Flowers Foods Inc (FLO) 2002 Q2 法說會逐字稿

Good morning and welcome to the Flowers Foods second quarter 2002 earnings conference call. At this time all participants have been placed in a listen-only mode and the floor will be open for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host, Ms. Marta Turner, vice president of communication and investor relations. Ma'am, the floor is yours.

Thank you. Good morning, ladies and gentlemen. Thank you for joining our call this morning. Participating in our discussion today will be Amos McMullian, Flowers Foods chairman of the board and chief executive officer; George Dees, president and chief operating officer, and Jimmy Woodward, vice president and chief financial officer. Amos is first on the agenda, followed by Jimmy with a financial review, and then George will give an operations overview before we open the call to your questions. But first our lawyers instructed that I must remind you our presentation may contain predictions estimates and other forward-looking statements. Matters which use the word expect, estimate, believe or similar expectations will identify those forward-looking statements. While we believe them to be reasonable, these statements are subject to risks and uncertainties that could cause actual results to differ materially. And in addition to some of the factors we'll discuss during the call, important factors relating to our business are described in Flowers Foods filings with the SEC. Now I'll turn the call over to Amos McMullian.

Since we talked last we issued a warnings letter and the reaction in the marketplace was pretty severe. That's a disappointment to all of us. I'm sorry for it, but we are charged and required to do that when the circumstances change. In our effort to be strayed forward and forthcoming we naturally have to focus on the negative aspects of the performance for the quarter. And the fact that Mrs. Smith's expenses have not come into line would cause us to miss our planned earnings, our release had to reflect that. But it's important to us that we keep all of that in perspective. And the perspective is that roughly 80 percent of our company is doing well. Very well, in fact. Record sales and record gross cash flow. That is EBITDA. And even the 20 percent that's not operating at standard and not operating on plan is making progress. And the good news is even there we have a positive cash flow now. We're no longer running money out of the bank. Now, we talk about earnings per share and the GAAP accounting because we're charged and required to do that, too. But we also talk about EBITDA. Not because we're trying to divert your attention somewhere else, we report it both ways because we think that tells a better story, because we do not pay taxes, because our depreciation is high. We think the cash flow, if you look at Flowers and try to evaluate it without looking at EBITDA and cash flow, you don't get the whole picture. Earnings per share is an average number based on all the many regulations that the accountants and the attorneys have generated for the American business community to look into. And as we've seen from experiences of some of the companies in the news, relying just on earnings per share doesn't tell the whole story. Cash is a fact. Cash is real. Cash is what you use to pay debt down with. You can't take an earnings per share opinion to the bank and turn it in. It takes cash. That's why we say that EBITDA along with the GAAP accounting and earnings per share is a good way to look at our company. We make our investments to correct problems, to guide costs out, to build competitive advantages. And we have created value where we have invested our money, even at Mrs. Smith's. And the progress that we're making in that will show. We're just now getting the benefit of our investment that we made at Mrs. Smith's. The good news is we're getting a benefit from our investments that we made at Flowers Bakeries in the past and Flowers Snack in the past, but we're just now getting the benefit of the investment at Mrs. Smith's. So the way we measure our company internally now is how much cash flow are we generating and using to pay down our debt. We paid a lot of debt down last December. We expect to do the same thing this December. The good news is the company, even with the problems that we've had on operating and nonachieving our plans at Mrs. Smith's, the company is generating more cash flow than it ever has. And our debt this week is the lowest it's been since we've become a new company. So yes there was some bad news as in our costs did not come in line as fast as we had planned at Mrs. Smith's. But the good news is that the company should generate the best year ever in cash generation. I'll now turn the meeting over to our chief financial officer, Jimmy Woodward, who will give you some details on the second quarter.

