威爾豪瑟 (WY) 2002 Q1 法說會逐字稿

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Please stand by. Your show is about to begin. Good morning and welcome to the Weyerhaeuser 1st quarter earnings call for April 24, 2002. Your host today will be Kathryn Mcauley.

Thank you. Welcome to the Weyerhaeuser 1st quarter earnings conference call. I'm Kathy Mcauley. And joining me are Bill Stivers, Dick Taggart, and Steve Hillard. If you have not received a copy of the earnings release, please contact my a associate April Meyer at 253-924-2937 and she will get a copy out to you. After today's call, Dick Taggart and I will be able to answer any questions you have. I would like to draw your attention to this statement. Please read it carefully as we'll be making comments. Bill Stivers will comment on the integration process. I will then review the 1st quarter business trends and Dick Taggart will discuss the outlook for the next quarter.

Thank you very much. Again, I think as you all know on February 12th, Weyerhaeuser company basically took shares out of the tinder box and consumed control of the lamb [inaudible] visit. The integration process which had been planned started immediately. Teams comprised of employees of both companies were formed the first week to assess how to efficiently integrate both the businesses and the functions. As we've said we expect this work to be completed with a combined organization in place in June. The teams are working together smoothly and I would say really excited about the prospects for combining the company company. The attitude here has been excellent. I would say better than we expected. And if you have to summarize the attitude, it's one of in effect we are an area now part of Weyerhaeuser. Let's get on with it. The the cooperation has been excellent. Based on what we've seen thus far, we're confident that the merger will generate the projected $300 million in annual synergies by the end of the three years that we've mentioned before. Or that would be roughly by the 1st quarter 60 h '05. As I many of you are aware we'll hold an analyst meeting in new york two weeks from today a may 8th. At that time members of our senior management team will talk about some of the opportunities we have in the combined company and we'll talk more and in more detail about the synergies. As you know to acquire the industry, Weyerhaeuser increased its debt significantly. However, we're confident that this acquisition wanted in effect using our balance sheet to accomplish this defining moment for the company. As we have stated many times, we're firmly committed to returning our balance sheet to the historical ratios that you've seen in the past and to do this, our top priorities as we have stated someone might call them super ordinate goals are very simple. Successfully integrate and capture the synergies as soon as possible and pay down debt. Kathy, with that, if you would like to pick back up again. That concludes my comments.

Thank you, Bill. Weyerhaeuser Company which reported earlier today included -- industries beginning February 12th. Net earnings were 14 cents per share which include an after tax charge of 10 cents per share for deferred cost related to the purchase. Quarterly earnings also include a non reoccurring after tax charge of 8 cents per share for the closer of two box plants and an after tax gain of 5 cents per share for the reversal of previous accrued duties. I now will review what tends in the quarter by business line and this is for Weyerhaeuser only. The changes will be averaged Q1 volumes and price changes versus the year earlier quarter or Q1 '01 and where appropriate we'll compare March prices with the 1st quarter average. Market up will. Volumes declined 8% and prices modestly eroded about 1%. The March pulp price was $7 be per ton below. Container board volume was down 13% in the quarter as prices continued to decline dropping 4 per to 5% or about $12 per ton in the quarter. The March price was slightly below the 1st quarter average. Box volume however rose 2% to 3% as prices remained flat. Fine paper volume was up 6% in the quarter. prices however fell 6% or $45 per ton on average. The decline in uncoated free sheet prices was about half that amounts. March prices were flat with the quarterly average. Weyerhaeuser announced a price increase on certain sheet grades in early April. Domestic log volumes rose 10% in the quarter. Prices were flatter terrifically the 2nd quarter. Export log volume was flat in the 1st quarter and prices eroded 2%. The March price was below the 1st quarter average. Lumber view declined 3% in Q1 while prices rose 10% or over $30 per board feet. Plywood volumes were down 8% but prices rose 4% or $9 per thousand square foot in the 1st quarter. Finally OSB volume fell 4% in the 1st quarter. Prices however rose 6% or $8 per thousand square foot. Prices were $13 per thousand square foot above the 1st quarter in March. Turn to downtime, and in downtime we're looking at pulp, paper and packaging mills. For Weyerhaeuser and we're including lamb intent. For the first full quarter we took 239,000 tons of downtime of which 57,000 tons was maintenance and 182 tons was market related. The lion's share was taken in container board. For a total of 181,000 tons and that this is out a total of 239,000 tons. Pulp downtime totaled 35.5,000 tons. Projection for downtime in the 2nd quarter is to be 160,000 tons. About evenly split between maintenance and market and most of the downtime is expected to occur in container board. Weyerhaeuser only lumber mills operated on the at a 92% rate in the 1st quarter. OSB and plywood mills operated at near full exams team. We'll continue to monitor market conditions and to avoid building inventories and will a just production rates. I will now turn the call over to Dick Taggart who will discuss the outlook for the 2nd quarter.

