Sonoco Products Co (SON) 2002 Q4 法說會逐字稿

Good afternoon. Thank you for joining us for our fourth quarter teleconference. With me today are Harris Deloatch, President and CEO , Charles Hupfer, Vice President and CFO, Barry Saunders, staff vice president and corporate controller and Vicky Arthur, staff vice president and corporate treasurer. First, permit me to remind that today's conference may contain forward-looking statements for the purpose of the safe harbor provided by the SEC act of 1934 as amended. Such forward-looking statements are based on current expectations, estimates and projections about the company's industry, management's beliefs and certain assumptions made by management.

Such information includes, without limitations, discussions as to estimates, expectations, beliefs, planning strategies and objectives concerning the company's future financial and operating performance. For those who may not have seen our fourth quarter release this morning, our reported earnings per diluted share were 36 cents versus 28 for the same period in 2001. Comparative EPS, which excludes one-time items in 2001 goodwill amortization was 38 cents versus 42 for fourth quarter in 2001. These results are within our previously-announced guidance of 35 to 39 cents. Fourth quarter earnings include fees received of 2.3 million related to past use of patents. Future amounts to be recognized will not be significant on an annual basis. Earnings were adversely impacted by higher OCC costs and the delay in covering those costs until late in the fourth quarter. Earnings were also hurt by continuing operating issues and flexible packaging by the impact on volumes in certain businesses related to the weak economy and higher pension in post-retirement expense.

During this quarter, we saw year-over-year improvements in volumes, sales, productivity and working capital. Our free cash flow before elective funding for benefit plans and after-capital expenditures dividends was 72 million, up 57% of the fourth quarter of 2001. Our objective over the next four years is to grow sales to $4 billion, which will be generated from current organic capabilities and from additional sales and growth capabilities to be gained through acquisitions, which we continue to aggressively pursue. Cash flow is king, and we expect to continue producing strong free cash flow at least in the range of $140 to $160 million annually through 2006. Most importantly, our goal is to convert our cash flow into average annual double-digit total returns for shareholders built on a foundation of 103 years of experience, 78 years of consecutive dividends and expected continued dividend increases. Coupled with the growth opportunities driven by aggressive innovation and prudent acquisitions. Turning to the immediate future, we do not see evidence of significant general economic improvement in the first half of this year.

Therefore, we expect first quarter EPS in the range of 30 to 34 cents, including increased pension and post-retirement expense. Meanwhile, we will protect our cash flow and strong balance sheet by further improving our overall cost structure, including productivity improvements expected in the range of 40 million to 50 million during 2003. We will continue driving toward being the absolute lowest-cost producer in all of our businesses. That means challenging all existing cost structures, enhancing productivity, and also evaluating potential dispositions. We believe we are very well positioned to profit from an economic recovery. Which we will improve even further, and we are extremely well positioned to take advantage of consolidation opportunities. With that prelude, I will turn the meeting over to Charlie Hupfer.

Thank you, Allen. I will begin by reviewing the fourth quarter performance and the numbers I'll speak to are what we call comparative. There are only two adjustments between as reported and comparative, and they are the restructuring charges in 2002 and the restructuring plus goodwill amortization in 2001. You have a reconciliation in your press release in dollar terms. Putting that reconciliation in EPS terms in 2002 in the fourth quarter, we had EPS as reported of 36 cents, and we add to that restructuring after-tax of 2 cents per share, and that brings us to 38 cents for the quarter.

Compared with 2001 where we start with 28 cents a share, add 10 cents for restructuring after-tax, and then add 4 cents for goodwill amortization that was included in 2001's numbers and obviously, isn't in 2002's. So the sum of those numbers is 42 cents, so our comparison is on an apples-to-apples basis, it's 38 cents to 42 cents. The restructuring charge in the fourth quarter of 2002 is $3,000,047 pre-tax or 1.50 after tax. The charge related to three closings of three plants in our deposit can group. The purpose of these plant closings is to better align our plants with the current and future mix of business. Two of the plant closings relate to business shifting to other locations. One relates to a customer's decision to exit sometime in 2003. Sales of 728.2 million, or -- were 7.6% ahead of last year. Gross profit was 136.6 million, which was 1.5% behind last year. The gross profit margin is 18.8% versus last year's 20.5%. S&A expense was 9.8% of sales versus 10% last year. The company's maintained good cost control over S&A spending through the entire year and it is reflected in that percentage as a percentage of sales.

