Greif Inc (GEF) 2005 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to Greif Inc. fourth-quarter and fiscal 2005 results conference call. At this time, all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded today, Thursday, December 8 of 2005. I would now like to turn the conference over to Deb Strohmaier. Please go ahead.

Thank you. Good morning. As a reminder, you may follow this presentation on our website at www.greif.com in the Investor Center under Conference Call. At this time, I'll read the Company's Safe Harbor statement, which appears on slide 2.

This presentation contains certain forward-looking information within the meaning of the Private Securities Litigation Reform Act of 1995. The words may, will, intend, project, continue, believe, expect, anticipate, estimate, target, and similar expressions, among others, identify forward-looking statements.

All forward-looking statements are based on information currently available to management. Although the Company believes that the expectations reflected in these forward-looking statements have a reasonable basis, the Company can give no assurance that these expectations will prove to be correct. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual events or results to differ materially from those expressed or implied.

The risks and uncertainties related to forward-looking statements are discussed in the Company's Annual Report on Form 10-K for the fiscal year ended October 31, 2004. The Company assumes no obligation to update any forward-looking statements.

In addition, as noted on slide 3, this presentation uses certain non-GAAP financial measures, including those that exclude restructuring and other unusual charges and gains, such as timberland gains, that fluctuate from period to period. Management believes the non-GAAP measures provide a better indication of operational performance and a more stable platform on which to compare the historical performance of the Company than the most nearly equivalent GAAP data.

All non-GAAP data in the presentation are indicated by footnotes. Tables showing the reconciliation between GAAP and non-GAAP measures are available at the end of this presentation and in the fourth-quarter and fiscal 2005 earnings release, which is on the Greif website.

Now I will turn the call over to Chairman and CEO, Mike Gasser.

Thank you, Deb. Good morning and welcome to our fourth-quarter and fiscal year-end conference call. For those of you following our presentation on the web, please go to slide 4.

We are pleased with our record net sales and net income for fiscal 2005. A portion of our strong fiscal 2005 cash flows combined with the proceeds from the third-quarter timberland modernizations were allocated to support our growth strategy in emerging markets, particularly China and Russia.

To fund small tuck-in acquisitions to further strengthen our core industrial packaging position, and to consolidate certain underperforming facilities.

If you go to slide 5, I want to highlight a few key accomplishments we achieved this year. First, we completed a rigorous strategic review of our businesses and our potential. Using a robust fact base, we analyzed market trends, competitive position, customer needs and profitability. This analysis showed that through the Greif Business System, we still have immense value to unlock in our core businesses of industrial packaging and paper and packaging.

Second, we maintained our focus on further embedding the Greif Business System in our global operations. The Greif Business System has enabled the Company to reduce the negative impact of soft market conditions, higher energy, transportation and raw material costs and to identify additional opportunities to improve performance on a sustained basis.

All parts of the world are now implementing the Greif Business System. North America and Europe are finding new opportunities in another diagnostic phase. Australia and paper and packaging are redoubling their efforts to embed it into their operations. Latin America continues to systematically roll it out according to plan, and Africa and Asia are just beginning the process.

Third, we increased our dividend by 50% in the second quarter of 2005. This move reflected Board and management's confidence that sustained substantial benefits can continue to be realized through the Greif Business System and related initiatives.

Fourth, we announced and completed the first phase of our Florida timberland transaction, providing for the further repayment of debt. Final phase will be completed in 2006, and we'll continue to opportunistically manage our timber assets.

Slide 6 provides some insight into our strategic direction for the near term. With the Greif Business System, we intend to achieve top quartile profitability in our segments, as well as lowest-cost producer status in Industrial Packaging and Services and lowest quartile cost position in Paper, Packaging and Services. We also continued to pursue consolidation opportunities in our core industrial packaging products end markets and position our opportunities to capitalize on growth in emerging markets.

To this point, we recently brought on board two experienced plant managers for expansion in China, and we will open a new steel drum and water bottle plant in Russia later this month.

Slide 7 depicts our expectations for fiscal 2006. We will continue to optimize and further embed the Greif Business System across our Company and look forward to solid contributions from strategic sourcing. Our discipline of application of the Greif Business System, coupled with anticipated improvement in market fundamentals, are expected to result in meaningful year-over-year performance improvement in fiscal 2006.

That wraps up my comments on our business. Don will now provide you an update on our financial results.

