Graphic Packaging Holding Co (GPK) 2006 Q4 法說會逐字稿

At this time I would like to welcome everyone to the Graphic Packaging Corporation fourth quarter earnings release conference call. [OPERATOR INSTRUCTIONS] As a reminder, ladies and gentlemen, this conference is being recorded today, Thursday, February 22, 2007. Thank you.

I would now like to introduce Mr. Scott Wenhold, Vice President and Treasurer. Mr. Wenhold, you may begin your conference.

Thank you. Good morning everyone. Welcome to Graphic Packaging Corporation's fourth quarter earnings call. Commenting on results this morning are David Scheible, the Company's President and CEO, and Dan Blount, the Senior Vice President and CFO.

I would like to remind everyone that statements of the Company's expectations this morning, including but not limited to the effect of certain contractual changes, expected revenue growth, and cost savings, projected volume increases, expense estimates, capital expenditures, pension funding costs, and debt reduction are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Such statements are based on currently available information and are subject to various risks and uncertainties that could cause actual results to differ materially from the Company's historical experience and its present expectations. Undue reliance should not be placed on such forward-looking statements as such statements speak only as of the date on which they are made and the Company undertakes no obligation to update such statements. Additional information regarding risks facing the Company is contained in the Company's periodic filings with the SEC. And with that, David, I will turn this morning's proceedings over to you.

Thanks, Scott. Good morning, everyone. Yesterday the Company announced fourth quarter 2006 earnings, reporting a net loss of $0.19 per share. This represents an improvement over the prior year fourth quarter of $0.02 per share, despite incurring $17 million of expenses associated with the upgrade of the infrastructure in our West Monroe, Louisiana, mill. In a moment, our CFO Dan Blount will walk you through the specific items that bridge current period financial results to the prior period. But the fourth quarter summary is a very similar story to the full year:

Incremental price increases for carton and roll stock in conjunction with progress on cost reduction initiatives more than offset cost inflation. However, higher expenses at our West Monroe mill tempered overall gains versus the prior year. All together, higher costs for raw material and other production inputs negatively impacted 2006 results by $71 million. The good news is the majority of this occurred earlier in the year as energy prices retreated in the fourth quarter.

Also another good trend, as I mentioned earlier, one of the positives helping to offset cost inflation in 2006 was higher pricing. In total, increased pricing contributed $34 million to the 2006 bottom line. As we mentioned in prior earnings calls, we have been receiving positive feedback from our largest customers on the issue of sharing our higher costs.

During the fourth quarter, we continued to renegotiate major customer contracts to include price escalators. In 2007 we intend to negotiate comparable pricing mechanisms into the few contracts that remain open. Pricing on our non contract business has increased as well. Industry utilization rates are at decade highs including our primary SUS substrate. We announced a $40 per ton increase in the spring of 2006, another $40 increase beginning in October, and we followed by announcing an additional increase earlier this month to take effect April 1. On the containerboard side, both our medium and linerboard grades sold for an average of $70 to $90 per ton higher than the prior year.

Graphic Packaging continues to have success in growing its top line. As I mentioned, higher selling prices contributed approximately $34 million in 2006, but we also continue to grow the top line through innovation. For the full year we gained over $41 million from new product sales while consciously choosing to exit certain low-margin business in our portfolio. And, in the fourth quarter, we continued to set the stage for future revenue growth with numerous product rollouts and packaging machine placements.

For instance, we commercialized major holographic film laminated programs for Miller brewing company's Miller Lite six-pack bottle carrier and Coca-Cola's six-pack Coke Classic bottle carrier. Graphic Packaging has proprietary capabilities to manufacture these film laminated bottle carriers which create a stunning glossy appearance on the retail shelf. We also worked with Coca-Cola to commercialize their new Enviga six-pack carrier carton and Godiva upscale bottle carrier. These products are aimed at capitalizing on consumer trends in the noncarbonated segment of the soft drink market. Activity remains high and we continue to see growth in this space for multi-pack packaging.

Finally, on the beverage side we installed two of our QuickFlex packaging machines to support the double-digit growth export business of the Presidente beer brand into the U.S. from Mexico. On the food and consumer product side, we continued to focus on the rapidly growing microwave convenience sector.