Thank you, Amos, and thank you for joining our call. If we look at the second quarter our sales consolidated increased 2.7 percent year-over-year. That was made up of a roughly one percent increase in Flowers Bakeries where we saw volume up almost three percent, about a percent and a half of that was our acquisition that we made in the Virginia area and the balance of that was just volume with same store sales off the routes. We did have a negative variance of close to two percent. We've had higher allowances in the second quarter as we promoted our Cobblestone Mill premium variety breads during the quarter. By channel, our branded sales were up about four percent. We've had increased units at a favorable mix. There again, to the variety breads. Our store brands were down about a percent. And then we saw softness in the food service category where we were down about four percent with lower unit sales there in both really the fast food and the restaurant categories of food service. Mrs. Smith's sales increased this quater 6.3 percent year-over-year. We had a 16 and a half percent food service increase. We have had in the quarter the beginnings of the Burger King bun business at the Suwanee facility that helped significantly. We had almost a 12 percent increase in our in-store bakery business and a three percent retail increase. Those increases were offset by about a 10 percent decrease in some contraction production, principally in the snack cake line of the business that we have. If we look at the gross margin, 46.1 percent. That is lower than the 46.9 of the same period last year. Flowers Bakeries margin actually improved at about half a point, but that was offset by the effect of Mrs. Smith's bakeries, roughly three percent negative variance, principally due to the Spartanburg issue that we previously announced. Our selling and admin expense was down about one percent. That's good news. Unfortunately, the bulk of that we had lower compensation expense with our long-term compensation program in the form of stock appreciation rights, with the decrease in the stock price we did have reduced expense there for our long-term compensation program in the quarter. The depreciation and amortization decrease from last year is primarily due to the nonamortization of goodwill. That was about $950,000 in the quarter. And that was offset by depreciation increase just associated with the capital spending that we've had. On the amortization issue, if you look at the release of FAS 142, we have completed step one of the requirements. Of the 124 million you see on our consolidated balance sheet that's shown as cost in excess of net tangible assets, our assessment is only about 20 to 30 million of that related to the Mrs. Smith's frozen business as potentially impaired. And we have proceeded to step to the FAS 142 analysis as appropriate. And we'll make those entries as we finalize that work this year. You can see that we did have the 1.3 million of severance and other costs as we restructured Mrs. Smith's, as we announced previously we eliminated almost 70 positions there as Mrs. Smith's and had other costs associated with that restructuring. Our interest expense was down about a million and a half dollars versus last year, on lower outstanding balance and lower rates. Since the end of the quarter we've in fact had another 10 million dollars of debt reduction as we start the second half where we should have lower cap ex and better cash from the accounts receivable. Our cap ex year-to-date of 34 million against the expense of the year expected to be around 48 million, so you can see we only have about 14 million yet to spend in the second half. Interest expense for the year I would now expect to be in the 17 million dollar range versus I think earlier in the year I had given an estimate of about 19 million dollars. And that looks like it's going to be about two million lower than that initial estimate. Our tax rate we would still expect to be in the 38 and a half percent range for the year. We did lower our Q3 - our second half estimate for the full year we're saying the EBITDA of 130 to 135 million. If you consider that year-to-date through quarters one and two we've reported about 62 million of EBITDA, that indicates we have some 68 to 73 million of EBITDA in the second half, which is from 34 to 36 and a half million. Probably would heavier weight that to the third quarter. But it basically will be about even third and fourth quarter. Depending on customer shipments, especially in the Mrs. Smith's frozen foods, the timing of those shipments may push a little bit more into the third quarter but should be split evenly between the third and fourth quarter. One final comment. We do plan to comply with the SEC and other new certification requirements. The due date is listed on the SEC's web site for our compliance is the 27th of the month, which is the due date of our 10-Q. And we do expect to fulfill our obligations under those requirements. So with those comments, I'm happy to welcome George Dees to our call and I'll turn it over to George. GEORGE DEES: Thank you. And I appreciate it very much. As Amos said, things are good and getting better. I'm certainly excited about the opportunities we have here at Flowers Foods. A few months ago as we analyzed the company as a whole we determined that restructuring into three groups would help us grow each area more profitably. The new structure allows each group to focus more carefully on a specific mission. Fresh bread and rolls for Flowers Bakeries. Frozen desserts, breads and rolls for Mrs. Smith's and snack cake for Flowers Snack. I'm confident that the changes we made will improve the company's results. Just to give you a preview of how the company is structured now. Flowers Bakeries is our largest operating group with about 1.1 billion in annual sales. Flowers Bakeries' focus is on fresh bread rolls and snack cakes delivered direct to stores by a network of 3,000 dedicated loyal independent distributors. Our distributor service sun belt states as you know that's about 40 percent of the U.S. population, with strong brands in Nature's Own, Cobblestone Mill, Sunbeam and the Blue Bird cake brand. Flowers Bakeries strength is in its daily execution. The 12.5 percent improvement of EBITDA for the second quarter is evidence of the strength of Flowers Bakeries. Part of the EBITDA improvement and success that we're seeing with our expanded [inaudible] Line. Flowers Bakeries has, as Amos has mentioned, before has taken a conservative approach to [inaudible] Making absolute certain to meet or exceed our consumer quality expectations. I have to say Gene Lord is now president and chief operating officer of Flowers Bakeries. Gene has 36 years of experience with our company. With Gene's knowledge of the baking business, his leadership abilities and exceptional Flowers Bakeries team, I am confident Flowers Bakeries will continue with this outstanding performance. Flowers Snack with annualized sales of about 150 million, is a new operating group for Flowers Foods, even though Flowers has been in the snack cake business since its beginning. Most recently the snack case business is part of Mrs. Smith's. We've now split the snack business from Mrs. Smith's frozen to allow clear focus on opportunities for growth in this important segment. Flowers Snack will focus on opportunities with supermarkets, convenience stores, mass merchandisers, club stores, vending and the co-pack customers nationwide. They will also manufacture and assist with marketing of Flowers Bakeries snack products. Alex Scheiber [ph] Is president and chief operating officer of Flowers Snack. He has some 24 years experience with Flowers Bakeries and has broad knowledge of operations as well as a wealth of marketing expense experience. He and his team are working on maximizing the opportunities for Flowers Snack. Under the new structure, Mrs. Smith's will focus solely on opportunities for frozen desserts and breads with national retail and food service customers. Annualized sales for Mrs. Smith's are about 425 million. Bill Strenglis who has a wealth of experience of 20 plus years in the pie business is our president and chief operating officer. As Amos said, we're continuing to see steady improvement at Mrs. Smith's. Mrs. Smith's operates four bakeries, two dessert, two bread, and roll plants. Stillwell is operating very well. I was in the plant about 30 days ago and proud to see the outstanding progress there. At our Spartanburg plant, we produce rated B cream pies as well as prebaked pies. As mentioned, cost at Spartanburg plant were higher than planned in the second quarter as we consolidated from production from our closed Pembrook bakery. Start up issues on the production lines are expected and we have - it takes a shake down period to work through equipment problems and training issues. The time required to work through those issues at Spartanburg has been somewhat longer than expected. We have had a combined task force of Flowers Bakeries and Mrs. Smith's engineering and operational management personnel on site in Spartanburg. Of the teams leadership, the pie lines are making steady improvement in reducing costs. Currently the Spartanburg pie lines produce high quality products and meeting the demand of our customers and, as I said earlier, is making real steady progress. Efficiencies will continue further over the next three to six months as we continue to reduce costs on the new lines. In summary, we're taking a look at our overall cost structure and further steps we can take to improve it. We now have SAP implemented in all locations and with this system we're very happy with the progress that's been made in all facilities. And we'll see further improvement on our costs with this wonderful system. Flowers Foods is in good shape and getting better. Flowers Bakeries performance has never been better. Flowers Snack is a solid business and has real opportunity for growth. Mrs. Smith's bakeries is improving steadily and working to reduce its costs. I am confident that each of our operating groups is positioned for improved and outstanding performance as we go forward. And we all look forward to that. Now I will turn the program back over to Amos McMullian.

