Cabot Corp (CBT) 2003 Q1 法說會逐字稿

Good morning, and thank you for joining us for the Cabot Corporation 2003 first quarter results conference call.

My name is Maggie, and I will be your conference facilitator.

At this time, I'd like to turn the call over the Mr. Ken Burnes, Chief Executive Officer.

Thank you this is Ken Burnes, chairman and chairman and CEO of Cabot Corporation.

Welcome to Cabot first quarter earnings teleconference.

With me here this morning are John Shaw (ph), our Chief Financial Officer, Eddie Cadero (ph), controller, Jim Kelly (ph), director of investor relations, Bill Noglows (ph), general manager of our carbon black business, Bill Brady, general manager of our fume metal oxide business, and Brian Berube (ph), our business general counsel.

Before I comment on the quarter's results, I will remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties including those discussed in our 2002 form 10-K filing, a copy which is available on our website www.cabot-corp.com.

Last night we released earnings for the first fiscal quarter along with the related supplemental business information.

For those of you on our mailing list, you received these either by fax or e-mail.

If you're not on our mailing list and are interested in receiving this information in the future, please contact our website or our investor relations department.

Today I will begin with a short overview of the results of the quarter, and then we'll open the floor to questions.

Last night we reported first quarter earnings per share of 48 cents compared to 53 cents per share for the same period last year.

The current quarter results contain a deferral of approximately $8 million of revenue and profit to future quarters related to our tantalum supply agreements.

I will provide further information on this issue while discussing our performance materials business results.

We are pleased with the results we achieved in the quarter given the uncertain economic environment and the continued increase in our raw material costs during the period.

The decline in operating results compared to the first quarter of last year was driven primarily by lower unit margins in the carbon black business as well as lower results in our cesium formate business.

These declines were partially offset by higher volumes throughout the chemical businesses.

The chemical businesses reported a decrease in operating profit of $3 million from the first fiscal quarter of 2002, and a $7 million sequential increase from the fourth quarter of 2002.

The decline compared to the first quarter of last year as I just stated was due primarily to lower margins in carbon black, which resulted from continuing increases in oil and natural gas prices.

This was partially offset by higher volumes in all segments of the business, with significant increases in both fume metal oxide and inkjet colorant business, as well as in the South American and Asian region of our carbon black business.

The sequential increase was due to improved cost in both carbon black and fume metal oxide as well as improved volumes in the inkjet business.

Finally, due to the weaker U.S. dollar both year over year and consecutive earnings comparison benefited from favorable translations of foreign earnings.

Cabot's tantalum business earned $32 million in operating profits this quarter, which was $1 million higher than the same quarter last year.

The results were driven by higher pricing and lower per-unit manufacturing costs, offset partly by lower volume.

We resolved our contract disagreement with Kemet during the quarter and resumed shipments to them.

The disagreement with ADX is ongoing, but they continue to purchase products in accordance with the terms of their supply agreement.

While the electronic market continues to be relatively weak, we are seeing gradual improvement, particularly in the Asia Pacific region.

As I alluded to earlier, during the quarter, we deferred $8 million of invoice tantalum revenue, all of which is profit because no related costs were deferred.

This resulted from the fact that we agreed to reduce the selling price of certain contracted volumes effective January 1, 2003.

Shipments made during the first quarter were invoiced at the higher contract price, which was in effect for calendar 2002.

The accounted guidance for contracts of this nature appears to require the recording of revenue on an estimated average selling price basis over the life of the contract.

Since this differs from our historical revenue recognition practice, and in the absence of accounting literature which is specific to our circumstances, the company has asked the Securities Exchange Commission's for its guidance regarding the use of this methodology.

We expect to receive their response before our 10-Q is filed for the first quarter.

In our new business efforts, our inkjet business performed very well during the quarter, with volumes increasing significantly both year over year and sequentially.

Volumes increased in both the OEM and after-market areas supported by our ongoing R&D efforts.

Cesium formate had a difficult quarter due to reduced industry drilling activity, particularly in the UK portion of the North Sea, which is one of our primary markets for this product.

We continue to believe that the fluid brings significant benefits in a number of drilling application, and we remain optimistic about the prospects for this business.

Finally, during the quarter, our first commercial application of our nanogel aerogel product was installed in translucent panels in a structure surrounding a hotel swimming pool.

I'm happy to report the installation was very successful.

We continue to be in the start-up and commissioning phase of our new semi works manufacturing facilities, which is progressing well.