First, Heinz selected our patented quick crisp susceptor sleeve to introduce an innovative handheld Italian snack. In addition Graphic Packaging was selected by France's Moy Park to launch a new chicken nugget product in Europe. This launch is the first chicken nugget product to use interactive microwave technology in order to reduce cook time. Our patented Z-food business continued to grow in the quarter as Kraft foods chose Z-flute for their Wheat Thins warehouse package. Z-flute is a great way for our customers to reduce secondary packaging. Although off a relatively small base, our Z-flute volumes almost doubled again in 2006. This will result in a new investment in this technology in 2007. We are expanding our capacity for Z-flute at our new Fort Smith, Arkansas facility.

Moving down the P&L we continued to eliminate a substantial amount of costs through Six Sigma, Process Management, and Reliability Centered Maintenance programs. During 2006, the positive impact from all three of these programs was $47 million in cost reductions. As you know, we have a very good track record of eliminating costs, and this is the third year in a row that we have generated significant incremental cost savings. During this time period I have received numerous inquiries on how we go about realizing these significant savings, so let me elaborate a little bit here.

Six Sigma primarily focuses on the standardization of key production elements and processes. Major Six Sigma projects in 2006 included the improvement of our cutting capabilities within our sheet-fed facilities; increased boiler fuel efficiencies and reduced steam consumption at our Kalamazoo, Michigan board mill and; improved bark board fuel efficiency at our Macon, Georgia board mill.

Process management is our vehicle to eliminate product variability and deliver high-quality products consistent to our customers worldwide. At our Golden, Colorado converting facility, the deployment of process management principles resulted in customer top supplier awards that signify our dedication to the reduction in product variation and waste throughout our system. In that facility we can now gather data in real time and make necessary adjustments immediately to improve press efficiency.

Finally, we have deployed Reliability Centered Maintenance principles to improve the up time performance in our asset base. For example, our Lumberton, North Carolina facility achieved a strong improvement in productivity and throughput by focusing on preventive maintenance and work order management through SAP utilization. Because of the initial success we have had in this program, we are in the process of deploying standard RCM principles to all of our facilities with our SAP investment.

In addition to ongoing cost cutting initiatives, we continually focus on improving manufacturing performance through improved asset utilization, and when necessary, upgrading the assets themselves. On this note, we completed our $100 million converting asset upgrade in the second quarter of 2006. The last major step in the process was the start-up of two new wide format sheet-fed presses at our Fort Smith, Arkansas, facility. Now with the successful completion of this two-year plus initiative we enter 2007 with one of the most efficient and low-cost converting systems in North America.

In addition to our converting operations, both our Macon, Georgia, and Kalamazoo, Michigan, paper mills performed extremely well in the fourth quarter and overall in 2006. Macon, for example, reported record levels of coated board production in 2006. Kalamazoo also broke its 2005 production record by approximately 4%, producing a total of 392,000 tons in 2006 while improving overall profitability through energy reduction as a result of productivity increases and energy reduction programs. Combined, these activities reduced the amount of fuel to produce one ton of board at Kalamazoo by approximately 10%.

Unfortunately, expenses associated with the upgrade of infrastructure at our West Monroe mill tempered the positives in the quarter. Historically, West Monroe's competitiveness was based on low-cost energy and fiber. But as you all are aware, fiber costs have risen above historical levels and the days of $3 natural gas is a thing of the past. Given the fact that these higher cost structures may be permanent, it is essential to find ways to improve the mill's yield from these higher priced inputs. Upgrading West Monroe's infrastructure will accomplish this goal and will serve to improve its overall predictability, efficiency, and cost competitiveness over the long term. In the third quarter, we started by rebuilding the mill's primary boiler in order to allow us to substitute bark for natural gas to generate steam at a lower cost. In the fourth quarter, we extended West Monroe's biannual maintenance cold outage in order to overhaul the clarifier, a key piece of the effluent management system in that mill.

As I said in the press release last night, this is a significant undertaking that occurs about every 30 years and was completed in late January of this year. We have a good management team at this mill with solid execution plans which include making some additional investments in the mill infrastructure going forward. Dan will talk more about our investments, but it will not be nearly as significant as the fourth quarter rate.

