Hubbell Inc (HUBB) 2002 Q4 法說會逐字稿

Good afternoon. My name is [Shayla] and I will be your conference facilitator today. At this time I welcome everyone to the Hubbell fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks there will be a question-and-answer period. If you would like to ask a question during this time simply press star, then the number one on your telephone keypad. If you would like to withdraw your question press the pound key.

I would now like to turn today’s call over to Mr. Tom Conlin, Vice President of Public Affairs. Please go ahead, sir.

Thank you [Shayla] and welcome to everyone. It’s the fourth quarter and full year 2002 earnings conference call for Hubbell Incorporated, and thank all of you for joining us today. My usual housekeeping before we get started. Two notes. One is that this call is being simultaneously webcast on Hubbell’s corporate Internet site where it will be archived two hours following the conclusion so that you can rehear it by visiting the Hubbell Web site.

The other note is to refer each of you to the paragraph in the press release regarding forward-looking statements and I’d like to incorporate that paragraph by reference into the conference call here today.

With me, as usual, are Tim Powers, President and CEO of Hubbell, and Bill Tolley, CFO of Hubbell Incorporated. And with that I’ll turn the conference call over to Tim Powers to discuss the quarter and the year.

Thanks Tom. I’d like to begin with a market overview, just to review the markets we serve and the economy that we’re facing in the fourth quarter of 2002 and into 2003. I’ll recap a little bit of my view of the results of the Company for the year and the quarter. I’ll turn the conversation over to Bill, who will go through the financials highlights and then I’ll come back and talk about how we’re progressing on our strategy and our outlook for 2003.

Let’s talk a little bit about the economy and the markets that we face. I would say that from our third-quarter call to now we have seen very little change in either the general industrial economy or the markets that we serve. Signs of that are the Purchasing Managers’ Index is hovering around 50. Manufacturing unemployment and industrial production have not improved at all. Commercial construction is continuing to decline and the utility market is facing great uncertainty with the upheaval caused by the energy trading collapse. There are almost depression-like conditions in every industry.

However, that’s the market that we’ve seen most of the year and not much has changed. So it’s not great, but we don’t believe it’s getting much worse. There are some hopeful signs. We believe that most industrial companies are going to spend somewhat more money, although not a lot more money, in capital spending for 2003. The November leading indicator — economic indicator — was the highest since 2001. The Purchasing Managers’ Index is beginning to rise. And the residential market continues to remain strong with no signs of weakening. So there are some bright signs ahead.

Overall though the economy didn’t help us much in 2002, but we were not expecting it. There were plenty of mixed signals and that situation continues today. So like all of those in our industry, we’re just plowing ahead.

Let’s turn to the results for the fourth quarter. I have to say that the results that we’ve turned in for the fourth quarter and for the full year are some that I’m very pleased with. We accomplished just about all our objectives for the year. It was a year in which Hubbell turned around its earnings. We had another major substantial reduction in working capital; completed its restructuring; completed several strategic acquisitions; paid off all of its short-term debt and generated a tremendous amount of cash flow.

In short, we had a tremendous fourth quarter and a very, very good 2002, given the economic outlook and the markets that we were facing.

And now I’ll turn it over to Bill who will give you some more of the financial highlights.

Thanks Tim and hello everyone. I’ll start today with an overview of the fourth quarter results and then add a few comments on segment profitability, the year-end balance sheet, and cash flow.

Our fourth quarter sales of $426 million were up 42 percent from last year due to, as Tim said, the acquisitions we completed in the first half of last year. If pre-acquisition sales of the acquired companies were included in our results, our fourth-quarter sales were down about one percent year over year. As our release said, the fourth quarter P&L included the three items that affected the year-over-year comparisons, all of which were expected and actually discussed in our last call.

First, we recorded $5.8 million, or 10 cents a share benefit from an R&D tax credit claim that we filed in the fourth quarter. Second, a $2 million, or two cents a share, charge for restructuring costs, and under the Accounting Rules, couldn’t be reserved as part of the restructuring program we established in December of 2001. And third, a $10 million, or 11 cents a share, charge to reflect the cost to restructure our expanded lighting business. I’ll have some more comments on the restructuring program and the lighting business a little later.

Excluding those three items, our fourth quarter earnings were 49 cents a share. That’s an increase of 53 percent compared to earnings in the fourth quarter of 2001 of 32 cents a share, again excluding the impact in both years of restructuring provisions, gains on sales of businesses, and the elimination of goodwill amortization.

