Amcor plc (AMCR) Q3 2009 Earnings Report, Transcript and Summary

Good day everyone. Welcome to the Bemis Third Quarter 2009 Earnings Release Conference Call. This call is being recorded. For opening remarks and introductions, I will now turn the call over to the Vice President and Treasurer for Bemis Company, Ms. Melanie Miller. Ms. Miller, please go ahead.

Thank you operator. Today is October 27, 2009 a replay of this call will be available on our website www.bemis.com, under the Investor Relations section. Joining me for this call today are Bemis Company's President and Chief Executive Officer, Henry Theisen; and our Senior Vice President and Chief Financial Officer, Gene Wulf. Today, Gene will begin by providing details on financial results and comparability to guidance on last year followed by Henry's comments on the current business performance. After our comments, we will answer any questions you have. However, in order to allow everyone an opportunity to participate, we ask that you limit yourself to one question at a time with a related follow-up, and then fall back into the queue for any additional questions. Before we begin, I would like to remind everyone that statements regarding future performance of this company made in this teleconference are forward-looking and are subject to certain risks and uncertainties. Actual results may differ materially from historical, expected, or projected results due to a variety of factors, including currency fluctuations, changes in raw material costs and availability, industry competition, unexpected consumer buying trends and customer order patterns, our ability to pass along increased costs in our selling prices, the regulatory approval and timing of the Alcan Packaging Food Americas acquisition, costs and integration risk associated with business combinations, changes in labor relations, interest rate fluctuations, and regional economic conditions. A more complete list of risk factors is included in our regular SEC filings, including the most recently filed Form 10-K for the year ended December 31, 2008. Now, I'll turn the call over to Gene Wulf.

