Packaging Corp of America (PKG) 2005 Q2 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Packaging Corporation of America second quarter earnings release conference call. [OPERATOR INSTRUCTIONS] As a reminder, this conference call is being recorded and will be available for replay after the call.

I would now like to introduce your host for today's conference, Mr. Paul Stecko, Chairman and CEO of the Packaging Corporation of America.

Good morning and welcome to PCA's second quarter earnings release conference call. With me on the call, as usual, is Rick West, our CFO; Bill Sweeney, our runs our corrugated products business; and Mark Kowlzan, who runs our containerboard mill system.

Thanks for participating in the call and after we complete a brief presentation, as always, we're glad to take any of your questions. So let me get right to it.

Today we're reporting second quarter net income of $28 million or $0.26 cents a share and that's compared to second quarter 2004 net income of $12 million or $0.11 cents a share. Second quarter 2005 results includes income of $0.06 per share from a dividend paid by Southern Timber Venture, a joint venture in which PCA has a 31% equity ownership interest.

Net sales for the quarter were $519 million. That's up 11% compared to last year's second quarter of $467 million. And for the first 6 months of 2005, net income was $40 million, or $0.37 a share, compared to $6 million or $0.05 a share for the first 6 months of 2004.

The improvement in earnings compared to last year's second quarter was driven by higher pricing for both containerboard and corrugated products, which improved earnings by $0.19 a share and driven by the Southern Timber Venture of $0.06 a share. I should add that we're very pleased with the returns from our equity investment in Southern Timber Venture. This has worked out very well for us.

These earnings improvement items I just mentioned were, unfortunately, partially offset by higher costs for transportation, fiber, purchased fuels, labor and-- and labor and benefit costs, which taken together totaled approximately $0.09 per share. And I'll give you some more specific details on this in just a moment.

In the second quarter we continued to see corrugated products volume growth, with PCA shipments per work day up 2.7% compared to last year's all-time record for any quarter, which was up 9.6% over the previous year. I should point out that the second quarter 2005 results did include our late-April acquisition of Midland Packaging. If we exclude Midland Packaging's volume, we were up 1.3% over last year's second quarter and this was a very, very tough comparable, with us being 9.6% last year. So we're pleased that we were able to beat that record.

Year to date our corrugated products volume is up 4.2% and if you exclude the Midland acquisition we're still up 3.4% and this compares to a decline of 1.3% for the industry as reported yesterday by the Fibre Box Association.

Our mills ran very well this quarter and we completed our annual maintenance outage at our Tomahawk mill. Mill production was 585,000 tons, up 1.4% over last year's second quarter. We ended the quarter with our containerboard inventories flat with the end of the first quarter and are at an inventory level that we think is appropriate to help minimize freight costs in this difficult transportation environment.

We did have our Counce number one machine down for a couple days in late April and then for a couple more days in early July to make some final modifications and fine tuning on the work we did during our annual maintenance outage in March on that machine. This machine is now making lighter weight grades, all the way down to 35 pound, and still can product heavy weights, all the way up to 90 pounds, which is incredible flexibility.

The number one machine produces a three-ply or some people refer to it as a three-layer sheet typical of heavyweight machines and we don't know of anyone else in the country that can make a three-ply sheet in a grade as light as 35 pound. By modifying the fiber content in each separate layer of the sheet, we've been able to improve physical properties in such important areas as mullen and porosity, which will allow us to introduce some new specialty grades of linerboard. For example, we now make a grade that has ultra low porosity that works well on equipment that uses vacuum transfer devices to process the sheet or the box.

All in all, we're pretty happy where we've come with the machine over the last two years.

As I mentioned earlier, cost escalation continued to be a problem during the second quarter, particularly in the areas of energy and transportation. Energy costs were up $0.02 a share in the quarter as prices for natural gas were up 18% per million BTUs. Oil was up 22% and diesel fuel, the key driver of transportation cost increases, were up 31% compared to the second quarter of 2004.