Now to the operating results. And as I run through the comparisons, I’m going to be excluding again the impact of the elimination of goodwill amortization, restructuring charges, and gains on sales of businesses.

The overall pre-tax operating margins for the fourth quarter was just over 10 percent. That’s up 2.5 points from last year’s fourth quarter, and up 1.5 points compared to the third quarter 2002 figure. Electrical segment sales for the fourth quarter, $316 million, were, like the third quarter, up due to the LCA and Hawk acquisitions.

The segment-operating margin for the quarter was 10.8 percent. That’s up two points from the fourth quarter of last year and up just over one point sequentially from the third quarter. Sales and operating margins improved again in our RACO Electrical products business due to increased share of market and improved productivity. Wiring device sales were up modestly year over year with higher operating margins despite slow industrial activity.

Harsh and hazardous sales and operating margins were essentially flat year over year due to continued poor conditions in oil and gas and heavy industrial markets.

Our lighting profitability margins again reached levels that were higher than our expectations due to continued strength in residential new construction and remodeling activity.

Power system segment sales continued on an upward path. Fourth quarter sales here up two percent year over year with an operating margin of 11.6 percent. That is up four points year over year and up almost two points sequentially from the third quarter. As Tim said, utility markets continue to suffer from general uncertainty and low rate to capital spending, but cost and productivity initiatives continue to increase this segment’s profitability. In late November and December we also added some unexpected sales and margin from ice storms.

Finally, in the industrial technology segment, a very weak high-voltage test market and lower steel and oil and gas project sales held year-over-year sales flat. The fourth quarter segment-operating margin of 3.8 percent improved by three full points year over year, largely as a result of improvement in the GAI-tronics special communications business.

Continuing down the P&L now, our fourth quarter net interest expense rose by about $2.5 million from last year. That’s all due to the service on the debt that we issued to finance the acquisition of LCA.

Our effective tax rate for the quarter was unusually low due to the R&D tax credit I talked about earlier. If you exclude that R&D tax credit, the fourth quarter effective rate was 23 percent, unchanged from the third quarter rate.

One note on pensions. In December we contributed $25 million of cash to our defined benefit pension plans. About half of that contribution increased the funding level in LCA’s pension plan, which was under-funded when we bought the business. We also recognized during the quarter an $11 million non-cash charge to equity to recognize minimum pension liabilities in several of our plans. The charge again had no effect on our earnings or our cash position.

For 2003 we’re changing two of the major assumptions used to determine pension expense. First, the rate used to discount future pension obligations will drop from 7.25 percent in 2002 to 6.75 percent in 2003. And second, the expected rate of return on pension plan assets will drop from nine percent in 2002 to 8.5 percent in 2003. We expect that these changes, as well as the impact of a lower rate of return on plan assets in 2002, will increase our 2003 pension expense by about $6 million pre-tax, about seven cents a share.

Looking ahead, it’s quite difficult to forecast the size of future pension contributions since investment returns can’t be predicted and that’s what directly impacts the need for contributions. But, as of today, we are forecasting a contribution of around $20 million to our pension plans in 2003.

Clearly, from a financial standpoint, the highlight of the year was cash generation and debt reduction. For the year we generated over $150 million of free cash flow from operations. That’s after capital spending. Translated into per-share figures, that’s $2.50 per share free cash flow. Our fourth quarter free cash flow from operations was about $20 million. It came from several sources: net income of $27 million, continuing reductions in working capital of about $15, as well as some cash proceeds from sales of facilities that we talked about in the last call. That was all offset by the $25 million cash contribution to our pension plan.

During the quarter, total debt dropped by over $100 million, from $405 million at the end of the third quarter to just under $300 million. We repaid all of our short-term commercial paper borrowings during the fourth quarter and had no short-term debt at the end of the year.

If you look at net debt, that is, total debt left in cash and investments, net debt dropped from $181 million at the end of the third quarter to $167 million. Again, this reduction is after fourth quarter cash dividends of $19 million and the contribution to our pension plans. Our net debt to capital ratio at the end of 2002 was 18 percent. We believe this gives us a substantial amount of financial flexibility as we head into 2003.

And as we forecast during our last call, we reduced our Puerto Rico investment balances during the quarter by about $50 million and used the cash to reduce debt. We expect to reduce the remaining investment balances on our balance sheet, which totaled $92 million at the end of the year, by about $40–$45 million during 2003.

