. And then the last question I had on the pension side is, do you have any matrix that you can share with us that, I know that it is a lot of moving targets and a lot of moving numbers out there, but maybe where your returns are year-to-date at the last time you guys had checked them; can you give us a sense of where...

John W. Conway

I think certainly on the funding side, I think, that the key part of the funding side is no change to funding and expenses we said this year and for next year no material change is expected on the funding. On the expense side again, I think it’s far too early to say and I don’t want to, the markets are very volatile right now, and I think it’s not wise or helpful to comment on in volatile times, but as I said, credit spreads are lighter and that is pushing up the discount rates considerably which does lower the pension obligation, and we really have to wait and see where we end the year, but I don’t think we don’t have any point in time answers for what happened in the market on Friday or yesterday, it’s just not helpful.

Christopher Manuel - KeyBanc Capital Markets

Okay. I understand.

Operator

Our next question comes from Richard Skidmore with Goldman Sachs.

Richard Skidmore - Goldman Sachs

Alan, could you just talk about the use of free cash flow and is the plan just to conserve cash in this current environment that we’re in or are you considering buying back stock in where the levels are today.

Alan W. Rutherford

No. The plan at the moment is to conserve cash and de-lever the company, continue to de-lever, as I think I said at one of the other calls, we halfway to the earth changed our mind on the question of buying back stock for obvious reasons.

Richard Skidmore - Goldman Sachs

And then John, as you think about the current environment that we’re in where there’s lots of uncertainty and perhaps there is some opportunities that may have come up that hadn’t been there in the past, are you looking at any particular growth opportunities in the way of acquisitions or have there been opportunities that have come up recently that you hadn’t been looking at before?

John W. Conway

No, we’re not looking at any. We still think that (green field ground field) is the right way for us to go; I mean, we’re so well established in all of the leading growth markets in the world now that growing of our existing asset base and using our existing management teams, etc., is just the right way to go for us. I think there are going to be some people in distress here over the next couple of years, but we have absolutely nothing that we’re looking at today.

Operator

Your next question comes from Joseph Naya with UBS.

Joseph Naya - UBS

I was just wondering if you maybe could give a little bit more color; just looking at your margins it seems as though your food packing business performed fairly well, are there any major issues driving that?

John W. Conway

It’s a combination as we said in the statement. Lot of unit volumes have been strong up in virtually every category in every market and we think we’ve done exceptionally well in terms of running the operations that is to say we’re all over cost, our spending is under control, CapEx is under control, efficiencies continue to improve, year-on-year spoils is down, quality is up, all those kinds of things; so we’re really benefitting from I think an excellent operating management team and you can see that in the numbers. And then the other is as we’ve said in the past, we have price power, we’re the number one food can company in the world, the number one aerosol can company in the world, the number three beverage can company, and so on, and it is a consolidated industry, and it’s an industry where we think that our cost base and cost performance is equal to any of our best competitors, combined with our purchasing power, and so you’re seeing the benefit rolling out, focused and applied, and I think we’re having one of those good year where everybody’s actions seems to be well coordinated on our side and it’s producing the results that you’re describing.

Joseph Naya - UBS

On the beverage side, it seemed as though the margins ticked down just a little bit versus the second quarter; is there anything underlying that?

John W. Conway

We don’t think so. I think that is somewhat noteworthy I believe in European beverage, but you got to remember that we’ve got such a combination of beer, soft drink, other beverages, various can sizes, aluminum, steel, a very diverse geography ranging from Northern England to Dubai; and so nothing in it as far as we can see, just a range of coincidental mix issues.

Joseph Naya – UBS

Just kind of following up on that; looking forward, you have the new plants or new capacity coming up in Spain and Brazil; are you at all concerned about the demand environment at either location?

John W. Conway

No, we’re not. The Brazilian market continues to grow strongly and we think growth may moderate somewhat, but we’re very confident. In fact, if anything, we think that plant is now; I was just down at Brazil a couple of weeks ago; our people think we’re oversold for next year out of that plant; north eastern Brazil, there is tremendous demand up there and a lot of activity and you guys can do your own research on Brazil, but it seems like that economy; it’s going to be affected internationally, we know that; but it’s in reasonably good shape. So, in Italy we are consciously, we know what we have there, which is access obviously to the Spanish market and up into France, but equally importantly we can cover all of North Africa there very very cost effectively; so we feel very confident about that.

Operator

Our next question comes from Unidentified Analyst.

Unidentified Analyst

Your food can volumes this quarter, last quarter, and from what I am hearing from competitors; it’s very clear that food can volumes are growing at a pace that they haven’t grown in some time, and it seems like the worse the economy gets, the more food cans kind of grow; and we’ve always thought that you guys have the food can that was the ultimate value proposition, but what are customers telling you about demand for products sold in food, I mean, can you put any numbers or at least anecdotal hearings from your customers on what seems to be accounting for a very large global increase in the nature of products impacting food cans.

