Packaging Corp of America (PKG) 2008 Q2 法說會逐字稿

Thank you for joining Packaging Corporation of America's second quarter 2008 earnings conference call. Your host for today will be Paul Stecko, Chairman and CEO. (OPERATOR INSTRUCTIONS). Mr. Stecko, you may begin.

Thank you and good morning and welcome to PCA's second-quarter earnings call. With me on the call as usual is Bill Sweeney, who runs our corrugated product business; Mark Kowlzan, who runs all of our mill operations; and our CFO, Rick West, and as the operator indicated, once we conclude the brief presentation up front, as always, we are happy to take your calls. Let me get right into it with our results and then try to provide you some specific details.

Yesterday, we reported second-quarter earnings of $35 million, or $0.34 a share, and that's compared to $46 million or $0.44 a share in last year's second quarter. And it also compares to $32 million or $0.31 a share in the first quarter of 2008. Net sales for the second quarter were $616 million.

That's up 5.2% compared to $586 million in the last year's second quarter. Our second quarter 2008 results included three special items totaling $3 million or $0.03 a share. These items included, first, tornado damage at our Windsor, Colorado corrugated products plant and also some limited damage at our Filer City Mill from another tornado. Second, we had start-up costs for two major projects, which I mentioned on the last earnings call--the Filer City project and the new woodyard at Valdosta. And finally, we had costs related to our recent debt financing. Each of these three items represented about $0.01 a share. So $0.01 a piece, totaling $0.03.

The remaining $0.07 per share reduction in reported earnings compared to last year's second quarter was primarily the result of higher transportation costs of $0.06 per share, purchase fuel and electricity costs of $0.05, chemical costs of $0.03, annual outage costs of $0.03, labor costs of $0.02, and all other costs of $0.02. These higher costs were partially offset by higher sales prices, which improved earnings by $0.15 per share. Our second quarter earnings were up $0.03 compared to the first quarter of 2008 as a result of higher prices and volume, totaling $0.06, reduced annual outage cost of $0.03, and lower energy consumption with warmer weather of $0.04.

These earnings improvement items were partially offset by higher purchase fuel and electricity prices of $0.03, transportation costs of about $0.025, chemical costs of $0.01, and the special items I just mentioned earlier of $0.03. Except for much-higher-than-expected energy and energy-related costs and the unforeseen tornado damage, the quarter was pretty much in line with our expectations. Net income for the first six months of 2008 was $67 million or $0.65 a share compared to $77 million or $0.74 a share in 2007. Year to date, our net sales are $1.19 billion compared to $1.14 billion in 2007.

Let me now get into some specific details of our operations. First, our mills produced 614,000 tons of containerboard. That's down 0.3% compared to last year's record second-quarter production. This occurred despite having both of our media mills down in the second quarter for their annual outage while only Tomahawk was down last year.

This year our Tomahawk medium mill was down for about 4.5 days, reducing production by 65,00 tons, and our Filer City mill was down about 4.5 days, reducing production by about 5,500 tons. The earnings impact from these two outages from lower production and increased operating and repair costs was about $0.03 a share. During the quarter, the production efficiency in our mills was outstanding, setting a second-quarter record for tons produced per operating day. Also, our Valdosta mill set an all-time quarterly production record. Even with these records, we ended the quarter with our containerboard inventory down 3000 tons from the end of the first quarter and down 8000 tons from year-end 2007 levels.

Our domestic sales of containerboard remained very strong, up about 10% over last year and up 18% over the first quarter of this year. With strong domestic shipments and our low inventory levels, we shipped about 3000 tons less into the strong export market than we did last year in the second quarter and about a 1000 tons less than in the first quarter of this year.

Turning to the box business, our total corrugated product shipments almost equalled last year's strong second quarter, down only 0.4% and were up 4.3% over our first-quarter shipments. On a per-work-day basis with one more workday this quarter, shipments were down 2% compared to last year's second quarter and were up 2.7% over the first quarter of 2008.

Year to date, our total shipments and shipments per workday are down a modest 0.7% over a strong 2007. As reported by The Fibre Box Association this past Wednesday, industry containerboard inventories remained at historically low levels with June inventories dropping 73,000 tons to 2.277 million tons, or 3.6 weeks of supply. And on a weeks-of-supply basis, this would represent the lowest June ending inventory on record.

