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Executives

Timothy Donahue - EVP and CFO

John Conway - Chairman and CEO

Analysts

Alton Stump - Longbow Research

Mark Wilde - Deutsche Bank

Al Kabili - Credit Suisse

Chip Dillon - Vertical Research Partners

Philip Ng - Jefferies

George Staphos - Bank of America-Merrill Lynch

Ghansham Panjabi - Robert W. Baird

Alex Ovshey - Goldman Sachs

Phil Gresh - JPMC

Scott Gaffner - Barclays

Adam Josephson - KeyBanc

Chris Manuel - Wells Fargo Securities

Anthony Pettinari - Citi

Tim Burns - Cranial Capital

Crown Holdings (CCK) Q3 2012 Earnings Call October 18, 2012 9:00 AM ET

Operator

Good morning and welcome to Crown Holdings Third Quarter and Full Year 2012 Earnings Conference Call. Your lines have been placed on listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded.

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

Timothy Donahue

Thank you, Shirley and good morning everyone. Welcome to Crown Holdings third quarter 2012 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer and Tom Kelly, 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 2011 and in subsequent filings.

A reconciliation of generally accepted accounting principles to non-generally accepted accounting principles earnings can be found in our earnings release and if you do not already have the earnings release, it is available on the company's website at crowncork.com. You will also find reconciliations from net income to EBITDA, credit ratio computations and supplemental cash flow data on the company's website. I’ll first review the quarter and update guidance for the year. John will have comments and then we'll open the call for questions.

Diluted earnings per share were $2.20 compared to $0.84 in last year’s third quarter. On a comparable basis, diluted earnings were $1 per share compared to $1.01 in the third quarter of 2011.

Year-to-date through nine months comparable diluted earnings per share were $2.30 against $2.32 in 2011. On a currency neutral basis, net sales were essentially level to the prior year as 5% higher global beverage camp sales were offset by the pass through of lower aluminium costs. The strengthening average U.S. dollar relative to many currencies including the Mexican Peso, Euro, Pound, Sterling and Canadian Dollar among others have the effect to reducing net sales by $106 million in the quarter and $243 million for the nine months.

Our review of revenue by segment will be on a currency neutral basis and the unfavorable currency impact in the third quarter by segment was as follows, 4 in Americas beverage, 1 in North American food, 27 in European beverage, 58 in European food, 10 in specialty packaging and 6 million in non-reportable.

The currency impact on segment income as noted in the release was 12 million and by segment it was 1 in Americas beverage, 3 in European beverage, 7 in European food and 1 in specialty packaging. Currency had a negative $0.05 per diluted share impact.

Currency had a negative $0.05 for diluted shared impact in the quarter and $0.07 for the year-to-date. Globally beverage can volumes were up 5% in the quarter as growth in Latin America, Europe and Asia all set a decline in North America, the result of lower than expected promotional activity.

Across Europe, volumes in our aerosol and food can enclosure businesses were impacted by very poor weather and continuing sluggish economic conditions. Currently, we expect that these sluggish economic conditions will persist through the end of 2012.

While our annual plan anticipated much of this domain witness across Europe, we will further adjust our production schedules over the balance of the year. In Americas beverage revenue decreased 2.7% compared to the prior years the pass through of lower aluminium cost all set overall segment volume growth of 2%.

Volume in Brazil continued to be strong and it was up 19% over the prior year third quarter, offsetting a 2.5% decline in North America. Promotional activity in North America has been below our expectations for much of the year and fourth quarter production will be adjusted to keep inventories at appropriate levels.

The overall Brazilian market was up 11% in the third quarter and 5% for the nine months with our share of the market continuing to benefit from capacity additions made in 2011. We do expect a strong start to the summer selling season in Q4 and our expectation is for overall market growth of 6% in Brazil for the full year of 2012.

Performance in North American food continued to be strong as productivity and cost containment offset 2.5% lower volumes. On a currency neutral basis, sales in European beverage were up 5% over the prior year as unit volume growth in Greece, Saudi Arabia, Slovakia and Turkey all offset the pass through of lower aluminium cost.

Segment income was up 7 million in the quarter and reflects the volume growth, which offsets 3 million of unfavorable currency translation.

Sales in European food were down 3% ex-currency in the quarter, volumes in our largest markets that is the UK, France and Italy were down 7% in the quarter due to extreme weather patterns, that is unseasonably cold and wet including hail at times in the North in very high heat and drought conditions in Italy.

This week the European Union, Farmers Union described this year's grape harvest as the worst in half of a century owing to poor weather conditions. Our vegetable businesses in the UK and France and tomato business in Italy were affected by those same weather conditions.

Currency translation reduced segment income by 7 million in the quarter with the operating short fall the result of unfavorable volume mix. As discussed earlier, production activity in the fourth quarter will be reduced to reflect our expectations for lower demand.

Demand continued strong throughout Asia during the third quarter with beverage cans sales volume up 12% over the prior year with strong growth in Cambodia, China and Vietnam. Global aerosol can volume was down 2% reflecting weak demand in Europe where we'll continue to adjust production activity.

While the Chinese economy is slowing, it is important to remind everyone that it is still growing, certainly at much higher rates in the United States and Europe. Our unit volume sales in China were up 10% in the quarter and continue to expect that China will provide long-term growth for Crown.

Turning to capital expansion, we currently have five major beverage can projects underway. The installation of second production lines to both the Puti in China and Bangi, Malaysia plants and the construction of three new beverage can plants, Danang, Vietnam; Sihanoukville Cambodia and Bangkok, Thailand. The five projects all to be completed by mid-2013, we'll add 3.6 billion units of annualized capacity and this follows capacity additions of 5.1 billion in '11 and 3.5 billion units in 2012.

On our last call in July, we noted that we indefinitely postponed plans for new beverage can plants in Belem, Brazil and Changchun, China. We have always postponed plans to build new plants in Nanning and Jinjiang, China. With little committed to those postponed projects, our estimate for 2012 capital spending is now 300 million net of 50 million in insurance proceeds.

Our initial estimates for 2013 capital expenditures is approximately 225 million. Minority interests were down significantly in the quarter reflecting the repurchase of several joint venture interests in China, Vietnam and the Middle East throughout the fourth quarter last year. As we provided earlier in the year, we still expect full year minority interest to be in the range of $80 to $85 million.

Net debt at the end of September was 3.76 billion, $200 million higher than at the end of June and reflects the accelerated share repurchase program we initiated in August. The full year tax rate from ongoing operations is now forecast at 26%, up from last year's 25.5% and down from our early estimates of 27%.