Looking into 2007 beyond, I remain cautiously optimistic. In a moment Dan Blount will provide some specific guidance for the upcoming year in regards to certain line items of the financial statement, but I would like to highlight several key strategic areas we'll focus on in 2007.

We will continue our efforts to establish a more equitable sharing of inflationary risks on the few remaining open customer contracts yet to be negotiated. We will continue to grow our top line by investing in new product development and by focus on faster to market innovative packaging concepts. We will carry on with our cost reduction initiatives and expect to continue our strong track record for reducing costs. We will also enhance our focus on improving working capital utilization to generate cash. And as I just talked about in some detail, we will continue our efforts to upgrade the West Monroe mills infrastructure, thereby improving its overall predictability and long-term cost competitiveness in the industry.

Finally, let me say that we will execute each of these strategies with our eyes squarely focused on reducing our debt. With that, I will turn it over to Dan Blount for his review of the financials.

Thanks, David. Good morning, everyone. As you just heard for the fourth quarter we reported a net loss of 39 million or $0.19 per share. This represents an improvement of approximately $4 million or $0.02 per share when comparing to fourth quarter 2005. For the full year, we reported a net loss of 100.5 million, or $0.50 per share, versus a 2005 net loss of 91.1 million or $0.46 per share. In my review of results I'll start with revenues, then I'll bridge fourth quarter EBITDA to the prior year.

Fourth quarter 2006 net sales of 589.4 million were up 2.9% as compared to net sales of 572.6 million in the fourth quarter of 2005. On a full-year basis, net sales of 2.413 billion were up approximately 29 million over the prior year. We'll compare quarterly sales to the prior year by segment. Incremental pricing drove approximately 8 million of sales improvement. The remainder of the increase results principally from volume growth in North American, consumer products, and international beverage. And that's a slight volume decline in North American beverage.

In the containerboard segment, net sales of 24.4 million were 4.4 million higher than the prior year. Increased pricing was the primary driver of the improvement. For the full year 2006, total sales growth was primarily driven by increased pricing of approximately 34 million for cartons, roll stock, and containerboard, partially offset by slightly weaker volumes in North American beverage. What is not highlighted by the sales change is the improvement in sales mix to drive margin expansion. North American consumer products has been executing a strategy which includes product innovation to exit low margin business and replace it with higher margin folding carton and microwave volumes. As a result, consumer product margins have shown steady improvement.

Additionally, open market volumes have declined as we use more of our paperboard production to produce higher margin cartons. In 2006, the integration of U.S. mills produced paperboard increased 1.4 points to 84.4%. Income from operations for the 2006 fourth quarter was 10.5 million, which was 3.6 million higher than the prior year. For the full year, income from operations was 90.3 million versus 86.9 million in 2005. EBITDA for the fourth quarter was 59.9 million, or 10.2% of sales. This compares to EBITDA of 57 million or 10% of sales in the prior year. Excluding the third quarter impairment charge, full-year 2006 EBITDA at 290.2 million was basically flat to 2005's EBITDA of 292.2 million.

The following comments bridge fourth quarter EBITDA to the prior year. During the quarter, we realized price increases of approximately 12 million. Overhead expense declined approximately 9 million, approximately 5 million of this improvement resulted from a reduction in ongoing administrative expense and the remainder from lower severance expense. Continuous improvement programs in manufacturing strategies delivered approximately 8 million of benefits. Offsetting these improvements was the additional expense at our West Monroe mill and inflation. The West Monroe mill, as David discussed in detail, incurred approximately $17 million of expense associated with the upgrade of the infrastructure. Let me just note that as the clarifier came back on line in late January we expect first quarter 2007 to also be affected by additional expense in West Monroe, although not to the same magnitude as fourth quarter 2006.

Inflation principally driven by fiber, energy, and labor and benefits, was approximately $11 million higher. This quarter's inflationary impact was significantly lower than we've seen in any of the last eight quarters as energy prices moderated. Our natural gas hedge rate for 2006 averaged $10.63 per mmbtu. For 2007, we have hedged approximately 50% of our natural gas exposure at an average of $8.53 per mmbtu. We are 80% hedged in the first quarter of 2007 at approximately $8.70 per mmbtu. This rate compares to $14.12 per mmbtu in first quarter 2006. We will see the majority of the benefit of lower natural gas pricing beginning in second quarter as the lag between production and sales is two to three months. The remaining EBITDA change is principally due to foreign currency exchange rate gains offset by a favorable lawsuit settlement in 2005.