A few details on working capital. During the quarter we reduced net inventory by about $15 million. Our day’s supply improved by about two days in the fourth quarter with a five-day reduction for the full year.

Accounts receivable dropped by $20 million during the quarter with DSO, or day sales outstanding, also improving by one day. The full year 2002 improvement in day sales outstanding was four days. Our emphasis on lean manufacturing processes and more efficient management of working capital we believe will continue to be a source of cash as we move forward.

As I said earlier, for the full year 2002, Hubbell generated $150 million of free cash flow from operations. The major components were $83 million of net income; $25 million added back with a non-cash write-down of goodwill; about $55 million total generated from working capital; and about $20 million generated from spending less on capital expenditures and depreciation expense. All of those items, less the $25 million pension contribution, are the major components of the $150 million.

Another, perhaps easier way to think about the full-year cash flow is, of the $270 million of additional debt that we took on to make acquisitions in 2002, we’ve already paid off $100 million of that additional debt after paying $78 million of dividends, which is equivalent to a four-percent yield at today’s stock price, and after contributing $25 million to our pension plans.

For the year, we made about $23 million of capital expenditure. That’s about 50 percent of depreciation expense, about 1.5 percent of sales. And while we expect to increase our capital spending in 2003 modestly, the 2003 spending should continue to be well below the level of depreciation expenses, and therefore, should continue to be a source of cash in the near term.

And finally, a couple of notes on the restructuring program. Many of the actions that we expect to take in 2003 have not yet been announced and therefore were not reserved in the fourth quarter provision. The expected size of the total 2002–2003 program is around $30 million. About half of this is expected to be non-cash write-downs. The other half, about $15 million, will cover cash costs for severance and plant and warehouse closures. Of the $30 million total expected program costs for 2002 and 2003, we recognized $12 million in the fourth quarter: the $10 million P&L provision that I mentioned earlier, as well as $2 million accounted for in the purchase price accounting for the LCA acquisition.

We expect the remainder of the program costs will be recognized in 2003 as specific actions are announced and implemented.

And with that I’ll turn it back to Tim for some comments on 2003 and our strategy.

Thanks Bill. Just to recap our strategy, it certainly remains unchanged and we’re focused on the future. First of all we have a keen interest in continuing to improve our operations and the productivity in our plants; to improve the delivery performance to our customers, which is already at among the highest in the industry; to continue to outsource to low-cost environment; to reduce our working capital, and again, we’re going to have a big year in inventory reduction with a target of our $40—$50 million.

We want to continue to grow our four core businesses, which are wiring systems, power systems, electrical products, and lighting fixtures and controls. And we are looking for reasonably priced properties as the year proceeds, and we hope to conclude some transactions, which will expand the size of Hubbell.

The outlook for 2003 in terms of the general economy is pretty much a continuation of 2002. These are all factored into our outlook for sales and profits. But we expect kind of a bumpy road to continue. We are seeing the industrial economy beginning to gradually improve, but the commercial markets continuing to decline by between five and 10 percent. We expect the residential market to remain strong and the utility market to remain at the same level, although the FERC’s recent announcement will eventually lead to increased spending in transmission. Like other companies, Hubbell is facing headwind of higher pension, insurance and benefits costs. These are also factored into our outlook.

We expect the full year impact of acquisitions to be $200 million on sales. We expect to increase our operating margins by one percent, or 100 basis points. We expect our capital spending to be up a little bit this year, more in the range of 50–60 percent of depreciation. We are going to continue to work on the reduction of working capital, and we expect our earnings per share to be in the range of $1.95 to $2.15, about $2.05, and that’s five cents higher than we have given you in terms of previous guidance.

We expect our tax rate to increase by about three to four percentage points as a significantly larger portion of our total net income comes from U.S. sourced income. And therefore, we’re expecting a better year, about $1.9 billion in sales and about $2.05 a share.

And with that we’d be happy to take any questions about 2002 or 2003.

At this time I would like to remind everyone, in order to ask a question please press star, then the number one on your telephone keypad. We’ll pause for a moment to compile the q&a roster.

Your first question comes from Michael Reagan of CSFB.

Thanks. There were a lot of numbers thrown out. I was wondering if you could give us again the pro forma operating income, excluding all the charges. Because I get the — if I adjust your tax rate of 23 percent, I get to 52 cents a share of earnings, so I’m just wondering what we’re doing differently.