Through nine months, we are essentially on plan despite poor weather in many of our markets and weaker than forecasted demand in Europe. As noted earlier, we will adjust our fourth quarter production schedules to minimize excess inventories being carried into 2013, the effect of which will be lower cost absorption in the fourth quarter. So at this time, we estimate full year 2012 comparable earnings for diluted share to be in the range of $2.82 to $2.88 and for fourth quarter to be between $0.52 and $0.58 cents. Free cash flow is still projected to be at least $325 million.

And with that, I will turn it over to John.

John Conway

Thank you Tim and good morning. As always Tim did a fairer job in reviewing our performance in the quarter. Generally, I think we had strong quarter particularly given the relatively weak economies in Europe and North America and slowing growth in China. Our beverage businesses around the world performed very well. Growth was solid and income performance was strong.

Our North American food business performed, we think well, everything considered including somewhat poor weather in the upper mid-west. Our European food businesses clearly did not have a good quarter. Tim outlined for you the truly terrible weather conditions in our three biggest food can markets.

In each of these markets, the United Kingdom, France and Italy; we have large low-cost high capacity plants which were adversely affected by volume declines because of the weather. Our aerosols businesses generally experienced weak demand particularly so in Europe and for branded products. This is simply a reflection of the economy as aerosol cans are a relatively high cost related expense products and aerosol sales suffered in recessionary economies.

Asia once again had a strong performance and continues to do exceptionally well for the company. Tim summarized for you our decision regarding capacity postponements in China. We have indefinitely postponed these projects and we will only bring them back if and when market conditions warrant. In the meantime, we have obtained business permits and secured land to use rights, so that we will be in a good position to proceed quickly, if necessary.

Clearly the weaker than forecast demand particularly in our food and aerosol businesses has carried on in to the fourth quarter. We believe food will bounce back next year and aerosol should be flat to up depending on economic growth in Europe and North America.

Asia beverage continues to do exceptionally well. China slowed, but overall the region is growing strongly. So taken together, the company had a strong quarter with exceptions that Tim and I both noted.

We feel very confident about our decision to significantly reduce production in the fourth quarter to ensure that we are not running product into warehouses and then adversely effecting next year’s performance. We will generate pre-cash this year, significant pre-cash this year and even more next year. We remain determined to use available cash for continued significant share buybacks. And Tim outlined for your CapEx plans for this year and next, which we think reflect a prudent and rapid response to changing conditions. We have said all along that we are prepared to be flexible and that we are very fortunate because the manner and method by which we expand capital enables us to quickly revise our plans, move equipment as required and minimize expenditure.

And with that operator, I think we are ready for questions.

Question-and-Answer Session

Operator

Thank you. At this time we are ready to begin the question and answer session. (Operator Instructions) And our first question comes from Alton Stump with Longbow Research. You may ask your question.

Alton Stump - Longbow Research

In times earlier as you look to next year but you did offer CapEx guidance, any goal or is there any range from as a free cash flow standpoint as to what you think you could do next year?

Timothy Donahue

Yes, I think what we've been telling ourselves internally and what we have said is that the goal for 2013 would be at least $500 million, but currently we have not completed the budgeting process for next year and so that is just the goal at this point. But there are a number of items as you know, one being CapEx, lower capital expenditures, lower pension contributions that will certainly help us get there, as well as with the cancellation or the postponement on some of the Chinese projects who have lower startup costs and generally higher productivity in the plans. And second lines that we've installed over the last couple of years. So I think that is a goal, we are somewhat confident in that goal right now, but we’re not yet complete with the budgeting process.

Alton Stump - Longbow Research

And then a quick follow-up, I guess if I actually look even further here for a moment with that 225 million CapEx number for next year, is that sustainable into following years or is there any certain range that you think you can stay below as you look into '14 and beyond?

Timothy Donahue

Well, I think, we went back and we took a look at this and we looked at capital expenditures for the years '05 through '09. So for that five year period we averaged about $180 million per year. And there was some spending in the emerging markets. Now over the last three years '10, '11 and '12 we have spent considerably more than that, all of which the increase was due to emerging market capacity expansion and you can see the number coming down next year. So not only is the number sustainable in '14 and beyond, absent any new major projects, it could be that the number could come back down towards that historical '05 to '09 average.

Operator

Thanks. Your next question comes from Mark Wilde with Deutsche Bank. You may ask your question.

Mark Wilde - Deutsche Bank

John, any thoughts over in Europe in, kind of, food and aerosol that any further restructuring moves or actualization moves over there?

John Conway

Well, Mark there are always things that we’re looking at and I think as we’ve spoken about in the past, we tend to line up what we think are very good restructuring projects to be sure, we’re absolutely confident of them and then little, kind of in a deliberate away, but we don’t rush. And I think we accomplished a lot of really good things with the food aerosol restructuring in North America. We’re doing the same with the food aerosol restructuring that we had underway in Europe, more aerosol than food, but affects food as well. So there are something that we may do and we have some very specific ideas about things, but not anything overly major. Our biggest issue in Europe at the moment is simply has been an extremely soft demand. When Tim described a 7% of unit volume decline in our three biggest markets, that’s not a small thing. Those are very, very important market for us, we’ve invested a lot of capital in those markets over the past decade and very low-cost plants, big plants, well-positioned, tend to be very close to the customers. And all the food cans for example, many of them printed. So there are a lot of margin dollars in those sales.

So the big story for us with Europe, for me with Europe is exceedingly soft demand. We don’t anticipate, obviously next year that we’re going to have a repeat to the weather patterns. I think that’s a reasonable assumption. I think in July when we spoke with you about the food can business, we spot, we saw signs that it was coming back in mid-July. But in fact, what happened, northern Europe had very cold wet weather, carried right on in to mid-August. And then low and behold, we had this miserable drought, principally in Italy, but also in southern France that Tim talked about.

Grapes, the tomato crop in Italy in the south was 40% to 50% of what it was last year. The tomato crop in north was 20% to 30% off versus last year. So that came as a big surprise. Not really a big surprise. Even the food can business you’re going to have years like this, it’s just the nature of the business and so we think there is going to be a bounce back there. We could do some restructuring in food. It’s not going to be huge. But we have our eye on some things.

Mark Wilde - Deutsche Bank

Okay. And then if I could just as a follow-on on China. I noticed last week that (inaudible) really wrenched it down their current year assumptions for the bev can market over in China. What’s your view of the kind of trend growth over there, over the next three or four years? And where would you have been six to 12 months ago?