Due partly to - partly due to several recent articles published on the product in newspapers and trade magazines, we are seeing an accelerating rate of commercial inquiries for this product.

We continued our implementation of our new enterprise resource planning system with several significant implementations taking place during the quarter.

I am very pleased with the way this project is progressing, and there have been no significant business interruptions throughout the period.

We expect to have substantially completed the implementation by the end of the fiscal year, and to begin to capture some of the cost saving opportunities that it provides during the year.

Our cash balance declined by approximately $34 million during the quarter.

Much of this decline was caused by increases in working capital in the chemical business, and in performance materials due to the resolution of the Kemet contract.

We expect to recover this increase later in the fiscal year.

Regarding the issue of respirator liabilities, I discussed during our third quarter 2002 analyst call that Cabot had agreed to pay up to $2 million as its contribution toward a settlement involving up to 13,000 claimants in Mississippi.

As you may recall, our involvement in this stems from a complex indemnification obligation regarding a company called American Optical.

At the time of the Mississippi settlement, Cabot expected to pay the $2 million over a period of approximately 18 months.

During the first quarter of 2003, as a result of complications in the funding mechanism of the overall settlement of these claims, a shortfall in the initial amount to be paid to the plaintiff group resulted.

Cabot agreed to fund the entire shortfall in exchange for the representatives of the various insurance companies and other interested parties agreeing to seek a limited settlement between Cabot and that group.

The settlement discussed with the representatives of the group would fix our annual liability for so long as the related insurance company remains available.

Our ability to negotiate an acceptable settlement and the specific terms of any potential settlement are uncertain at this time.

I refer you to the relevant section of our latest 10-K for a more detailed discussion of this issue.

During the first quarter, the company repurchased a minimal amount of shares, leaving approximately 3.1 million shares left to repurchase under the current board of directors' authorization.

Turning to our outlook, due to the current uncertain economic environment and the sharp increases in oil and natural gas cost, we continue to be cautious about the near-term results of our chemical businesses.

We believe that with the recent tantalum contract renegotiations, we have been successful in bringing greater stability to the performance materials business, and we look forward to the long-term contribution of the Japanese portion the business will bring over time.

We continue to be optimistic regarding the future growth of opportunities provided by the inkjet, cesium formate and aerogel businesses, as well as by the cost saving opportunities resulting from the ongoing implementation of our new ERP system.

With that shortfall - with that short overview, I will conclude my comments and open the line for questions.

Maggie, I'll turn it back to you, please.

Thank you.

The question and answer session will be conducted electronically.

If you would like to ask a question, you may do so by pressing the star key followed by the digit one on your touch-tone telephone.

If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equip went.

We'll proceed in the order you signal us.

Once again, ladies and gentlemen, to ask a question, that's star one on your touch-tone telephone.

We'll take our first question from John Roberts with Buckingham Research.

Morning, John.

Mr. Roberts, your line is open.

Hearing no response, we'll move on to Bob Goldberg with New Vernon Associates.

Good morning, Ken.

Morning, Bob, how are you?

I'm doing well, Happy New Year.

Same to you.

Thanks.

I had a question about the carbon black business.

You mentioned in the release that you have pushed through some price increases on the non-contract business.

Are you still chasing raw materials now into the first part of the second quarter, or have you caught up?

Where do you stand now in terms of the price cost relationship?

I think we're probably still chasing it, Bob.

This is, as I'm sure you're aware, this has been a pretty difficult period in pricing for both oil and gas.

We put the price increases in effect in December, and it's still a little unclear, you know, where precisely we are, but with the current price of oil and gas, it's hard for me to believe that it's not - we're not still behind.

Was that in all regions, the price increase, or was it more specific to the North American market?

No, it was generally in all regions.

Remember, the big chunk of our volume in North America is subject to the contract price adjustments, and, you know, we're in the wrong end of the lag in those contracts.

But the price increase went in effect or the price increases went into effect in all regions.

You mentioned that there was a working capital build in the chemical business.

Is that normal for this time of the year, or is there ...

Well, there was two things that we think happened.

One is that, you know, I think our customers are getting much better, and we probably did not react as fast as we could in making sure that their inventories are at a minimum at the end of the calendar year, and we had a little bit of finish product inventory build.

The other thing that is sort of inevitable is that the oil we're buying is much more expensive.

And that increases our inventory costs of raw material.

So it's more - it's not on the receivable side, it's ...

