Martin Marietta Materials Inc (MLM) 2002 Q4 法說會逐字稿

Please stand by. We're about to begin. Good day everyone and welcome to this Martin Marietta Materials’ conference call. Today's conference is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to the president and Chief Executive Officer, Mr. Stephen P. Zelnack. Go ahead sir.

Thank you for being with us this afternoon. I have with me, Janice Henry, Chief Financial Officer, Ann Lloyd, of our Controller and Chief Accounting Officer and Roselyn Bar, General Counsel . The fourth quarter was significantly affected with bad weather particularly in the Southeast and Southwest. Aggregate shipments in our Southeastern states including North Carolina were down about 16% while shipments from in the Southwest declined 12% from the prior year period. Although the economy remains soft with commercial construction at low levels, the decline in shipments was more affected by weather during the quarter.

For the quarter, sales of $353m dollars were 8% below the prior year period. While operating earnings were $29m as compared to $51m in the prior year. Earnings per share for the quarter were $.33 per diluted share, versus $.52 in the prior year period.

For the full year 2002, net sales of $1.5b was down about .5%. Earnings from operations was $175m as compared to the prior year of $197m. Other income was about $6m higher than prior year, due primarily to the divestiture of plants in the Columbus, Ohio and Fredericksburg, Virginia areas in the second quarter.

The company recorded a charge of $11.5m related to the impairment of goodwill at our road paving operations in connection with the adoption of FAS 142 concerning goodwill and other intangible assets. Net sales for the aggregate segment for the fourth quarter was $335m, down 8% from the prior year period. Our Heritage aggregates operations experienced a 10% decline in shipments and an 11% decline in production. As noted earlier, the Southeast and Southwest have significantly higher reductions based on poor weather conditions.

On a positive note, in our central division, which is predominantly our water transport quarries, we recorded a shipments increase of 4% as we continue to broaden our markets and distribution opportunities from our offshore operations in the Bahamas and Nova Scotia at our river quarries. Pricing for the quarter was up 4% compared to the prior period favorably influenced by product mix. Inclusive of acquisitions and divestitures, shipment volume declined 12%.

The low production rate for the quarter caused an absorption of fixed cost. In addition to the weather issues demand continued to be soft based on further decline in commercial construction along with the uncertainty associated with the federal transportation program. Congress is still not passed a budget for fiscal year 2003. However, the positive news is that it appears that both Houses and the administration are prepared to move ahead, in passing a transportation bill at the $31.8b level. If passed at this level, this should be a positive beginning in the second half of 2003. For the full year 2002, net sales the aggregates segments were $1.423b which is 1% above the prior year all due to acquisitions. Earnings from operations is $170m as compared to $194m in the prior year.

During the year, we completed six acquisitions, with a two most significant being the four U.S. Aggregates Plants south of Birmingham, Alabama and the Lucstone(ph) Quarry near Burlington, North Carolina. Performance at these locations exceeded our expectations during 2002. During the fourth quarter, we brought on line a major new plant facility near Hot Springs, Arkansas. When we purchased this location in 1998, shipments were about 1.2m tons annually. Over the past two years, we have more than doubled shipments by expanding the rail business in Texas and Louisiana. In order to meet the increased demand we have been operating with a small permanent plant supplemented by two small portable plants. The new plant will eliminate all three of the other plants and provide a major reduction in production cost. In addition, we are consolidating the rail serve business from a recently closed high-cost quarry near Little Rock. Expected result is well over 3m tons of annual shipments with significant cost reduction and profit improvement. This is a good example of the types of projects that we have been working on.

Our Magnesia Specialties business reported fourth quarter sales of $18m which is a 10% decline from the prior year period. Operating earnings for the quarter was $600,000 versus $1.6m. For the full year, sales of $74m decreased 25% primarily due to sales of certain refractory assets in 2001. Operating earnings were $4.8m an increase of $1.6m over prior year. During the quarter, we completed a long term agreement with Dow Chemical whereby they will purchase the waste brine from our Manistein(ph), Michigan for use as feed stock in making calcium chloride products at their Letting, Michigan plant. This will be a positive to income beginning in 2003, with full impact in 2004. Based on a number of factors, we expect in 2003, a ramp-up in our shipments of our Flow-Mag product and our CellGuard product for use in paper production.