Mike, let me take a crack at that from a earnings-per-share standpoint. For the full year…

Bill, let’s just talk about the quarter to try and make it as easy as possible.

Earnings per share as reported, 45 cents. The R&D tax credit, about nine cents impact. The lighting restructuring, 11 cents added back. And the 2001 restructuring program, two cents added back, to get back to 49 cents.

OK. Bill, let’ just try and take a different stab at it. The restructuring and lighting and issues there are all pre-tax, correct? I mean, you’re giving us the after-tax number, but you walked through operating income by segment, excluding the charges, correct?

Yes.

OK. And it was 34.2 at electrical?

Yes, that’s correct.

OK. What was power? I had 9.1.

9.1.

And 1.2 at industrial.

Yes.

OK. So that’s 45 — 44.5 of operating income. Any income — any impact from charges or the R&D credit below the line but above pre-tax and interest expense, investment income, or other net?

Say that again.

Was there any impact from any of the non-recurring items, the R&D credit or charges in interest expense, investment income, or other net?

The answer to that is ‘no’.

OK. So, on a pre-tax basis, and then if I adjust for what you say that tax rate was — would have been normalized at 23 percent, I come up with 52 cents. I’m not trying to split hairs here. I’m just wondering why you’re sort of guiding to 48–49, you know, on sort of a pro forma basis. Where is the three cents that I’m missing?

It’s the tax rate on all three items, which is the extraordinary items.

But again, if I go back and take out all the extraordinary items out of operating income, we agree that it’s $44.5 million. There’s nothing between operating income and pre-tax. And if I just adjust the tax rate to 23 percent, which is what you said it would have been without the non-recurring items, the R&D tax credit, I get $31 million of after-tax, or 52 cents a share.

I think the answer to that has to do with the tax rate on the extraordinary items and that the lighting restructuring is a U.S.-based restructuring at a higher tax rate at 36 or 37 percent.

You still want to be CFO, don’t you?

No. I don’t want to do that anymore. I’m just trying to add to the answer.

But Tim, then operating income should be lower. In other words, then the electrical operating income shouldn’t be 34.2 on a pro forma basis. It’s got to be lower. Do you see what I mean?

No.

In other words — sorry — you walked through — we walked through what the pro forma operating income was, ex charges and ex the restructuring. So either there was — I see what you’re trying to say relative to the tax rate, but then your restructuring tax rate wouldn’t have — your normalized tax rate, pro forma tax rate, would not have been 23 percent. I won’t hold up the conference call; I will follow up offline.

Let’s talk offline.

That will be fine. Thank you.

Our number is 49 cents.

OK.

Thanks.

Your next question comes from Jeff Sprague of Salomon Smith Barney.

Well, I concur with Mike in having equal difficulty. Can we maybe try it a slightly different way, just so I can pull some of the numbers together? You gave us the pre-tax amount of the charges, but on an after-tax basis, you gave us the per-share amounts. Can you give us the dollar after-tax amount on the charges? I think, at a minimum, we’ve got some rounding, although I don’t know if it accounts for three cents.

Sure. The 10.3 tax effected at a 38-percent rate is $6.4 million after tax. That’s the 11 cents per share; 2.1 after tax, again using a 38-percent tax rate, is $1.3 million after tax. That’s the two cent figure that I quoted; then the $5.8 million tax expense reduction — it doesn’t get tax effected if it’s already tax effected — on roughly 60 million shares is 10 cents a share. Those were the three items that we excluded to get from the 45 cents reported to the 49 cents from operations.

OK. And the share count is 60 million, just to be precise?

Roughly, yes, a little bit less than 60 million shares.

Can — I’ll follow up offline too if I can’t get that to work, but to change gears a little bit, if you look at kind of the acquisition landscape, is there a willingness to kind of consider kind of adjacencies beyond those four businesses, key areas that you focused on, or should we expect you to stay pretty strict to those four key areas over the next year or two?

We’re sticking to our strategic direction here, which is to try to get the critical mass of each one of these businesses to be significantly larger. And we’re going to be paying exclusive attention to those four areas.

OK, great! And I also just want to confirm on the guidance on the pension expenses, is that solely pension? Is there also other post-retirement headwind to take into consideration?

Yes, there is some post-retirement headwind, to use that word, but it’s a very small figure in relation to the pension numbers that I quoted you earlier.

OK. Alright, that’s good for now. Thank you.