Net interest expense of $12,917,000 was up $200,000 over last year, and that relates principally to higher interest expense due to the 6.5% bonds that we issued in late 2001 and offset by lower CP rates during the year. The effective tax rate for the quarter was 34.4%. Through three quarters, we have been accruing at a rate of 36%. We trued that up in December, and the year-to-date rate dropped to 35.6, but because the true-up all occurred in the fourth quarter, it had a more dramatic effect on the fourth quarter effective tax rate. The reasons for the difference and for the true-up were that we had higher than expected credits accounting for about half of the difference or a little over 400,000. That was credits related to foreign sales corporations, low-income housing, and our e-soft dividend deduction. Miscellaneous fine tuning that occurs at year end, especially in the international side accounted for the other roughly one half or $400,000.

In December, as we told the analyst community, we expected to fund the pension plan by $600 million. However, -- I'm sorry, $60 million. However, in late December, the market was running away from us, so we increased the amount to $76 million. We are over-funded at year-end by about $8 million. Free cash flow was $186 million. We're generally pleased with our overall cash effectiveness program. We obtained a 15% reduction in average working capital days. That's days of receivables, days of inventories minus days of payables, but we went on 58 days of average last year to 41.9 days this year, and we're looking for another roughly 10% improvement in 2003. Our balance sheet remains strong with total capital at 44.1% rate, and this is after the $76 million payment to pension plan.

Looking at the segment numbers, which are part of your press release in the industrial segment, we had sales of $360 million, which was up 8.5% over last year. EBITDA of 36 million was down 2.6% compared with last year. On the consumer side, we had sales of $368 million, which was up 7.3% and EBITDA was 29 million, which was down 13.7%. So overall, our overall sales were 728 million, up 7.9% and beet was 65 million, down 7.9%. I'll talk mostly about this from the perspective of the bridge analysis, but sticking with segment for just a minute, on the industrial side, our integrated tube and paper businesses were effectively flat with last year, so most of the shortfall or actually all of the shortfall you see here is in the molded plastics operation which was significantly behind last year. We also had excess pension costs, and that's the year-over-year difference and in the industrial segment, that was $2.6 million. Without that incremental pension cost, our fourth quarter would have been 4.4% in the industrial segment.

Now, I'm not using that as an excuse because obviously pension cost is a legitimate expense of the company, but I want to point that out so that you can understand a little bit better what's happening to our operations versus the effect that pension has on the reported numbers. On the consumer side, excess pension costs, again, this is the year-over-year difference is 2.2 million, so without that cost, we would still have been 7% behind last year's numbers. And that year-over-year decline, that 7% negative, is largely attributable to flexibles. Our flexible division accounts for that shortfall, and much of that difference relates to the problems that we've discussed related to the two plans, facade and Winnipeg. Those are the plants where we installed new equipment and spent most of the year debugging that equipment. Now, let me turn to what we call the sales bridge, and those of you who have followed us this is just a variance analysis where we hold last year constant and identify the year-over-year changes.

I'll give you some numbers so that you can then follow me along a little bit better, so I'm actually going to read from a chart that has four columns on it. The first column is description. The second column is total. Third column is industrial segment, and the fourth column is the consumer segment. So with those column headings in mind, the first item is 2001, and that's our base period. 2001, we had total sales of $676.6 million. That's in the second column. The third column --the third column, industrial is 332.6, and the consumer, the fourth column is 334.0. The next line is volume and mix. And in the total column, we have 30.7. Industrial, 8.0. And consumer, 22.7. The next line is price, and total is 6.6. Industrial, 7.4. And consumer, a negative .8. We have acquisitions as the next line, which is 11.7. Industrial is 10.4. And consumer is 1.3. And then the last one is other, which is 2.6 million in total. 1.8 industrial and .8 consumer. That should add to the 2002 totals of $728.2 million in the total column, 360.2 in the industrial column, and 368 in the consumer column. Now, I'll speak to some of those specifics, starting with volume.