During the quarter we made some significant strides with our new structural composites business. We secured a 185,000 square foot factory location in Sparta, North Carolina which will be use used for assembly of composite products. Also, we signed a licensing agreement, relating to proprietary composite sandwich technology, which will be used in a variety of flat-panel applications. The Sparta facility will be used for assembly of our composite bridge decks and for assembly of our all composites truck-trailer, called composite trailer. We are also quoting a variety of composite products into the rail car industry and other transportation and construction applications. 2003 will be a ramp-up year with 2004 being our first full year of business. Our objective beginning in 2004 is to grow this business to $300m to $500m in revenue with a 15% EBIT margin over the next five to seven year period. We believe this business offers positive opportunity based on the potential for a high organic growth rate, low capital intensity and a non-cyclical revenue and profit source based on diverse product lines and the opportunities for substitution for existing structural materials.

During 2002, we focused on paying down debt. We reduced our debt by $67m, and reduced our debt to capitalization ratio from 44% down to 41%. After adjusting for funds in escrow for tax free exchanges, and the impact of interest rates swaps on the debt calculation, the true ratio is 40%. We expect to continue debt reduction in 2003.

The outlook for 2003 remains uncertain. The final appropriation level in the federal transportation bill, the situation with Iraq, including its impact on energy prices, and the general economy being major variables. We expect aggregates volume to be flat with pricing up about 2%. Given current knowledge, we expect our earnings in 2003 to range between $1.95 a share to $2.25 per share. With the possibility of war and its impact potential on consumer confidence and energy prices, our view is that there is likely more down side risk than upside opportunity in 2003.

At this time I'd be pleased to take any questions you may have.

Thank you sir. Today's question and answer session will be conducted electronically. To ask a question press star followed by the digit one. If you are listening on a speakerphone, you may want to disengage the mute to allow your signal to reach our equipment.

First question with John Reilly with CJS Securities. Go ahead.

Good afternoon. Regarding your plant in the Bahamas, what can you say about volume and profitability in the quarter and are there any additional steps needed to get the plant to full production?

Volume and profitability in the quarter were certainly an improvement over where we've been. The volume side of the equation is coming along very well. In fact, we had announced in the third quarter that we had picked up significant new business for that facility. And the objective is to continue to grow that, and I think we're in a position to do it. So I'm less concerned about volume. The production cost side of it, we're still not totally there. We've got -- still have some issues related to deposit problems, trying to make sure that we're mining in the most cost effective way. But the cost structure is much improved. And we're on a course to get, you know, get to where we set out to be. So we're still not there but much improved over where we've been.

Okay. Next question focusing on your capital expenditure budgets. What was Capex in the quarter and given your outlook for demand in 2003, where can we expect Capex in 2003?

Okay. Janice will pull up, you got the quarterly number? $43m in the quarter. And that was more than we had anticipated. What's happening is that unlike the last couple of years, where all the projects we're doing lag and drag, because of lack of personnel available or a company's busy, nobody's busy out there right now so we had the opportunity to move projects much quicker, got a lot of attention, and we completed some projects at a faster clip than we expected, therefore, the higher capital expenditure level than we anticipated. As we go into 2003, it's a year where we're looking at expenditure in the DD&A level, somewhere in the $135m to $140m range as we're looking at in our capital plan. And depending what conditions are as we go forward, we're going to play it pretty cautiously. That could be pulled in, you know, if the environment were to get a little worse than we think. We're not going to start off the year by expending all the capital plan.

Thank you.

Sure.

Next question comes from Jack L. Kelly with Goldman Sachs. Please go ahead.

Good afternoon.

Hi, Jack.

Two questions, one on the Heritage volume outlook for '03, the flat number. Can you give us an idea, you know, how maybe the T-21 number affects that? I know it's tough to figure out where all the stone goes, but you know, let's assume 40% or 50% kind of go into roads, half of that is state, half of that is T-21, how you are figuring out the end market that end up with a flat number for the year and secondly, just on the composite business in terms of what you might be investing there over the next two years or so to kind of generate that $300m to $500m, you know, out three or four years.