Thank you, George. We will now open it up for question and answers. 00:18:25

The floor is open for question. If you have a question press 1 followed by the 4 on your touchtone telephone. If you're on a speaker phone please pick up your hand set to minimize any background noise. At any point your question has been answered you may remove yourself from the queue by pressing the pound key. If you have a question or comment, press 1 followed by 4 on your touchtone telephone at this time. Thank you, our first question is coming from Mitch Pinheiro of Janney Montgomery Scott.

By the way, thanks for providing some of the volume numbers and segment data in your call here. The question I had, first in the bread business, the private label down one percent, sort of strikes me as a touch odd given sort of the economy. And, two, is that the reason that food service is down in the fresh area? Or can you explain that?

Well, the private label traditionally in the past has been an adamant [phonetic] Groove during recessions and brand groove during the expansion times. I don't know that we have normal times of day in our private label. I think our growth or lack thereof is more of a function of what's going on in the competitiveness of the marketplace among their customers as opposed to economic recession or nonrecessions. But that's not necessarily connected with what's going on in food service. Our food service business went down immediately on September the 11th. And while it has been coming back is not yet all the way back. I can't explain what happened to people's habits, eating habits. But for whatever reason food service sales did dip on September 11th and has not yet gotten all the way back up.

Could that back porch burger at Burger King have stolen some sales from the fresh, their standard fare? Was there any shift there?

It's hard to tell because the sales on the regular buns dipped before the introduction of the other. But always there's opportunity for cannibalization there.

How about at Mrs. Smith's, are you able to back out the one time costs associated with some of the manufacturing issues and give us sort of a guesstimate on those costs?