Timothy Donahue

Well, if your recall 12 months ago, we were saying that very optimistic forecast and we’re slightly over 20%. We were saying it’s time 18 and that was kind of our working assumption and that’s what we were using for our models, comparing capacity additions to demand. And we were accruing that up with customers filling plans and filling lines ordered and beverage plants and brewers and so on, so on. We lowered about mid-year to 13 I think we said in July, we thought the market had come down. Our view now as the year we will finish beverage can growth throughout China at 10%. Looking ahead, I just don't know. I would think 10 would be kind upon the low side compared to the last two or three years. But growth has slowed and therefore, we decided obviously to reduce our capacity additions. It just seem to us that overall capacity in China was running ahead of the new revised downward demand trends. So frankly, it's just hard for me to say at this point, could be a little below 10, I think it's going to high single digits in any event. And one of the things that happened this year that it was adverse, that we had not expected and we’ve talked about some of these Asian drinks going from three piece steel cans to two piece aluminium and that slowed more than we had thought with some legal issues along the major companies over their trademarks and so on that’s going to get straightened out. So I think the growth is still going to be good on a global comparison basis, but clearly not 18%.

Mark Wilde - Deutsche Bank

Probably general thoughts on sort of repurchase versus dividend that you’ve highlighted continuing to focus on repurchase, but any thoughts on potentially putting in the dividend?

John Conway

Well, we continue to look at it and we discussed it at every board meeting and we constantly weigh dividend share buyback both. And we're certainly though are going to wait, certainly to the end of this year, we like a lot better feel about what's going to happen in dividend tax that we now do. But I have to say, we really do like the flexibility associated with ramping up share buybacks and yet having the flexibility to grow if we need to. So we're looking at it, but then so we don't have any new news to report on it.

Operator

Thank you. Our next question comes from Al Kabili with Credit Suisse. You may ask your question.

Al Kabili - Credit Suisse

I guess on Europe's food, could you help us? I know you talked about it’s down seven for volumes for your largest markets, but overall, could you just help us with what the volumes were down in Europe?

Timothy Donahue

Overall, we were roughly flat, so down 7% in the big markets as John mentioned. And as John mentioned, very large low cost plants where we get the benefits of volume as they run through the plants and I'll let John go from there.

John Conway

Yes, Al, you need to keep in mind, we have a large food can business, relatively large food can business, not nearly as large as Italy, Spain and Germany, but we have fairly large food can business in Poland, Eastern Europe, Slovakia, Hungary and then Iberian Peninsula, Morocco and then we're in sub-Saharan Africa, Ivory Coast, Ghana, South Africa, Madagascar. And a lot of those cans are going to smaller cans, a lot of the cans are fish cans and so although Tim said, units were essentially flat, Mexico was extremely poor. And so that's the story. Fish did okay, in a lot of these countries but it could not offset the margin fall off as a consequence of the three big European countries.

Al Kabili - Credit Suisse

I see, alright. So what the decline in earnings year-over-year, flat volumes, is this all just mix? I mean I know the volumes in the big markets were down seven, but your overall volumes were still flat. Is this earnings decline than all currency and then mixed related to the volume declines on your large markets? I also know there's some pricing pressure going on here and there. So I'm just wondering, if you can help us split that out of it?

John Conway

Tim will try to help you to split it out or maybe talk about splitting it out in a moment. But let me just generally. With a 7% price decline, particularly the way the nature of the European market, a lot of food process, a lot and fairly to somewhat consolidate, you got three big guys that have got something like 75% of the market here, but you’ve got a lot of small guys. You can't have a 7% decline in Europe but the type that we described without some price pressure, it simply happened. And when that starts to happen, you have some competitors that decide that they want to do something about seasonal pricing. They want to try to claw something back, the customers’ sense that there is an opportunity, so you're absolutely right. When we had currency no question. The fall-off in volume was severe, but we also had some pricing that resulted from it. And Tim you might want to quantify that a little bit.

Timothy Donahue

Well as I said the currency was 7 million, which I think we said in the prepared remarks. As relates volume and price, I don't have a bridge in front of me, but I would say of the remaining 16 million, I'm guessing here, I'm trying to, I'm putting numbers together in my head as I'm looking at a piece of paper. I’d say the remaining 16 million is probably two-thirds the way to a mix in a third price.

Al Kabili - Credit Suisse

And I know some of this sort of, started at the beginning of the year, but is this incremental that you saw, you know beginning in the third quarter or was this sort of nothing new from what you saw at the beginning of the year.

John Conway

We've seen a little in the first part of the year, but it was incremental.

Al Kabili - Credit Suisse

Okay.

Timothy Donahue

It was incremental.

Al Kabili - Credit Suisse

And so what's your expectation for next year, if assuming with the food pack still being, kind of, sluggish the fourth quarter. What’s the opportunity for next year? Is this assuming all stays the same here, it does seem like that could be a little bit of headwind next year as well.

John Conway

Al it’s too soon to say. I mean you’re right, it could be. We think the volumes are going to come back. And obviously, we attended to be and we are the price leader in food cans in Europe. And so we plan to restore the margins and do what we’ve done in the past regarding the price. But it’s really too soon to say. The whole raw material situation is uncertain. I mean you’re reading about steel industry and we are, we don’t know what the steel people are going to do. We got all the specialty inks and chemicals, energy to the extent that we can control that let’s say it’s not regulated. So trade and so on. So it’s too soon to say, but what we do feel good about is the volume returning. And obviously, we going to have to work now on cost price, a little question earlier about, might there be a restricting opportunity or two, there might be which would help us. And so we’re looking at all of that. But it’s just, it’s too soon, we just, we can’t speculate yet.

Al Kabili - Credit Suisse

Okay, got it. And then just two quickies. Any comments on just sort of the BPA noise, you know coming out of France, if you see any near term impacts from that? And then free cash flow, your free cash flow maintaining assumes a pretty good, sizable benefit out from working capital in the fourth quarter.

John Conway

Yes. As to BPA, we feel confident that we’re going to be able to keep up with all of our customer’s requirements, French or otherwise on wishing to have a BPA, non-BPA intent inside the codings. So we feel good about that. We’re taking the steps in a couple of places we need to make some hardware equipment changes to accommodate new lockers and we’re doing that. We’ll have it all done in a timely fashion. So we think that we’re going to be ready for the customers as they change to non-BPA intent products. And Tim might want to talk about the other, the cash…

Timothy Donahue

Yes working capital in the fourth quarter.

Al Kabili - Credit Suisse

Yes

Timothy Donahue

Well I think it does require a large effort in the fourth quarter, although it’s a smaller effort than we had in last year’s fourth quarter.

Operator

Thank you. Our next question comes from Chip Dillon with Vertical Research Partners. You may ask your questions.

Chip Dillon - Vertical Research Partners

When you look at the European segment and maybe I am reading too much into this, looking at the minority or the non-controlling interest. But could you breakdown for us the volume trends both in Europe itself and in the Middle East?

John Conway

In beverage?