Volume overall was up 2.4%, and that's simply arrived at by dividing the $8 million by $332.6 million, so volume was up 2.4% when we look behind that into the tube and core group domestically, we see that overall volume was 1.5%, and volume in our traditional Sonoco plants was up 4% with good volume increases with high end textile tubes, paper mill cores and film cores. However, we did see some volume decline in our small account segment, and that decline was around 2%. And that's largely the Hayes acquisition that we made last year, as well as we did close two plants in the industrial products group earlier in the year. In Mexico, our volume was up 16% as we aggressively go after low-end textile volume, and in Asia, our volume was up 36%, and that's an across-the-board improvement in all the areas that we're involved within Asia. Overall in Europe, our tube and core volume was up 2%. Europe's a little bit of a mixed bag. We had nice increases in Spain, Turkey, Holland, and Greece. We actually had declines in France and Belgium and our German and UK operations were relatively flat. Overall, 2% up. A little bit of a mixed bag when you look at it country by country. Molded plastics does remain a trouble spot for us, and that's especially our Rotter Dam plant, which sells plastic reels into the fiber optic plant. The molded plastics business had a 6% volume shortfall and 4.5% of that was made up entirely by this Rotter Dam plant, and Baker Reels, their volume was off 10%, that's the same story we've been telling before. It's lack of sales into the cable TV and the fiber optic industries.

Volume on the consumer side was up 6.6%, and again, that's just arrived at by dividing the 22.7 by 334. Composite can and middle end in mid America was up 4.4%, and virtually, all of that increase came from middle end, and about a third of that is coming from the new valve ultra seal coffee can that we're selling to Kraft. On the deposit can side, our volume was overall flat with last year. Most of our product lines were up, however, and that's powdered beverages, nuts, dough, caulk, while frozen concentrate and snacks were down year over year, and put it all together, it was relatively flat deposit can performance. High density film volume was down 8.7%. Here, we had some ups and downs. Our retail volume was down around 9%. However, our produce volume was up 13%. Flexible packaging sales were up 15.5% in volume terms. Our sales to Kraft, necessarily, Minute Maid, Pepsi, are all up. We got the $50 million in incremental sales that we were talking about to the financial community, and you can see it in these volume numbers and packaging service volume was up 26.6% with increased sells from Gillette in the UK and Packard in our Winchester plant.

Turning now to price, price is set up on the table is 7.4% for the industrial segment. In June, as you know, we began to implement a 7.5% price increase in our tube and core group as those PC costs were rising in August and September, OCC began to fall and greater price competition resulted on the tube and core sod. The net result is that our average pricing is down just a little bit from the third quarter, but it is flat to up compared with last year's fourth quarter. Tube pricing is unfavorable and mix is unfavorable in Asia, and that resulted in a 13% year-over-year decline pricing from the Asian group. In Europe, pricing was up 2.5% on average with the biggest year-over-year impact in Turkey where we were up 11%. Pricing was also up in South America and principally Brazil, but the real pricing story is with recovered paper. Here, favorable pricing makes up about 6 million of the 7.4 million favorable variance. OCC was up effectively $18 a ton in the fourth quarter and news was up about 37 a ton on the fourth quarter. On the consumer side, pricing wasn't a big factor. Of the 800,000 negative of that variance, 600,000 is attributed to the high density film product division, and likewise, acquisitions don't play a big factor since most of last year's acquisitions were grand-fathered by the fourth quarter, so the 10.4 million that I mentioned includes Hayes and U.S. paper in the U.S. and Smurfit acquisition and their tube group in the UK.

Turning to the EBIT bridge, and I will read these numbers out to you. Same four columns, description, total, industrial, and consumer. And the first line item is 2001, 2001 total is 70.9. Industrial is 37.4, and consumer is 33.4. Volume and mix, the second line for a total of 1.5 and is made up of industrial 3.0 and consumer a negative 1.5. Price costs is a negative 8.8 million with 4.7 million negative in the industrial segment and 4.1 in the consumer segment. Productivity was 8.3. 2.8 in industrial and 5.5 in consumer. S&A is a negative 4.9, made up of a negative 2.5 in industrial and negative 2.4 in consumer. And other is a negative 1.7 in total. Industrial was .4 and consumer is 2.0. So the total of all those should be 65.3 million made up of industrial, 36.4 and consumer 28.9. Now, as I look at this bridge, a number of things stand out Volume on the industrial side is a strong 3 million, if you recall a sales increase that I mentioned of 8 million. So the strong number mix probably influences this number a little bit. On the consumer side, we see a negative of 1.5 million, and that's on sales increase of 22.7, so I need to explain that. Of the 1.5, mix is about 1.2 million of that, and that's largely attributed to the high density film group. So really more at a break even on the consumer side, despite the big increase in sales.