These price increases continued to impact PCA's cost in several areas -- the cost to get wood and fiber, recycled fiber, to the mill, higher energy costs to produce steam and electricity and significantly higher transportation costs for containerboard and corrugated products. Although we're never happy about energy cost increases, fortunately for PCA over 70% of our purchased fuels in our mills are from bark and coal, a much, much lower cost energy source.

As I mentioned earlier, higher energy-- higher transportation costs are also a major concern and impacted our second quarter earnings by a little over $0.02 a share. Rail costs continue to become a bigger problem as consolidation in the railroad industry has served to both increase costs and reduce service. We anticipate some additional rail increases in the third quarter, which will reduce earnings going forward by about $0.01 per share per quarter.

Recycled fiber costs were down, improving earnings by $0.01 a share compared to last year, but wood costs were up about $0.02 a share due to weather, demand in certain areas and transportation costs.

Labor-related costs, including salaries, bonuses, benefits and relocation expenses, were up about $0.03 a share over last year's second quarter, reflecting normal year-over-year increases as well as higher bonus accruals associated with our much improved earnings.

Turning to cash and cash utilization, our capital expenditures were $32 million for the quarter. We paid $27 million in dividends and we also funded the Midland Container acquisition from available cash on hand. We ended the quarter with cash on hand of $165 million. Our long-term debt remained constant at $695 million and at quarter end the average interest expense on all of our debt was 4.7%, with about 80% of that debt fixed at an average rate of 4.9%.

Looking ahead prices are the major concern as we enter the third quarter with “Pulp and Paper Week” publishing yesterday a $30 per ton drop in linerboard and a $20 per ton drop in medium prices. This decrease surprised us and I think it surprised some analysts. Our business had been pretty good and considering that June inventories are only at 2.56 million tons, they're relatively low by historical levels. So we were surprised by this drop.

The June 2005 inventories, by the way, would rank as the fifth lowest in the past 15 years and are about 115,000 tons below the 15-year average. So from an inventory point of view, historically, things are in relatively good shape.

With the price decrease previous published in May, this brings the total decrease for both linerboard and medium to $45 a ton, which will obviously impact our earnings in the third quarter.

At this point except for higher rail costs of about $0.01 a share, we're projecting minimal quarter-to-quarter increases in energy, fiber and other costs.

And if you consider all these items, we would expect earnings to be about $0.11 per share in the third quarter. I might add, however, that although we don't really know where the economy is heading, with inventories where they are today any meaningful improvement in demand could cause business dynamics to improve fairly rapidly.

With that, I would be happy to entertain any questions. But, as always, I must remind you that some of the statements that we have made on this call constituted forward-looking statements. These statements were based on current expectations of the company and involve inherent risks and uncertainties, including those identified as risk factors in our Form 10-K on file with the SEC. Actual results could differ materially from those expressed in these forward-looking statements.

And with that, I would ask the operator to open up the lines and we would be pleased to take your calls.

[OPERATOR INSTRUCTIONS] Mark Weintraub

I wanted to follow up on that last comment about any improvement to demand and business could turn pretty quickly. Box demand year-to-date's been down about 1.3% in what seems to have been a pretty decent economy. Any thoughts as to why there is that disconnect and what would be necessary to get the box business strengthening?

I think you're right, Mark. With the economy where it was, you would have expected, normally, higher box demand and we certainly expected higher box demand in the beginning of the year compared to how it turned out for the industry. We've, of course, outperformed the industry again and our box demand is up.

But to reflect on what you're talking about, the one thing that comes to my mind is that with a very, very high run up in oil prices, gasoline prices are up a lot, and that serves to remove disposable income from the economy. And it might be $300-$400-$500 a year in additional gasoline costs and a lot of that money, although it's a small amount of money in the big scheme of things, it's not a small amount of money to a lot of people. And what do they do? They pull back, probably, on disposable-- on items that are perishable, things-- food, things of that nature. They just don't buy as much of it.