For the full year 2006, inflation negatively impacted EBITDA by approximately $71 million. Incremental pricing of approximately 34 million and approximately 47 million of cost reductions benefited EBITDA. The remaining annual EBITDA change resulted from higher West Monroe mill expense associated with infrastructure upgrades, partially offset by volume growth and mix improvement.

Turning to the remainder of the income statement, depreciation and amortization expense in the quarter was lower than the prior year by $700,000. Total depreciation and amortization in 2006 was approximately 196 million. We expect full year 2007 depreciation and amortization to be in the range of 185 to 195 million. Sales, general, and administrative expenses were reduced by 4.1 million versus the prior year quarter. The main driver of the decrease was lower severance related to the workforce reduction that occurred in the fourth quarter of 2005. Other income expense net was 2.4 million unfavorable to the prior year quarter. The primary reason for the change is a positive legal settlement in 2005. And then finally, net interest expense was 3.3 million higher than the fourth quarter 2005 due to higher interest rates. For 2007, we expect total net interest expense to be in the range of 170 to 180 million including 9 million of noncash interest expense associated with amortization of debt issuance costs.

Now turning to cash flow, net cash flow before debt reduction for full year 2006 was 50.9 million as compared to 54.9 million in 2005. Cash interest paid was approximately $13 million higher than the prior year. In addition we contributed 25.9 million to the U.S. pension plans versus 17.7 million in 2005. For the full year 2007, we expect to contribute between 25 and 30 million to U.S. pension plans. Partially offsetting the increases was a reduction in capital spending and improved working capital utilization. On the strength of inventory turn improvement, working capital utilization as a percent of sales improved by -- from 6.8% to 6%.

Capital spending for fourth quarter 2006 were 30.7 million compared to 27.7 million in 2005. Total capital spending including capital spares for full year 2006 was 94.5 million. Capital spending in 2007 will increase over 2006 levels as we increase our investment to upgrade the infrastructure in our West Monroe mill. As a result, we expect 2007 CapEx to be in the 100 million to $120 million range.

Liquidity remains strong. As of the end of the fourth quarter we had 7.3 million in cash and equivalents and 307 million available under our $325 million U.S. revolving credit facility. And finally, at December 31, 2006, total debt at 1.922.7 billion was 55.6 million lower than the fourth quarter of 2005. For the full year, we expect debt reductions to be in the range of 60 to $70 million. And with that, operator, we'll open the lines for the question-and-answer session.

Thank you. [OPERATOR INSTRUCTIONS] Your first question comes from the line of Joe Stivaletti of Goldman Sachs.

Just was wondering if you could talk a little bit about some of the other expectations that we might be thinking about for '07, particularly if you have any kind of rough idea on additional cost savings, Six Sigma benefits, and things like that. Just trying to look at the major variances for '07 as you currently see them.

Yes, Joe, our expectation is that we'll continue to deliver about the $50 million in cost reductions from those programs, as we have historically done in the past years. So I think that's a good number to build into the model.

And on other -- do you have any rough guidance on how you're looking right now with the revised hedges and whatnot in terms of how you think we should be thinking about your overall energy spend for the year?

I think our current hedge rates, the way I have cited them, is a good estimate of where we are going to end up for the remainder of the year. We have been watching the markets fairly closely and timing our hedges I think rather well as we go forward. We are taking a little vacation now because of the weather situation, but we're covered for the first quarter, and we have got substantial hedges in place for Q2 and Q3, and we're lighter in Q4.

And can you talk about West Monroe? Can you give us some rough feel on how big the impact should be in the fourth quarter? I guess that's pretty much behind you.

Can you repeat the question, Joe?

Well, in West Monroe, the impact -- you said there would be some continued impact as there was in the fourth quarter from the work you're doing there. And I just wondered if you could give us a rough idea of how big that will be?