Thank you, Kathy and good morning. My comments on the outlook and the direction of earnings will be primarily based on legacy Weyerhaeuser obviously in pump paper and packaging our earnings will be higher due to the combination with lamb intent. Beginning in the 2nd quarter, we'll be beginning reporting our segments differently by splitting our pulp, paper and packaging segment into two. Pulp and white paper in one segment. Container board and recycling in a second segment consistent with -- historical practice. We'll continue to report as separate segments timberlands, wood products and real estate for a total five business segments. In the 1st quarter, we have maintained our historical segment reporting. And have consolidated the building materials earnings from February 12th into our wood products segment. So the timberlands earnings in the 1st quarter are legacy Weyerhaeuser only. As we look ahead to the 2nd quarter in our major business segments we expect our timberland earnings to remain relatively stable. We're seeing slightly better prices in the domestic log market and expect volumes to be about the same in the 2nd quarter. The export markets especially Japan continue though to weaken slightly and export volumes are expected to be flat to modestly lower. In wood products, we expect prices to be seasonally better as a result of the strong single family housing markets. Volumes will be better and we expect a strong quarter in engineered woods. The timing on the ruling on Canadian lumber could create volatility in lumber prices as we end the quarter. We announced an increase in paper grade pulp prices and while demand is not strong, reductions in inventory and the supply demand balance is such that we believe modest price improvement is going to continue. We are beginning to see those pricing improvements take place. The facility closures in our industry due to the down turn in production curtailments have again restored a more positive supply and balance in our industry. We expect the economic recovery which is underway will result in improved demand over the next few months. Container board and corrugated packaging experience continued weaknesses as Kathy mentioned in the 1st quarter with shipments still below year ago levels. March shipments did improve and there was improvement during the quarter and the 2nd quarter continues to show some improvement over the first. This improvement however is primarily in the food and produce markets. In the West and we are not seeing significant improvement yet in the industrial markets. Corrugated container cost have increased $5-15 per ton. We expect further increases in the 2nd quarter. In spite of this we expect our earnings to improve modestly from the higher seasonal volumes and lower manufacturing costs from the combined companies. With price rest maintaining relatively stable. Our real estate business had another very strong quarter and with that strength carrying over into the 2nd quarter. Our backlog remains at just over six months and sales remain steady. We had unusually good weather in the 1st quarter and our closings were higher than expect. And higher than planned which will likely result in modestly lower closings in the 2nd quarter. In addition, the first quarter contained the sale of several high margin developed lots that we don't expect to have at the same level in the second. Therefore, our real estate business will have another very good year when we see the 2nd quarter earnings slightly lower than the first. A few other items to assist you in your analysis of the combined companies going forward. Our tax rate for the first quarter is 35% and that is expected to continue for this year. Our on going interest expense following the completion of our permanent financing as Bill mentioned will be approximately $208 million per quarter of the combined companies. The quarterly DD & a of the combined companies utilized in the preliminary purchase price allocation that stepped up the basis of many of the assets will be approximately $340 million. With that brief overview, well now be happy to take take your questions.

Thank you, we will now begin the question and answer session. To place yourself in the queue please press star one on your touch tone phone. To withdraw your request, press star two. Please go ahead if you have any questions. The first question comes from Chip Dillon.

Good morning. I don't know about other models but most up side of prices seem to be in the real estate at $90 million. Which is unreal. Can you give us a view in terms of how you see the number moderating throughout the rest of the year. Could we see the results become more in a pattern with what we saw say in the second and 3rd quarter of last year given that you don't have these extraordinary lots to sell plus the closings probably get back to a normal level. Is that I a good place to see that number ease back to?

I think that's a reasonable assumption, Chip. The closing rates that do fluctuate through the quarter and I think the sales rate, the pattern of last year is a reasonable assumption to use.

And then shifting gears to the timberlands segment, when you say you expect that to be roughly comparable is that including in the 2nd quarter, the lament timberlands. We know six years ago they bought the properties and they expected the harvest levels to start to pick up and in five, six, seven years and here we are. So maybe you might comment long-term term as well.