It's not that they delay an automobile purchase. You know, they buy less fruit. They buy a little less of everything. And the things that they're buying a little less of where this $300 or $400 or $500 might have gone are what I call corrugated-intensive items where it takes a lot of corrugated to package and ship this stuff.

So I think oil prices are one of the reasons and if they can drop a little bit, that's going to put more disposable income into the economy and I think a lot of that income will go to things that are what I call corrugated-intensive. And that's kind of my feel on the thing. I'm certainly not an economist, but it makes sense.

But are you seeing particular areas where your demand, from an end-market perspective has been weaker than you would have anticipated?

Well, our problem is our demand-- it's a not a problem. Our demand is up. We continue to grow the business and so we're not-- we haven't seen, you know, as severe a case as the industry's seen in terms of demand being down. You know, year to date we're up 3.4%. The industry's down 1.3%. So it's hard for me to point to particular pockets. I think what we're seeing is just overall a general level that things could be a little slower, but we're not seeing anything severe and that just could be a reflection of the fact that our business has grown more than most. And my answer is, I think, somewhat theoretical that, hey, the $300 to $400 that went for gasoline has got to have been spent on something else and for that amount of money, I just think it's corrugated-intensive items.

Right. And just also I wanted to follow up. You said you were surprised by PPW cutting the liner price by $30. Are you actively exploring or do you have ideas on alternate approaches for you and/or the industry to be pricing its product?

I did see a few reports this morning where at least a few analysts suggested that. I was surprised about it because, quite frankly, as our numbers reflect, business was pretty good the second quarter. Inventories are pretty good from a historic point of view.

I have-- I think I've said on the past that I am frustrated by some of the things that they do because I think they have been biased at times and I don't want to get into the nitty-gritty details of that, but let me just give you an example of something that to me is just not right and it goes back to about a year and a half, actually December of '03, when “Pulp & Paper” dropped the price $10 a ton in December and the explanation was that the spot market got a little sloppy at the end of the year and so the factored that into their pricing and dropped it $10. Now we're not spot players. I don't know if that happened or not, but let's assume it did.

They then reported in January, as inventories were falling, that the spot market had dried up and those low-cost tons were gone. Well, you would think they would have restored the price. And that is, spot market can take down the price, but if that spot market that was dropping the price went away, you would think they'd raise the price. They didn't do that.

I made a call to them and asked them why and their point was, “You know, we never thought about that,” but nothing happened. So what normally should happen in this industry to reflect the business is that when there's a price announcement usually the spot market does dry up in any business and the price rises ahead of the price increase. That never happens in our industry. And so that's what concerns me that I don't really think we're getting an accurate measure mathematically.

Other than that, you get into a lot of opinion and I'm not going to comment on that.

OK. And then just two quick items. Do you have the pretax number for the STV dividend? And also, how-- how much was the Midland acquisition if you could just remind us?

Rick, do you have the number for STV handy, the pretax number? $11.5 million.

And with regard to Midland, we have not disclosed that and we're not planning at this point to disclose it. So that's all that I can say on that.

Chip Dillon, Smith Barney.

I know often, Paul, you tell us how things are looking throughout the quarter and I was wondering if you could tell us what your order trends looked like as we exited the quarter and perhaps early in July?

Yes, I would-- I would first say July is a hard one to-- I wouldn't extrapolate too much from July, Chip, because it's a weird month with the Fourth of July early in the quarter. So you've got a holiday and some people take 1 day off. Some people take 2 days off and so you've got to be careful with that.

We've got about 8-- 7 days worth of data and for the first seven days our bookings are up about 4% over last year and our billings are up 1%. And usually over a month bookings and billings at some point catch up because they've got to come in balance. Sometimes it takes 3 weeks to get in balance, sometimes 5.