I think the guidance that we're providing is it's not going to be nearly as big as it was in the fourth quarter of 2006. We're being somewhat cautious, because the clarifier did come up in the end of January. It's been running, it's been doing its job, and we have been seeing the improved results, but we just want to be somewhat cautious in terms of expectations since it is still in a start-up mode. I don't know if David wants to give more guidance.

That mill handles about 25 million gallons of water a day to operate, and all of that water and solid processes go through the clarifier, so it's not a minor part of our overall facility. We took it down. It was a pretty major undertaking to do. It did come up operationally at the end of January, but even that means that, we're working slowly through that process to make sure that we operate within our environmental standards and we keep our mill operating. So we're hedging a little bit. Certainly the clarifier was down for a good part of the fourth quarter as opposed to being up a good part of the first quarter, and that's why Dan and I both believe that the impact won't be nearly as significant, but we're not at this point giving guidance on that impact.

Thanks. The only other thing I wanted to ask you about was on the -- looking at where your bonds are trading and where the markets are in general, what are your sort of thoughts on the proper timing for a possible refinancing to get your borrowed costs down?

We're currently looking at the market conditions, Joe, and exploring options with bankers in terms of refinancing. We realize that by 2009, our revolver is going to come due, and the market conditions are favorable, so we are closely looking at it.

Okay. Thank you.

Your next question comes from the line of Jeff Harlib of Lehman Brothers.

Good morning. Can you just talk, at the West Monroe mill, these higher costs and higher CapEx for '07, can you talk a little bit about what benefits you expect to get from that and kind of what you're doing there?

I can outline some of the numbers and let David add color. If you remember, in 2006 we had publicly reported about $26 million of additional costs in West Monroe. We had an incident in the first quarter. We had one in the second quarter, and we had this $17 million in the third quarter. I can tell you that the first two incidents we have remedied, and they have not repeated. The third one we think we have a remedy in place, and that went on-line in the first quarter of 2007. So in terms of that entire 26 million, that should be a remedy to a great extent going forward into 2007.

What we're focusing on down there, Jeff, is to try and reduce the overall utilization of the primary inputs which are both fiber and energy. So some of the work we're looking at to do in '07 and into '08 will be investments that, for example, will reduce the amount of affluent, there's 25 gallons a day -- million gallons a day, be able to cut that in half. So we'll be able to get us to a place where we can manage the costs better. And so some of the investments will have -- we'll make the investments and paybacks will not occur until out years, but they are primarily focused on reducing the input cost. Now by upgrading some of those we'll also get more reliability into the mill as a result of that but the primary focus right now is going to be to reduce the energy costs.

I mentioned in my discussion, during the quarter we made an investment to allow our bark boilers to burn -- our boilers to burn bark as opposed to natural gas. We obviously have a lot of chips and bark available there. Much lower cost, but the -- our boilers need to be modified to do it. There are other similar projects that we're making those kinds of investments to reduce the dependency on natural gas in that facility. That facility uses natural gas not only for consumption but also the utilities that we buy from Entergy in Louisiana are also natural gas-based. So the more we can reduce overall that dependency helps the utility costs in West Monroe.

Okay. Have you quantified what you think the cost benefit will be from the higher CapEx and the other action?

We haven't quantified that externally.

Okay. But some of that is included in your 15 million of savings?

No, those savings are really continuous improvements, Six Sigma. They are really not major capital investments. They're more throughput, scrap reduction, those kinds of process management as opposed to major capital investments.

On top of the 15 million would be not -- would be costs that had incurred in 2006 that were unusual for West Monroe, not repeating. And that would be the results of the capital investment that we're putting in place, to ensure that that does not happen.

On pricing can you just update us on where you stand with the beverage contracts? I know you have renewed a lot of them for '07. Are there some remaining for '08? Also, on food and consumer, how you are looking at your carton pricing there, given CUKs gone up a good amount over the last six months.

I guess what I would say about pricing overall, as Dan reflected, fourth quarter was roughly $12 million year on year, and 34 million all year. So you can see there's clearly an accelerating rate on pricing. I won't talk specific customers contracts other than to say you are correct, there are a very few number of contracts remaining in beverage to be negotiated, and so for the most part, that is behind us. We have a major to finish up in '07 which expires in the early part of '08.