Looking at pricing, our corrugated products and containerboard sales prices were higher than the second quarter of 2007 as would be expected as a result of price increases, which occurred in the second half of 2007, and also up over the first quarter of 2008 due primarily to a richer product mix. Unprecedented escalation in energy and energy-related product prices significantly impacted transportation, chemicals, purchased fuel, and electricity costs for us. Fortunately, however, only 22% of the purchased fuel in our mills comes from natural gas and oil, so we are not impacted as much by rising fuel costs as others in the industry. However, even with this relatively low dependence on gas and oil, higher fuel prices and higher electricity prices still reduced our second-quarter earnings by $0.05 a share compared to the second quarter of last year and $0.03 a share compared to the first quarter of this year.

Yesterday, in a separate press release and related to higher energy costs, we announced the successful start-up of a bio-gas refinery at our Filer City semi-chemical media mill. As we outlined in the release, the bio-refinery takes the by-product liquor of the pulp-cooking process at Filer City and utilizes bacteria as the vehicle to convert the pulping liquor directly to methane gas. The methane is then burned in an existing power boiler at Filer City and essentially eliminates natural gas usage at Filer City and also replaces about 30% of Filer City's primary fuel, which is coal.

The investment in this bio-gas project was a little less than $20 million, and we expect a return of about $10 million annually. That would equate to a cost reduction of about $25 a ton to produce semi-chemical medium at Filer City, and that is a significant number. This return is particularly good considering that we are replacing primarily coal, which is a relatively low-cost fuel with methane. The return would be obviously much higher in a situation where bio-gas was replacing all natural gas or fuel instead of coal. We think the bio-gas refinery at Filer represents a major milestone for PCA on the energy frontier and also for the overall development of lost-cost green energy.

Moving next to transportation, which represents the single largest cost-increase item we have, average diesel prices as reported by the US Energy Information Administration, were up 57% compared to the second quarter of last year and up 25% compared to the first quarter of this year. These higher diesel prices continue to drive up transportation costs for fiber and other inbound raw materials as well as outbound freight for containerboard and corrugated products.

Higher transportation costs reduce our earnings by $0.06 a share compared to last year and about $0.025 a share compared to the first quarter of 2008. Chemical costs are also being impacted by higher fuel prices because many of the chemicals we use are very energy intensive to produce, or they are by-products of other materials impacted by higher energy prices. Our chemical cost, particularly caustic soda, soda ash, sulfuric soda, and wax were up about $0.03 a share compared to last year's second quarter and up about $0.01 a share compared to the first quarter of 2008.

Wood and recycled fiber costs were only up about $0.01 a share over last year's second quarter if you exclude its transportation cost. When you include transportation, fiber costs are up about $0.04 a share. Looking at other costs, higher labor and benefit costs reduce second-quarter earning about $0.02 a share compared to last year's second quarter.

Let me now turn to cash utilization, where our capital expenditures were $31 million in the second quarter. We also repurchased 984,000 shares of our stock at an average price of $21.97. We ended the quarter with $298 million cash on hand, and our long-term debt remained at $807 million. As you recall, we will be paying off our $150 million in notes, which mature on August 1 of this year, which will lower our cash and reduce our debt by the same amount.

Overall, to wrap it up, our business remained strong throughout the quarter. Our mills ran extremely well, setting production records, and both our corrugated products demand and outside sales of containerboard remained strong. We ended the quarter with our containerboard inventories a little lower than forecasted, so we will need to continue to run well during the third quarter.

Finally the start-up of the bio-refinery to produce low-cost methane at Filer City demonstrates our continuing focus on reducing costs and developing competitive advantages. Looking ahead to the third quarter, we expect improved earnings primarily as we begin the realization of higher prices from our announced July 1 containerboard and August 1 box-price increases. Since it usually takes several months to fully implement a box-price increase, a full quarter's benefit of these price increases does not occur until the fourth quarter.

We also expect seasonally lower energy usage, but prices paid for transportation, purchase fuels and electricity, and chemicals are expected to be up in the third quarter maybe as much as $0.06 per share as, again, a full quarter's impact of the price increases that occurred over the course of the second quarter for these items are felt. Considering all of these items, we currently expect third-quarter earnings of about $0.41 a share.

With that, I would be happy to entertain any questions, but as always, I must remind you that some of the statements we have made on this call constitute as 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 annual report on Form 10K on file with the FCC. Actual results could differ materially from those expressed in these forward-looking statements. With that, Operator, I ask you to open up the lines for any questions.