So I would-- I would say that the real business is-- our real number is somewhere between up 1 and up 4, you take an average, but that's just a way-out projection and I give the disqualifier, it's a tricky month to predict it, but at least I've given you the numbers.

OK. And the second question is, I know that through the first half of the year you gave us positive earnings of $0.32 and it looks like your dividend payment was about $0.40 or a little over $40 million and yet the net debt went up close to $50 million in the first half, even with the payment from the $11 million dividend. And so I was just wondering is it working capital that's shooting up and is that something that's temporary or do you think that you'll see your net debt go down or your cash balance, I guess I should say, go up in the last half of the year?

Well, two things, Chip. Working capital is certainly up. We had the Midland acquisition and then the third item is, when you get into the first quarter, we have a lot of one-time expenses that happen in the first quarter. FICA you pay-- basically pay all your FICA off in that quarter. That's the way the accounting works. And then we usually gain cash the rest of the year. So there's nothing unusual other than the things that I just told you about.

Edings Thibault, Morgan Stanley.

A question for you, Paul, given the decline in prices that “Pulp and Paper Week” appears to be predicting and your own expectations for lower pricing in the third quarter, that is going to put some pressure on you in terms of -- and I want to choose my words carefully here -- financing your dividend. Because while you clearly have the cash balance, does it put any restrictions on your in terms of your ability, as you earnings dip below, potentially, your dividend levels or at your dividend levels, does it put pressure on you, perhaps, to forego additional Midland-type acquisitions?

Well, certainly, our overall cash position factors a lot of things into it, including the dividend. One thing that I should point out, however, when you report earnings that's against a book tax rate. Our cash tax rate, for example, at our current earnings level, instead of being 40% will be roughly 10% or 12%. So our cash position than is just revealed by simply looking at book earnings.

Dividend is very important to us. We were-- we took a while to think about what the right number was and we went to $1. When we did that we said we wanted to have three things in mind. We wanted it to be growable. We wanted it to be meaningful and we wanted it to be sustainable.

And the one thing that we were criticized for, a little, is waiting a little while before we moved from $0.60 to $1. Well, I don't think waiting a year is that long. But we made sure we had a lot of cash on the balance sheet so if there were a few bumps in the road that we'd feel good about our $1 a share dividend. And that's why we did it.

That said, the better the business is, the faster we can grow and make acquisitions and if-- if things don't improve as we hope and think they will then, obviously, acquisitions is one thing you'd slow down.

OK, great. And just another followup to some of the-- your earlier comments on overall business conditions. And if you look at your key strengths in terms of seeing market share gains, any particular areas where you might be gaining share or classes of customers, small customers versus some of the larger national accounts overall there? As you look at your overall business mix, where are the strong spots?

Well, our mix is roughly 70% local business, 30% national accounts, so we're not-- we're not the huge-- we're not the-- obviously far from the biggest player in national account business. And our growth is, I would say, at least over the last year has probably been pretty uniform across those two segments and nothing particular. We're not making any strategic moves to get bigger or smaller in either, just trying to grow them all.

And, you know, we have been growing and I think one of the reasons that we've grown, other than acquisition, is the accounts we're in, I think we're pretty proud that we do a really good job. And one of the main vehicles for growing is, if we have half of the business, over time we get 60, we get 70 and we get that by simply doing a better job than the person that had the other part of the business. And that reason for growth is often overlooked, but that's an important part of our business strategy. Once we're in, we want to do a better job and we want more of somebody's business and we try to get it by performing.

Great and any-- just a few comments on the Midland transaction. Could you just refresh us what the sort of key advantages of that deal were?

Well, what Midland did for us is it put us in-- their main plant's in Jackson, Mississippi. That's a market we were not in. That's a market we could not serve. It increases our integration level by about 1.5%. We like their customer base. They also have the locations in Olive Branch, Mississippi, in the display part of the business and, as you know, we like the graphics and high-end display part, and they also have a sheet plant in St. Louis and St. Louis was another market that we had no presence in and now we've got a base of operations in that market that we plan to grow.