What I will say about those contracts is we have been very successful in maintaining our share. We have been successful in increasing the base price, or resetting, while we are not enough to cover all past inflation, certainly we'll see some claw-back over the life of the contracts, and we have inserted escalators in every one of those contracts. The mechanisms will vary depending upon account or depending upon inputs or substrates because they vary. But it will clearly create a more equitable sharing of increased costs on a go forward basis. On the consumer side, year on year, our pricing in that space was up about 1.6% on the carton side, and we continued to see positive results as contracts come open. We don't necessarily have any major contracts this year per se but we have a number of small ones. In each of those contracts we're falling sort of similar that I discussed to beverage. We are seeing resets and, of course, we're maintaining or increasing the escalators in those as well. So I feel very comfortable for the first time in a long time with the progress we have made on the pricing. It remains a major objective for us on a go-forward basis, but I think the environment is favorable.

Okay. Good. Last question. On cost inflation, 71 million in '06. Natural gas should come down in '07. How are you looking at inflation in terms of your other key components?

Yes, in terms of overall inflation, we are looking at a benefit from natural gas as you point out. We don't give specific guidance on overall inflation, but in terms of some of the components, the major risk is in terms of fiber. As I said, we have seen cost increases for recycled fiber and for wood as well, and that would be built into our numbers. So in terms of overall inflation rate I think above a consumer price index point would be fiber and OTC and the others should be relatively in line with on top of that a benefit from natural gas.

There are some things that we are doing to help that process. For example, I think we reported last quarter that in Macon we have converted from pine and hardwood to 100% pine, which is a more -- a more -- less variable sort of input, and we're doing the same thing in West Monroe as well. So as we look at our fiber costs we'll continue to do things that will allow us to mitigate them but I think Dan's right, that's the one area that we'll continue to watch in 2007.

Thanks very much.

Your next question comes from the line of Bill Hoffman of UBS.

Yes, good morning. Dave, wonder if you could just talk a little bit about the mix issues. You talked about shifting some of the mix in more the food and consumer side of the equation, and year on year your volumes were down a little bit. So what I want to do is try to get a sense of, as you look forward, with the current mix, do you expect to start to see some volume improvements in sales of SUS and what kinds of sort of top-line growth expectations should we be thinking about?

Well, I won't give general top-line guidance growth but what I will say is that in terms of the SUS open market sales, of course, that has been impacted by our integration. We continue to use more of the board internally in our carton sales. The underlying trend that's hard to probably pick up on the numbers is that we have made a conscious effort to manage out the bottom part of our portfolio. I think I mentioned last quarter, for example, we have essentially exited most of the tobacco business, for example. So you see a decline in sales there, but it's being replaced by $40 million worth of higher margin products. Z-flute, microwave.

The other mix thing that's occurred, I think you all know this, our focus is on the larger accounts, and in the consumer business of what we have seen is significantly higher growth in those accounts versus the market. Kraft, General Mills, Kelloggs, Hormel. Those accounts in our space have grown faster. They have grown at 4.5 to 7% in our space. The advantage for us, the reason it improves our mix, is because those products are designed to run over our lower cost asset. So it it helps our margins, but I think you will start to see increasing sales growth for us because there's less of our portfolio that we're subtracting, but as Dan and I look at the profitability of a business we will jettison the bottom of our tail that just doesn't generate a legitimate return.

One more comment in regards to that. When we're taking off the lower margin business, principally that is business where we've purchased the board from the outside. So that's outside purchased board, principally SPS, and what we're doing there is replacing that with integrated cartons, and that has caused maybe the overall number to be about flat in terms of carton tonnage, but as we replace -- as we replace that SPS what is happening is our open market volumes are dropping. So the drop that you are seeing in terms of the numbers in the press release are principally open market volume that has been used to produce cartons because the cartons we have taken out of the mix have been cartons produced on somebody else's board.

Now, as you -- thank you. As you look forward, just to sort of help quantify this in our own minds -- I know you've made a concerted effort here -- obviously there will continue to be those kind of opportunities. Do you expect in '07 to have fewer of those mix type opportunities than you did maybe in '06?