Okay, good questions. If you take the highway segment in total, it's about 40% of our business. And roughly half, it's a little bit more than half at the state level, little bit less than half from federal moneys. Our expectation is that we are going to see an increase. We know we're going to see an increase or confident we're going to see an increase in '03. The question is how much of an increase. And that's going to be determined by the Omnibus Conference Bill that they're in the midst of right now. They just did as I understand another continuing resolution. That takes it out to February the 7th. We are told that we should expect another continuing resolution beyond that. You probably are looking at the middle of February before the omnibus bill is put together, and ready to go forward to the President. And that's probably most optimistic timetable. So we'll know a little bit more, you know, when they finish that up we'll know a lot more. We're looking for a positive there. We would expect that the commercial construction side is not going to drift down much more. It probably drifts down, drifts down a little bit more in the first half, hopefully by the second half we see a trough, a clear trough, and perhaps just a little bit of pickup. And the residential side looks like, you know, it's fairly flat, at a good level. You know, some possibility of a slight decline there. But that's how we're getting there coupled with the fact that based on projects undertaken and positions expanded we are in fact picking up additional market opportunities.

Steve, on the 40% that is kind of related to roads, half of that is touched by T-21 so that should be up. What about the 20% touched by the states and localities, that would seem like that would have to be down.

I think the federal part of it is going to be a much prettier picture than the stateside of it. There are some states that are in deep, deep trouble. Actually I read a state by state synopsis yesterday, and probably the two that stuck out the most are Virginia, which according to the numbers I saw, you know, they're looking at a $6b deficit. They're the only state that did not take advantage of federal allocation under T-21 in this recent year, this past fiscal year. They left some money on the table. And they actually stopped construction projects underway, which is rare. So they have a deep problem based on the magnitude of the deficit in California, certainly appears that that problem is pretty severe. Those are the two that kind of pop out. But virtually every state's dealing with it. You know, the states that we are in, I would expect to see a slight negative, Jack. But the positive for us is that the work in the areas, the big areas that we're in, in key states, looks pretty good.

So you know, a lot of times it comes back to specific metro location, where you have your plants, and you know, overall I think we're positioned pretty well for the coming year. On -- does that answer that question?

Yeah, fine, thanks.

Okay. On composites, you know kind of an interesting opportunity. We've talked about it a little bit in the past but two things have happened that trigger more disclosure and you know, we'll put it on your screen and we'll be talking about it more as we go forward.

First of all, we did take down the factory location in the fourth quarter and we put out a public release on that so we physically made that move. Secondly, we did acquire the additional proprietary technology in the fourth quarter, and frankly, that's something we've been waiting on because panel technology to go with our bridge deck support technology is a very important component of what we're working with.

The capital intensity of composites is very low. And we structured it that way particularly in the early years. As you might imagine in looking for a factory site, your choices are many, and your pursuers are few. We actually had 84 buildings to look at on the first cut in western North Carolina and by the time we got through, we wound up with a lease arrangement on that building which is extremely attractive with an option to buy. So it will be several years out before we actually make the capital component of the investment. We will be setting-up equipment in the facility for assembly lines. When you look at that, in working capital in the first couple of years, say, after 2004, it's tough to see us having, you know, more than $10m or so invested in that business at that point. The growth in investment as we go forward is, you know, as we see it at this point is going to be, you know, purely incremental related to particular product lines and supporting the working capital necessary to finance the business. This is not a capital intensive business which is one of the very appealing parts of it. We're going to be doing limited. manufacturing which means we don't have big, complex production lines with high investment. It's predominantly assembly, with the rope manufacturing done by other companies that we have relationships with. So we'll be buying shapes, components, on most of the structural part of it. And then we'll be manufacturing the panel side of it at our Sparta location. So hopefully that gives you an idea.

Thanks.

Sure.

We'll go to David D. Weaver at Legg Mason.

Will you give us an idea of the pricing on volume and market?