We have not disclosed that, Mitch. Obviously it is significant. But we have not put a number on it.

If you back - contract packing was down at Mrs. Smith's. What's the size of that business in that segment?

I don't have that in front of me. It's around 25 to - it was around 25 to 30 million. But some of that is reduced. Probably between 20 and 25 million right now.

And looking sort of forward, Mrs. Smith's, how do you see the pie season sort of ramping up here in its early stage, how do sales look?

It is early. But things look good to us at this point. We had sales increases at Mrs. Smith's and some of our areas this second quarter. That was very positive to us. The prebookings and the sales, we're anticipating having a great season in the pie season as well.

In terms of the sort of visibility of your pipeline - I mean I know at Mrs. Smith's, more so particularly I guess in food service and in-store bakery, these account wins, dollars come in chunks of 10s and 20 millions, not one pie at a time. What's your visibility like in terms of seeing other Burger King like businesses, business situations? How confident are you that you'll start to see more of a steady flow of that kind of account win?

That's a good question, because that's exactly the reason why we're in the frozen bake food business, because the market was growing at food service and growing in in-store bakeries. And we felt we had to have a presence there. There's terrific competition among the food service players. All the different restaurant groups and chains that are out there. All of them are looking for new products. All of them are looking for signature items, looking for points of difference. So that's a constant give and take. Sometimes people work on projects for two, three years before they make a decision to go or not go on it. So it could be a pretty long thing, but there are a lot of - there's a long lead time. But there are a lot of players in the pipeline there. It's the sort of thing where ahead of one makes a huge difference. Ahead of two or three makes all the more difference. All I can say we're active in that area. We have lots of prospects, but the decision is made by the customer, not by us. And so we can supply them with the quality product. We can meet their price points and we can give them the service that they're looking for. But they have to decide to pull the trigger to go with that product or not go with that product. But I'd say there probably is as many or more opportunities for us out there now than at any time in our company's history.

Thank you.

Your next question is coming from Leonard Teitelbaum of Merrill Lynch.

Welcome back, George. Shows you can run but not hide. George, I want to direct this question to you as the steward of these divisions now. If you had to put a growth rate next year on the three divisions that you presently have them constituted, what would be your minimum expectation? Let's talk with revenue first.

I think we all know that the food business, if you look out at all food companies, it is a mature market. I don't think anybody is going to see huge increases in the top line. I think all of us working the war to improve that product mix and margins and et cetera. But let me try to answer you specifically. I think we'll continue to see Flowers Bakeries in the one and a half to three percent range increase. On the Flowers Snack side, I think we have a wonderful opportunity there. I think even though with our ESL program, we all know that we can ship products further and we are excited about that. So I anticipate three to five percent increase on the snack cake side of the business. And then at Mrs. Smith's you saw good revenue gains this quarter. And we are leveled out. A lot of times when you go through issues like Mrs. Smith's has had recently over the past couple of years, it takes all time and effort to try to get operations correct. For the first time now operations are getting - we are correct. And now we can really focus on that top line. So I feel that as we are going forward I thought we saw with Jimmy's report this past quarter we are beginning to see those increases. I'm comfortable with saying five plus percent on the Mrs. Smith's frozen business.

Given the competitive nature you described in the food business, are you going to see - what do you see for margins? Stable margins in bakery and I'm going to presume - you tell me what you see for margins.

Margins are improving. As Jimmy mentioned in his report. Especially on Flowers Bakeries side.

I'm talking about for next year and the year after for Flowers Bakeries and Mrs. Smith's, 100 basis points, 150, what?

Our competitors will have to decide that. Because as you know the pricing is tough. Being able to raise prices automatically is not as simple as just putting out a price increase letter. Costs are going up from health and care to commodities. I think we'll see increases there. So I think we'll have to work hard, Lenny, to maintain margins at bakeries. We've got a good margin. We'll continue to work on the cost side. So I don't see a lot of margin increase on the Flowers Bakeries side. On the snack side, I think we can be more efficient and more effective with more focus with Allen Scheiber and his group. I think we can improve margin. But I will not predict another half a point. I think it will be better. I think we'll see significant increase at Mrs. Smith's on the margin side, not because of necessarily pricing increases but because we're going to be a lot more efficient. Those efficiencies will begin to pay off for us. As I mentioned they've been going through a lot just trying to make sure we get the product out. Now we can focus on driving costs out of the plants and the organization and doing a wonderful job in the marketplace. So margins will improve at the frozen division.