(OPERATOR INSTRUCTIONS). Our first question comes from Mark Wilde of Deutsche Bank. You may begin.

Good morning, Paul.

Good morning, Mark.

Is it possible, when we look at these costs, to get some sense of how much of this is mill cost versus how much cost you are really seeing over in Bill Sweeney's box business?

That's a good question, and the answer in a fast would have been it's the vast majority in the mill system. And that's now moved to where there is a majority in the mill system but not a vast majority. In other words, the price to operate in box plants has also increased appreciably driven by energy primarily because box plants burn basically natural gas or oil. They cannot burn fuel, they don't have the luxury of burning black liquor, et cetera. Secondly, some of the other materials like starches have gone up appreciably. Wax is off the charts in terms of price increases. So it might have moved. I don't have the numbers in front of me. It might have been 90/10 at one point, and it is probably 40/60 now, and that type of range when you look at the price increases across those two.

Would you anticipate that with this price increase you can actually get some box margin back to recover some of those box-plant costs?

We would hope certainly to improve our margins as a result of this price increase, and because as you happily put, not only do we have to overcome inflation in the mills, the box plants are now a major contributor also to inflation. That's why from our perspective this box-price increase is so important. We have to make up ground in two places.

Just one other question--the bio-refinery up at Filer City--is that applicable to other mills in your system, and if it is, would the economics be as compelling as they seem to be on this one.

Due to the proprietary nature of our technology and the obligation that we have to protect both the intellectual property that we have developed as well as the process know-how involved, I'm fairly limited in discussing specific, technological details or implications of this project going forward at this time. But down the road, I think that is something I could address. Today, I simply want to report this refinery concept that we have developed at Filer City has been up a couple months. It is now up to 75% of capacity. It is doing everything we thought it would do. It has validated what our savings assumptions would be to date, and we are pretty happy with the results. But into the specifics of how it works or what we are going to do with it, it is premature to talk about it.

It wouldn't be just applicable at a medium mill; you could use this at a liner board mill as well?

I didn't say that. I didn't say anything. What I said is I have told you all that I'm going to tell you about this project on the call.

Fair enough. Thank you. I will pass it on.

Our next question comes from Mark Connelly with Credit Suisse.

Paul, just a couple of things. On the mix issue, can you give us a sense of whether the weather affected your mix this quarter and whether we should expect much from that based on your read right now. And second question on inventory--you said you are going to have to run full to be ready for Christmas. How constrained do you feel on inventories, and just how critical an issue is that right now?

On the mix, what we have just seen, is it is primarily in the high-end displays point-of-sale items. The mix was stronger in the second quarter than at first, but that is normal. It really was not related to the weather to somebody as much as, say, AG business might be in the state of Iowa or things of that nature. The mix was probably just a seasonal pickup, and in terms of--we are not worried about as much getting ready for Christmas as we are the third quarter and the strong fall season. I think that is what you meant by Christmas.

Our inventories--we are not out of gas, but we are close to empty, which is no problem as long as we run well in the third quarter, and the third quarter is usually a good operating month. Mills tend to run better in warmer weather than cold weather. This is the warmest quarter weather-wise of the year. As long as we can run as we expect, we think we are going to be okay. We have no shutdowns in the third quarter either, which is a plus. But we are not starting out with any slack. We have to perform as well, especially if there is any pick up in demand at all, and then the pressure is really on Mark Kowlzan and the whole mill team, and quite frankly, that is what I'm rooting for.

Do you see the industry ever moving away from yellow-sheet pricing?

Let me just say this--I wish we had a more-perfect pricing mechanism in place, and so I guess I'm saying, yes, I would like, eventually, to see the move away from everything and have something that was more efficient, more accurate, more timely, and also comply with every law in the land in terms of how pricing is reported, et cetera. That's a long-winded yes to your question.

I appreciate it. Thanks, Paul.

Our next question comes from George Staphos with Banc of America Securities.

Hey, Paul.

Good morning, George.

How are you? A couple of follow-ons. I just want to try one more thing relative to the bio-refinery. Realizing that, obviously, most of the work would have been done at Filer, did you or were you able to try the process at any of the other mills in what would have likely been some trialing that you did over the last several months or years or whatever?

Filer City was the primary trial site. Virtually all of the trials were done there.

But there was, therefore, by definition a little bit done elsewhere.

You can measure a little bit in a lot of ways.

I understand.