Sure.

Your next question comes from Bob Cornell of Lehman Brothers.

Yes. Good afternoon everybody. The numbers don’t flip, so we’ll have need to go offline for Tom sitting there doing nothing. What about the lighting business? The other parts of the lighting business, that the residential business is strong. What’s going on in the fluorescent, all the other pieces of lighting? That just represents an upside to pricing. What do you guys think the combined lighting business can do in ’03, both in revenues and margins?

We’re suffering through the decline in the commercial market, as are all the other players in the industry. And we are also coming out of the period where we’ve changed the lighting agents that represent us. And hopefully they will get some more traction. And we’re looking to have that business be about the same level of sales that it has been in 2002, perhaps a little bit more. And in the face of what will be a principally down market, that means we will have to regain several points of market share to be able to achieve those kinds of sales.

And at the same time, we’re expecting the bottom line on the lighting business to continue to improve from the effects — the positive effects of restructuring on reduction of fixed costs and excess capacity.

One of your major competitors on their conference calls have talked about, you know, very aggressive pricing in lighting. Is that still going on or has there been an easing of some of that price competition?

I would say that it’s tough pricing situation, but it’s the kind of pricing that you would expect to see, given these economic conditions where we’re all struggling with larger capacities than we need and we’re trying to keep as high a capacity utilization as we can. So it’s a constant tradeoff and there are always one or two players who are more in need of volume than others.

You know, just on that point, when you get finished with the program you mentioned, the full $30 million plan, I mean, and level sales, I mean, what capacity utilization will you be at?

Well, still not at 80 percent, so we have plenty of room as the economy comes back to get into what, you know, I would call 80 percent, the normal level that you would operate 80–85, the normal level that you would operate a plant at. So if we can expect a normal economic recovery in the industrial and commercial markets a couple of years out, we have plenty of capacity to handle that.

Just another question, you made the comment about ice storms benefiting power. Have you ever put a dollar figure on what that was?

Well, the sales from ice storms, from all storm effects, was somewhere in the $5–$5.5 million of sales for the full year.

OK. How about this quarter?

Timothy H. Powers. I believe $1.5 million is the number.

OK. Thanks everybody.

Sure.

Your next question comes from David [Gearup] of [indiscernible] Price.

Most of my questions have been answered. I just wanted to ask a couple of quick questions. If you look at the electrical business, normally margins in Q4 have come down a little bit relative to Q3. We haven’t had the LCA business in there. This year, on sort of lower sales we were able to see margins move up a little bit here. Can you talk a little bit about — is that just the cost [indiscernible] driving through or are is this at the right run rate? Is the seasonality sort of distorted because of the LCA acquisition?

There were a lot of questions there, David, but let me try to — I’ll say that first of all we think that the cost cutting from the restructuring plan that we initiated early in the year certainly is having a benefit on the margin line of the electrical business, and also power systems. So that’s a contributing factor.

Second, last year’s fourth quarter was not a very good quarter by anybody’s imagination, but we’ve had a steady progression of improving margins and I attribute more of that to cost reduction initiatives on our part than any change that you would see in market cycles or geography of the year. So I think it’s more internally driven than externally driven.

OK. Can I also ask you, given how good residential lighting has been, how bad sort of commercial industrial lighting has been, could you just talk a little bit about you — do you think with the entire lighting group now, what is the mix between residential and commercial and industrial, given sort of the run rate exing this year relative to what you gave us guidance on that a couple of quarters ago?

I would say it’s — don’t hold me to this number exactly — but it’s approximately 20 percent of the business is residential. About 50–60 percent is commercial. And the rest is industrial. Maybe I’m a little bit light on industrial, but the largest portion of the business is commercial.

OK.

You know, the typical kinds of applications of shopping centers, fast food, all of those kinds of things that come to mind.

And could you also just address — obviously one of the reasons that you were able to do LCA was sort of the bid and ask — had a buyer and the seller were able to agree on a price there. The bid and ask, the spread for the other areas you’re looking to do acquisitions, is it sort of compressing? You know, you seemed a little more confident on this call relative to other calls about your ability to do and execute on acquisitions. Can you just comment a little bit on that?

Sure. I mean I feel that we have done a very good job of integrating the LCA business and our lighting business together. And I think — and I’m not underestimating the job that has to be done, because while we’ve completed all the front-end processes, we certainly are now knitting together the plants and so on. But I feel confident that our management team has been able to integrate a large acquisition and I have a lot of confidence that we can do that again.