I'll give you the volume. Virginia/Maryland area down about 6%. North Carolina down 17%. And I can assure you that wasn't driven by the soft economy, a small portion. That was weather. Southeast, the rest of the Southeast down 15.5%, same issue. In this part of the country, we just skipped fall, went straight from summer to winter. In the southwest which we got off to a very good start in the southwest the first half of the year, they got hammered, same issue in the fourth quarter. Volume's down 12%. Mid-America area, Indiana, Ohio, down 6%. Midwest with Iowa being the key state, surrounding states, down 8%, and central, the water born area which is coastal southeast coast, Gulf Coast predominantly and the river markets, up 4%.

Okay. Could you give us a little color on the Texas market? I know that's probably your largest market but as you go sort of region by region there what you were seeing?

Sure. The two strong areas in Texas have been, and we think will continue to be, the south Texas NAFTA corridor down in the Corpus Christi, Brownsville, Laredo area. We had a very good year this past year and we expect we're going to see further improvement and positive demand in that area, driven truly by NAFTA. San Antonio market looks positive and we're on course, we started out with a very, very good year there and again we got hammered by the weather conditions which I hate to talk about but it's just a fact. And as we look at '03 in San Antonio, we think we're going to have a good year there. Houston market is a little more problematic. We think it's going to be an okay year there, okay meaning that it's going to be somewhat similar to '02, could be up a little, could be down a little.

And then the big question mark is Dallas, Fort Worth and our Oklahoma locations which are smaller areas. Dallas, Fort Worth, there is some significant transportation work in Dallas, Fort Worth in '03. That will be the primary plus in the market. The commercial market will probably drop a little bit more. That's a very, very soft commercial market. So all in all, I would expect that that area probably hits the trough this year. And hopefully, begins to rebuild with transportation offsetting the building construction side. Does that help?

Yes, that helps. One final question. Could you talk about any potential pension fund contributions that you might have to make this year?

Sure. I'll ask Janice to do that.

Dave, we would expect to see some pension fund contribution this year. The exact extent of that is still being worked. As I look at the numbers right now, we think it would be fairly insignificant to our cash flow, probably in the neighborhood of $15m.

Okay. Thank you.

Sure.

We have a question from Armando Lopez with Morgan Stanley. Go ahead please.

Good afternoon everyone.

Hi.

Couple of questions. I was wondering if you could talk a little bit about the tax rate in the quarter. It came in much lower than we had expected. What's driving that?

I'll give you a quick answer and Janice can give you the explanation. You can get a lesson in depletion allowance which is one of the most important things in our industry and she'll tell you about the difference between tax deductible and non-tax deductible goodwill.

I'm going to try to do that anyway.

Armando, the tax for the year is an estimate. We begin the year with our estimate of what our earnings are going to be and do an estimate on taxes based on those earnings. Throughout the year, we will change our tax rate as facts and circumstances change. Now, as it turns out, 2002 was a fairly unusual year for us from a tax perspective. In the second quarter, we had the sale of a number of assets, primarily the Columbus location. Associated with the Columbus locations, we wrote off fairly significant amount of goodwill. That goodwill was not tax deductible. Obviously, that wasn't something that we had forecasted originally, so when the sale occurred in the second quarter, we adjusted our tax rate to allow for this non-deductibility of goodwill which in fact increased our tax.

In the third quarter, third quarter is the time of the year where we actually complete our taxes, our tax packages, and submit it to the IRS for the prior year. So in the third quarter we take a look at what we actually pay to the IRS compared to what we thought we were going to pay to the IRS when we did our final year estimate and we basically recorded the difference between the estimate and the actual. When we did that in the third quarter, our statutory depletion deduction was higher than we had estimated and as our practice, we take any difference between the estimate and the actual through the rate. We did that in the third quarter.

In the fourth quarter, coming to the fourth quarter, fourth quarter is when we make our final estimate. And again, it is still an estimate until we actually pay the taxes next year. We've made our final estimate for the fourth quarter. Earnings were actually below our expectations. But when we looked at our statutory depletion deduction, we found that the depletion deduction that we had anticipated was really close to being right about on where our current estimate is. And that's really because, while we did reduce earnings, that earnings reduction was not in areas that affected our depletion deduction. So we were able to get the depletion deduction in spite of the fact that earnings went down. Those two counterbalanced one another causing the rate to go down below where we had estimated in the third quarter.

Okay. So essentially, when you calculate depletion deduction, I mean the state -- the earnings overall came in lower than expected. But the, let's say the activity in those states where you were forecasting a depletion deduction was about in line?