Chip Dillon - Vertical Research Partners

In beverage can, yes.

Timothy Donahue

We don’t look at our business segmented by Europe and Middle east but…

John Conway

And by the way one of the reasons is, we’re now moving cans all over the region. So we have cans going from Greece and Turkey into the Middle Eastern region, we have cans from the Middle East coming up in the Mediterranean. So we’re getting pretty intermixed up into Balkans, so that’s part of our issue and so it’s a little hard. But go ahead Tim.

Timothy Donahue

We’ve got a variety of countries not only in the Middle East but in Europe and we had very strong performances Slovakia, Turkey, Greece, if I had a guess, what you would call Europe or Western Europe I might say was up 6%, 7% and if I look at the real strong performances we had in Tunisia and Saudi, which you would call the Middle East or the Gulf States, perhaps I’d say was up you know around 3%.

John Conway

Well, I think characterizing European division, I think what’s well to remember is, we have not added any capacity in the Middle East in quite some time. We’re basically running full last year and this. So a lot of the improvement frankly is the capacity we’ve added in Eastern Europe and in Turkey. Our Eastern European plant has run exceptionally well, so it made a great contribution. The other plants in Europe has improved their performance and the new Turkish plants come on very, very strongly. So the European, if you will, not Middle East performance was very strong in the quarter.

Timothy Donahue

But Chip, I think you’re probably trying to get why minority was down so much in the quarter and as I said in the prepared remarks, it has to do with the number of repurchases we made in the fourth quarter of last year. Whereby we brought out the remaining local shareholder interests in Beijing, Shanghai. We increased our holdings in Vietnam. We increased our holdings throughout the Middle East and, in fact, we own 100% of Dubai now. So there are a number of activities we underwent last year that where we just don’t have as much minority interest any longer as we used to have. And you see that more pronounced in the third quarter, because it’s not a large quarter for Brazil, one of the big markets where we still have a big minority interest position is Brazil so you’ll have a larger minority interest expense in Q1 and Q4 and lower in Q2 and Q3 coming at Brazil.

Chip Dillon - Vertical Research Partners

And then, as you think about, you’ve mentioned, you’re really doing well in Europe at least in terms of utilization, given that you have, I don’t want say taking a breather but you’re slowing down the pace a little bit, and you’re used to now sprinting and doing a great job at it in terms of adding plants. Would it make sense to maybe because you’re not doing quite as much in China to maybe look at doing something more, in Eastern Europe to help as that market grows in the Middle Eastern Europe?

John Conway

Well, we look at it all the time and the great thing about the European beverage can market is it’s been growing year-on-year-on-year, notwithstanding recessions. The growth moves around a little bit. There is still an awful lot of beer in returnable glass in Europe and so it’s a good opportunity not just for us but for the entire beverage can industry. So we are looking at it all the time, but we do not see anything eminent there. We have just running what we have more effectively better, perhaps small capacity in additions to existing plants, we think should suffice to handle volume requirement, our volume requirements over the next number of years. So we don’t have any plan, but we’re looking at it all the time.

Chip Dillon - Vertical Research Partners

And then just last one quickly. I know it’s very preliminary and I first wanted to just thank you for being candid about kind of the direction that you see free cash flow with the lower CapEx next year and how it’s going, and so not to nail you down, but let’s just say in the context, if it is at or above 500 million or in that range, what do you think minority interest would be in a year like 2013, given all the changes you mentioned earlier plus the expansions? I mean could it be for example about 100 million would that be a good guess?

John Conway

No, I think this year, we’re between 80 and 85 million, 85 million to 90 million next year.

Operator

Thank you. Our next question comes from Philip Ng with Jefferies. You may ask your question

Philip Ng - Jefferies

I know acquisitions in the past really haven’t been a priority for you guys just because you had plenty growth opportunities in the emerging markets. Now, that those opportunities are not as readily available, have your priorities shifted a little bit?

John Conway

Well we have looked regularly at acquisitions over the past several years, we’ve been in a position where we can be quite demanding and the stands we’re setting because we have so many new emerging market capacity growth opportunities. As you know, we’re in the process acquiring a food general line business, a metal business headquartered in Singapore but it has activities throughout Asia. And we hope to have that completed at the end of the year. And so yes, you’re right. We’re looking more systematically at acquisitions than we have. We think that there is a great still consolidation opportunity in Europe in metal packaging. We are looking very actively at that. And we continue to be interested in other, metal packaging opportunities in Asia, where we think there are going to be more opportunities for consolidation there as well. So, yes I think it’s fair to say we’re little more focused on it than we have been.

Philip Ng - Jefferies

The opportunities you are talking about metal packaging in Asia, would that more in the food can set or would it still be on beverage can?

John Conway

It’s always on bev can and I think you’re aware that at least in Southeast Asia, we have done a pretty good job picking up some plants from self-manufacturers or some independents who haven’t done very well. We continue to look at that and we think there are more opportunities there. In China, we know there's going be a consolidation opportunity in time, but as we've talked about in the past, you can't buy until you’ve got a willing seller and so we need to wait a little while. But it is true. We’d like to expand the portfolio. That's why we're acquiring this company in Singapore and we think there's some food general line aerosol opportunities in Asia, but we're going to be careful but we think the way to go with regard to that is probably acquisition.

Philip Ng - Jefferies

And I'm just looking at your margins in general Americas bev was up nicely, Europe as well on the bev can side, as well as non-reportable. How much of that is just better productivity or is that a function of some of these start-up costs (inaudible) is starting to agree to your new plans just running at more optimal levels now.

John Conway

It's both. It’s the plants are running better. New plants and new lines are coming up learning curve and as we get unit volume growth, its better overhead absorption and frankly most of our clients, the more demands you put on them, the better they run even at the variable cost side, so it's all of those things.

Philip Ng - Jefferies

And how should I be thinking about China now, since you're drawing back onto these projects I mean first start is start-up cost, you’re going to do a lighter set a positive on the margin side but at the same time I would imagine you would have to shift bev can potentially from a further distance? Would that be a drag or how should I be thinking about that?

John Conway

No I don’t think you should because if you think of where we are and you in your mind think about the map of China, we tend to be along the Eastern coast and into it with the exception of Beijing but we're on the Eastern coast and into China's as far as (inaudible) really. So we're in the and typically in the provinces that have higher per capita income, a lot of population density and what we were attempting to do was get a little bit bigger in the area around Beijing north and south of Jan Chuan, Jin Jan (ph) and then Jan Chuan really was for those three northern provinces that are pretty far out (inaudible) is just pretty far to the south west. So those are areas where we have not participated, it's too much freight anyway. And so no. We're not going to incurring more freight cost, we're just going to be running the capacity we’ve install more effectively in the markets because these are regional markets in our view, so that you already just think there are a couple of regional markets where we won't be participating because other people have been shifting into those markets and this doesn’t make sense given the amount of capacity that’s been installed.