Beginning in the 2nd quarter, we will fold their timberlands into ours and that should result in slightly higher earnings. My comment was for what you might call the same store sales bass basis or Weyerhaeuser basis. So yes, that would have a positive contribution. Regarding the long-term, harvest from the cabin land and other timber land I think is one of the issues that's under review by the synergy teams and I think we'll have more to comment on that when we're in new york.

And last question, i assume you'll cover this more when you are here in new york, the -- when you look at what was going on with consolidation, there are other companies that have made acquisitions a few years ago galore and recently where people have involved some equity to get their balance sheets in healthier conditions faster. So far, it seems like you all have chosen not to go that route nor have we heard about asset sales. Would those be something that you would look at to help get your debt down fast of?

This is Bill Stivers. As we have said publicly many times and particularly said when we did the bond offering, that our plan here was basically to pay down debt from free cash flow. To not in effect rely on divestments to pay that down. That doesn't mean that there might not be something and in fact with the significant timberland base we have which the integration teams will be combing through, you could have something that could be non strategic. But all of our financing was done on the basis of no divestments and no equity issue against pay down.

Got you. Thank you.

Thank you. Your next question comes from Mat Barlow.

Can you give us a little bit of clarity on what the impact was on a net basis at the EBITDA level of the lamet consolidation going back to February 11th and then could you share with us what the DD & A will be -- did you say $360 million on a a quarterly basis?

340.

340 on a quarterly basis and on a related note, it looks like dd & a went down year over year for Weyerhaeuser in the quarter. So so maybe you can explain that given that I would have thought it would have gone up.

Mat, this is Dick Taggart. For clarity off contribution of -- on the EBITDA level, in [INAUDIBLE] they contributed, that was strictly legacy Weyerhaeuser. In building materials, their building materials segments contributed very little if anything to our wood products segments so the only place that they materially contributed was in the pulp, paper and packaging segment where there were a signify want portion. We have not and will not disclose the size contribution at this point. But that's where the significant contribution took place.

Okay.

Regarding the DD & A is quarterly number was $340 million. The and that was of the two companies combined including the preliminary estimate of the stepped up depreciation from the stepped up basis and the assets and that was about $170 million. The 1st quarter depreciation for Weyerhaeuser would have been lower as a result of the permanent closer of the facility that we announced at the 4th quarter of last year. In Springfield, Oregon.

Okay. So but you are -- comfortable that the 197 that's reported in your press release does include a portion of it?

No. It does not. Well it includes lament from February 12th.

Right.

But it does not include the stepped up basis.

Okay. And that's because the stepped up basis doesn't go into effect until closing? After closing March 15th? How does that work?

I'm sorry. Steve Hilliard corrected me. It does include it.

197 does include the stepped up basis for depreciation.

What it excludes is the $9 million of goodwill amortization that as you notice in our footnote that was included in the 1st quarter of last year.

Okay. Well maybe I can get together with you afterwards and understand why we didn't see a more significant jump. Up toward that 340 number. In the 1st quarter at least on a prorate basis.

Sure.

Can I also ask about corporate expense. What was corporate expense in the quarter reflective of the merger or was there some offset in there?

Corporate expense I'm sorry say again.

Just wanted to know about corporate expense in the quarter and did that reflect the merger or was there an offset in there? Corporate and other in your seg men takings report -- reporting.

It includes our corporate and their corporate.

Just seems very low.

Well, it's it does reflect the benefit of the reduction in our Sg & a that we realize from the support of the of the realignment. Legacy Weyerhaeuser area corporate was significantly lower than a year ago.

Okay. And then lastly, if you took a worse-case scenario for the duty which I assume is that there is no exclusion -- and that the ATC just goes ahead and ratifies what commerce already decided to do, can you tell us what the full quarter impact of that duty would be for Weyerhaeuser?

Yes. Now the duty would combine the antidumping charge and the counter vailing duty. In the 1st quarter of this year, we accrued approximately $12 million in wood products for the antidumping charge. When the -- if the CVD as announced goes into effect at the end of May, as announced, then that rate will increase the combined rate of antidumping and counts terrific vailing duty increases to 35 -- just over 35%. That would on a quarterly basis as you say on a worse case at today's level of business would equate to about $35 million per quarter.

About a $1 million per person.

That's one way to think about it. Yes.

Thanks very much.