One of the reasons for this is that about one-third of the volume in sales comes from the packaging services group, and in this division, volume doesn't necessarily carry an incremental contribution. We're compensated here through efficiencies that the added volume brings, which are shown in our bridge here as improved productivity, so the profitability for some of those sales is actually found down in productivity as it relates to packaging services. Also last year in high density film of lost volume, not last year, last quarter. High density film volume carried a higher contribution than incremental contributions that we had on the flexible volume and the metal end volume. Now, looking at price costs, I said that in total, price cost was negative 8.8 with 4.7 million of that in the industrial. 3.4 million in industrial is identified with our Asian operations. And it's negative price. It's not unfavorable costs. And those prices are down year over year, so that accounts far and away from the majority.

The cost difference of roughly 1.3 is attributed to our north American operations with most of that variance in Mexico. In our domestic operations, we finished the quarter with full recovery of the higher cost. Average weight paper cost of our paper mills were about $18 a ton higher in 2002 than they were in fourth quarter of 2001. On the consumer side, more than one half of the 4.1 million unfavorable variance comes from high density film, and our resin costs there are up 4 cents a pound compared to last year. The other roughly one half of the negative price cost in the consumer side is attributed to resin increases in composite cans, and that's for our plastic caulk cartridge and inflexibles. On the bridge, productivity added 8.3 million to EBID, and this reflects the ongoing six sigma and productivity had been averted by the two flexible plans that we talked about, and this is aqua and Winnipeg, and the negative 8.9 million in total. And you can see that when we look as a percentage of sales. Other, that year over year difference consists of inflation, changes in plant overhead, foreign exchange, and then, of course, just the catch all other category. In summary, we consider this to be a very good quarter. We were pleased with the quarter. We were inside our guidance, the 35 to 39 cents we felt like price cost would be neutral and actually, it was, and it was slightly positive, and we feel good with what we see into the fourth quarter. S&A remains under good control. Our productivity programs remain strong and contribute to the profitability. Free cash flow was a strong 186 million. We feel good about our control over capital spending, and control over our overall capital managements program. Allen.

That's the extent of my comments.

Thank you, Charlie, and we're now ready to open up for questions.

Thank you. Ladies and gentlemen, if you wish to ask a question, please press star and then one on your touch tone telephones. If your question has been answered or you wish to withdraw your question, please key star two. All questions will be taken into the order in which they are received. Our first question is from David Lebowitz of Brenham.

Congratulations on a fine quarter. A couple of questions. Allen, you mentioned that the company would be willing to dispose of various business units that don't measure up or meet the goals of the corporation going forward. Roughly, what is the dollar volume of these companies?

David, this is Harris. I will respond to that. We have an ongoing look at our portfolio of businesses, and we did that at the end of last year. In the aggregate, I would say that you're probably talking about several million dollars of businesses that we have, in fact, looked at.

Okay, and secondly, Allen, in your comments, you said a lot of emphasis is being placed on reducing the debt portion of the balance sheet this year. At the end of 2003, what ratio of debt to equity are you aiming at?

David, this is Harris again. You know, we are comfortable in the low 40 debt to capital ratio. I think Charlie said we're down 43, 44%, something like that. Without that pension, we would have been down in the 41 to 42 range. We're comfortable with where we are, but that's traditionally where we would like to keep the company.

Okay, and in terms of free cash flow, which was also mentioned earlier and may have been Charlie who discussed that, how do you define free cash flow?

We define free cash flow as obviously cash that remains after dividends and capital expenditures.

Okay. And there was just one last point, and that is as we look at 2003, what are the stumbling blocks that might not permit the second half to be as strong as your --you're anticipating it might be.

We haven't built any real economic recovery into our budget, and you know, we're not anticipating any, and I guess as I sit here and look at the year, not only Sonoco, but I think the general business world is operating in pretty much uncharted waters that will be controlled out of Washington and the Middle East, and until we see where that goes, David, it's anybody guess.

Caller: And the current weakness in the dollar vis-a-vis the dollar and other foreign currencies, is that factored in?

Harris Deloatch No. Well, we have not factored in any change in the dollar and against other currencies, I don't think, have we, Charlie?

Not as a part of this plan.

Thank you very much. I will let somebody else ask, and then I will queue up again.

Let me make one more comment on the question about free cash flow. We do define it as Harris described, but the significance of the pension number year over year was such that to make a fair comparison, we have also added back to arrive at that $180 million number. We added back the pension payments that were made this year and we did the same thing to the numbers that were shown for last year so you could get a good comparison, so I guess if I were refining that a little bit differently, it would be cash from operations minus capital spending, minus dividends adjusted for pension.