Philip Ng - Jefferies

And that’s helpful, I mean, just thinking about China as a regional market, it’s a big country obviously, but I mean US as well as a lot of your multinational competitors have done a pretty good job throughout and back on growth in China just be discipline but it seems like a lot of the larger regional can makers are still heading quite a big capacity from bit to my understanding some of them are actually looking to raise more capital right now for growth. So one is at a fair assessment and two, what’s the big disconnect there.

John Conway

I would generally say that the companies that are interested in adding capacity at this point are pretty much combined to state owned companies either fully owned or largely fully owned. And to the extent that there might be some privately owned companies talking about expanding and talking about needing capital to do that. I've got a feeling that today they wouldn't be able to say that with very much of a straight face. These maybe older plants that are stale now.

Operator

Thank you. Our next question comes from George Staphos with Bank of America-Merrill Lynch. You may ask your question.

George Staphos - Bank of America-Merrill Lynch

I guess, I had one housekeeping question first. Did you provide a single, a beverage can unit volume figure for Europe? You told us what the revenue growth was ex-currency, you gave us some colour by region. But what was the average for the whole segment?

Timothy Donahue

We said it in the prepared remarks. I think we said 5%, George.

George Staphos - Bank of America-Merrill Lynch

Okay. I apologize, I missed that then.

John Conway

What it is?

George Staphos - Bank of America-Merrill Lynch

You mean the entire Europe.

Timothy Donahue

I'm sorry, 6% for Europe.

George Staphos - Bank of America-Merrill Lynch

Thank you very much, Tom. Second question I had, if we look at the volume or the capacity of that is going to come on line between now and middle of 2013, the 3.6 billion unit, what do you think you'll actually produce from that capacity in '13? And how would you if were in our seat try to estimate what the incremental margin from that new capacity in production would be?

John Conway

I think probably 3.6 billion units going in next year and it all goes in Q1 through early Q3, I would say that the reasonable expectation as we come up learning curve would be that we probably produce about half of that annualized number next year, but keep in mind, we put 3.5 billion units into production this year and so we're going to produce the spread over the learning curve versus annualized number next year. So I would say in total, think about next year being an additional 3.5 billion.

George Staphos - Bank of America-Merrill Lynch

I guess if we look back maybe a little bit bigger picture going back to 2009, 2010 while the company's performance has been relatively good, you know John, returns have actually dropped several hundred basis points. Now the company has been going through a major capacity expansion for what you believe were the right reasons. What do you when you've looked at the data and as your plans evolved, what do you think the biggest driver of the reduction return has been in aggregate for the company? Has it been that from the growth markets haven't grown necessarily as much as you’d like or has it been, may there’s been a little bit more price erosion in certain markets, or would you say it’s not especially with any of those things and if so what would they be?

John Conway

I think, George, largely it’s been additions to the capital base and then the time it takes to get a plant to a highly productive state. I mean, we have a classic learning curve as others do about for example to these beverage can plants and you’ll start in the first month of production at about 20%, 25% of capacity or even less than that and it will take you about a year and a half to get to a plant which we like to see where efficiencies are 90% or better and squarely just 3% or lower. And that takes frankly, a highly skilled workforce. The equipment is capable, but frankly the people are not capable. So it takes a while to get to the state of production efficiencies that you see in mature plants in North America, Brazil for that matter and so on. So, I think that more than anything, but yes we’re all looking at each of those. So, yes that to me would be it, which is to say as we run all the physical plant much more effectively and fuller. And then don’t forget something else that we've talked. We have a lot of one line can plants spread throughout Asia. And we’re going to have a less now that’s rating second lines and that has a tremendous positive impact on return on invested capital. And we've talked about that before. You know for us a one line beverage can plant in China for example is $50 to $55 million, add the second line for 20 to 25, add the third line for 20 to 25 and you can see the results.

George Staphos - Bank of America-Merrill Lynch

Right. So that sets it up then in terms of my ultimate question. So, as we look out to the next couple of years, capital spending is declining. You anticipate free cash flow should be increasing. I know you haven't tied this number down a 100%, but roughly about a 0.5 billion next year. And your plants are coming up learning curve and you’re not ramping as quickly as perhaps in past years in terms of new capacity. So would you, as you sit here today, feel that is quite probable, that you’ll get back to your peak returns on capital as we saw several years ago? Would there be a reason why you wouldn’t?

John Conway

I can't think of a reason why we wouldn’t and I think, yes, I agree. It’s quite probable.

George Staphos - Bank of America-Merrill Lynch

The promotional environment in North America for beverage can had been a question that we and everyone else has asked, a number of times about over last several years. Is there any sign of hope from the end markets and your customer base about perhaps seeing more promotion, maybe more creative marketing around CSTs in particular that might in fact drive growth into 13 or 14? Thanks guys.

John Conway

Yes, we know our customers are very, very concerned about the volume characteristics of some of their businesses and we’ve all been reading and we’ve talked and really say the same thing, they’re addressing the issue in various ways. So yes, I think there is hope and I think it’s to me the distribution business is so heavily dependent on volume and the cost effect and frankly at the end of the day profit effective I think. So I think there is a lot of reason to believe that things are going to turn around here, but I have to say, as you’re pointing out, it’s been very disappointing this year.

Operator

Thank you. Our next question comes from Ghansham Panjabi with Robert W. Baird. You may ask your question.

Ghansham Panjabi - Robert W. Baird

Hey John back to your comment on European food and sort of the restructuring comments that you alluded to, your European food volumes have been relatively mixed for the last few years now. So I guess the question is why not something more expensive now. And what are your estimates in terms of what the ultimate volume profiles looks like for this business and for the industry as a whole.

John Conway

When you say expensive, you mean more expensive restructurings?

Ghansham Panjabi - Robert W. Baird

Yes.

John Conway

Well, George, certainly I tend to have too long a memory I suppose, but I look at this over say 10 or 15 years, we’ve done a lot of restricting with the European food businesses. And we’ve taken a lot of cost out and so that’s been done. And there are some more things that we can do, we know what they are, a couple of them are very promising. And on the other hand I look at restructuring to a degree, I mean that’s cost reduction but it’s an investment of the business and so we want to make investments in the business by restructuring, do it in a measured way, do it where we are sure we are going to get as quickly as possible a good return and so your points well taken, your points well taken Ghansham, that maybe we do a little more but we’re not there yet.