Anything we might have done somewhere else might have just supported the Filer effort. It might not have been related to that mill.

Fair enough. A separate question--

And let me just amplify on that a little further. What we said in the press release is that we have some proprietary both pulping and papermaking technology. So when you say trialing, there are two things involved--pulping and papermaking, and again, we use the resources of our entire system in that regard.

Understood. Understood. If we switch gears to pricing and piggybacking on a couple things you were saying--one, relating to freight and the escalation there and then in your prior answer to Mark's question relative to pricing, what is your philosophy, if not right now but in the future at some indeterminate time, about the use of surcharges and whether they are applicable to the box containerboard business?

George, that's a pricing question. That's a forward-looking pricing question, and that's just something that on advice of counsel we don't discuss on these calls because that could be an indication this is what I'm going to do, and I don't want to get into that. So I'm going to have to pass on that question on the advice of counsel.

If you were ever going to be able to be in a position to be able to discuss that, would that mean you would have first discussed it with your customer base?

High probability that that is indeed the case.

Two last ones and I will turn it over--when we bridge to the third quarter from the second quarter, you said price was the primary driver that makes sense. We'll have $0.03 of specials going away that will help the bridge with the increase in earnings sequentially. Should we assume that the lower purchased fuel cost presumably, given lower consumption, is at least offset by the increase in chemical and other costs that you cited, or how would that shake out do you think?

George, I'm not sure I understand your question.

Just trying to get more precision on the bridge. So in other words, I have got energy consumption going lower. Is that offset by higher prices in terms of your third-quarter outlook?

The answer is yes. We are going to use less energy, but it is going to cost us more because the going-out price for energy is higher than the average price for us. So the answer is yes. Price will offset, and in total, our energy costs are going to be up about, we project, $0.04 a share in the third quarter over the second.

Thanks, Paul. Last one--

That's three questions. That's the limit. So I'm going to have to ask you to get back in the queue.

Got it. I'll turn it over. Sounds good.

Our next question comes from Chip Dillon with Citigroup.

Hi, good morning, Paul.

Good morning, Chip.

I was just curious--not to overly nail you down--but it is kind of interesting as this call has gone on natural gas has crossed below $10.00 for the first time in over three months, and oil is down another $4, or $20 in the last two weeks. Are your assumptions for the third quarter based on where energy was, say, a week or two ago?

They were based on where they were a week or two ago, but you have got to remember that we don't use a lot of gas and oil. So it doesn't affect the mill operations as much as it does the box plant. Plus we have hedged some fuel, and so we are hedged, and we may not get as much benefit if it keeps going down. It is not going to benefit us that much. But, that said, the biggest single cost item we have related to fuel is transportation. We haven't seen gasoline prices or diesel prices drop yet, and that is going to be the biggest single killer for us going forward.

Got you. Just refresh our memories of the 78% that is not oil and gas that you purchase--what is that broken down by?

It is primarily gas and oil--the 78%--

You said 22% of your purchase energy was oil and gas.

Right. The other 78% is bark and coal.

Bark and coal. Okay. And then the last question is you mentioned the pay off of the bonds in August. If, let's say, you had another opportunity as the stock got weak again, or maybe it still is, would you borrow against your revolver. It looks like you wouldn't need to, but if it came down to that, what would your flexibility be? I assume you have an untapped revolver.

Yes, we have a revolver--

150 million revolver untapped.

Yes, we have never tapped it. We have never had a need. We have seen no need to tap it, so I'm not sure--tap it to do what?

To buy back stock and how many shares do you have authorized still to buy back?

We have 88 million remaining under our $150 million plan as of the end of the quarter.

In dollars.

In dollars.

Okay, so obviously you have plenty of cash for that.

Yes, what we did, Chip, we also when we announced the share buy back, we had a couple hundred million dollars--$150 million to $200 million--worth of cash on our balance sheet. So let us say prefunded to use a loose term, and so we don't have a problem driving our cash on hand down, but hopefully, with this price increase, that's not going to be the case.

Got you. Thank you.

Our next question comes from Mark Weintraub with Buckingham Research.

Thank you. Paul, I understand the reasons you are providing--the certain limited information on the bio-refinery. Is this something that you are going to be able to update us on in the reasonably near future or is this something that we are probably not going to hear a lot about for a year or so, or is that all uncertain at this point?

I would say it is uncertain at this point, but a year is a long time. Let me just leave it at that.