No, we do not appear to have a receivable issue.

We're looking pretty closely.

It's in the inventory.

And lastly, I imagine that the currency should be more of a help in the March quarter?

The currency has been, as you may have seen in the notes we put out, a very nice benefit in the quarter, both sequentially and quarter over quarter, and, you know, it should continue to help us if it stays where it is.

And in terms of the Asian volumes, they're just phenomenal.

They are phenomenal.

We were talking last night as we got ready for this, as you know, Bob, we've been working for a long time to get a substantial business in Asia and it looks like it's finally paying off.

I actually just came back from a trip out there and they're doing very, very well, all of the regions particularly in China, so we're very pleased with what's going on out there and it's being very helpful to our overall business results.

It seems like the only negative is the pricing.

Yes, no, you know, we've - as we said before, I'm sure, this is something that we're watching.

We've been in sort of an extended period of economic uncertainty or weakness in Europe and North America.

Our tire customers do not seem to have any pricing room or pricing power, and that makes it hard for us to capture, you no, - pass through the cost.

So it's something that we're watching closely.

Thanks for the help, Ken.

Thank you, Bob.

We'll go nets to Jeff Zekauskas with J.P. Morgan.

Hi, good morning.

Morning, Jeff.

I guess a few things.

You have raw material passthrough terms in your carbon black contracts.

Correct.

So assume that - and I realize that there's a little bit of a lag, but say you caught up, that is, you look at raw materials where they are currently, and now your prices adjust to where they should be with the raw material passthrough.

How much higher would your operating profit have been in the current quarter in carbon black under those assumptions?

You know, that gets us into, Jeff, you know, the disclosure of an average margin in the business.

If have not done the calculation nor would I be in a position to give you those numbers.

I can tell you that our margins, you know, have been under pressure and decreasing for the last couple of years with the economic conditions, and we would hope when the economic conditions improve, we could see general expansion in margins.

But - so we have two things in place.

One is weak margins due to the economic conditions, and weak margins because of the rise in oil prices.

I really don't think it's appropriate to give you any more than that.

OK.

Then let me try a different subject.

There's a good amount - as I understand it, there's a good amount of price volatility in the tantalum area because of contract terms that you've got.

And all things being equal, you know, the electronics area hasn't gotten off to the strongest start this year.

So can you give us sort of some idea of the volatility in your either volumes or profitability through the year based on what you can see from your contractual terms now?

Well, yes, I think I can try to help you there.

If I assume, as I think is reasonable given the total circumstance, that we will either continue to - either under the AVX situation, either that we'll prevail in the litigation or the contract will be honored during the pendency of the litigation, you know, we have a fairly stable both volume and profit performance coming out of our Boyertown facility.

Because of the contracts.

And it's - I would tell you that it's of great relief to have that because the rest of the industry is performing very, very badly given what's going on in the world and given the fact that the customers are contractually obligated to take our volumes.

We see the other side in our Japanese subsidiary, where, you know, the acquisition we did last year, they don't have any contracted volumes.

They do have two sort of competitive advantages or benefits going their way.

One, they operate in the Asian Pacific region, which has been stronger recently, and in fairness, probably throughout the last year or so.

And secondly, they have, as I've mentioned before, we think what are the best products, the highest technology products in the industry.

To put it in context, that facility today, without any contracts, is operating at roughly 50 percent of its total capacity.

And its pricing is solid.

Don't have the actual dollar pricing, but the pricing is solid and reasonable compared to our contract pricing.

But that's largely because of the technology, the high technology nature of the products.

But even with that, it's only operating at 50 percent.

Now we expect that operating rate to improve during the year.

Well, to what extent is the 32 million you booked in operating profit in the quarter representative or unrepresentative of future quarters?

I believe that that operating profit, you know, before we get into the deferral issue that we can discuss, if you care, I hope we've expressed - explained that appropriately.

Before you take that into account, I believe that operating profit results largely from the operations in the Boyertown facility and the Japanese facility is operating roughly at break-even.

Does that help?

I can pursue this stuff later on.

Thank you very much.

We'll go next to Bill Dezellem with Davidson Investment Advisors.

Thank you.

I have three questions.

First of all, just to make sure that I understand the contract price deferral, that had that not the case, in fact, pre-tax income would have been 53 million in the quarter, which would compare to 52 million in the December quarter last year, is that correct?

I can't give you per-share amounts, but I can give you total dollar amounts.