Thank you, Mike. Good morning, everyone. We are pleased with the Company's record performance for fiscal 2005, especially considering the challenging market conditions and increased cost pressures that persisted throughout the year. These achievements underscore the traction of the Greif Business System. We realized approximately $45 million of annualized savings from the Greif Business System during 2005 and have achieved approximately 125 million in savings since we initiated the Company's transformation in March 2003.

Slide 8 presents our financial summary for fiscal years 2005 and 2004. Net sales rose 10% to a record 2.4 billion in fiscal 2005, or 8% excluding the impact of foreign currency translations. This net sales improvement was primarily attributable to a $183 million increase in Industrial Packaging and Services, referred to as IPS, and a $40 million increase in Paper, Packaging and Services, referred to as PPS, less 8 million of lower planned timber sales in the Timber segment. Increased selling prices, primarily in response to higher year-over-year raw material costs, were partially offset by slightly lower volumes for certain products, which reflected soft market conditions.

For the fourth quarter of 2005, net sales increased 1% to $620 million from 613 million last year and included stable to improving sales volumes across the Company's product portfolio. Operating profit before special items increased 10% to $171 million in fiscal 2005, compared to 155 million in fiscal 2004. This was due to an $11 million increase in each of IPS and PPS's operations, partially offset by lower planned timber sales.

Operating profit before special items for the fourth quarter of 2005 was $53 million versus $60 million for the same quarter last year. Net income before special items was 96 million in fiscal 2005, compared to 83 million last year. Net income for the fourth quarter of 2005 before special items was $30 million, compared to $38 million for the same period last year.

As seen on slide 9, gross profit was $391 million or 16% of net sales in fiscal 2005 versus 373 million or 17% of net sales in fiscal 2004. Improved selling prices, coupled with additional labor and other manufacturing efficiencies related to the Greif Business System, were more than offset by higher raw material costs, lower absorption affixed costs and lower planned timber sales.

Gross profit for the fourth quarter of 2005 was $111 million or 18% of net sales versus $114 million or 19% of net sales last year.

On slide 10, SG&A expenses to net sales remained below the Company's fiscal 2006 objective of 10% for the second consecutive year. These expenses were $225 million or 9.3% of net sales in fiscal 2005, compared to 219 million or 9.9% of net sales last year. Management continues to focus on the Company's controllable costs. In fiscal 2005, professional fees related to Sarbanes-Oxley compliance were approximately $3 million over the related fiscal 2004 fees.

For the fourth quarter of 2005, SG&A expenses were $57 million or 9.2% of net sales versus 55 million or 9% of net sales in the fourth quarter of 2004. Costs related to Sarbanes-Oxley compliance was particularly impacted -- particularly impacted the fourth quarter of 2005.

As shown on slide 11, net sales for IPS rose 11% to 1.8 billion in fiscal 2005 from 1.6 billion last year. Foreign currency translation represented 2 percentage points of the increase. Higher selling prices for fiscal 2005 were primarily due to increased raw material costs during the year, especially for steel and resin.

This improvement was partially offset by slightly lower sales volumes for certain products. Gross profit margin for IPS declined to 16.3% in fiscal 2005 from 17.4% the prior, year due to higher raw material costs, which were partially offset by improved sales, coupled with labor and other manufacturing efficiencies resulting from the Greif Business System. Operating profit before restructuring charges rose to 123 million in fiscal 2005 from 112 million a year ago.

Net sales were 460 million for the fourth quarter of 2005 versus 448 million for the same period in 2004 and included stable to improving sales volumes across the segments' product portfolio. Operating profit before restructuring charges was 40 million for the fourth quarter of 2005, compared with 41 million in the same quarter last year.

The fourth quarter comparisons for PPS are shown on slide 12. Net sales rose 7% to $608 million in fiscal 2005 from 568 million in fiscal 2004. This was principally due to higher selling prices compared to those prevailing during the prior-year period.

Operating profit before restructuring charges was 41 million in fiscal 2005, compared to 29 million in fiscal 2004. This increase was primarily due to improved net sales, which were partially offset by higher transportation and energy costs. Net sales were 158 million in the fourth quarter of 2005 versus 161 million for the same period last year. Operating profit before restructuring charges of 2 million was 13 million in the fourth quarter of 2005, compared with 16 million before restructuring charges of 1 million in the fourth quarter last year.