Okay. And then second, you mention in the press release that the full benefit of the price increase won't be seen until the fourth quarter. Is it a fair question, can you tell us roughly what percentage of the price increase you had incorporated into your third quarter guidance?

We don't normally do that, Mark. What I said in the past is for us, on average, it takes about three months to put in a price increase. Now, for the last two, we have actually put them in in two months if you look at the two previous price increases. This one will probably go into the third month because some contracts in the industry have quarterly pricing. You can only raise prices once a quarter at the beginning of the quarter. We do have some that will drag off to October the 1st. So that means you will get some obviously August, September, and October, but with most of them going October the 1st for the October ones, but that pushes that to the fourth quarter. So you can do the math. You have got zero the first month, which is July the quarter and assume you have got a third in the next three months. You can do the math and probably come up with an estimate. I'm not saying a third, a third, a third model is correct, but at least it will be some order of magnitude estimate for you.

Okay. That's helpful. That does it. Thanks.

Our next question comes from Richard Skidmore with Goldman Sachs.

Thank you, Paul. Question with regards to a recent article in one of the trade presses about containerboard prices being up about 50% over the last couple of years but box pricing and the FDA index being up only about mid teens. Can you just elaborate on maybe what is going on there and what might be different as we go forward that would allow the industry to get the full box-price increase?

I would say in general, it is the magic of arithmetic. If you just take a rough number that boxes cost twice as much as the paper, if they both went up the same, you would expect as a percentage, paper would go up, say, 20% and boxes only 10% because they are twice as expensive. So that's math. That gets you pretty close to what your answer is. 10% of a big number is equal to 20% of something half that size. So you should always have a higher percentage increase in paper over boxes.

That said, I think a contributor to that is, especially maybe on the earlier price increases, some people were not able to pass it all through. I don't know that's the case, but by far, the mass reason for the difference in a percentage is one item costs rough number twice as much as another one, and that's the reason the percentages are so different.

Shifting to a different topic with regards to the export market, are you seeing a deterioration in the profitability in the export market relative to the north American market excluding this current price increase?

With the current price increase, the domestic market will be more profitable than the export market for two reasons. One is freight, and the other is absolute pricing, but there have been some price increases in the export market also. So the export market, I think, has the capability of catching up, and that remains to be seen, but again, I will also tell you we are very small players in export market compared to other people, so I think our knowledge is limited, especially when you go into markets like China where we are not very big players at all.

How much of your export volume is sort of under contract that you have to ship it there, and how much is just volume you can move around?

Our volume we can move around totally.

Okay. Thank you.

Our next question comes from Joshua Zaret with Longbow Research.

Two questions--the first in terms of downtime just going throughout the year. In the second quarter it sounded like you had 12,000 tons or $0.03. It sounds like in the third quarter you have zero. What would the fourth quarter be? And then for the second question--your volumes were very good, and I was just wondering how much of a factor the unscheduled outages at Warehouse and IP played into that.

The answer to your first question is real easy. Zero downtime for maintenance in the fourth quarter. We have taken all of our maintenance downtime in the first and second quarters.

Is that any different from last year?

Yes, last year we did Filer City. We normally do Filer City in the third quarter. This year, we pulled it up to the second quarter so we could start up the bio-refinery and take advantage of the downtime of an annual outage and not have two outages--one to start up the bio-refinery and then another outage later in the year. So we killed two birds with one stone, as they say. With regard to your second question, our volume increase was not increase. Our volume was down, but we weren't down as much as the industry. I would say that the single biggest element of our growth, and I think Bill Sweeney actually addressed this at the last meeting, is that most of our growth is coming from growing with existing customers in terms of, you may share an account with another supplier or two, and over time, if you continually convince that customer that you are doing a better job, you will tend to get more and more of his business, and that's probably the primary place we are growing. We are getting more business from existing customers.

The IP Warehouse is not a non factor.

I didn't say that. I just said that we are growing from existing customers. Now, they may be a competitor in some of those existing customers. We got a lot of competitors. We have got more competitors than we know what to do with, but we are growing with existing customers. That's our primary area of growth.

Okay. Thank you.

Thank you.

Our next question comes from Claudia Shank with JPMorgan.

Thanks, very much. Good morning.

Good morning, Claudia.

I was hoping you could talk just a little bit about what you are seeing in terms of box volumes thus far this summer. Are there any pockets of notable strength or weakness just in terms of demand and maybe how it compares to what you saw last quarter?