You can add $8 million to our total dollar profit during the quarter.

That's exactly what I was doing, looking at 45 million pre-tax this quarter.

Yes, you're right, 45 to 53.

Versus 52 a year ago.

Right.

OK.

Second question for you, Sons of Gwalia has given some price concession to other customers of theirs.

What update do you have in terms of Sons of Gwalia wanting Cabot to be a long-term customer with better prices?

To the best of our knowledge, it was not price concessions that they gave to our competitor.

It was volume deferrals.

And we - I guess I would just like to say we continue in discussions on that.

To date, we have not been successful in obtaining anything.

I'd like - you know, I'm sure you're aware of it but I'd like everybody else to be aware that the Sons of Gwalia stock that we purchased five or so years ago has suffered badly in the marketplace and is currently at roughly half what we paid for it.

And we may have an accounting adjustment coming in the future quarters if that doesn't recover.

But on the more general matter, we continued to work with Sons of Gwalia.

Part of the problem I think it's fair to point out that we have here is that we believe that you sign a contract, you honor it.

And we're trying to get fair treatment from Sons of Gwalia over the future as we negotiate the next contracts.

And Ken, relative to that potential permanent impairment writedown, is that something that would be decided at fiscal year-end or is that something that could happen prior to that?

Oh, I can't - if it were to happen, I'm told by the accounting folks it would probably happen prior to the fiscal year-end.

OK.

And then my last area that I'd like to address is the new ERP systems.

Yes.

What is the total amount of cost savings that you feel could come into play as a result of system implementations?

We're still working on the precise number, but we're comfortable today that we have targeted cost savings in excess of the total cost of putting the system in place, which is roughly 30, 35 million dollars.

Thank you.

We'll go next to Michael Hidalgo with Piedra Capital.

Good morning.

Could you talk about - you described cash balances scribing declining 34 million in the previous quarter, due partially to working capital increases.

What was the amount of the Kemet flush, because you guys had been building inventory ultimately to deliver to Kemet.

What was the amount of cash that came in for the payment on that inventory?

Remember no cash has come in, which is one of the key problems, because at the end of December, we shipped them 55, I think it was, million pounds of product and sent them an invoice, so that went into accounts payable.

I thought ultimately - all right.

So it's not going to happen until the next quarter.

We'll see that invoice get paid, what we assume in the next month or so.

It's in accordance with the terms.

The other side of that, of course, is that we're in a position to ship the full contracted volumes to them before we resolve the contract dispute, so we had to build more inventory than we shipped.

That will run out over the next 12 months.

OK.

That's the - as you can imagine, that was a principal consumer of working capital.

Right.

And on cesium formate, I know it's a weak environment, but are you seeing other technologies, particularly drilling technologies, not related to fluids, that are competing, or are you just not seeing any activity at all or are you really not in a position to know what's going on in that market since it's fairly new to you guys?

We're working pretty hard on that particular point.

I can tell you that based on what we know, we are not seeing any competing technologies that is an effective competitor to our cesium formate.

We have not - we're not aware of any wells in the North Sea that would have been appropriate for the use of cesium formate that was drilled during the period.

We don't see any loss of market share, so to speak.

So we believe that in the North Sea in particular, it's a result of particularly the low drilling activity or the absence of drilling activity primarily in the UK sector where they increased the taxes on oil and gas coming ashore in the UK.

The Norwegian section is where we've had the work and have a bunch of jobs looking like they're going to develop in the next few months.

The other thing we see is we see more and more activity including cesium formate in the tenders that the oil companies put out to the well service companies going forward outside the North Sea.

So at a level when we look at sort of backlog measure, it's pretty encouraging as soon as the oil industry decides whether it's going to start drilling, you know, aggressive drilling again.

It's been counterintuitive to us as I think it has been for the rest of the world that the oil industry has sort of pulled in its horns on drilling during this era of high pricing.

But there's lots of evidence to that effect. )) right.

You get hit both ways.

We get hit both ways.

But I - you know, it's a small financial drain on us this quarter, but we remain evermore, I think, confident that the product performs as we thought it would and that over time, it's going to be a very attractive business.

All right.

Thank you.

We'll go next to Frank Dunau with Addis Capital.

I've just got a question on the eight million deferred revenue.

Does that get booked evenly over the next three quarters or do you sort of recognize it when the price goes below the average, which may be back end - when is that?