Slide 13 reflects net sales and operating profit for our timber business over the past four years. Timber sales were 12 million, consistent with planned levels, and operating profit was 8 million in fiscal 2005.

We successfully completed the first phase of the sale of 56,000 acres of timberland for $90 million during the third quarter of 2005. This first phase included 35,000 acres of the Company's timberland holdings, principally in Florida, that were sold for 51 million, resulting in a gain of 42 million.

The second phase of this transaction is expected to occur in two installments during fiscal 2006. An additional timberland gain will be recognized in our consolidated statements of income in the periods that these transactions occur.

Slide 14 profiles our capital structure at year-end for fiscal 2005 and 2004. The Company's strong cash flow in fiscal 2005 enabled us to reduce debt outstanding, invest in our core business and further strengthen the capital structure. Net debt outstanding decreased $109 million to $322 million at October 31, 2005, compared to 431 million at October 31, 2004. Net debt, of course, is long-term debt plus short-term borrowings less cash and cash equivalents.

Interest expense was $41 million and $45 million in fiscal 2005 and 2004, respectively. Lower average debt outstanding was partially offset by higher interest rates during fiscal 2005 compared to fiscal 2004.

During the second quarter of 2005, the Company entered into a new revolving credit facility to improving pricing and financial flexibility. As a result, the Company recorded a $2.8 million debt extinguishment charge.

Our key financial performance goals are shown on slide 15. As I noted earlier in my remarks, the Company remained below 10% of SG&A to net sales again for fiscal 2005. The continued focus on working capital has resulted in an operating working capital to sales ratio of 9.5%, better than the targeted level of 12%. The reduced working capital and resulting improved asset velocity partially offset the disappointingly low operating profit margin. Our RONA target remains achievable for 2006 on a run rate basis.

If you'll go to slide 16 -- the Company entered fiscal 2006 with a solid balance sheet and a disciplined business system. Consequently, earnings guidance for fiscal 2006 before special items is $3.45 to $3.55 per Class A share, a 6 to 9% increase over its fiscal 2005 record earnings. Fiscal 2006 is expected to begin slowly, due to seasonal factors, lingering effects from cost pressures and difficult first-quarter year-over-year comparisons. We anticipate solid improvement in the Company's second-half and full-year 2006 performance.

That concludes my formal remarks, and you should now click to slide 17. Mike and I will be pleased to answer your questions.

(OPERATOR INSTRUCTIONS). Chris Manuel, KeyBanc Capital Markets.

It's actually Mary Kovacs for Chris today. Congratulations on a good quarter. First, I just want to ask you guys in regards to volumes -- maybe if you could walk us through a little bit, maybe overall -- starting with overall revenues, maybe if you could break it down for us by segment in terms of volumes and raw material pass-throughs?

Yes, if we look at the results on a consolidated basis for the full year, the volumes were down about 3% on a year-over-year basis. Basically, our selling prices and mix was up 11%. And then there was a currency effect of 2%. So that basically disaggregates that sales delta of 10%.

The one thing that we commented on was the fact that during the fourth quarter, the volumes across our portfolio were basically flat with the prior year, and all of the product lines were either stable or improving on a year-over-year basis. So that does provide encouragement that we could have reached an inflection point during the fourth quarter of the year. And I would say that basically applies to all of the segments and product categories. So it was really a broad-based improvement.

And Mary, the only thing I would add to that, as we said in our prepared remarks, we did have a few small tuck-in acquisitions. But they really had no impact on this year. So the volume that Don is talking about in the fourth quarter would really be without that, because that was at the end of the quarter, so it really had no impact.

Then let me ask you, for the fourth quarter, though, on the industrial side, volumes were up -- or excuse me, sales were up pretty good on a year-over-year basis -- fairly good, up about 3%. Can you tell me -- maybe explain to us where that came from?

That primarily is being driven by -- and particularly on a year-over-year basis that I think may be a more meaningful comparison at this point, we have seen generally rising raw material costs. And so you are seeing the impact of passing those through to selling price. We have actually been quite successful in recovering dollar for dollar those increases. But it has resulted in some value-added margin erosion just based on the mathematics of the ratio. But that is clearly one of the key drivers of the sales increase on a year-over-year basis.

And then one last question, and then I will go back into the queue, but in the paper segment, how did you guys fare against the industry, then, for the quarter?