So Midland was a nice acquisition for us in that it did a lot of things that we needed to do all at once.

Great.

And we're happy with the performance in the two months or so that we've owned it.

George Staphos, Banc of America.

A question for you-- Did you mention what your cash from operations and CapEx were in the quarter? If you did, I missed it.

Yes, we mentioned that the CapEx was $32 million.

And cash from operations?

Yes, it was about $80 million cash from operations. That's a preliminary number.

OK, great. Now, as we look at the percentages that you mentioned in growth in the corrugated business, adjusting for Midland, are your operating rates in the box, to the extent that you can actually measure them, up at least 3.5% year-to-date if your shipments are up about that amount? Or would it be up more or less?

Well, the only-- the only way that the-- you'd have to get it through productivity. In other words, if we're making more square feet and our productivity is-- Bill Sweeney is telling me our productivity is about 2.5%, so we're getting most of that growth-- we're up 3.4%, so that means that our productivity is 2.5 of that. The other 0.9% is coming from a little higher operating rate. But the answer to your question, most of the growth's coming from productivity.

OK. On the operating rate side, do you ever share, from time to time, what you think you're running at right now? Is it 70%-80%-90%?

Yes, I'm going to give you an answer. I hate to give you this answer, but I'm going to give it to you. I don't know it. And the way we run the business, that's not something we really manage in terms of operating rate in the box plants. It's-- because of the nature of our sheet plants and our corrugated plants, a lot of them run two shifts, some of them run three shifts. Some of them actually run more than five days a week.

It's a mix and it's all local markets, so you can fool yourself with averages and in the things that we measure in a box plant, operating rate is really not one of them and, as I've said many times, we run our mills based on only 3 things -- cost, cost, cost. That's all that matters in the mill and we run our box plants focusing on the revenue side of the equation, having the right products in the right customers. Cost is important, but it's second to managing the revenue side of the equation and we think that's one of the reasons that we have been successful.

Thanks, Paul. I mean, the reason I ask the question, we've talked before and there are questions on the call today about how “Pulp and Paper Week” prices, whether that's good for the industry or not. And I won't editorialize, but the reason I'm getting at the operating rate in corrugated, it still seems there is, from an industry standpoint, too much capacity. Currently-- it's obviously a well-known item in the industry, as well, and maybe one of the ways that you get around this pricing mechanism is by, maybe not you, but others shutting capacity in, perhaps, where you have the most excess capacity.

I don't know if you care to comment to that. How would you guide us to think about it?

Well, I think you have to understand, I mean, a lot of people say that, but you have to really understand the fundamental nature of the business. I think people have extrapolated that theory much too far.

When you run a paper mill, it's a continuous process. It's got to run 7 days a week, 24 hours a day and you can't slow it-- you can't shut it down. If you slow it down, you get into inefficiencies, also.

A box plant's different. It's a batch process. It's not a continuous process. The cost of running two shifts versus three, dramatically different than running a paper mill two shifts versus three. As a matter of fact, you really couldn't run a paper mill economically two shifts out of three or five days a week out of seven. You certainly can run a box plant that way.

So not running it 95% utilization is nowhere near as big a deal on a box plant as it is in a paper mill, so you got to really look at the dynamics of the two separately and what you find that's why the focus on supply and demand always goes back to the mill system because of the nature of the massive capital investment and the need for a continuous process.

OK, Paul. That's well said. Last question for you, you're converting capacity to lightweight accounts. Others announced today that they're considering doing the same. Do you worry at all about the market becoming over-supplied over the course of the next couple of years, given the conversion? Thank you.

Not with regard to light weights. One of the biggest problems that we had at PCA when I came here in '94 is we were basically a heavyweight system and the world was going light weights. And so we have, over the course of those 10 years converted to a system that has a very, very strong presence in light weights.