Good morning everyone and thank you for joining us this morning. This quarter, we at Bemis have been engaged in a number of events that require special mention as I work our way through the financial statements. These events are principally related to our announced acquisition of Alcan Packaging's Food Americas. These events incur cost related to financing, professional fees, and integration cost, which impact the comparability of our 2009 financials to our 2008 financials. As you know, on July 5, we announced the signing of a definitive purchase agreement to acquire Alcan Packaging's Food Americas business from Rio Tinto for a total price of $1.2 billion. In connection with that announcement, we secured bridge financing for $800 billion from our bank group, negotiated a commitment to increase our existing credit facility by $200 million and entered into a stock purchase agreement with Rio Tinto in which they would accept $200 million of the purchase price in the form of Bemis common stock. On July 20, we launched a public bond offering and issued $400 million of 5.65%, five-year notes due in 2014 and $400 million of 6.8% ten-year notes due in 2019. With this bond offering completed, the bridge financing facility was no longer needed and was terminated. On July 22, we completed a secondary common stock offering in which we issued 8.2 million shares and received net cash proceeds totaling $203 million. With the completion of this common stock offering, the stock purchase agreement with Rio Tinto was terminated and we expect to pay all cash for the acquisition at closing. The remainder of the purchase price and related fees will be financed by commercial paper at the closing date. As we announced in our press release, on September 16th, we received a request for additional information and documents carrying materials from the Department of Justice for their review of our transaction. We expect to certify our substantial compliance to that request in early November. In the mean time, our transition planning continues and we are eager to move forward and close the transaction. Now, let me turn to this quarter's results. For the third quarter, we've recorded GAAP earnings of $0.33 per share. This compares to $0.43 per share for the third quarter of 2008. Excluding the effect of certain non-GAAP adjustments, earnings per share would have been $0.48, a 12% improvement from third quarter 2008. This adjusted earnings per share of $0.48 is comparable to our guidance of $0.38 to $0.43 for the third quarter. Overall, this performance, which exceeded our expectations was driven principally by continued superior performance in our flexible packaging segment and sequential improvement in our pressure sensitive materials business. Now, I would like to describe the non-GAAP items found on the reconciliation of non-GAAP data on page 12 of our press release. During the third quarter of 2009, we recorded $16 million or $0.09 per share of expenses associated with the planned acquisition. These charges included banking fees related to the bridge financing, professional fees, and other related costs. We also recorded a $3.6 million gain on the sale of an office building in Brazil, which increased earnings per share, net of minority interest by $0.02 per share. This facility was sold to a local governmental authority. This facility is located where the governmental authority is planning to build a transit system station. Our July issuance of $800 million of public bonds, with an average rate of 6.2%, increased interest expense during the quarter and reduced earnings per share by $0.05. Finally, during the quarter, we issued 8.2 million shares of common stock in a secondary offering. The diluted affect of these newly issued shares of common stock reduced earnings per share by nearly $0.03 per share. Therefore excluding the impact of these items, earnings per share for the third quarter 2009 would have been $0.48, a 12% improvement from the third quarter of 2008. As I go through the details of the income statement, it is important to keep in mind that at Bemis, profitability tends to be driven by sales mix, raw material cost pass through, and cost management. Volume changes can be misleading if considered at a macro level without the benefit of underlying mix change and net sales are also impacted by selling prices, which were adjusted regularly to reflect the most recent raw material costs. Therefore as I go through the components of sales and operating profit this quarter, I will try to highlight the primary drivers of our strong operating performance, starting with net sales, we reported quarter-over-quarter decrease of 8.7% during the third quarter, excluding the impact of currency and acquisitions, net sales would have decreased 7%. In flexible packaging, net sales for the third quarter decreased 7.5% compared to the third quarter of 2008. Please remember when examining our price mix that this year's lower raw material cost have been passed through the customers in the form of lower selling prices. In June, we completed the acquisition of the South American rigid packaging operations of Huhtamaki. The sales associated with that acquired volume contributed about 2% to the year-over-year and sequential sales growth in the quarter, excluding the impact of currency and acquisition, net sales increased, excuse me, debt sales decreased 5.9% year-over-year. When we examine sequential quarters, we see net sales increasing 4.2%. Excluding the impact of currency and acquisitions, net sales were down less than 1%. It should be noted that volumes in the third quarter of 2008 have been strengthening in advance of the global economic down turn, so comparisons were challenging this quarter. Looking at the product mix at a more macro level, we generally saw the greatest year-over-year volume deteriorations in products that our lower margins and price mix declines in products that were principally polyethylene or paper-based. The better volume improvement occurred in products that are higher margin. This help drive overall flexible packaging margins higher in 2009. Markets have recorded increased net sales compared with 2008 were dairy and liquids, which include packaging for condiments, yogurts, ice cream, and edible fats, as well as health and hygiene packaging applications. These markets account for about 21% of flexible packaging sales. Dairy and liquid markets was up in price mix and down in volume. The health and hygiene market is up in volume in low double digits, but was offset by a low double-digit decrease in price mix. The markets of growth occurred in South America in toothpaste tubes and in North America for living stock, for blister pack replacements. This market has a substantial polyethylene packaging volume, which explains a substantial drop in price mix. Net sales had year-over-year decreases in meat and cheese, dry foods, bakery products, pet food, multipack over wrap for bottle beverages, other foods, medical devices, display films and industrial product categories, which represent about 71% of total flexible packaging net sales. Except in the cases of medical device packaging, where volumes were up, and dry foods and other foods where volumes were flat, both volume and price mix declined for each of these market applications. Many of these markets were materially impacted by lower selling prices. In products that are primarily polyethylene-based selling prices are down 10% to 15%, due to reduced raw material costs for the base resin. In our industrial markets, we see our year-over-year volumes down as much as 30% in certain markets. Of course packaging for products in these industrial markets is simply a reflection of the production volumes in those industries. However, sequentially, we see many of the above markets improving. Markets such as, meat and cheese, pet foods, health and hygiene, and medical devices had sequential volume improvement. Net sales are fairly steady year-over-year for confectionery and snack markets, which represent about 80% of the total flexible packaging net sales. Volume in this market has steadily declined over the past few years and we are encouraged by the sign of improvement here. We are very pleased to see volume sequentially increase in the mid-single digits. Our pressure sensitive materials business segment, net sales decreased by 14.6% from the third quarter of 2008, excluding the impact of currency in net sales decreased by about 11.8%. However, when looking at the sequential quarters for net sales, we see