Well, the volumes for the quarter were definitely looking better than on a year-to-date basis through the third quarter. Our mills were up nearly 2%, which would be basically in line with the industry. And our converting activities were also improved, basically in line with the region that we serve.

And Mary, the volumes were good, as Don alluded to. The paper industry and the industrial packaging industry, especially in the fourth quarter, were hit pretty hard by higher energy costs, which is pretty common now that natural gas has gone up quite significantly. So those costs are really reflected in the fourth quarter. So when you compare this year to last year, you have a huge amount of increase in energy costs and transportation costs.

Christopher Chun, Deutsche Bank.

In terms of the transformation benefits, you said that you are expecting another 25 million in '06 -- or fiscal '06. Can you talk a little bit about how you expect that to roll in during the year, and also about what if any more there might be available in '07 and beyond?

Yes, we would expect that in 2006, we have signaled that strategic sourcing is going to become a much more significant contributor to our Greif Business System impact. And so we have separated that out as a $25 million improvement item. What is unfortunate is that there is an offset with the higher energy and transportation costs. We've done everything that we could to mitigate them, but that is still going to be a fairly significant offset.

We would expect the Greif Business System to be delivering that 25 million plus an additional 5 million for operational excellence net of basically any cost inflation in our conversion cost, and for that benefit to be fairly evenly distributed, with the exception that it will be slightly back-end-loaded, but fairly evenly distributed, similar to our experience in 2005.

And Christopher, you had asked also about what the numbers look like in '07 and '08. We don't have enough insight right now to feel comfortable to give those numbers. I can tell you we are making another turn of the crank, so to speak, in North America and Europe to re-diagnose -- as we said in our planned remarks, on the Greif Business System, we are cautiously optimistic that there is some value, some real value to be obtained there. But we don't have a good enough insight to give that number out at this time.

Okay, that is fair. You guys have done an amazing job on that downturn already. And then in terms of your guidance for next year of 345 to 355, can you talk a little bit about what sorts of assumptions are baked into that? I'm especially curious about what sort of containerboard pricing you are assuming there and what sort of energy costs you are assuming and anything else that might be important to you?

Yes, in terms of our bridge from 2005 to 2006, the key components -- we would expect that the volumes will be higher, in the 3% range. So basically a reversal of the 2005 experience. That would be one of the keys. We already had talked about the GBS and sourcing impacts, that the sum of those two would be in the $30 million range, the offset being energy at 20 million.

And one way of looking at our sensitivity to energy cost increases, we basically for every dollar increase in natural gas per million BTUs, it is about a $3.5 million impact. And when you look at our cost for -- on average for 2005, compared to what we would expect the cost to be for 2006, it is up in that 5 to $6.00 range, which accounts for the majority of the assumed energy cost increase. But that is basically assuming that the costs that are prevailing today, that they moderate a bit, but not significantly.

And finally, we are going to see a little bit of an increase in SG&A. We are expecting about a $5 million increase. And that basically is to invest in our sourcing infrastructure, as well as the emerging markets, providing the support as we accelerate the pace of our ramp-up in those critical regions.

And as far as paper pricing that we have reflected in there, Christopher, we have reflected the $30 that was announced in October. As you know, there has been some recent developments in the last three weeks that paper has been -- people have announced paper increases January 1, also $40. We have not fully reflected that into this analysis. A., it was late in the game, and B. is that we are being cautious, which has been our trend to be cautious on these things.

And as you know, Christopher, there is always puts and takes as you look at budgets, so there could be some upside there and there could be some downsides some other places, energy being one that Don alluded to. So we have the 30 that was in October 1, but we have not baked in the one that was announced in January.

That's great. Thanks. And one more question, if I may, before I turn it over. I know this is not new news, but it occurs to me that that $90 million that you're getting for the 56,000 acres that you sold in Florida is a big number. I was just wondering if you could tell us a little bit about what was driving that, whether there was HBU value in there, or whether it was just particularly well-stocked with mature trees, or what was going on?

There is definitely HBU value going there for a value of that size. It was buyers that were very interested in it. There were some mature trees, obviously, also for a company (ph). But you would have to properly assume that there is some HBU value going on in there.

Rick D'Auteuil, Columbia Management.

Again, I guess I am trying to figure out the gist of the guidance for next year -- seems awfully low/conservative. If we are looking at even based on what you broke out -- $30 million of kind of opportunity savings offset by $20 million in energy and transportation -- did I hear that right?

Yes.