Thank you very much.

Thank you. On your next question, it's from Todd Peters of American Century.

Hello. Thank you. My question concerns the free cash flow again. I guess your outlook for '03 and forward is between 140 and 160 million per year. I understand you don't want to include the pension cost, but that's a significant step down from the prior two years free cash flow. Can you address why that's occurring?

Todd, I think that what we have traditionally said over the last couple of years is that we would stay in that 1140 to 160 number. I don't see anything that's going to pull our cash flow down significantly. Our capex this year, I think will be for 2003 will be similar to '02 in the 100 to $110 million range. Frankly, we're sticking with what we've said over the last couple of years without changing it because of the increase obviously this year.

Okay, so there's really no change.

There is no change, that would drive it down, frankly.

George Stafles: All right. Thank you.

We do have -- I will make a comment. We have a process improvement change that, in terms of the management of our payables that undoubtedly added two payables at the end of the year and that might reflect to be looked on like a one-time change that affected this year's numbers that won't be carried forward into the next year.

Thank you. Once again, to ask a question, please key star followed by one on your touch tone telephone. The next question is from George Stafles from Salomon Smith Barney.

How are you?

Into the not too bad. To piggyback on Todd's question. At one point, the company had been looking for free cash flow to be $900 million over a 5-year period. The range got moved to 800 to $900 million, and if you divide by 5, you end up with a range that was 160 to 180. I realize that over the last year, clearly, it's been a tough environment to operate in, and so wouldn't be surprising to see the range slip a little bit toward the 160 range, but, again, is there anything else that would bring you to the low end of your annual target which is now 140 to 160?

George, there's nothing out there. You hit on the thing. We have seen the earnings come down over the last two years and that's the only thing. Where does this trend stop? We think it's bottoming out. We made good progress on working capital year over year from the last two years, and if we see business improve, you're likely not to have those same levels as you have more inventory and more receivables. My answer to you is we are being conservative in those numbers and we think it's appropriate.

Okay. Now, when we finally do see a recovery without getting into when that will happen, are there any things that the company can do such that you don't have the traditional pattern where your volumes will accelerate and so do your costs? Is there any way to get in front of OCC to a greater degree that has been traditional in the industry?

George, I thought that, you know, in all honesty that we crossed that bridge in February and March of 2000 when we aggressively moved prices and got them up much more rapidly than we had in the past rather than the traditional 3 to 4-month cycle, I think we did it in that timeframe of 60 days. Obviously, we did not do that this year. As OCC rose. We will continue to aggressively try to raise prices and get as close to that curve as we can, but I think there's always going to be a lag of probably some 45, 60, 75 days in that process, to be perfectly honest.

, On the competitive side, have you seen any change over the last 12 months out of the smaller players in industrial relative to their willingness to follow your pricing lead? They have been quicker to follow or lagged you, or is it difficult to track that thing?

George, in our industry, if you look back over the last 20 years, there has been good support for price increases that Sonoco has generally always led. If you look back over that same 20-year period of time when you see bill running rates down in the mid or below that, you do see people trying to get volume in the mills and willing to take lower margins. We clearly saw that with the second price increase that we attempted this year. And while it's -- I don't know that it's any more competitive today than -- in fact, I would say it's no more competitive today than it was six months ago or 12 months ago. Until you see those capacity utilizations pick up, you're going to continue to see pricing pressure in my opinion.

Fair enough. Last housekeeping-type of question, just in terms of the guidance for the quarter, Charlie, were you looking for the tax rate to be a little bit lower in getting those fees from the licensing, for the patent?

Ask that again, George.

Well, the tax rate was a touch lower in the fourth quarter, and you also had a little bit of fee income that won't be recurring in consumer. Was that built into your guidance, or was that additional? If it was additional, was there anything that fell off back in October is the real question?

It was -- well, first of all, it didn't affect the effective tax rate in any sense at all. Whether it was built into the guidance, I really can't recall. I don't think that it was. After tax, it amounts to about a penny.

Okay. And the tax rate was about another penny?

Well, it would have been less than that. This was just normally taxed revenue. So it would have been -- the overall effective tax rate would have been applied to that income.

Going from what tax rate, 36?

Going next year, you know, we basically ended the year at 35, 35.6. I would expect that that would be increased some next year, and it will be increased for really a couple of reasons. One of them I might mention that we have a deduction for the dividend that we pay into our 401(K), and because we implemented that this year, we actually received two deductions in one year, last year and this year's. Going forward, we'll only have one of those, so we will see a reduction in that credit, and then the foreign sales corporations off the table right now, so I would expect some relatively modest increase in the effective tax rate in 2003 compared with 2002.