only a 1% decline when excluding the impact of currency. Looking at specific product lines within this segment, our label product line was down about 6%, which was principally attributed to volume decrease. However, sequential net sales were down only 2%, with the decline attributed to price mix. Label products were sold to label printers and we continue to see our North American customers providing a more stabilized order pattern, which is an encouraging sign. Graphic product net sales, which depend heavily on demand for advertising in Europe decreased about 13%, compared to the third quarter of 2008 with volume accounting for approximately 11% of the decline. When examining net sales sequentially, we have a 1% increase. Year-over-year net sales of technical products were down dramatically, reflecting a change in the sales mix and the weak demand for our customers' products in the hounding and automotive markets. However, the sequential net sales for technical products are up over 15%, granted, this is our smallest segment representing about 10% of our pressure sensitive material sales, but the sequential improvement is primarily volume driven. Bemis recorded gross margins of 20% for the third quarter of 2009, a healthy increase from the 16.9% gross margin level of last year. During 2008, margins were lower, due to flow through of substantial raw material cost increases incurred during the year. In 2009, raw material costs have moderated. As we have said so many times in the past, when raw material cost increases – when raw material cost increases, our raw material escalated, de-escalated provisions lay behind in passing through all the increase. Conversely, when raw materials fall, those same escalated or de-escalator provisions lay behind in passing through the lower prices. Those are the mechanics of our model. More importantly, what we are seeing is the benefit of the improved sales mix of products with higher margins and cumulative benefit of our world-class manufacturing initiatives where we see improved waste, line speeds, reduced labor force et cetera. Flexible packaging operating profit as a percent of net sales was 13.9% for the current quarter, when adjusted for the gain on the sale of property, the margin was 13.4%. This is a substantial increase from the 10% level of third quarter of 2008. With more stabilized raw material cost environment this quarter, the results reflect a more normalized profit level for North America. As I mentioned before, the cumulative benefit of our global world-class manufacturing initiatives is also reflected in the financial results. We are very pleased to report that this improvement is not just North American centric. We see improved profitability in both Europe and South America. Henry will provide more details about our successes in the various geographic regions in 2009. But we’re very pleased of our European operations, had double-digit operating profit margins. Our South American operations are benefitting from a strength in the economy and improving consumer buying power. In addition, our newly acquired rigid operations in South America have been rapidly integrated into our existing operations to achieve substantial synergies that exceeded our expectations. Operating profit as a percent of net sales for our pressure sensitive materials business was 4% this quarter, compared to 5.7% during the third quarter of 2008. We are encouraged by the fact that operating margins have almost doubled from second quarter of 2009 and sales mix and volumes have improved sequentially. Selling, general and administrative expenses for the third quarter were $95.8 million or 10.7% of net sales. This is an increase from SG&A expense of $85.8 million in the third quarter of 2008, reflecting higher pension and employee incentive accruals in light of broad improvements in 2009 operating performance. Research and development expenses, as a percent of net sales, are consistent with last year and previous quarter. Other income and costs include several items that affect comparability. First, interest income has decreased because cash balances invested outside of the United States have declined compared to those in mid-2008. We use cash in Brazil to reduce debt during the fourth quarter of 2008 and to pay rigid packaging acquisition that we made in early June of this year. Other costs and income also includes $16 million of acquisition related financing professional fees incurred during the third quarter. These costs were partially offset by gain of $3.6 million on the sale of the office building located in Brazil. Interest expense increased by $3.2 million compared to the third quarter of 2008, excluding the interest expense associated with the $800 million bond issue in July to fund a portion of the acquisition, interest expense would have decreased by $5.7 million compared to the third quarter of 2008. This decrease is due to lower interest rates on commercial paper outstanding, as well as lower levels of debt. During the quarter, we reevaluated our anticipated 2009 tax rate. Based on our analysis, we lowered the rate from 36.5% to 36.3%. The third quarter tax rate of 36% reflects the reduction necessary to adjust the new year-to-date rate to 36.3% for 2009. We expect this rate of 36.3% to continue for the remainder of the year. This total year rate is slightly higher than the 36.1% for the first nine months of last year, reflecting a change in geographic sales mix. Our debt to total capitalization increased to 40.4% at the end of this quarter, reflecting the impact of both the $800 million of new bonds, with debt reduction efforts using strong cash flow from operations and the impact of issuance of 8.2 million shares of common stock. If we exclude the impact of bonds and common stocks issued for the pending Alcan Packaging Food America acquisitions, our ratio would have been 22.9% this quarter. This continued reduction in debt reflects the incredible amount of cash that Bemis has and continues to generate. It should be noted that approximately $1 billion raised this quarter was not used to pay down commercial paper, but invested in U.S. Treasuries in order to preserve the principle balance and maintain access to the commercial paper market to facilitate closing. Cash flow from operations totalled $128.6 million for the third quarter of 2009, which was boosted by $44.7 million of working capital improvements. With our nine month cash flow from operations at a record $395.9 million, we are in pace to achieve a new record for annual cash flow from operations in 2009. In addition to improving cash flow in 2009, we’ve also maintained lower capital spending levels in 2009 and still expect our total year capital expenditures to be in the range of about $100 million. We continue to benefit from operations improvements where we have created new capacity through improved production efficiencies on existing equipment, thereby creating what we call virtual equipment and avoiding capital spending. Our facilities are in great shape and will maintain using this strategy. With regard to liquidity, we have a $425 million credit facility available to support our commercial paper program at the end of the third quarter with about $179 million of commercial paper and industrial revenue bonds issued against it. We have amended the size of this credit facility to increase it by $200 million at the time of the Alcan Packaging Food Americas acquisition just completed, and we expect this credit facility to be sufficient for our cash needs in the future. Finally, as I stated earlier this year, we believe our guidance should reflect our expectations for operating performance compared to 2008. Therefore, our guidance excludes any estimate for acquisition related costs, financing charges or dilutions associated with financing our acquisition or severance. Our guidance for the fourth quarter is $0.40 to $0.45 per share, which also raises our total year guidance from the range of $1.68 to $1.75 up to a new range of $1.81 to $1.86. This new range accounts for not only the outstanding performance of our operations during the first nine months of the year, but also our expectations for a seasonally slower final quarter of the year. The month of October is expected to be quite strong, which is a normal pattern as our customers prepare for the holiday season. However, after that build-up orders usually soften in November, December as our customer's work off inventories for their year-end. Now, I will turn it over to Henry for his comments.