We get that back over the next three - over the life of the contract, which is three or four years, so it's going to leak back into the income statement, you know, $1.5 million, in roughly a year.

So you don't recognize this for several years.

No, it spreads out over the life of the contracts.

Remember the contracts go up until 2006.

OK.

I'd like to take an opportunity, thanks for asking the question.

The reason we have gone to the SEC and asked for guidance and the reason we've sort of publicized this is that we felt awkward making the street consensus and deferring $8 million of profit.

Sounds like a very strange and unusual accounting treatment.

We were convinced by our auditors that they thought it was the right thing to do, but because of sort of the smell - what I would describe as the smell test in this environment, we wanted to be sure that we were treating it appropriately in accordance with the SEC guidance.

One last question.

You shipped the material and you're going to get the cash for the higher price, right?

We have shipped the material, we have billed for the material, and, you know, I have ultimate confidence that we will get paid for the material here in the next 30 days.

We've also booked all of the costs related to the material, so it's just taking $8 million of profit that, under what would appear to me to be normal accounting rules, would have been recognized in this quarter, and putting it in a deferred account and recognizing it over the next three or four years.

So there's eight million of cash flow that somehow flows through the cash flow statement ...

But not the income statement.

OK.

Great.

Thanks.

You got it.

All right.

Again, ladies and gentlemen, to ask a question on today's call, please press star one on your touch-tone telephone.

We'll go next to Ray Anello with Guardian Life Insurance.

Hi, guys.

Could you update us on the AVX complaint and also the carbon black investigation?

Thanks.

Yes.

The AVX lawsuit against us was filed in the federal district court of Massachusetts.

I would describe the level of litigation activity in that matter as low.

We are, as can you imagine, not particularly aggressive about accelerating the matter, and it doesn't seem to us that AVX is pushing it aggressively at this point.

We've had some discussions with AVX but - which have not done - really progressed in any substantial way, and, you know, based on what we see, I would generally feel that it's going to take, you know, a number of years to resolve their lawsuit.

They are, I guess, claiming that the contract was entered into unfairly and claiming unspecified relief, but in the meantime, they purchase and pay for product in the ordinary course.

So I can't - I don't know what else to say about it.

We would, of course, like not to be, you know, in litigation with our customer and continue to work hard to be an excellent supplier to them, but it is what it is.

With respect to the antitrust investigation, I really don't have anything more to add.

The investigation - the quote raid on our facility in Paris took place.

The investigators were there for a couple of days, interviewed people, took a bunch of documents and left.

And we have heard nothing further.

We are told by lawyers that we would not expect to hear in the ordinary course for an extended period of time, possibly up to a year.

We're told they conducted similar raids on our two major competitors in Europe, but beyond that, we know nothing.

We have not been charged with anything, nor has anybody in the company been charged with anything, and we are cooperating fully with the investigation.

With regards to AVX, is it likely that you strike some kind of settlement that's similar to Vishay and Kemet where the payments are just stretched out?

Well, it's an interesting issue.

I think this is public information so because of the lawsuit, I'm at liberty to disclose it.

The original contracts had what's known as a most favored nation clause, which means that the price arrangement that we struck with Kemet and Vishay is largely available to AVX as of January 1, 2003.

So to some extent, they are currently receiving the substantial - a substantial portion of the benefit of the settlement that we would offer them and have provided to Vishay and Kemet.

There are some other materials that they purchased under the contract that would be subject to some discussions if we were successful in having discussions, but at this point, we have not been able to have substantive discussions with them.

OK.

Thank you very much.

We have a follow-up question from John Roberts, Buckingham Research.

Good morning, John.

John is having trouble with his telephone today.

Mr. Roberts, try turning your mute function ...

Can you hear me now?

John, how are you?

Thanks.

My apologies here.

You slowed the share repurchase program down during the quarter and you did get a question earlier on the cash that should be coming into you here and your stock is down over 10 percent since early December here.

Is there any other reason besides the inventory cycle that would have caused you to slow the share repurchase program down?

No.

You know, we like our cash, particularly in this economic environment.

As we've talked before, our intention is to use our surplus cash to buy the stock.

We would hope to get this cash position back up to where it was and would anticipate starting - recommencing purchasing shares as soon as that happens.

Secondly, since we've got Bill in the room, can you give us an update on the capacity closures that have occurred or maybe are still lingering underway in both North America and I think there was a little bit in Europe, and I ask that because we've got sort of - for some of your competitors that don't have the contracts that you have, we've got kind of a perfect storm against them here.