Thank you. Your next question comes from Mark Donnelley. Please go ahead.

Can you tell us whether with respect to export wood log market, whether you saw any market share shift or is it just continued weakness in Japan. And two other quick questions, first you said the downtime numbers were inclusive of lamb. Was there any downtime and if so in what grades and then the last question, the unquoted free sheet price hike, can you tell us in what markets are you seeing them sticking?

The export log market in Japan has been weak. The European producers have been advantaged by their currency and they have picked up some share in the Japanese market. We have seen some improvements in Korea and Korea has been a bright spot in the export market and export log market. If we -- your second question. I only have part of it down. Could you repeat.

Downtime, you said the downtime numbers included them. How much and where in ballpark times.

It was all in container board and they took actually quite and a bit of downtime. They took 14.5,000 tons of maintenance downtime and 30,000 of March defendant time in the 1st quarter. They do not have any downtime projected for the 2nd quarter.

And then the last question was with respect to the price hike. Can you tell us what is going on?

I don't have a specific break out between cut size and offset but the over all tone of the market has improved. The capacity closures have been very positive for that market and we're trying to see an improvement and feel re-encouraged that the price increase will fully go through and will stick.

Thanks very much.

Thank you your next question comes from Rich Schneider.

I was curious about the timberland segment. Your sales were down roughly around 30% year over year yet your profit held up nicely. This is the lowest sales quarter that you've had in timberland going all the way through back through 2001. Could you talk about the low level of sells and how you were able to achieve this reasonably high level of profitability? The margins were very high.

Rich, thank you very much for that question. I should have pointed this out earlier. If you look at the raw material sales by segment, you will see that raw material sells in the timberland business was significantly lower as rich pointed out but that the raw materials sales in the wood product segments were significantly higher. That's not only due to the fact that the timberland are in the segment but we have transferred the coastal British Columbia non fee timber operations from our timberland segment to our wood product segment which shifted significant revenue with virtually no earnings. Between the segments. That is the major reason for that difference, Rich.

And obviously that will continue to be that way going forward into this new segment.

That's correct.

Only third party sales.

Also it's important to keep in mind that the timberland sales that we show are from third parties only and in some quarters, we increase the our internal consumption of our own timber which doesn't show up as revenue to the timberland segment because it's an internal transfer.

Could you give us the number how much that was that transfer number from the timberland segment to the wood products segment?

I don't that have, Rich.

Okay. Just in general, on the -- transaction, can you say over all if it was just a push in the quarter?

In the quarter, it was slightly diluted because of the contribution did not cover the incremental expense and the step up in depreciation. It was very slightly cash positive. February February 12th on.

Great and on the $300 million synergy figure, I imagine there is not much in the quarter for that. Is that correct?

Rich, this is Bill Stivers. That's correct. The integration teams are still doing their work and that will not start to show up until we execute -- there have been as we'll talk about in New York, there are different things that we've been able to do quickly but I don't have a number on those. There has been -- we've been taking advantage of opportunities even before the integration teams are reported out here. But we're not tracking that at this point until the integration teams report out.

So that would be more of an impact going really into the 3rd quarter after the report comes back in june?

I would say that exactly.

Okay. Just following up on a couple of questions that mat asked, what would you give us as a good number to look at corporate and other going forward. It was $58 million the this quarter. There are a loft moving parts. Could you give us an idea.

Rich, could you restate the question?

The corporate and other number with $58 million in the quarter. And what is a good number going forward when you have the full inclusion of -- is it something like $65 or 70 mondays. What would and a good number?

That's probably not a bad number, Rich.

Okay.

Their corporate was not large.

We're relooking at how we'll do the accounting on that and that again will come out.

We use a franchise fee concept here. In terms of the charging out corporate types -- well basically GNA type support to the business segments. So I think at the end of the 2nd quarter, we'll be able to give you a better fix on that.

Okay and just back on the DBNA question, so we should be looking on a full year questions, DD & A you know, on a run rate of roughly 1.3 -- $6 billion that's the DNA run rate and if that's the run rate, could you give us the capital spending that you think will be associated with that?

Rich, at the time of the acquisition, we indicated we expected capital spending this year to be $1 billion $150 million which is slightly below the depreciation prior to the startup especially. -- step up. After reviewing both our capital spending slate, we believe it will come in somewhat less than that. We had been planning 650 for legacy Weyerhaeuser. 50500 legacy -- we have believe that it will have already managed it down to $450 million. We think it could possibly go lower which would put the CAP-X. At around $1 billion 1 for the year.