Thank you Gene and good morning everyone. We are pleased to report that Bemis is continuing to perform well. Cash flow from operations continues to strengthen and is on its way to a new record level in 2009. Our investments in value-added product lines over the past few years are clearly bearing fruit, and our world-class manufacturing initiatives are building momentum. World-class manufacturing initiative improves resin efficiency by reducing waste and improving specifications. Increases equipment up time and increases production output. During this past quarter, we had relative stability in resin cost as a result our selling prices where appropriately matched with current input cost. In this environment, our focus on growth platforms and world-class manufacturing initiatives were more visible then when raw material increases cloud at operating results. Our performance is also driven by the value we are achieving from our global product investment strategy. As a result, we have a number of innovative new products that were designed to meet long-term trends and change consumer preferences. Our Magic Steam Packaging is used for frozen vegetables that are microwave cooked in the package. Our Crinkle-Fresh Packaging is becoming the standard for prepackage salads. It is used to extend the shelf life of fresh lettuce and other produce applications that require control permeability, allowing the fresh produce to properly respirate. Additionally, customers are now incorporating both anti-fog and easy open features into the package. We are pleased to see that our thin gauge shrink film, which historically have been sold into industrial, home improvement, and display markets are moving into food markets. Our teams have been successfully transferring this technology to food applications such as fresh poultry and frozen pizza. In our Pressure Sensitive Materials segment, we have been developing energy cure technology. This technology has led us into a new market for pressure sensitive adhesives. This is consistent with our strategy to be focused on niche markets in this business segment. The peal reseal packages are being used in applications in the United States such as specialty meats, sliced cheeses, salmon, and chicken strips, and includes private label customers and small niche food companies. This is a growing format for our U.S. markets and we are pleased to have a technology that not only offers a solution that meets the food safety and shelf life needs, but also provides a sustainable solutions that is lower cost to our customers than the standard rigid packaging alternatives. This packaging incorporates an adhesive system, uses our polyester technology and will soon include a patent pending tamper-evident feature. In our multiwall bag division, we have also developed a new product line that addresses sustainability. Our new [INTEGRA guard] eco-wise packages are the first earth friendly paper package with various properties to offer a functional replacement from multiwall bags with poly liners. Our INTEGRA guard bags are repulpable, meaning these fibers can be recycled back into the papermaking process. Our coating technology allows us to provide a unique grease and moisture barrier that eliminates the need for a poly-lining. Our film technologies are being used in new environmentally friendly Pagan Well System that uses compressed air to replace pressurized gases using aerosol cans. Our nylon pouch integrates well with the valve technology and replaces the aluminous sleeve that would otherwise be inside of the can. The trend toward eating at home continues to bolster grocery store sales in general. This is apparent in increased demand for packaging for frozen pizza and meal kits as an alternative to eating out. We are also seeing continued growth of single served products like coffee and powdered beverages. Even lawn and garden products are moving in this direction towards smaller quantities with the improved consumer convenience packaging features. We are pleased to see the Brazilian economy leading the global economic recovery. Our 13 manufacturing facilities in Brazil and Argentina are performing very well and we are happy with our three new rigid packaging facilities that we acquired from Huhtamaki in June. During the third quarter, we were able to take advantage of this new capacity to redistribute production and reduce transportation cost significantly. Combined with the benefits of better economies of scale as part of a larger packaging company, these immediate changes to the cost structure have quickly improved operating margins at those facilities well beyond our original expectations. I'm also very pleased with our European flexible package operations. This business unit has substantially improved its operation over the past several quarters and achieved double-digit operating profit this quarter. In Europe, we are benefiting for both the implementation of the world-class manufacturing initiatives that began in 2007 and the valuable investments that were made in new equipment capacity for niche products over the past five years. We have been able to grow our sales of value-added products in that market and improve sales mix. As Gene mentioned, our acquisition of Alcan Packaging Food Americas is still awaiting regulatory approval. We are excited about this acquisition. We have our transition plans in place and we anticipate approval before the end of 2009. Now, I would like to open it up for questions.