John W. Conway

I think, Dan, our customers are surprisingly bullish, and they’re very confident even in the face of the price increases that we were telling them about for January ’09, and the reasons are just what you said. They see that the demand is stronger; they see that they are going to be able to price accordingly and pass through cost increases, so I’d say this is a very very good time for the food can industry. We’re talking about some big price increases for food cans, aerosol cans, and metal vacuum closures on both sides of the Atlantic; our customers know we have to have them because of the cost pressures that we’re under, but we sense that they have a lot of confidence and they’re going to be able to pass it through.

Unidentified Analyst

John, the other thing that is kind of interesting, you said it earlier that the price of food cans are still down in real terms from where they were when I used to follow the industry back in the very early 90s, and by my estimation they’re down a lot even with the price increases and relative to the fact that there are not a lot of substitution opportunities for products that are in cans. Are you guys just kind of trying to get back to where you were or is this simply just pushing through higher tinplate steel prices because one is a lot more significant than the other and a lot more long term to the extent that you can achieve that?

John W. Conway

As I said earlier Dan, we have aspirations for improved returns in profitability year-over-year, and so we think we’re going to achieve that, and we’re confident we’re going to achieve it; we’re not sure quite how much, whether the intention is to go back to where things were 15 years ago or to a higher level of return, I am not quite sure of how I would characterize it, but we feel we’ve got price power, we’ve got a necessity to put price up, and we’re going to be successful in doing it.

Unidentified Analyst

Last question, this recent announcement with Toyo Seikan is licensing from your technology? Is that correct?

John W. Conway

Yes. That’s the famous super-end story which we began about 6 or 7 years ago and of course there was a lot of interest in the end. As you know it’s lightweight and we reduced the material usage by 10%; it’s patented around the world, but I would say, to me it’s evidence of the fact that it’s been a huge success for us, I mean we run at a tremendous material cost where we use and the competition doesn’t all around the world, and Toyo Seikan is our second large licensee now in Japan and so we feel great about it and now we’re rolling that technology out right around the world.

Operator

Our next question comes from Joe Sivilotti with Goldman Sachs.

Joe Sivilotti - Goldman Sachs

Just a couple of quick followup things; is $80 million or so a good number for this year for your cash tax bill?

John W. Conway

Yes.

Joe Sivilotti - Goldman Sachs

What did you refer to some stocks before you sort of...

John W. Conway

This year, zero.

Joe Sivilotti - Goldman Sachs

Okay. So you didn’t do any earlier?

John W. Conway

Correct.

Joe Sivilotti - Goldman Sachs

Okay. And just finally, you had some revolvers, but you don’t use any of those or do you?

Alan W. Rutherford

We do it. I mean we had a very large committed facility from a variety of banks and it is a seasonal facility. We began the year with zero and we’ll end the year with zero on the revolver which ensures that we have adequate liquidity to continue to run the business, but we do use it seasonally.

Joe Sivilotti - Goldman Sachs

Can you give us a rough feel for, I know you have a very big cash balance, and I was just curious what roughly your availability would be roughly at this point in time...

Alan W. Rutherford

At the end of September it was approximately $900 million.

Operator

Our final question comes from Andy Fineman with Iridium Asset Management.

Andy Fineman - Iridium Asset Management

Can you just tell me what you estimate your net debt and securities receivables will be at the end of the year?

John W. Conway

I have to look into the crystal ball. I think if we thought about securitization being roughly around the same number we had at the end of last year, it was 272 at the end of last year, and so perhaps the number is 260s to 270s on securitization, and net debt excluding that securitization, I think we’re right around $2.7 billion, I think.

Andy Fineman - Iridium Asset Management

So, based on that, you’re paying down your debt now with all your free cash, so I assume that means that your interest expense will be lower next year and can you give us any kind of guidance how much lower or what we should look for in terms of interest expense and that’s my only other question.

John W. Conway

Again, I think we agree with the thesis you just put forward that because we’ve generated cash and we’re going to pay down debt, the interest expense is going to be lower. I think that we’re certainly getting ahead of ourselves; as you know, we typically don’t like to give guidance until the year-end call for next year, but I think we agree with that; I think we’re getting ahead of ourselves, unless Alan wants to step in and give you the number.

Alan W. Rutherford

Obviously Andy, you are right. The debt will be lower and our interest cost will be accordingly lower at whatever our average cost of debt is which is about 7.5%.

Andy Fineman - Iridium Asset Management

Okay. I think you are doing the right thing by paying down debt and happy to take advantage of the shares that you are not buying and buy them myself at 20 bucks which is 6 or 7 times free cash flow.

Operator

There are no further questions.

John W. Conway

That concludes Crown Holdings’ third quarter 2008 conference call. We thank you for your interest in our company.

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Source: Crown Holdings, Inc. Q3 2008 Earnings Call Transcript
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