Ghansham Panjabi - Robert W. Baird

Okay. And so the 65 million of cash restructuring that I think you called that earlier this year for 2012, is that a number that sort of, a part of a multi-restructuring plan that we should expect in a go forward basis, should we lower in '13? How should we think about that?

Timothy Donahue

It will be lowered in ’13.

John Conway

Yes there is a little carryover into ‘13 from that number just because of the nature of how long it takes to ridge yourself off liability associated with reducing headcount in Europe.

Ghansham Panjabi - Robert W. Baird

Okay. And then switching to China, some of the soft drink guys reported this week, very, very differing views on what’s actually happening on the CST site in China. Can you just give us your thoughts on maybe by end market I know you touched on capacity in the market as a whole but just in terms of the end markets specifically beer versus soft drinks versus tea etcetera.

John Conway

I think, the still drinks, Asian drinks, juices, teas, herbal drinks and so forth are still doing very well in terms of growth. Beer is still doing quite well in terms of growth, carbonated soft drink from a beverage can standpoint is obviously been worth. And you saw that some of the soft drinks guys had overall disappointing quarters in the third quarter. But now that’s compounded a little bit for the can industry, because they tended to push their growth in PET containers. The can is the premium container, they price it way up on per ounce basis versus PET. And so for us the soft drink industry has been very like. But it hasn’t been a central part of our plans. We’ve always had our focus on still drinks, Asian drinks, beers is the source of growth, so that’s pretty positive for us.

Ghansham Panjabi - Robert W. Baird

And just one final one on Brazil if I could. 3Q obviously very, very nice quarter in terms of volumes, but as you pointed out seasonally is slower as well, as we go into 4Q and 1Q, any reason for optimism there in terms to maintain that run-rate or is it too early to tell?

John Conway

Now for Asia?

Ghansham Panjabi - Robert W. Baird

Brazil.

John Conway

Brazil, I’m sorry.

Timothy Donahue

Ghansham, I think we do believe we’re going to have a really good summer season, Q4, Q1 in Brazil. Keep in mind the volume percentage increase that we’ve had this year in each quarter queues one, two and three versus '11, somewhat relates to the fact that we put up a lot of capacity and we doubled our capacity in Brazil in '11 versus what it was previously. Now, some of that will start to annualize but we do expect to perform at least as well if not a little bit better than the market growth over the next several quarters given that where we put capacity in the North and in the South. Those markets are growing faster than the Rio and Sao Paulo area.

John Conway

Yes. As you know, our people in Brazil have been pretty steadfast in their views, the overall beverage can market this year in Brazil will grow about 7%. We were quite dubious as you know earlier in the year, but in fact third quarter was quite strong. It looks like the fourth quarter is going to be very good as well. As Tim said and carry on into the next quarter. The other thing that’s of some significance as you know, the Brazilian economy grew at well under 2%, 1.6 - 1.7 something like that this year it would appear. And there seems to be a pretty strong consensus among economist and people who think they are expert in the area that they should return to something like 4% GDP growth next year. So, generally speaking Brazilian market looks real good to us still.

Operator

Thank you. Next question comes from Alex Ovshey with Goldman Sachs. You may ask your question.

Alex Ovshey - Goldman Sachs

Can you give us an update on the current restructuring plan that you’re doing in Europe? What’s the targeted cost save there and are you going to see any of it in the fourth quarter and how do you see that leering in through 2013?

Timothy Donahue

Yes the program that we outlined at the end of 2011 and we executed this year is complete, that is the very large aerosol food camp plant in Belgium and a food camp plant in southern France among a couple other small activities is now complete. We are obviously making savings hard for you to see those savings given the volume weakness that we described on the call, but we are confident that we are saving not only this year, we’ll save a little bit more in Q4 and obviously much more next year. I think we targeted total savings of around 30 million and most of that savings is labor. So as John said, with the people gone we know we have the savings, but we do need, having taken out the cost, we do need volume.

Alex Ovshey - Goldman Sachs

Understand. Thanks. And the non-reportable segment, would you be able to break out the change in the profitability for Asia beverage versus aerosol?

Timothy Donahue

Well, I can tell you that I know that segment income in Asia in the quarter was up about 12.5% over last year. And just looking at the entire shortfall or more than the entire shortfall obviously was in North America and specifically in European aerosols where we're probably down about 30% to 40% segment income this year versus last year.

Alex Ovshey - Goldman Sachs

Okay. Got it. And just last question. On your initially read on how to think about pension for next year?

Timothy Donahue

I think on contribution side this year, we’re going to have about 110 million, next year we will have about 90 million. I think it’s too early to talk about the expense side although, as most investors, we have had a very good year this year, although tenure rates are down. We will have to wait. As you know we’re mark-to-market, we run smooth, we’ll wait to the end of year but right now it doesn’t look like it would be any different on the expense side than this year.

Operator

Thank you. The next question comes from Phil Gresh with JPMC. You may ask your question.

Phil Gresh - JPMC

Just want to follow-up on the guidance for the fourth quarter and just the revision for the year. You basically revised down at the midpoint for the year by dime and if I look at the quarter, you actually were at the midpoint, other guidance may be some of that was non-fundamental tax related et cetera. But, so should I read into that the underproduction in the fourth quarter is somewhere around close to that full 10 set number or how would you break that out?

Timothy Donahue

Well, I wouldn’t call it underproduction, I would call it the appropriate production levels to mirror what we believe is the demand in Q4 such that we don’t carry more than we need to carry the next year. The combination of lower cost absorption and obviously, if you are not selling the product, you’re not making the profit dollars or the margin dollars on the sales, but combination of both of those.

John Conway

Yes. I think, if you think about our European business, the specialty business for us as I think you know it’s a combination of what we would call promotional metal packaging, liquor, cookies, candy all the rest that’s doing quite well. We’ve got a proportion which is residential decorative paints principally, furniture, whackers etcetera, that’s doing very poorly and we have got a portion which is industrial chemicals, paint for industrial uses, but various types of industrial chemicals for industrial usage, that’s doing very poorly. If flip over into aerosols, as we said earlier, we’ve got two issues in aerosols, overall aerosol demand is down in Europe, not unusual in the recession, so a wonderful package, it dispenses tremendously, people love it but it’s relatively expensive. And we’ve seen this over the years, every time we go into recession; your aerosol can sales get hit. Our situation is little bit even worse, because we are very strong with big brands and the big brands are being hit even worse because of the private label. So there is that and then we’ve talked about food. So, if you want to call it our old fashion traditional steel metal packaging businesses are going to soft in the fourth quarter in Europe.

Phil Gresh - JPMC

Okay. And then just one follow-up on Alex’s question around the pricing in European food. You talked about the fact that there was incremental impact in the third quarter. Just in terms of how that works with the customers that you contracted the lower pricing with, is that something that we need to think about as it carries over for the next four quarters, similar to what happened in the European beverage last year or is that something that could be, if you do see some better volumes in the early part of next year because some of this was seasonal that you will be able to get that back.