(Operator Instructions) And we'll go first to Claudia Hueston with JPMorgan. Claudia Hueston – JPMorgan: Hi, thanks very much. Good morning.

Good morning Claudia. Claudia Hueston – JPMorgan: You talked about some sequential pickup in your flexible packaging businesses and I was wondering if you could just characterize the pickup that you saw in the third quarter, versus what would normally happen, sort of third quarter versus second quarter?

I think it was very much like it normally is. Normally, we have good second and third quarters. Generally, they are about the same. So, I think in this case, we saw just a little more pickup than we normally would have expected, but it isn’t a drastic difference. Claudia Hueston – JPMorgan: Okay. And then in Europe, it sounded like, you've made very good progress there, I was pleased to hear about the double-digit margins, could you just talk a little bit more about what's driving that and maybe what volume trends look like in Europe?

What's really driving our growth in Europe is our polyester technology in our platforms. In Europe, a lot of sliced meat, sliced lunch and meats or fishes were sold in a rigid polyester with a polyethylene sealing and then the list stock would be in oriented polyester with a polyethylene sealing. Our technology is to make a multi layer film and that was really the investment that we made in 7-layer blown film equipment. Allows us to make a polyester sealing that eliminates the use of polyethylene altogether. So, not only are we able to decrease the weight of the polymers that we are using by about a third, we are also able to put it in the polyester recycle stream. And that is generating the real growth, and that generates savings for our customers and it generates better margins for ourselves. Claudia Hueston – JPMorgan: Okay. And then just the overall trends in terms of European volumes, how would you characterize those in the quarter?

I think they were rather flat. Claudia Hueston – JPMorgan: Okay. Thank you.

We will take our next question from Ghansham Punjabi with Robert W. Baird. Ghansham Punjabi – Robert W. Baird: Yes, good morning.

Good morning, Ghansham. Ghansham Punjabi – Robert W. Baird: So, just as a follow-up to Claudia's question, if volume is pretty much tracked in line with expectations was there something else that drove the upside? Was it raw material spreads or maybe performance in Europe?

I think it was, overall it was mix. I think, we sold more of our higher margin products that come off with the investments we made in the past, and you know we sold a little less of polyethylene packaging first things like tissue wrap and that. So the real gain was in the mix. Ghansham Punjabi – Robert W. Baird: Okay. And then just looking at the fourth quarter in terms of guidance, given the comparisons that are quite a bit easier just based on what happened last year, is it fair to expect that volumes will come positively? Is that what you are assuming for the fourth quarter?

Yeah, I think we are assuming slight growth in volumes. Ghansham Punjabi – Robert W. Baird: In both businesses, right?