Just a comment on the wood markets pricing as going after it peaked a few weeks ago, it's been moving down, what is your view on the decline in wood pricing and where do you think wood inventories are through the system right now?

We believe that lumber inventories are relatively low. That as you've read in the trade press there was some anticipation that there would be an increase of sheets from Canada during this windows between now and 9 end of May when you could ship in duty free. That has related in both this weakness in price but the weakness in price is not just from an increase in shipments. It's also the fact that buyers have pulled off the market in anticipation of this and that has related in inventories being drawn down. In the distribution system. And so we would expect to continue to see a -- some short-term weakness but eventually they are going to have to restock and we'll see some additional seasonal bouncing in the lumber prices. The uncertainty around this cvd is going to increase volatility in lumber over the next few months.

And what about the panel markets?

They continue to think react day similar behavior. Pretty well balanced. We would expect to see some improvement going into may but then typically we'll see them decline again around the July holiday period when things slow down. But again, the quarterly average ages we still expect the 2nd quarter to be somewhat better than the first.

Thanks a lot.

The next question comes from Mark Wilde.

Good morning. I wondered if you could more on this whole lumber issue, is it your sense that Canadian lumber mills are running extra shifts right now and do you see Canadian producers trying to put a lot of inventory South of the border right now?

Not -- I think there is some of that in some product lines, mark. We're doing that with cedar. But we're not with other construction grade products. So it will vary. The -- but I think that the there is no a flood coming as some would anticipate and that the price weakness is as much the buyer's behavior of pulling off the market as the sellers trying to push more wood down here. The statistics we see would suggest that there is not a significant flood of wood. I think people are just reacting to the order of flow that they receive. And trying to maintain reasonable production as reasonable production planning schedule as they can. I don't believe there are large inventories being built anywhere.

I was wondering if people were running extra shifts and if they were really making an effort to crank a lot of production right now.

I don't believe so. They may be running a little over time but they are not adding people to run extra shifts.

Okay. Second question. There has been some talk over the last year plus that walamet had been harvesting more aggressively to help push earn against cash flow. Can you talk about what you've seen as you've gotten inside there.

We don't have a lot of data and we have been focusing on looking forward more than looking back with them. But as you look at their ship. Data, the log shipments export log shipments from legacy -- in the 1st quarter of this year were significantly lower than in the 1st quarter of last year.

And then I just had two pricing questions. One on uncoated white paper and fine paper and think i heard Kathy say over all your prices were down $45 but the uncoated white paper business was only 23. So that would suggest that you had some pretty large declines and the non uncoated free sheet grades and the other question was your box prices didn't move at all. Most people have been suggesting that they had seen a little erosion in the 1st quarter.

No. We had a very stable quarter in box prices.

Anything that that is particularly attributable to?

We probably have a little perhaps bigger position in the product part of the market. And maybe that was attributable to it. I don't have an answer on that.

And then the fine paper?

It is to some extent a mix issue. We are a small player in other white paper grades so that does tend to probably impact us a little bit more. As you correctly pointed out, we're looking at white -- uncoated free as being the most important part of that business and I would point out to you that this is regular see Weyerhaeuser only so we'll be much bigger in the uncoated free business or we're much bigger now but that's not reflected in these numbers.

Okay. Thanks.

Thank you.

Your next question comes from Peter Rushmeyer.

Thank. You indicated you took 239,000 tons of downtime. I was curious if you could quantify the cost of that downtime had it not oh cured in the quarter?

We don't quantify the cost of downtime. It has an impact in the quarter but we don't quantify that.

Okay going forward, you have not made any announcement related to walamet on capacity closer. Is that something we'll have an answer to one way or another by the time you visit New York?

We as you know Pete, we are very much involved the integration teams are going through and looking at the combination of the facilities and assessing how we operate the most efficiency -- it has been our practice to make announcements as we make the decision on the and not really target a particular time so those announcements will come as the integration teams complete their work and the decisions are taken.

Okay. Also had a question on a timber self-sufficiency, is it possible to give us a rough idea as to what your current pro forma numbers are for the key segments and/or as for the company over all, and is this fair to assume that those numbers will be rising going forward as your harvest numbers are rising for both?

Pete, the self-sufficiency numbers stay pretty much the same and sufficiency was very close to ours. And the Southern harvest increase continues to increase, it's increased significantly in the last five years, sir self-sufficiency does improve. And that is primarily in the Southern United States. It stays constant in the West and Canada.