John Conway

Yes, we think we can get it back. The European food cans, food sellers there are hundreds and hundreds and hundreds of nothing like North American market. And the markets in Spain, Italy, France et cetera the UK they all are somewhat different. It’s not consolidated industrially generally speaking and a lot of the business with the smaller guys have done on a quarterly basis monthly basis. And so pricing erodes if you will in a quarter with this whole customer segment and there are lot of them, doesn’t endure it, it changes almost on a quarterly basis, it’s just a fact to like in Europe we’re aware of it. Our plan is get the prices back to where they need to be, in relation to cost and that’s we hope to do.

Operator

Thank you. Our next question comes from Scott Gaffner with Barclays. You may ask your question.

Scott Gaffner - Barclays

Just looking back at North America, obviously you’ve had, your customers had some issues, mostly around the carbonated soft drinks. If I look at your mix, I think you’re about 80% non-alcohol versus 20% versus the market which is close to the two thirds. Has there been any discussions about trying to re-weigh your portfolio so you are more exposed to alcohol beverages versus non-alcoholic.

Timothy Donahue

I wouldn’t say that we’re 80-20, I’d say that we’re probably somewhere between 30% and 33% alcoholic.

John Conway

Yes, but over to your other point. Yes. the beer has been steadier than soft drink obviously although the carbonated soft drink guys are doing an awful lot to try to offset the carbonated side fall with still beverages are various types and they are doing pretty good jobs. Energy drinks uses and so forth. So, we look at it all the time, we think there are opportunities, we’ve done a lot of work with crap dealers and we may have a lot of success there and so we constantly work on it.

Scott Gaffner - Barclays

Okay. Just switching over to North American food you mentioned that earlier around your prices seem to have been relatively volatile lately. Do you have any sort of an early read on 10 point prices moving as we move to the end of the year?

John Conway

No. We don’t. We’re obviously talking with our suppliers about what needs to be done for next year but it’s way too soon to say.

Scott Gaffner - Barclays

On the food pack, is there a reason why you don’t make up any of that in the fourth quarter and then just as a follow on to that, have you seen any shift in market share as some fruit packagers out west shift some of their production facilities around.

John Conway

No we don’t see reason on the fresh produce side, the fresh crops, it’s not coming back, it’s not going too filled, we don’t think for us in fourth quarter. We’re are very, very light on the west coast. Scott we don’t have much insight into the California market for example tomatoes and like fruit.

Operator

Thank you. Our next question comes from Adam Josephson with KeyBanc. You may ask you question.

Adam Josephson - KeyBanc

One question, what accounts for the step change upward in your margins in North America food over the past couple of years and do you consider these margins sustainable?

John Conway

I think the answer is simply that, we have run on an annual basis our factories far, far, far better than we have in the past, that’s the first thing, just progression of improvement and excellence of operations, that’s the first thing. The next thing is the major restructuring that we did in Canada and North America approximately three years ago, four years ago. It took us about two years to accomplish. It was quite complicated, it involved food, it involved metal like enclosures, it involved aerosols and all the things associated with it of course. And so it was a big undertaking, quite complex, our guys did a wonderful job with it and when you do that, of course, than you got to improve productivity post the reorganization which takes you some time. So that’s really all it’s been. We got a great low cost. Cost based, we run the plants exceptionally well, are very, very attentive. And then of course we’re always doing things particularly with steel packaging and metal packaging, aluminum packaging to make the package more sustainable which we own to a large degree, it means take things out but still produce an outstanding container, so we’ve been able to do that as well.

Adam Josephson - KeyBanc

Related to George’s question earlier, he was asking on the cash flow side, I am wondering on the earning side, how much of an earnings benefit do you thing is reasonable to expect next year in 2014 given the lower project startup cost and benefits from having these new plans running sold out.

John Conway

Well, over a two year period we think there’s going to be benefit, we’re looking at it now too but we’re kind of into the budget process and a little bit more when we get back to you and talk about the fourth quarter.

Adam Josephson - KeyBanc

Great. And lastly on China, how much of the slowdown there is related to consumption going more slowly versus a lower mix shift in the two peace cans and you’re experiencing few quarters ago?

John Conway

I really couldn’t proportionalize it for you, it’s both things. And so, it’s both thing. The economy is slowing a little bit, consumers have clearly become more careful. The brewers have slowed a little bit on the rate of transition from glass to cans. We talked about the Asian drink move from three piece welded to two piece, aluminium and all of those things have contributed to slowdown. But I couldn’t divide it up among them all, big country, big as you know and a lot of brewers, a lot of soft drink, it’s like a big opportunity but a complex one. So, I really couldn’t do that.

Operator

Thank you. Our next question comes from Chris Manuel with Wells Fargo. You may ask your question.

Chris Manuel - Wells Fargo Securities

Good morning gentlemen, just a couple of quick follow-ups here. First, if I could ask a few questions around the non-affordable segment, you gave some colour that a few of the businesses were struggling a good dead end. May be if we could just go a little deeper there, your revenue was up mid-single digit ex-currency but yet profit were definitely down. And it sounded like the Asia bev piece did well, I mean the other elements in there I think you've got aerosol, I think you've got metal vacuum closures in there as well could you give us…

Timothy Donahue

No, no hold on Chris metal vacuum enclosures closures is in North American food and European food. That is a food canning closures business.

John Conway

And we can help you out here Chris just very quickly. It’s the Asian operations you're right, it’s the aerosol businesses on both sides of the Atlantic and it’s our equipment business. Shipping was about flat, Asia was up as Tim mentioned the aerosol now.

Chris Manuel - Wells Fargo Securities

Okay. So the whole differential was this, I know you did as you mentioned earlier some restructuring there a few years back, could you may be give us a sense of what volumes were like in the aerosol business in its steel and…

John Conway

Hang on we got the number

Chris Manuel - Wells Fargo Securities

And also then a sense of is there anything structural that might necessitate further change in those units.

John Conway

No I’ll answer that now. No, we restructured North American business, we’re satisfied with that it was part of the restructuring that I talked about a moment ago. The European restructuring that we have basically underway, but it’s largely finished from a physical plant standpoint but not from some of the employee issues. In Europe we don’t have anything planned beyond that, so the cost structure, the cost base is right, the capacity is lined up properly we think with the markets so that is an insurance. Tim's got the volume numbers for the quarter

Timothy Donahue

Yes so in Americas aerosol, we're actually up almost 5% in a quarter European aerosols is down about 10%.