Yeah it's correct. Ghansham Punjabi – Robert W. Baird: Okay. Thank you.

We'll go next to Tim Thein with Citi. Timothy Thein – Citigroup: Hi. Thanks, good morning. Just Henry, a followup on that last one, in the fourth quarter if you think about, certainly you talked about having a full quarter of the new capacity down in South America, presumably the dollar, the FX is, it probably helps you. What else is there to think about, I mean on the kind of sequential change, third quarter to fourth for the guidance to be again showing down from third, is it – is there anything other than seasonality to think about there?

No, I don't think so. I think it's really the seasonality as we go through the year. Timothy Thein – Citigroup: Okay. And then lastly coming back to Europe, is it historically kind of a market where you had two bigger players that kind of dooked it out and I think led to a little bit more of a competitive pricing backdrop. Have you seen any change there, on that front, given that the returns have been pretty lousy for quite a while or you would, coming back just on this kind of mix improvement as to attributing the pick up too?

No, I really attribute our pick up really to the technologies that we placed over there and getting into these new polyester technologies. So, it's really mix for us.

We'll go next to George Staphos with Bank of America.

Good morning George. George Staphos – Bank of America-Merrill Lynch: Good morning. [Nice start] in the quarter.

Thank you. George Staphos – Bank of America-Merrill Lynch:

I don't know if I can give you an exact number that would be precise, but my personnel view is that they are about even. George Staphos – Bank of America-Merrill Lynch: Okay, can you continue the improvement in mix with the existing trend in volume as you see it today?

I do think we will continue to see an improvement in mix. I think it goes back to some of the, that's why I highlighted some of the new products that we're introducing into the marketplace. And so I think as we continue, you know based on our track record to generate new products, we've been very good and trying to marry our investment strategies to those new products and platforms and I think we can continue to improve that mix.

Mark Wilde – Deutsche Bank: Good morning Henry.

Good morning Mark. Mark Wilde – Deutsche Bank: Is there any, I'll just come back to that flexible packaging margins, is there any further compression that we might see in kind of fourth quarter versus third quarter just from residual catch up to lower resin?

It would be minimal if there is anything. I think really at the end of the second quarter you pretty well had your selling prices and your input costs in sink it. So, it shouldn't be a drastic change going forward here. Mark Wilde – Deutsche Bank: Right and as a follow on, how much runway is there less in terms of margin expansion over in Europe do you think?

I think we will be pretty steady in that 10% area. I don't see a great uptick in margin improvement in Europe from where we are today.

We'll take our next question from Al Kabili with Macquarie Investments. Al Kabili – Macquarie Research Equities: Great, thanks for taking my question guys.

Good morning Albert. Al Kabili – Macquarie Research Equities: Good morning. I just wanted to get a little bit of color on the update on Alcan. If I heard your comments right, you are still in the process of requesting – of submitting the additional information request from the Department of Justice, and that is expected to be done early November is that right?

Yes. That’s correct. We're still in the process of accumulating all the information requested in the second request. We expect that we will have it all submitted in early November and at that point we'll certify that we substantially complied with that request. Al Kabili – Macquarie Research Equities: Okay. And so then presumably to, you know make the end of year acquisition complete you are expecting the DOJ to respond within what – within 30 days or so, is that what they are telling you? Can you just give us an update on the dialogue there?

It's our understanding or at least my understanding that once that we certify our compliance to the second request, the clock will start ticking and it's as a 30-day clock.

We’ll take our next question form Mike Hamilton with RBC.

Good morning Mike. Michael Hamilton – RBC Capital Markets: Could you give thoughts on market spaces where you feel like pricing is holding up reasonably well? Where you are seeing some price competition perhaps beyond expectations? And then also whether you're feeling like you’re taking and dropping share in this environment?

There is a lot of people we compete with flexible pack and pressure sensitive with them and they are all very competitive. I see the competitive landscape today the same as it was a year ago. I don’t really see it changing. Michael Hamilton – RBC Capital Markets: Any particular market areas that are more or less--?

No I don’t think so -- because there isn't any market areas that are changing from what they have been in the past. Michael Hamilton – RBC Capital Markets: Could you comment at all, sounds like you are little more pleased on confection?