Bill, that's exactly right. In fact, if you look even '05 to '06, we saw a deterioration of that relative to the amount of business that was subtracted out, and we'll see the same thing. We are getting to a place where the business that we have is the business that we like. Dan mentioned some of the open market sales were Asia that we sold -- open market Asia, for example, and we really don't make a lot of contribution on that overall, and that's the kind of stuff, but you know what, for the most part, a lot of that business we have internalized into our own converting assets. Product like Z-flute, Dan mentioned, he or I mentioned, we almost doubled the sales of Z-flute. That's a fully laminated integrated carton, and we will expect to see very similar sort of growth rates in that space and we'll have to of course, make accommodation for our own board to be able to supply that. I think you'll see an external growth that will improve, but we're happy with where we are because we're certainly expanding the margins in those business through that mix management.

And just finally, can you just add a little bit of color to the international sales, what your trends are there?

Yes, I can do that. International beverage is up. I think we've reported in prior calls that we have refocused Europe on the beverage markets, and what has happened in Europe is exactly what we described as overall business, is our carton volume in beverage is increasing, and the open market volume is declining. So overall, I think international revenues are about 21% of the entire company's revenues, and that's about half pint higher than the prior year.

Bill, I think we mentioned earlier quarters, we made a couple of investments in Europe over the last 18 months. One is we completely revamped our plant in [Egualotta], Spain, as well as we really literally built a new facility in France outside of Paris. And what that allowed us to do is eliminate a lot of outside converting business. We were using contractors to make our beverage business, and so what you are seeing, because of that is we control more of our own processes and more of our own product, and we are seeing growth in Europe. And as Dan says, that's exactly right. But it's very much focused on our beverage business and very much focused on a segment of the market in beverage that we want to be in in Europe. So I think we've struggled in Europe over the last year or so. But I think both Dan and I believe that there are clearly better times ahead of us right now in our European business.

Any thoughts of bolt-on acquisitions in the European market to help foster that growth?

Well, we really talk a lot about acquisitions, but Europe, as you know, is a really, really fragmented space. I think we have made the determination right now, at least that we are happy with our organic growth, and making the investment there gives us a pretty full platter as opposed to looking at acquisitions in Europe, at least at this point in time.

Thanks very much.

[OPERATOR INSTRUCTIONS] Your next question comes from the line of Christopher Miller of JPMorgan.

Good morning. Just to dovetail on Bill's question there, maybe not looking at bolt-on acquisitions, but is there additional CapEx you need to put in, in Europe, over the coming years, to help foster some of that growth? Or maybe another way to ask it is, at the current level of CapEx do you see a time over 2008, 2009 where that might have to ramp up a little bit to foster some additional growth overseas?

Certainly in Europe we have no real plans to be putting additional capital beyond the new presses and the plant that we recently built in France. There may be incremental additional things for like cutters or specialized gluers, but we do not need to make a significant capital investment for our footprint in Europe. We have a great facility in the U.K., a new one in Spain, and now in France, which allows us to really attack Western Europe, which right now still is the multipack business in Europe, and I think we feel good now about the footprint in Europe. The physical footprint in Europe.

Okay. Great. And then just a couple minor points. The down time at the West Monroe mill, is there any other sort of similar maintenance down time at any of your other facilities that would need to be taken over in the next year or two? You're saying that is a one in 30-year event. Anything else to look at over the next couple of years at this magnitude?

That's a really good question, and the reality is that neither of our other mills have a structure like West Monroe. In both Kalamazoo and in Macon, our effluent system is essentially managed by the local municipality. So we minor treat our water and it goes into the municipalities. In West Monroe it's a different process. Down there we literally run a waste treatment center not only for ourselves but we actually do some work for the city of West Monroe as well. So the West Monroe is a very unusual environment relative to any of our other paperboard mills. So you would not expect -- that type of equipment doesn't even exist in our other mills.

Okay. That's helpful. And then, last question, I know you guys provide it in the Q. I didn't see it. But just your credit agreement EBITDA it at the end of '06.

At the end of '06? It's 325.4 million.

325.4, okay. Great. That's what I needed. I appreciate it. Thanks so much.

Thank you. And there are no further questions at this time, sir.

All right. What want to thank everybody for joining us this morning, and we'll be back at the end of the first quarter. Thanks. Good-bye.

Ladies and gentlemen, this concludes today's conference call. You may now disconnect.