That's correct. That's right.

And another way to look at the whole equation is that if we'd had anything like reasonable shipping conditions of the Southeast and Southwest we would have been well above what we're talking about now. You know, up at the top of the range, maybe even beyond the top of the range.

Okay. Okay. And then second question, on the -- I guess there was about $20m in one-time gains this year. So I'm just wanting to get some more clarity on the guidance going forward. I mean, if you look at, you know, the results for this year, you generated about $144m in pretax income. If you back out the $20m one-time gain you get to $124m. And then if you assume say 2% pricing that gives you an incremental $25m which, you know, say that's offset of some higher costs of 1%, so that gives you like an incremental $11m in cost, which brings you down to about $138m in pretax income. So I guess my question is, you still need to make up $6m somewhere and then to get to the high end of the range you would even need to make up more than that. Where would that come from?

Okay, let me give it to you in a couple of pieces. You know, first of all, we got hit -- the timing of divestitures in '02 hurt our earnings, because we sold the Columbus quarries after accumulating the winter losses but before accumulating the earnings during the year. We sold them about the worst time so that goes away. We don't have the Columbus losses we ate. We don't have the startup costs associated with the Bahamas. In addition to that, we have closed 12 facilities during the year and you kind of zero all that out and baseline, there's about $10m there very quickly.

Okay.

Actually more than $10m. And then, we began to take the improvement projects that we have, and began to take a look at what the yield is. I cited one of them, the Jones Mill project, I didn't site that just because I wanted to pick a plant. I cited it because I think it's going to make a important contribution to earnings in '03. It has been a high-cost plant, high cost three plants, that we're now consolidated one highly efficient plant. It's going to be driven by cost reduction in many different ways. Some of which, good portion of which has already been accomplish. So we'll get the benefit of having that run through our income statement in '03. So that's where we're coming from.

Okay. As you consolidated that plant, like where do -- like how shall we think about that? Where do most of the cost savings come from in that scenario? I mean --

Well, I can give it to you in -- let me think about it. You run three small plants, first of all your headcount, personnel cost is exorbitant. The personnel cost is roughly double what we would have in an efficient plant. So you're going to take that down to a very efficient personnel cost so that's a starting point. You're also expending the energy cost, supply cost, energy in feeding and hauling from three plants. You're expending the energy costs associated with operating three plants. If the plant itself with power consumption, the supply cost in terms of supply and repair costs associated with three plants, two of which are very old plants, it was extremely high.

Okay.

So you take those out, and what we put in is a very well-designed, highly efficient modular plant that has more capacity than the three plants combined. That's why you get in front of it. So you have a significant variable cost reduction. When I say significant, I mean very significant. And then, on the fixed cost side, what you're going to do is you're going to run more tons through that than you were running through the three plants. We expect the tonnage is going to be up 20%, 25% versus what we're running the three plants. So that's where it comes from.

Great. One last one, in terms of your forecast, what are you guys expecting for like diesel cost and natural gas prices?

I don't know. Maybe you could tell us. It's a confounding equation. I can tell you that in '02, we were very positive obviously in the first half of the year as diesel went down. And the second half of the year we were negative and in the fourth quarter we had roughly in terms of total energy cost, natural gas, adjustments on the water for fuel escalators, you know, diesel and such, we were about $2.5m negative. As we go into the first half of '03, we're going to have a negative compare, because diesel is up in the $.90 range now. Last year in the first quarter it was in the $.60s. So we'll have a negative compare there. The offset to that is we're also -- we're dropping out some places that we are consuming a disproportionate amount of diesel. We have renewed a lot of mobile equipment where the consumption is less and that's a positive. But we do expecting to be negative in the first two quarters. From the middle of the year on to the back two quarters we'll compare against higher diesel prices, and you tell me what's happening in Iraq and the Middle East, certainly you can make a positive case that if things go well, we're not sitting here coping with $33, $34 a barrel oil prices. It is not just the Middle East right now. Venezuela is a real problem based on its leading supply position to the U.S. but not just in terms of the diesel gasoline side of the equation. Venezuela is the measured supplier of liquid asphalt to the U.S. through CITGO. And particularly to the eastern sector of the country. And I just listen to one of the major energy company CEOs comment on that. We were on the platform of a convention together. And he said 30 to 45 days, and it's a real problem on the supply side. So hopefully, Venezuela is going to get solved, and you know, Iraq gets solved quickly but you know, who knows.