The only thing I would say in terms of patterns of demand--there have been some places where there have been extremely bad weather where plants are down, and so you are not shipping as much to there, but there is no pattern. You can guess where the bad weather has been and where there has been flooding, et cetera. There is no trend or anything of that nature. I can tell you that July has started off to be a pretty good month. We have got 10 shipment days where we have data out of 22, and this is kind of a strange July because of where the 4th of July fell, which was on a Friday. Some people worked on that Thursday. Some people didn't work. I'm talking about our customers. So the 3rd of July was a bad shipping day, and then the Monday after the 4th, some people took that off.

But that said, and it is a hard year to compare. Through the first 10 days, our bookings, in other words, our earnings are up 2.4%, and our shipments, our billings, are down 1.4%. But usually over time, by the end of the month, billings and bookings get pretty close. I feel pretty good about the start. Our billings are up 2.4% and especially with a couple bad shipment days. From our perspective, June and July have been pretty transparent in terms of the strength of the economy.

That's helpful.

At least as viewed by our box sales.

Yes, that's helpful. And then just two little housekeeping items--could you just quantify the number of shares you had outstanding at the end of the quarter, and then CapEx for the year, do you still expect $110 million to $115 million.

I will let Rick answer the first question. Yes, we expect CapEx $115 million is probably still a good number.

On the share count about $103.5 million.

Okay. Perfect. Thanks very much.

We have a follow-up question from George Staphos with Banc of America securities.

Hi, guys.

Hi, George, go ahead.

Last quick one on cash flow. Rick, if I take the data that you give us, and we have the P& L items, and you give us cash and CapEx, it seems now that we know what the share purchase was that there was very little use of cash for working capital. It looks like you held the line there pretty well. I don't know if you have a dollar amount. Certainly that would be consistent with the comments you made today on the call. Do you have a number on working capital cash flow this quarter?

Working capital was about flat. The only item I don't think that you consider, George, was our cash taxes were about $4 million more than our provision or book taxes, so that drove your remaining difference between the share repurchases, but working capital was essentially flat.

Our next question comes from [Jonathan Lewensohn] with Anchorage Capital.

Hi, guys. Just a quick question--related to the export question that was asked before. I know you are not that deeply in the market, but it clearly impacts the industry. How important are inventories, because that has been talked about a lot that there is low inventory, but how important are inventories in a world where a decent amount of production goes to low-margin business that you would always pretty much give up for additional domestic business? So could it be that low inventory numbers just aren't as important as they were compared to a period where the export market didn't really exist the way that it does now, the low margin export market.

No, I think inventories are still as important. In our case, our June exports were down, and they were down because we have very low inventories. We couldn't ship into those markets.

So you would always prefer a domestic customer to an export customer then?

No, we prefer a customer that allows us to maximize our profitability. If I have got to ship paper to the West Coast, a lot of cases, that's worse than export when you net out the freight. Freight is a very important part of the equation. The freight to the West Coast is very, very undesirable, and that's a problem. Fortunately, for us we have only got--we don't have a lot of box plants out there because we don't have mills out there. And again, the problem with having mills out there is that there are fairly high-cost mills for a lot of reasons. When you compare export business with domestic business, freight has become a big equalizer because most of the export business we sell are FAS port. We just pay the freight to the port. And again, a mill like Valdosta pretty close to Jacksonville, so we are close to ports. So there is no one answer to that. It depends on the customer, and it depends on the freight cost involved.

Thank you.

We do have a follow-up question from Mark Weintraub with Buckingham Research.

Just a quick one--the $20 million that was spent at Filer City, was that mostly incurred this year or was it split between this year and last? And then, if we think about Cap spending levels for next year, should we back that amount off to get a sense of what likely levels would be? Or is there any help you can give us there?

I will give you a little bit of help. We started construction on this project about last June, and so we spent money part of the last half of last year, so we spread the spending over about a one-year period. We probably spent 65% to 70% of the money in 2008. The other 30% to 35% in 2007. So that is the spending for it. I always give a CapEx forecast for the next year in the January call, and that is what I will do this year. We don't give CapEx updates for the next year. I go one year in advance, and the next earnings call in January, I will give you a forecast for CapEx for 2009.

Okay. Thank you.

(OPERATOR INSTRUCTIONS). Sir, I'm showing no further questions at this time.

Well, thank you very much. Thank you for your participation in the call, and I'm looking forward to talking to you next quarter.