Chris Manuel - Wells Fargo Securities

And yet, I think you indicated profits in those units were off between a third and 40% is that right?

Timothy Donahue

Yes.

John Conway

Well, in Europe it was way down and you have to remember, a lot of our customers, first of all most of the cans there are printed and in addition, we’ve got a number of the big branded high margin customers who were very demanding from quality service standpoint and so on and so on and their volumes were down dramatically.

Chris Manuel - Wells Fargo Securities

Okay, so there's some mix, so it’s beyond volume, its mix as well and would be safe to assume there's some pricing impact as well?

John Conway

There's not a lot of pricing. It's really mixed volume.

Timothy Donahue

But 10% is a big number Chris.

Chris Manuel - Wells Fargo Securities

Okay. And then the last question I had was you’ve had executed most of the ASR thus far, is there still any further repurchase you would anticipate this year or and then as we look to 2013 and we think about phasing, knowing that you're not going to be investing as much, CAPEX will be down, would there be any reason you wouldn't potentially if you want to execute a repurchase get after it maybe earlier next year as opposed to later?

John Conway

We’re looking at it, Chris, we’re looking at it.

Timothy Donahue

The current ASR may run through the end of November, it may terminate earlier, but that gives us sometime before the end of the year to do a little more this year. And as John said we will continue to look at it, what point in the year we want to step into the market.

Chris Manuel - Wells Fargo Securities

Okay. And just last thought is, Tim play 2013, any early indications as to what you might anticipate?

John Conway

No, we're in early discussions, so you can imagine we have our ideas, but our suppliers have theirs but it's really too soon.

Operator

Thank you. Our next question comes from Anthony Pettinari with Citi. You may ask your question.

Anthony Pettinari - Citi

Just a couple of very quick follow-ups, you referenced the weak promotional spending environment in North America. And I am wondering to what extent that's impacting specialty demand versus the commodity 12 ounce sizes and as you do planning into 2013, are you anticipating or you’re expecting any kind of deceleration of specialty can demand?

John Conway

It impacts specialty less of course because a lot of the specialty is focused on in the case of CST, on carbonate and diets, but it's also energy drinks, craft beers and so forth. So I think specialty is less, frankly is less affected, some effect but far less. I think to me anyway the biggest effect of the promotional is on a traditional suite, carbonated soft drinks.

Anthony Pettinari - Citi

Okay. So you're not anticipating any real deceleration of demand for specialty?

John Conway

No in fact, speciality looks like it's going to continue to be strong.

Anthony Pettinari - Citi

Right. And then just one final question. Your food can business obviously in Europe saw some margin compression but also in US as well. Just generally, is that margin compression that you saw in the US is that largely the result of just a weaker seasonal pack around mid-west crowds store, does that explains pretty much all of it in your view.

John Conway

Yes, yes. In North Americas, is exactly what you said? Fewer units running through factories consequently cost a little bit higher and income little bit less.

Operator

Thank you. And our final question comes from Tim Burns with Cranial Capital. You may ask your question.

Tim Burns - Cranial Capital

We’ve talked a lot about new high-tech beverage can capacity. And one question I had is in terms of your manufacturing kit and I assume this would be mainly an issue for bev can, is there a certain number of years that it is competitive? And if so, do you have a cycle of these can lines coming to you. In glass obviously every nine to 13 years the furnace falls through. How is that was some of the metal bending equipment?

John Conway

Well, Tim we’ve talked about this over the years. First of all we have, we think an excellent, excellent maintenance overhaul program where parts are replaced, motors are replaced, equipment get periodically rebuilt. So you could go into factory of, you’re just thinking one right, our Brazilian factory in any other country (inaudible) Sao Paulo which we built in about 1995. Okay. So it’s what 16 years old and if I took you there, you would think you were in absolutely brand new factory that had been completed the week before. And we could go back further than that. The wonderful thing about the can is if you maintain your equipment, if you know what you’re doing, if you rate your maintenance and you stay on top of things and then there are going to be somethings, ovens and things of that sort that are got to need to be replaced but over a long periods of time then you do it. So it’s a wonderful business and it’s one of the principal reasons the cash flow can be so strong.

Tim Burns - Cranial Capital

Got it. Yes. So the maintenance, the partial rebuilts, the addition of new equipment up and down the line periodically, that’s in your numbers as far as CapEx goes?

John Conway

No it’s in our numbers as average cost of sales got. We are scrupulous, we expands maintenance and we put CapEx where CapEx is. And we’re not sure the industry does that across the board, you ought to pay attention to it. So not always, it’s in cost and sales.

Tim Burns - Cranial Capital

I will do that and last question I had is, you guys are on either a half marathon or a marathon in terms of this growth surge and it’s very impressive. Every time I talk to people I talk about the really stone cold focus you have. We’ve got three big players now, almost all of them are monolithic metal people what happens when the Malaysias, the Tunisias kind of grow and mature? How do you see Crown positioning itself longer term?

John Conway

You know this Tim better than I, when you look at the per-capita incomes and then on to per-capita consumptions numbers in the emerging markets and let’s talk to say Eastern Europe, the Middle East for example, South America, the Brazil in particular for us, China and Southeast Asia, they are still miniscule compared to North America and Western Europe and all those people particularly in Asia have an aspiration, have a standard of living equivalent to ours. I remember 25 years ago, I had a man visit me from Singapore, he worked for the Singapore government and he wanted to know we were happy with our investment in Singapore and I said well, I am very happy. So what do you do and he was talking about so we started talking about Singapore and what his aspirations were. He said Singapore’s aspirations was to move to a standard of living equivalent to Switzerland. They were going to be equal to Switzerland and guess what, they are now at the standard of living equivalent to Switzerland, I am talking about 25 years, remarkable growth. That’s true right through Asia, you know this, I am just telling you something you know. So, honestly, I can’t see Crown anytime soon getting the point we got to worry about what are we going to do now so that the emerging market are mature, it’s going to take a long, long time for that to happen, it’s going to be great news for Crown. It’s going to mean we’re going to be far, far bigger in the emerging markets than we are today and strategically it’s why we have been so focused on the emerging market, why we have devoted so much capital and effort, why we built up what we think are first rate management teams and group of employees throughout these regions, its critically important to us and is going to continue to be.

Operator

Thank you. At this time, I’ll turn the call back over to the speakers.

Timothy Donahue

Okay. Thank you very much Shirley. That will conclude the call today. Please note that the company’s year-end 2012 earning’s call will be scheduled for Thursday, January 31st at 9:00 O’clock Eastern Time in the morning. We want to thank all of you for listening and look forward to speaking with you again after the New Year. Bye now.

Operator

Thank you. And that does conclude today’s conference. We thank you for your participation. At this time, you may disconnect your lines.

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