Okay, all right, well, thanks a lot.

Sure.

Next question, John Fox with Fenomore(ph). Please go ahead.

Hi everyone. Most of my questions have been answered but I have two left. Why not tax rate for '03?

Based on the current estimates of earnings for next year, I'd expect it to be right about where it wound up this year. Should not be a significant differential.

For the full year, huh?

Yes.

And on the debt reduction, I assume that the only debt to repay is the commercial paper, is that -- do you have any other debt you can repay or --

Nothing significant, John. There are some other small pieces, but the commercial paper is the major piece.

What would that outstanding balance be at this point?

It was about $35m the end of the year.

The objective is to get that paid down and have a little positive cash so we reduce net debt below our $700m term debt number and bring the debt to cap down into toward mid 30s.

Net debt below $700m?

That's the objective.

The objective. Okay. Is there any buy-back in that equation also?

No.

Okay. Thank you.

Uh-huh.

We'll take our next question from Barry Hanes with Sage Asset Management. Go ahead.

Good afternoon. Had a question just trying to understand the quarters a little bit. The midpoint of your new range is I guess $2.10 which is not that different from what '02 was. But as we think of the progression on the quarters, is the first half likely to be meaningfully weaker than first half '02 and you make it back second half or is there weather makeup in the first quarter that will help out? How should we look at the quarterly progression? Thanks.

I'll give you qualitative comments on that and that's about the best I can do at this point. We had a miserable first quarter last year. And that was powered, we had Bahamas startup losses which were significant. We had Meridian repair cost, it was the first winter shut-down period we had with Meridian. And we will not have those kinds of things coming at us this year. So if we have something called normal, and I'm beginning to wonder if I even know what it is in terms of seasonal patterns, certainly an expectation that we will have a positive first quarter compared to last year. When you get to the second quarter, we had a report second quarter. We just knocked the socks off. We had good weather, seasonal pattern was very nice, volume was relatively good, costs, we ran our business the way we'd like to run it. We also in the second quarter had significant gain on sale from the divestitures, that will not be repeating. And I would say to you that it will be tough to match up to the operating performance that we had last year, given the environment we're in. You know, volume is going to be tough to come by. So that would be those two quarters. One probably positive, the other probably negative.

You get to the back half of the year, and if we have passage of the federal transportation bill at 31.8 and we get that done pretty quickly, it's likely going to free up some money, you're going to have more workout there, give the states’ confidence that they've got their federal component, and I see that as probably getting us just a little bit more stimulus in the back half. And if you look at the relative comparisons, you have third quarter was not a really bad quarter. It was okay. Hopefully, we have -- we match up or maybe have a little positive. Fourth quarter was a miserable quarter, back to, you know, the weather pattern coupled with bad economy. I hope we have positive compare there so that's qualitative in terms of float.

Thanks very much. That helps. Appreciate it.

Sure.

We will now go to Stephen Kim with Salomon Smith Barney. Go ahead.

Most of my questions have been asked but I have a few left. Specifically, following on a previous question, share repurchase, you indicated that really wasn’t in the mix. Can you give us an idea, is there a price at which point you would find the balance leaning more towards share repurchase instead of debt pay down and how you think about that?

The way we think about it is from our standpoint, we certainly think our stock is cheap. I mean, I'll say that very pointedly. I can also tell you that the management group believes that because we've committed close to $1m for share purchase within the officer group. And you'll see some Form 4s showing up including a pretty significant portion for me. With respect to the company itself, you know, we have said to the people who have loaned us money that we're going to make sure that we are a worthy company to make loans to. Because in the future, we may want to borrow some more money, if the appropriate opportunity comes up. So we're going to stick to the knitting on that. We're going to pay the debt down to get back in the debt cap ratio and other ratios that credit agencies look at and make sure we are where we ought to be, need to be. And then at that point we're in a position to consider and certainly will consider what we do with that free cash flow to the benefit of our shareholders.