I apologize, I was referring more to the — not only the ability to execute on acquisitions, but the ability to consummate an acquisition, to outline that price, the bid ask, between the buyer and the seller.

Whether we can find as attractively priced property as this one remains to be seen. And again, you’ll always pay more, or a higher price, for premium brand names in our industry than you will for, you know, second chair kind of brand names. So it’s hard for me to predict, but I would say, you know, it’s unlikely that we’ll find one as well priced as LCA. But I’m still expecting acquisitions to be accretive basically from day one.

OK. Thank you very much.

Sure.

At this time, I would like to remind everyone, in order to ask a question, please press star, then the number one on your telephone keypad. Please hold for your next question.

Your next question comes from Jill Evans of JP Morgan.

Thank you very much. I just had two quick questions. One, I’m curious what drivers you were looking at that made you raise your guidance by five cents just from a couple of weeks ago when we spoke.

Internal review of our plan for this year, this coming year, and how well and how fast we are beginning to see the benefits of some of the initial actions of the lighting restructuring charge.

OK. So it’s certainly not an external factor.

Not at all. This is all internal.

And just the second question, in the first quarter what is the timetable for the integration of the LCA facilities? What are we going to look at as accomplishments in the next quarter there?

It’s an all-year program. It’s — some of the actions, as Bill said, we have not even announced yet, so according to the rules we can’t include them in the chart, so it’s going to be steady as the year goes on that we’ll be initiating one series of actions after another.

OK.

But it’s hard for me to pinpoint what benefits might accrue to one quarter versus another.

OK. Just wondering. Thank you.

We will, as 2003 rolls out, comment at the end of each quarter on what actions have been completed or announced. We’ve got one factory that’s in the process of being closed and of course, product rationalizations have been underway and were, in large measure, accounted for in the fourth quarter. And we’ve also got some overhead reductions and actions on overhead reductions as well. So we’ll comment more specifically on what we’ve completed at the end of each quarter.

OK. Thank you.

Your next question comes from David [Gearup] of [Indiscernible] Price.

I had one other question. Can you maybe spend a minute talking about sort of the [indiscernible] maybe on — if it’s a FERC announcement or if the utilities are on a higher rate of return on their distribution expenditures, the implications, when we can see some benefits from that? Maybe you can talk about that maybe on more of an intermediate term basis.

Sure. Well, I think there are two areas that are being challenged here by FERC. One is, they would like to get under their control all transmission as opposed to a good portion of it is not under their control. And the second is they’re trying to get control of the rate of return. But I would say the political process that has to roll out after their announcement is considerable. So, while I’m optimistic in the longer term, I don’t really think we’re looking at an impact in 2003 that these rules would become certain and hard, and therefore, in time to start to begin to make different decisions with respect to transmission. Those are big capital investments. The planning cycle on them is over a year, but I would say, as we go forward in ’04 and ’05, I’m quite optimistic that should this become in fact the case that there is a higher rate of return and they do get control of all of this, that it will bode well for our transmission business over the long run.

Just one last question. I promise this is the last one. Did the tax rate change? As we go forward in the next few years and as you, you know, get closer to making some — hopefully getting your margins back into the low to mid-teens, are we also going to see that tax rate migrate up to closer to 30, or you know, low 30s, or is that 300–400 basis points, which I guess will push it to 26–27, sort of the right, you know, stable level of taxes — stable tax rate going forward?

David, it’s Bill. As we’ve discussed, it’s hard to make predictions about where tax rates and effective rates in particular are going to be two and three and four years out, but we can say that, especially if you don’t know where the sources of your income in the future are going to be, but we can say in general terms that because LCA’s income is generally taxed in the United States that over the next two to three years you will see a gradual rise, excluding any other actions taken by the Company to reduce its tax bill, or alternate sources of income, that you’ll see a slow, steady increase in the effective tax rate. You’re talking about a point or two per year and not a major change over and above what we’ve already talked about for 2003.

And Bill, you would think that there are some things you can do to offset so that you won’t have 100–200 basis points of tax rate in ’04 and ’05.

We’re working very hard on alternatives to maintain our tax rate right where it is right now.

OK. Thank you.

At this time there are no further questions. Mr. Conlin, do you have any closing remarks?

Nothing, other than to say thank you to each of you for joining us here today.

This concludes today’s conference call. You may now disconnect.