Jimmy, do you expect all divisions to earn their cost to capital next year?

Well, certainly the bakeries and snack, absolutely. Smith was a frozen investment and the working capital, it will be a challenge. But we expect it to, yes.

One final question. We Sarah Lee buy back some of their routes. Are there any changed planned in the route system?

In the distributor you're talking about?

Yes, sir.

No. Our system was different from Sara Lee's and they had a routing where their distributors were in fact employees. Ours have been ruled the only way. Our program is different. We like our program. Our distributors like the program and we plan to continue with the independent distributor program, because you have the motivation of a small businessman and he's motivated by self interest. And he has to take care of the customer and the system works where the customer is better off, the distributor is better off and the company is better off. So we like our program and have no plans to change that.

That's all for now. Thank you very much. Welcome home, George.

Thank you our next question is coming from David Lebowitz of Burnham Securities.

Good morning. A few totally scatter shot questions. First, are there any new products in any of your three divisions which give you cause to believe that it's going to have an impact on the bottom line next year?

We're always in the process of working on new products. We have new products. We are not depending on new products to save us or to make our goals. New products are, sometimes they're successful and sometimes they're not. More often than not new products are not successful. So products are important to us and we do work on that all the time. But what our plan is here is what George was talking about is on the margin side. Costs do continue to go up. It is difficult to pass those costs on to your customers. That's why we make the investment that we make and spend the money we do to build in those efficiencies to drive costs out of the organization so that we can maintain our value to the consumer, drive costs out of the system and increase our margins for the shareholder.

As a follow-up to that response, if I look at the first quarter of next year, will the company be profitable on cash flow positive.

The company will be cash flow positive. Mrs. Smith's frozen will not be profitable in the first quarter. But Flowers Snack will be and Flowers Bakeries will be and the company will be in a positive cash flow basis overall. But Mrs. Smith's frozen is not likely to be profitable in the first quarter because of the seasonality.

And the second and third quarters likewise will still be profit challenged?

The first half of the year is for frozen. The third and fourth quarters are not a problem. They make money there. But the first and second is a challenge, yes.

And the last question is, given the amount of debt that has already been whacked off the balance sheet, and given the capital spending is coming in a bit lower, how much of a positive swing should I see as the combination of those two efforts for next year?

That's my closing line but I'll give it to you now.

It will be my last question, so it's a good closing line.

We have invested in our business. We have no major projects in front of us for next year. Capital spending will be the lowest it's been in many years, because we will be at the maintenance level. When you look at debt service and capital spending, I expect our free cash flow north of a million dollars next year. And for that I'm grateful.

So are we. We say thank you very much.

Thank you. As a reminder if you have a question or comment press 1 followed by 4 on your touchtone telephone phones at this time. Our next question is coming from John McMillin of Prudential.

Good morning everyone. George, you mentioned higher wheat costs that it might be difficult to get pricing. Can you give how have wheat prices have been in the market lately. Can you talk about your hedge positions do you think you can get higher prices?

I'm pleased to say, of course we covered naturally for this year. We've covered completely for the first half of next year and we have on the backside of next year 50 percent of our usage booked. And we're very pleased with that and happy to say we've done it. Again on the pricing side, I think it will depend on what's going on with competition and where they are booked or not booked and what ends up being, what costs they might think they can pass along. Pricing, if you look at the trends, pricing has not been up this year. It was not up last year. So from the fresh side we've not seen much price increase really in a couple of years. I do not anticipate a lot of change in that, quite honestly. I think with the extended shelf life and everybody trying to bill sales and market share, from what I see in the marketplace I do not see much price increase happening next year unless wheat goes through a lot more than we think it is now and people have no choice but except to raise the prices.

Amos, you talked about the severe reaction in the stock. But some of that in my opinion came from I think a take over premium that was in your stock. There's been a lot of consolidation in the industry, as you've noticed each in the last week. Do you feel that Flowers Foods has missed some opportunities?

Missed some opportunities in what regard?

In terms of consolidation. You look at the price Earthgrains got and Entemann's got. I'm glad you're making pies now, but do you think you've missed some opportunities for shareholders along the way?