As a matter of fact, the amount of light weights produces has really bottomed out. There has not been a lot of change in the last 2 years in the percent of lightweight grades. By light weights I mean, say, 35 in place of 42 pound. And I think some people -- we were one of them -- just had to adjust the mix over that period and make sure that your current mix capability is in line with being able to produce light weights.

Everybody-- one thing you learn when you work in a mill, you'd always rather product heavy weights than light weights. But unfortunately, you've got to make what the market wants, so I don't think we'll have a rush to light weights, because you can still make heavy weights on a lot of those machines and the people will simply make what the customers want.

So, no, I don't ready anything into any announcements other than other suppliers also feel they probably need a little more lightweight capacity, just as we have. And we've balanced that.

Stephen Weiss (ph), Mindflow Capital Investments (ph).

Paul, over the last year costs, as you mentioned, have been extremely challenging in terms of freight, fiber, purchased fuels, et cetera. A lot of your competitors over the past year have really been implementing some very new strategic initiatives to reduce their costs by establishing a better line of communications and open up more collaboration with your suppliers. I'm interested if you could provide a little more color as to what you plan to do to reduce those costs by establishing a better line of communication with your supplier base?

Well, we take a little different tack. We believe in flexibility and when prices are going up, you can do a lot of talking, but we've found over time having a good line of communications doesn't really do a lot to improve your pricing when you buy. We believe in flexibility.

If you look at our business, our energy costs are much less than virtually everybody we compete with because we have the flexibility to use coal, bark and other low-cost fuels. Same thing would be true of fiber. Our mills can run hardwood, when it's cheaper, recycled fiber and other things to be able to buy the lowest source of fiber available.

So our strategy revolves around the concept of flexibility in the major cost areas and so we have no major initiatives to increase communications to lower prices. We have consistently talked to our suppliers about that and really don't see a need to do that.

Flexibility, obviously, as you mentioned is important. How are you making sure your quality is up to par? Are you measuring--?

Quality in what we purchase from suppliers?

Correct.

Well, natural gas quality is natural gas quality. We check our coal. We test coal. We check fiber. We've got a lot of tests on incoming material, but-- so we're pretty satisfied where we are on the quality point.

OK. And the most important thing, on the freight costs, what-- how do you plan to minimize your freight costs, especially in the rail area?

Well, one of the things that we're doing is we're carrying a little higher inventory. Where we can find trucking that's lower cost we'll move to trucking. And we continue to negotiate with the railroads.

I should all point-- I should also point out that the AF&PA, which is our industry association, has just formed a new committee to work industry wide on transportation problems and, hopefully, with that concerted effort we may be able to do some things to improve the transportation situation.

Christopher Chun, Deutsche Bank.

This morning we had a significant announcement by International Paper on various restructuring activities, including in their paperboard and box systems. I was wondering if you had a chance this morning to have a look at that and whether you had a reaction on what their potential restructuring moves might mean for the industry and for [inaudible]

About the only reaction that I had is that they said that they viewed containerboard as a very good business. I share that opinion. I think it's a good business to be in of all the paper grades. Other than that, I don't have any other opinions that I want to share on this call.

OK, very good. And finally, following up on the impact of the $30 price decline on linerboard at “Pulp and Paper Week” this month, I was wondering if you can tell us to what extent that is going to roll through into your box prices and over what timeframe?

Well, that's a good point. I want to make it clear that the kind of price decreases they were talking about -- and they also, in the article, mentioned box prices falling -- we simply haven't seen that. But once that price is published, unfortunately, some of our business is tied to that index. And, as a result of that, there will be automatic price decreases that we had nothing to do with initiating, that we simply have to follow and follow the published number.

And that's going to be, probably, about $0.09 a share. If you look at the-- we think our cost in the third quarter will be about flat with the second quarter and so we've gone from $0.20 to $0.11 and it's virtually all price. I might be off a penny, but it's $0.08 or $0.09 -- all price. All price that's resulting from that publication of the two decreases.