So 10 million net benefit there. Volume is up 3%. It feels like -- what else is out there on the negative side to have such meager growth on the earnings side? It looks like you're not even really getting the whole 10 million in savings.

No, and I am glad you revisited that bridge because the one other point that was mentioned was the SG&A, basically the investment that we are making in sourcing and our emerging markets infrastructure. But your point is a good one. And what will I think help in the reconciliation, I should have mentioned that our effective tax rate is also expected to increase by about 2 points. And that is due to a shift in our earnings mix. We are expecting significant improvement in North America generally, and particularly in the U.S. And there is a differential in rates, basically 38% effective rate for U.S. sourced income versus an average of about 22% for earnings outside the U.S.

So we are assuming consistent with the projected earnings mix an increase in the effective tax rate. So that -- again, I really appreciate you revisiting the bridge.

And that -- you think that fully explains the, I guess, again, fairly modest EPS increase?

Well, I'm not necessarily accepting the characterization of the year-over-year improvement as modest. But the other item -- we are not assuming that we had about $4 million of other income below the operating profit line during 2005. The other income -- it's not something that we would tend to project. It is primarily driven by foreign exchange, and it is sometimes difficult to predict those movements.

So that would be the final element in that reconciliation to get you to the number. We do think that, again, when one considers that it is off the base of a record year, that the improvement is meaningful. And we also believe that there is upside potential. As Mike had mentioned, we did not fully factor into the guidance some of the recent developments. We also don't know at this point whether those recent improvements in fundamentals are going to be sustainable.

(OPERATOR INSTRUCTIONS). Bob Franklin, Prudential.

Am I reading this right -- did your debt go up from the third quarter to the fourth?

Yes. And what I would say is that it would really be more meaningful to really look at the net debt because our cash has increased to $125 million. And really the reason for that -- our debt is being reduced so rapidly that quite frankly we have some hedges in place that limit the amount of debt that we would really want to pay down before we incur some breakage costs. So under the circumstances, I would suggest to you that net debt would be a more meaningful metric.

But did it go up for seasonal purposes, or, I mean, did it go up because -- I mean, I can understand it not going down further because you don't want to break the hedges. I'm not sure why it would go up.

We did have the $56 million in the tuck-in acquisitions that occurred in the fourth quarter.

Okay. And have you given any guidance or would you care to give guidance about your acquisition expectations?

The acquisitions, Bob, let me characterize this way -- they were definitely tuck-in acquisitions. They were owned by private individuals. They were in -- they encompassed all three products. They encompassed fibre drums, steel drums and plastic drums. On an annual run rate basis, they generated about $100 million in sales. And it occurred in the fourth quarter -- and they definitely will be accretive to operations in '06. And we just really -- at the end of the fourth quarter is really when we did the majority of them.

Okay. And how about expansion overseas? How fast do you think you're going to keep doing that?

Well, it's an area that when we look at growing our Company, that is an area that is definitely part of the growth potential. And Don mentioned in his prepared remarks and also in answer to the question, we are making an investment today and some additional SG&A costs, principally in China, to fund an infrastructure there that we believe is going to be needed to run that business as we grow it. We are planning on opening two new plants in China this year. We are planning on opening two new plants in Russia this year. Actually, I leave next week to go to Russia to open up one of the plants.

So when we look at growth opportunities, we really look at emerging markets, Bob, and we really look at China, Russia and the Middle East. And the Middle East is principally the Saudi area. And while we don't have anything today, we are looking at that region and determining what to do.

And so we go into these regions I believe at the right pace. We go into these regions when our customers, our international customers, are going there and asking us to go there. A lot of times, our facilities are right next door to these large customers. So as people look at business going offshore, in our case, it works for us because we are there. We can go with them.

So we'll continue to look at that. We'll continue to grow. We'll continue to grow as our customers grow in those regions.

Chris Manuel.

It's Mary Kovacs again in for Chris. Just kind of to expand on what Bob asked previously, what are your plans in terms of debt to capital for 2006? It seems like strategically, you know, you are pretty much where you guys want to be at. And based on your hedging, it seems like you are also where you want to be at. So kind of along there, if you are at your comfort level, kind of where are we going to go from here? What is the plan?