Okay. Those share purchases internally occurred in this past quarter, you said the $1m?

You're talking about this month and if you haven't you'll see some Form 4s.

Got it. With respect to the acquisition pipeline, can you give us an indication as to whether you're still seeing or basically the trends you are seeing in the acquisition pipeline?

We don't see a lot that is attractive. Probably the lowest level of things we have an interest in, we've seen in the last six, seven years, we do have some active deals that we're working on. We always do. We also have some active divestitures that we're working on. And I've said before we've got a few more things that we want to divest of. Example, we have a couple of plants up in Columbus that we did not sell to Old Castle. We've indicated publicly that we're going to divest those so you should expect that. We've got a couple of other pieces that we'll probably deal with that way. Not big dollars, you know, not nearly as much as we did in '02. And at that point you know, we'll be pretty much baseline. So we'll continue to look at acquisitions, we'll continue to sort out things that we don't want to go forward with for the long term. And I would expect to have all that divestiture done that we've got on the screen right now, by the end of '02. That's the target, that's what we want to accomplish.

By the end of '03, you mean?

'03, yeah.

Third question, with respect to the clarity for federal funding, were you referring to the reauthorization bill or were you referring to the end of just the continued -- the continuations that we have been seeing here month to month? Because the reauthorizations look like it could, you might not get clarity on that until really pretty close to the end of the year. Just wanted to sort of get clarity on that.

Yeah, reauthorization is -- the current T-21 expires September 30, 2003. And then we will have a follow-on. History says that Congress will not pass that prior to September 30. It typically goes over into the first quarter of the following year. So I would expect, you know, Q1 ‘04, we've got a new bill. In the meantime, we still don't have a budget for the year that began October 1, '02. And that is what I was commented in the short term the $31.8b.

That's what I was addressing, are we really going to get clarity such that people are going to feel comfortable allocating you know planning for future expenditures until the reauthorization is actually passed, you know, whenever that occurs?

I really don't think that there's going to be any clarity, Steve. There are so many different views of it, what is likely to happen is that the administration is going to toss a number out there. They'll submit their budget here in February. And I would expect that they will toss a very low number out for transportation, just like they did for '03. Remember, they tossed out a $23b number as opposed to $27.7b that they eventually went to and $31.8b that the Senate is at and we think the consensus will be. So you'll see the President toss out something, I would tell you that our view and the view of Congress based on the people we've talked to, that that will be dead on arrival. And then they will begin to debate what the true amount is going to be. And that's going to be complicated based on looking at revenue sources. It is not that the needs aren't there. The question is, you know, where do you get the revenue to support a program you want to put in place.

I mean you're going to need to pass a gas tax, it sounds like.

You're going to need revenue enhancement of different types. Lot of ideas as to how to do that, including some bonding. I don't know where that will go but certainly it's up on the screen.

Okay. And I had one last housekeeping question. Janice, could you give us the actual Heritage volume, Heritage shipments in the quarter?

Similar --

I know they were down 10% but do you have the actual number?

35,864.

Great thanks very much.

Star, one for questions.

And we will now go to Keith Hanson, Ohio State Teachers Retirement System.

Good afternoon. I have a quick question on barge traffic. Do you think your business will be impacted by low water levels anywhere?

It would be a rare year where it wasn't, either by low or high water. That's the nature of the barge business. We see it both ways.

Okay.

One of the things you have to do, if you're going to be in the barging business, is that you've got to have a very good distribution network with space to hold inventory. Because as you're alluding to the ability to move barges can be problematic based on weather. So one of our strengths is that we do in fact have a well established, well located distribution yard network. So we'll keep some inventory on those yards. It would be rare that we would miss any sales. It would also be rare that we didn't have some barges stacked up at some point of year because of low water or high water.

Okay great, thank you.

There are no further questions in the queue so I'll turn the call back over to the speakers for additional or closing remarks.

At this point, I'd like to thank you for joining in obviously a very difficult scenario to forecast. We've tried to give you as much information as we possibly can and hopefully it's been helpful to you, and we'll talk to you again at the end of the first quarter. Thank you.

Thank you again. That does conclude today's conference call. We appreciate your participation and you may now disconnect.