[OPERATOR INSTRUCTIONS] Michael Kristalou (ph), Inwood Capital (ph).

What percentage of your contracts do tie to the PPW printed price and are there any things you can do on the margin to just migrate customers' contracts away from that mechanism, given that we're all talking around the same point, which is the mechanism is broken?

As a matter of fact, we do try to migrate people away from that index because of-- we don't think, at least over the last few years, it has been as accurate a reflection of the true market as it could have been. But that's a long process and you've got to find something that's equally good or better. In terms of the percentage, we don't disclose that information.

George Staphos, Banc of America.

If we go back to before the last cycle, both in terms of containerboard going up and the inflation that you've seen on your various cost metrics, what do you think the structural increase in cost per ton has been that you'll be left with in the years to come? Is it $20 a ton? $100 a ton? Could you give us some order of magnitude?

Well, it's a tough question. How many years do you want to go back? If you want to go back one year, 2004 versus 2005, in our mill system we're probably up $10 a ton. But don't forget, our energy costs are very well buffered in the mill system because of our use of bark and coal.

And we continue to work hard every year in offsetting cost increases in various ways. We have made some energy investments. We've made some fiber investments. We had a major project at Counce where we fractionalize the fiber, that is, divide the chips up into various degrees and cook them a different amount. That's big fiber savings.

So we've been able to offset a lot of the cost in the mill system. In the box system, as Bill Sweeney pointed out, productivity's up 2.5% this year. Where we do get hit in the box system is we don't have the ability to burn bark or coal in a box plant. So we're at the whim of gas and oil prices and that's hurt us pretty good in the box system. And then you've got inflation every year in the box system.

And then the one area that I don't think we or any of our competitors have a big advantage is in the transportation area and that's where things have really hurt us the last few years. Our transportation costs now in some of our mills are the second largest cost, right behind fiber, which is kind of an amazing thing.

And so structurally I'm not sure what's-- obviously oil prices have a lot to do with transportation and we're just going to have to see where that goes. That's a hard thing to call, as you know, going forward.

[inaudible] and-- or if you went back to '03, which is maybe before the cycle, what, again, do you think of that as structural or of the '05--? And if you don't have an answer, that's fine.

No, it's hard-- you're catching me with a question. You're making me go back and look at four or five years of data. I've got a lot of numbers off the top of my head. But I really-- on this call, I don't want to-- I don't want to shoot from my hip or the top of the head on cost, because my memory's good a year. If you're taking me back five, then I'm not so good.

So if you want to give me a call on that, I'll refresh my database, if you will. I'll be more than happy to talk to you about it.

Andrew Fineman (ph), Erdian (ph).

Sorry to both you. I have to ask this because I got-- my boss is going to ask me and it's just the cash flow. You got $80 million operating cash flow, CapEx is $32, the dividend is $27. So that leaves $21 and in this quarter versus the end of the first quarter, I think your net debt was up by $15. So $21 and $15 is $36 and so I'm just assuming that the $36 went into working capital and the Midland acquisition?

Yes, there are a few other items that you're missing, Andy, $1 million here, $2 million there.

Yeah, I don't mean to--

I don't have them in front of me. You could-- if you call back, we'll give you the final details. That stuff will be in our 10-K if you wait-- 10-Q, excuse me, if you want to wait a couple of weeks, or-- but, no problem, you're just getting into detail that I don't have off the top of my head.

Yes, $1 million here or there doesn't matter. If I'm close, I'm happy.

You sound close to me. If you can add and subtract, I think you'll be all right.

Operator, we have time for one more call and then we're going to cut it off.

I'm showing no further questions at this time.

Great. How's that for timing.

Listen, I'd like to thank everybody for participating in the call and looking forward to talking to you next quarter.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all disconnect.