Yeah, I think we are. Confection is a competitive marketplace it's been over the last few yeas and it seems to have stabilized a little more than it have been in the past.

We’ll go next to [Sarah Majors] with Wells Fargo Securities. Sarah Majors – Wells Fargo Securities: Good morning and nice quarter.

Thank you, good morning. Sarah Majors – Wells Fargo Securities: Good morning. I just want to follow up on the Alcan question. In the prepared remarks, from what I read, you said the transaction to be approved by year-end and close as soon as possible thereafter. I know the original execution was to close the deal by year-end so are we looking at a timeline that maybe pushed out about a month or so behind those original expectations?

Well the original expectation didn’t include a second request. Sarah Majors – Wells Fargo Securities: Yeah

And now we expect that we will fulfill the second request in early November. The DOJ then has a month to rule on it and we’re very comfortable with where we're at. We're expecting to get an approval on it and we would close as soon as we can after that. Sarah Majors – Wells Fargo Securities: Okay. And just a follow-up on the next question, with this additional request, should we expect any additional or, incremental costs associated with closing the deal then?

There will be no other cost other than all the cost to pull the data, which obviously is relatively expensive, but there won't be any other cost other than the time affect on the interest that we have because it's taken us an extra two months to close.

We’ll go next to Chris Manuel with Keybanc Capital Markets.

Good morning Chris. Christopher Manuel – Keybanc Capital Markets: Good morning. How are you today?

Great. Yourself? Christopher Manuel – Keybanc Capital Markets: Okay. Hey, I wanted to circle back to a question that you would kind of comment a couple different ways earlier and that's some of the differential on the flexible packaging performance, if I look at the operating improvement, 3Q '08 to 3Q ’09 its 20 million bucks. You've indicated in you press release about a 1.3 million was currency. There was also I am sure some impact from the acquisition in South America, but we still have about $16 to $17 million improvement on some lower volume. So, I know that mix was a contributor, there were kind of three things that it sounds like we're contributors. Price cost had been a pretty significant one. Could you help us potentially bucket those in terms of maybe what was in price cost, maybe what was in mix, maybe what was in productivity and my thought was maybe the price cost was the biggest given how far behind you were year-over-year, but I’m not sure?

Chris as you look at it, first thing within flexible packaging remember also that we have the gain on the sale of that property in Brazil and that's another 3.6 million of that change in addition to the currency translations --. Christopher Manuel – Keybanc Capital Markets: I meant 20, I've taken that out already.

Oh, you have. Okay. Then looking at the split year-over-year for flexible packaging, again as Gene mentioned in his comments it's really – most of it is a decrease in volume and then net decrease in price mix. We have a really hard time getting into the details to separate mix and pull it out of volume and price because of the diversity in the products that we're making, but the mix really helps substantially offset the decrease in prices, just part of the way that our business model works when we are passing along the lower resin cost. In 2008, as you recall, during the third quarter, resin prices were substantially higher. They went way up at the end of June because of some announcements or increases that the suppliers had made up 20% and 25% for certain resins, just in the month of June. And all of that really flushed through in the third quarter of '08. So, by comparison to this quarter, as Henry had said, we really had -- our selling prices in resins in line by the end of the second quarter and third quarter was pretty well matched. Christopher Manuel – Keybanc Capital Markets: Okay. So, you are in line presently, but last year in the second, third quarter I was thinking you were behind, is that --

That's right. So, therefore second quarter of last year was dampened by the resin issues and this quarter we don't have that issue and instead we're benefiting from a better mix of products that we are selling, we were selling higher margin products.

(Operator Instructions) We will take a follow-up question from George Staphos with Bank of America. George Staphos – Bank of America-Merrill Lynch: Thanks. When I was looking back at the model for flexible packaging guys, you know sometimes the fourth quarter earnings before interest and taxes is ahead of the third quarter number, sometimes it's below, it's roughly 50-50 going back the last 10 plus years. In years, where you have seen a stronger fourth quarter versus third quarter, which Henry sounds like usually in your view that's not what happens, what have been some of the outstanding factors? And what I'm really asking is, is there potentially some chance that your fourth quarter guidance for flexible could wind-up being conservative, given again the empirical that you suggest that it's 50-50 where the fourth quarter is better or worse versus third quarter? And I have a follow on. Thanks.