Well, if you're talking about missed opportunities for acquisitions, I don't think so. If you're talking about missed opportunities to become acquired, I don't think so, because we are building a company here and creating value over a long period of time. And I think that we are demonstrating that we have got a great cash flow business here. And that our stock price was depressed by both the general market conditions and our warning letter. But you're looking at less than four times EBITDA. And I think as soon as people understand that building a company, you always have to take risks. That if you're going to have competitive advantages, which you have to have, we were talking about pricing earlier, we are not factoring in hoping for price increases to meet our profit goals next year. We're like Bobbie Boden's [ph] Football we'll take whatever the market gives us. But we're not planning that this is the only thing that's going to save us. We're working on our costs. If you're going to have competitive advantages, you have to be willing to be creative and innovative, and you have to be willing to trying new ideas and you have to have a certain tolerance for mistakes whenever you try new ideas. Not everything that you try that's new is going to be perfect and work out. But you continue to make progress and build on strength and that's how we build Flowers Bakeries and that's how why it's doing as well as it is now that's why we'll build Flowers Foods and even though we're not operating where we want to, this will be the best cash generating year we've ever had and next year will be better.

Good luck.

Your next question is a follow-up from Mitch Pinheiro from Janney Montgomery Scott.

A couple things. One, you just announced or it was announced a couple days ago that you're adding cake to cake products like 300 routes. Just by my estimation, that looks like that could add, oh, let's say seven, maybe $10 million a year on an annualized basis on those three, 400 routes. Which to me on 150 million of snack cake sales would be five percent growth by itself. When George you were talking about Flowers Snack would grow three to five next year, perhaps, is that being conservative, would there be a cannibalization of your current snack cake sales in those markets? Are you replacing one with the other? Why wouldn't Flowers Snacks be higher next year?

The taste [inaudible] Arrangement, of course distribution of Taste to Cake [ph] That will be handled by the Flowers Bakeries route system which does not go through the Flowers Snack distribution arm. So those sales will go directly to the Flowers Bakeries operating routes. But back to your question on cannibalization. We don't see it as cannibalization because we think it's an entirely different product line from our present product line. So we do anticipate it will be a net gain for us.

Okay. Amos, a couple, I don't know when we last talked about it, but in terms of Mrs. Smith's sort of reaching a normalized operating margin or something that resembles normal, you sort of indicated that if you can get two years of five percent plus kind of sales growth by the end of that second year, you'll be there. Does that still hold? Does the product mix and things that you see out there, is that still a fair forecast?

Yes, as long as we qualify what we mean by being there. We'll be there at the end of the first phase. And we're talking about getting Mrs. Smith's up to the level of a 10 percent EBITDA. And I think that will happen over the next year or two. Then we've got the second phase of getting Mrs. Smith's up to the 15 percent EBITDA level and that will not happen in the next year. I want to be sure we understand.

Lastly, in terms of marketing at Mrs. Smith's, what was the marketing spending year-over-year growth in the second quarter and what do you think it's going to be like for the second half?

We did increase market spending last year, as you will recall. And we plan to maintain that. We have not cut that back for this year. I don't know the answer to the question about the second quarter on margins on this year versus last.

I think it's basically flat to last year. I don't have a specific number, but it was no significant change in the spend last year to this year.

In Q2?

Right.

The second half, what did you say about your plans for the second half?

It will be sustaining it at the levels that we were last year.

So flat again with last year?

Yes.

Thank you.

As a reminder if you do have a question or comment please press 1 followed by 4 on your touchtone telephone. We do have a follow-up question coming from Leonard Teitelbaum of Merrill Lynch.

Given your plans for the use of cash, can you give us a projected debt level for the end of the year?

Well, I know what I'm shooting for internally. But I don't know that we've released anything on that. Let me say that if my memory serves, we paid down debt 75 million last year. I expect it to be between 75 and 100 million out of cash flow this year for the entire year.

Have you given us an estimate for interest for the full year?

Interest, I would estimate will be around 17 million.

Thank you very much.

Our time is up for questions today. I will turn the conference back to Mr. Amos McMullian for his closing remarks.

Thank you very much. And I thank all of you for you were continuing interest. The company is making progress. We continue to work on driving costs out of our manufacturing and physical distribution and marketing programs so that we can be more efficient. We continue to work on our improving our cash flow and paying down our debt. And I think that the EBITDA improvement is such that it gives all of us heart and encouragement that we are paying down real debt with real dollars and from where we started this company at the maximum debt level that it could carry a year and a half ago to where we'll be a year and a half from now is going to be a remarkable accomplishment. I appreciate everybody's interests and I'll look forward to a good second half, a record second half on our company and a record next year. Thank you very much.

Thank you, ladies and gentlemen for your participation. This does conclude this morning's conference call you may disconnect your lines at this time and have a wonderful day.