Okay. Thanks, guys.

You're welcome.

Thank you. Our next question is a follow-up from David Lebowitz.

David Lebowitz Two brief ones. Do we have any off-sheet liabilities at year end?

We do not.

David Lebowitz Second of all, with all the talk about dividends and double taxation, are you paying a full corporate tax rate?

Yes, we are.

David Lebowitz On a tax basis, not on a reported basis?

Yes, we are.

David Lebowitz Excellent. Thank you very much.

That's a matter of opinion.

David Lebowitz Well, that's true. However, if you are running the company for the shareholders, I couldn't agree with you more. If you are running it for the media and for various newspaper reporters, it's better the way it is.

Our next question is a follow-up from Todd Peters of American Century.

Todd Peters Hello. Could you comment on your overall utilization rate in bow the industrial and the consumer aspects of your business? Has there been any change since third quarter, things better or worse?

I can't really comment on the utilization. I really don't know. It would vary on whether we're running seven-day shifts or whether we're running five-day shifts, so that's a hard question to answer. I would say that in the fourth quarter, the run rate was about flat to the third quarter. December was down, but October was probably up, so we haven't seen any appreciable, if any, improvement in run rates in most of our businesses.

Todd Peters Thank you.

Our next question is from Tim Burns.

In December, there was quite a bit of focus on the internal development patent filings, and I guess a drive to better serve your customers with more products. Is that a long tail type of development, or do we expect to see breakthroughs whether it's introducing plastics or incremental flexibles, you know, to your blue chip customer list?

Tim, that tail is always longer than I like it. I think you will see early --probably by the end of the first quarter, early second quarter some of those tails shortening up and some things coming out.

Good. Good. It sounds like in flex, you know, you brought the revenues in. You're working with some operational issues. Is this just kind of a stair step pause before we move ahead, or have you gotten your arms around the target markets of confection, snacks and bottle labels that you want to get your arms around, or where do we go with this business?

Tim, I think where we go right now is we improve the operations fairly significantly. The opportunities are there, and as I think all of you know, we made some management changes in the business in the fourth quarter, and even deeper in the organization, some more changes. To get another set of eyes in there, and we're seeing improvements in the operations. I'm probably more frustrated than anyone about it because I wanted it to improve yesterday, but it is making improvement, but our focus right now is on those operations. We've got the business in and get those a little more profitable, and then we'll worry about the next stair step.

Gotcha. On the protectives front, any news? I mean, it remains one of the highest gross sectors in all of packaging. I know that you're working on both new applications and potentially some new products, but, again, that sounds like it's a little longer in the tail than you would like again.

I'm not sure that's true, Tim. I think the tail of that is shortening fairly dramatically. We talk about the bulk pack, I think in December. And we have I'm not sure of the number, so I hate to throw one out, but several more customers coming out on, consumer packaging come customers coming out, utilizing that bulk pack, and there's -- we're being pulled with several of our appliance customers into our geographical expansion into that business, so that tail is shorter than perhaps some of the others.

Great. How do you guys feel? I know some of the smart money people, if there are any left, are focusing on companies who seems like once again are very well positioned geographically in the developing world figuring that the western world will kind of lolligag around here between war and bouncing around the bottom of a recession. Do you guys start to look, again, geographically whether it's Asia or south or Africa or Asia?

We are seeing improvement, and as Charlie talked about. (audio gap) Okay. $28 million.

All right, and then we're going to have the incremental, the 22 cents a share for 2003 is that correct?

That's correct.

Okay. Now, regarding the two flexible packaging plants, it sounds like you're --how well are you getting the bugs worked out of the system? Are you approaching the end soon? Are we going to see this continuing on for a bit?

I'm probably the most frustrated person in the company as a result of it, but I suspect if you really looked at it, we're looking at another order of improving situations, but I think it's going to be probably the second quarter, by the end of the second quarter before we see appreciable improvement, and askaqa where we have the problem with the s & k press, we have seen rates drop very dramatic dramatically now, and we have seen contribution margins drop significantly on that. We're on the road to improvement in both of these plants, but my experience as those things don't occur overnight unfortunately.

Right, right. Thank you very much.

You're welcome.

Sir, I'm showing no further questions at this time.

Thank you very much for joining us. Have a good day. Thank you all very much.

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