I think really a good start. A lot of that has to do with volume. In the third or in the fourth quarter, you know we have the Thanksgiving holidays, we have the Christmas holidays, we have the shutdowns, we do a lot of preventive maintenance work. So, and in some of those months, we have less coverage of our fixed cost. So, we have, our substantial volume, we have good volume increases, you know we have to run those factories harder and cover those costs if kind of these flat volumes continue, we will take some of that time to do the preventive maintenance and get setup for 2011, excuse me 2010. George Staphos – Bank of America-Merrill Lynch: Okay. So, you are saying the ordering patterns around this season, around the holidays can vary quite a bit?

It can vary. And how much people, how sales go, how much inventory people pull, those kind of things.

We will take another follow-up question from Sarah Majors with Wells Fargo Securities. Sarah Majors – Wells Fargo Securities: Thanks. Actually, I just want to go on the same thread. I'm wondering if you can just give a little bit more detail on Delta, on the increased guidance. It sounds like you think a lot of it is going to be from volume, especially in October, but then again it sounds like the volume question could be questionable. Could you just give a little bit more color on that? I mean what's driving that increased guidance?

Sarah, I think we are going to be looking in the fourth quarter, that year-over-year, we are going to have an improvement versus last year because of resin cost that we were still incurring in the fourth-quarter of last year, but principally what we are seeing is, we are seeing an improved mix in our sales right now, where we are selling more of our higher margin items then we are of our lower margin items. So, we expect that to continue as we go into the fourth-quarter. The stronger markets in these higher margin product lines and we expect that will be in a stable position in the lower margin items, but we are continuing to grow in these high margin products.

Another thing just to clarify, the volumes in the fourth quarter of '08 declined dramatically as customers reacted to the global financial crisis last fall. We do not expect that to re-occur this year in the fourth quarter. So, the fourth-quarter volumes will be, we expect to be better than fourth quarter of '08. However, as Henry has said, seasonally third quarter tends to be a stronger volume quarter than fourth quarter. Sarah Majors – Wells Fargo Securities: Okay. And just a follow-up on the guidance question, what kind of resin assumptions do you have implicit in your guidance and you know are they still stable? Are you – then looking back at the price cost relationship in the quarter as well.

I'll break it into two parts, one is polyethylene or more the commodity resins. There are some announced increases out in the marketplace that may or may not go through, and as far as the specialty resins, which make of a big chunk of what we have that’s pretty stable. So overall, I'm going to say it's stable to may be a slight increase in the polyethylene area. Sarah Majors – Wells Fargo Securities: What do you think availed to offset that with pricing and have kind of a balance relationship there?

Yes. It’s not that drastic you know, what really affects us is, is when you get into those markets where like the oil went from $740 and you just never catch up with them. If you get just a slight increase so you get one increase and not that – not the velocity that we have. Last year we were able to pass those through.

Our next question from Mark Wilde with Deutsche Bank. Mark Wilde – Deutsche Bank: Henry it sounds like volume continues to be pretty sluggish, it also sounds like you are getting some really nice productivity gains. Does all of this have you continuing to rethink your footprint?

No, no I'm very happy with the footprint. I think really you know in the last couple of years we've really controlled our CapEx spending and our footprint is in good shape compared to what we're doing in the past, and we've also gone through and through our world-class manufacturing in our efforts there have improved the productivity and equipment we do have.

(Operator Instructions) We'll take a followup question from George Staphos with Bank of America. George Staphos – Bank of America-Merrill Lynch : Hi guys. Last one. Gene, is it possible to comment as to what's remaining in the information request that you have to provide to the DOJ regarding Alcan. Reading between the lines from your commentary here, it sounds like at this juncture it's really more or less procedural. I don’t know if you could agree with that type of characterization, but just any additional thoughts you have there would be helpful. Thanks and good luck in the quarter.

Thank you. On that question George, we are in the final stages of responding to the DOJ, it is mechanical from here on out. So, we fully expect that we will be in compliance to the request in early November. George Staphos – Bank of America-Merrill Lynch : Okay. Thanks very much.

There are no further questions at this time. I would like to turn the call back over to our speakers for any additional or closing remarks.

Thank you very much everyone for joining us. This ends the call.

This concludes today's conference. We thank you for your participation.