I think, Mary, I will start off and then Don can fill in the gaps. We have been able to generate good cash flow over the years, which I think you have seen as we've gone back from 2002, where we first incurred a lot of debt to where we are today. And I think that when you say our comfort level, that comes back to three years ago, when we first incurred this debt -- someone asked us what would be our target. And we gave the 30 to 40% range as where we are at. And we were pretty confident that we could reach that in a short period of time and I'm pleased to see that we have done it.

We anticipate we will continue to generate good cash flow. And we're going to continue to look at growing the business. So we're going to use the cash for that. There could be some more tuck-in acquisitions as we continue to look at opportunities around the world. We could look at the growth areas which we've talked about, China, Russia, Middle East. So we'll look at funding those.

And the numbers that Don talked about, the net debt, again, that was after the tuck-in acquisitions this year. So our cash flow does generate it. And we also last year increased our dividends by 50% to give money back to the shareholders. And we will continue to look at giving money back to the shareholders when it is appropriate.

So our cash position I believe is good. I believe we have good uses for that -- continue to pay down debt when it makes economic sense for us. We will continue to do that. But we are in a position where we wanted to be and where we thought we would be three years ago as we started this.

I guess maybe, then, if you could maybe expand on, then, when you talk about the opportunities in Russia and in China and in the Middle East, and you kind of mentioned potentially doing acquisitions there as well as adding capacity -- or as well as building internally?

Well, we look at growing, Mary, and growing could be a variety of ways. To date in both Russia and China, we have done it on a greenfield basis. That does not mean that we would not look at an acquisition. But we are very disciplined in our acquisition process. We have presented to us quite frequently acquisitions around the world. But we really maintain, and Don has been a disciple of this -- really disciplined on what we buy and when we buy and do we buy it for the right reasons.

So we would not be averse to looking at something like that. But we would have to be disciplined. We'd have to get a value. We'd have to pay the right price and get a good value before we do it. If not, we'll continue to do a greenfield process in those areas.

And then just a last question. It looked like diluted shares were down just slightly. Was there a little bit of repurchasing? And if so, is this something you guys will look to use your good amount of cash flow for into 2006?

Don can answer the question on dilution, but I'm glad you mentioned that, Mary, because that was the other point I was thinking of when I was talking about the use of the cash, and that would be to look at additional ways to bring value back to the shareholders with repurchasing. And our Board has authorized -- has a standing authorization for us to buy shares back. And we will continue to look at that.

And just how big is that authorization right now?

A million (ph) shares, I believe?

Yes, and what would be remaining would be a little over 1 million shares.

A million shares.

And there has been some activity -- we repurchased about 50,000 shares during the fourth quarter. And we do have the remaining authority from the Board.

Christopher Chun.

Can you tell us what your CapEx outlook is for next year?

Yes, we are looking at 75 million before considering any timber purchases.

And is that sort of what you view as a sustainable number, or there is anything usual involved?

No, nothing -- that is I think a fairly sustainable number and would be fairly typical. We have tended to spend about 75% of our depreciation provision and no reason to expect that to really change dramatically.

Great. And then following up on your debt situation, can you tell us about what percent is fixed versus floating and what type of interest rate that you're paying on average?

Yes, the fixed to floating relationship is it's 75% fixed and 25% floating. And the most significant item is $250 million of senior subordinated notes with a coupon rate of 8 7/8%. Looked very attractive at the time, but not necessarily today. One thing that we did do, actually, during the fourth quarter -- that is U.S. dollar-denominated -- we swapped that into euros to reduce the effective rate to 6.8%. So that will help us reduce our debt service a bit. It also provides a natural hedge against our net assets denominated in euros.

And do you care to give us any guidance on what you are expecting interest expense to be next year?

It was down about $5 million in 2005 compared to 2004, and I think a similar decline in 2006 would be a reasonable assumption.

And finally in terms of the Timber segment, can you tell us what you are expecting there next year?

We are expecting that to be relatively flat with 2005.

(OPERATOR INSTRUCTIONS). Okay, management, I am showing there are no further questions. I will turn the call back over to you for any closing comments you may have.

Thank you, again, for joining us this morning. As a reminder, this call will be available for replay from noon Eastern Time today through noon on Tuesday, December 13. The playback telephone numbers are 800-405-2236 for domestic callers and 303-590-3000 for international callers. The passcode is 11045719#. This call will be posted on the Company's website in approximately one hour. We appreciate your participation.

Thank you. Ladies and gentlemen, that does conclude today's teleconference. Once again, thank you for your participation. And at this time, you may disconnect.