You've got weak economy, you've got high energy prices, and the environmental regulations continue to tighten up, so I don't know whether we might expect some additional carbon black capacity closures in the western world.

Well, I think you're aware of the two closures in North America and the partial closure in France of our competitors.

It would be only speculation if I was to talk about future closures, but clearly, there's a lot of pressure in the industry, there's too much capacity specifically in North America and Europe, and we would anticipate closures in the future.

You would anticipate?

Yes, he said he would - we would anticipate.

OK.

So, you know, at some point here, we're going to reach a fairly flat supply curve where the cost structure, I guess, is just the major players and then we won't get any more closure, but you think there's still some lingering high cost capacity to come out?

I think there's some lingering cost capacity, and I think if you look at our performance in Asia and the south Pacific, it's clear that a lot of manufacturers are moving to Asia Pacific, a lot of manufacturers are moving to China and they're moving out of places like North America and western Europe, so that trend continues and eventually it's going to take its toll on the carbon black industry and the capacity of the suppliers of the world.

John, I think you're aware we're in the process of building a big carbon black process in China, you saw the announcement in the supplemental information, we had very, very attractive volume growth out there, so, you know, over the 16 years I've been in the company, there have been a couple of sort of transformational events that have moved capacity around the world.

We may very well be in a period where we're seeing significant tire building moving out of the western world into South America and particularly Asia, and, you know, although it's painful for us in Europe and North America, the fact that the capacity is moving our direction is encouraging to us.

And then lastly, the six percent decline in silica, fume metal oxide, I guess, primarily, but silica, in the December quarter versus the September quarter, Cabot micro was down double digit percent, at least in their sales of oxide slurry, so they would have been, I assume, worse than six percent, and the general economy, I think, the December quarter versus September quarter I think would have been down more than six percent as well.

Were there any businesses that were up in terms of sequential con sums of silica for you?

It seems like you were down less than I would have guessed.

I think that's a very careful reading of the numbers, John, and it's a very good point.

I think it's fair to say that both the other two segments of that business were relatively strong in our first quarter, and as you probably remember, they have historically been our leading indicator, and so that gives us some comfort about the future.

The fume silica had - oh other than the issue that you identified, had a solid quarter.

Encouraging quarter.

Thank you.

Anything else, Maggie?

We do have a follow-up question from Bob Goldberg, New Vernon Associates.

Again, Ken, just still trying to understand the likely scenario for the tantalum business, looking out the next couple of quarters.

In the September quarter, you had sales of 106 million and this December quarter was 96, so down 10 million sequentially, and yet you have this significant shipment to Kemet at the end of the year, which I guess would have been 32.5 million but less the eight for the deferral, so still 24.5 million.

I'm wondering I guess in the commentary, you talked about the wire intermediate business being down.

Is that that big of a swing factor to allow the sales to be down sequentially?

It's a very complex picture.

I would remind you that we sell under the contracts powder and wire and the intermediate material.

And the swing issue in our volumes, particularly now that we have this relatively stable s the intermediate material and how that plays out.

Going forward, we have contracted powder and wire volumes with Vishay and AVX - excuse me, Vishay and Kemet and we have the ongoing dispute with AVX.

Assuming that they continue to perform, they'll buy their powder and wire.

We may see lower revenues in the next nine months because of lower sales of the intermediate material.

We would hope that during the year, we would be able to exceed the performance of the business in 2002.

Does that help you enough?

When you made that last comment, you're talking about the operating profit for the business?

I'm talking about the operating profit for 2002, which was roughly $80 million.

And we hope to exceed that.

You hope to exceed that in 2003?

Right.

That's helpful.

Thanks, Ken.

OK

We'll go back to Frank Dunau with Addis Capital.

I hate to beat this to death, but going forward, are there any other quarters where you have to book deferred revenue or do the contracts price down such that after the first fiscal quarter, it's just not an issue any more?

There is a probability that there is another small deferral coming in the next quarter.

OK.

Thanks.

Mr. Burnes, there appears to be no further questions at this time.

I'd like to turn the call back over to you.

Thank you very much, Maggie.

Thank you very much, everyone.

Sorry for the confusing nature of the news, particularly around the deferral, but we can't control the accounting rules.

We'll look forward to talking to you at the end of the next quarter.

Thanks.

This does conclude today's conference.

We thank you for your participation.

You may now disconnect.

Thanks, Maggie.