Any one to quantify those numbers.

Not at this time.

Just a point of clarification on your capital spending, you mentioned it might get down to $1.1 billion. Does that include spending on timber and timberlands?

It includes capitalized timber and timberlands such as reforest nation etc. Duds not include small timberland acquisition.

So last year I believe the figure was $156 million so that's the number that would be included in that $1.1 billion?

That's correct.

Okay. Great. That's all I had.

Our next question please.

Thanks. You recently initiated a challenge. Is that spread from what the government of Canada is doing and would you anticipate any kind of monetary compensation?

This is Dick Taggart. This we did not mount a challenge to the CVD. Only the Canadian government can do that. We mounted a challenge to the anti-dumping charge. Which was imposed against the Weyerhaeuser Company and we have not paid out anything so I don't know that we could speculate that we could give anything back. It's too soon to speculate what benefits we may have. We're simply challenging the process that was used to arrive at the duty rate.

Okay and a couple other quick ones. I heard your comments on ROCO for the remainder of the year. Do you share the optimism that a lot of publicly traded home builders have expressed for '03 o '04. They are really tearing it up?

I can't comment on that because I haven't listened to their statements. Right now this business is doing very well and it will really be a function of interest rates, mortgage rates and consumer confidence and right now now, both of those -- as long as they where they are this business will continue to do well.

Final question on commodities. It seems that the both the pulp and fine paper increases are going to go through because of the producers are presenting a unified front. Are you operate at this mystic that you can get any more in the remainer of this year. Or is it one that people are willing to accept for the time being?

I think we're going to look at this one increase at a time and right now we're looking at the both it is pulp and the white paper markets as being improving markets and we're working on getting improved prices in those markets. We are not going to speculate from there.

We need better consumption.

Need better demand.

Yeah.

Okay. Thanks.

Your next question.

Just wondering in terms of the CAP-X number. The 1.1 or 1.15 whether that includes [INAUDIBLE] CAP-X from the beginning of the year through February 11th and then also wondering what your outstanding total debt level was at the end of the quarter.

This is Dick Taggart. That is a good point. The $1.1 billion was for [INAUDIBLE] for the entire year. That's why we do not have a number for what portion of the 1st quarter was actually invest had from February 12th. In terms of our total debt at Weyerhaeuser company as of the end of March, it was $13.4 billion.

That was about $13.2 after short-term.

Okay. Great. Thank you very much.

Your next question is from Don Neiman.

Good morning. Two questions. Could you indicate what was the amount of unusual lot gains in the real estate business in the 1st quarter?

Don, we didn't indicate what they were. I wouldn't call those unusual gains. We sell developed lots to other builders as a routine part of our business. We just happened to have one development in Southern California where the lots happened to be very expensive with very high margins and we sold more than the normal number of those in the 1st quarter so I wouldn't characterize this as an unusual gain kind of activity. But it was seasonally stronger than the typical quarter for sure and don't have the exact number but it would be in the probably 5-$10 million range in terms of its contribution.

Second question, kind of bottom lining the outlook in terms of earnings for the 2nd quarter and as I kind of go through the variables here, it seems to me like you've got several major hurdles. Obviously on the plus side you'll have the paper business but the expenses are running against you and this depreciation issue which continues to puzzle me sounds like that is going to be almost $150 million negative operating income hit in the 2nd quarter versus the 1st quarter. This all suggest to me that the street range which I guess the lower part of which is above what you reported in the 1st quarter seems pretty unrealistic at this point. I was wondering what I might be missing here in terms of important developments 2nd quarter versus first.

Don, I -- we as a matter of practice don't comment on specific EPS numbers. I think we do need to go back and review those the depreciation numbers that mat subjected in that the to make sure exactly what is in that number. Other than that, I think that you characterized the challenges we face pretty accurately. And our experience is as good as anybody's. I don't have any more. we don't comment beyond that.

Okay. Great. Thanks, Dick.

Thank you.

Your next question please.

John, Prudential. Thank you. Was the entire allocation of basis on -- a step up with no goodwill?

No. John as we showed in our filing, we stepped up assets the entire purchase price price stepped up the assets about $3.3 billion which left approximately $1.8 million in goodwill.

Thank you.

You're welcome.

We have time for one more question. If there are no other questions in the queue, then we would like to thank you for tuning into our conference call and Dick and will be available for any additional questions in probably about 15 minutes time.