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Sonoco Products Company (NYSE:SON)

Q3 2009 Earnings Call

October 22, 2009 11:00 AM ET

Executives

Roger P. Schrum - Vice President, Investor Relations and Corporate Affairs

Charles Hupfer - Senior Vice President and Chief Financial Officer

Harris DeLoach - Chairman, President and Chief Executive Officer

Roger Schrum - Vice President, Investor Relations and Corporate Affairs

Analysts

Joseph Naya - UBS

George Staphos - Banc of America/Merrill Lynch

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Christopher D. Manuel - KeyBanc Capital Markets

Claudia Hueston - JPMorgan Chase & Company

Chip Dillon - Credit Suisse

Steve Chercover - D.A. Davidson

Al Kabili - Macquarie Capital Advisors

Christopher Shunk - Deutsche Bank

David Leibowitz - Horizon Asset Management

Operator

Greetings and welcome to the Sonoco Products Company Third Quarter 2009 Earnings Conference Call. At this time all participants are in the listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder this conference is being recorded.

It is now my pleasure to introduce your host, Roger Schrum, Vice President Investor Relations for Sonoco Products Company. Thank you. Mr. Schrum, you may now begin.

Roger P. Schrum

Thank you Sherry and good morning everyone. Welcome to Sonoco's 2009 third quarter earnings investor call. This call is being conducted on October 22 2009.

Joining me today Harris DeLoach, Chairman, President and Chief Executive Officer and Charlie Hupfer, Senior Vice President and Chief Financial Officer.

Our financial results for the third quarter were released before the market opened today and are available via our website at sonoco.com.

Let me begin by stating that today's investor call may contain a number of forward-looking statements, that are based on current expectations, estimates and projections. These statements are not guarantees of future performance and are subject to certain risks and uncertainties. Therefore actual result may differ materially.

Additional information about factors that could cause different results and information about the use by the company of non-GAAP financial measures is available in our annual report and on the company's website.

With that I'll turn things over to Charlie Hupfer.

Charles Hupfer

Thank you, Roger. Today Sonoco reported EPS of $0.47 per share for the third quarter of 2009. These are our GAAP earnings and they include restructuring charges and also non operating gains and losses. We reported base EPS of $0.50 a share, which excludes those restructuring charges and in this year's third quarter some non-operating gains.

This was a good quarter for us. Our guidance was $0.43 to $0.47. So at $0.50 we exceeded the high side of the guidance by $0.03 a share. And as I go through my notes, the general theme I believe will be that domestic volume showed some improvement over the second quarter, price cost was positive and productivity was very good for the quarter.

So let me begin by reconciling GAAP net income to base net income. GAAP net income was $47.7 million or $0.47 per share versus base net income of $50.9 million or $0.50 a share. The difference is a net of $3 per share at the charge and that consists of restructuring charges in the quarter net of some one time non-operating income, a little bit confusing so I will walk you through how that affects the P&L.

During the quarter we recorded 7.2 million in restructuring charges, those were expenses. And most of that related to the consolidation of 19 divisions in the six business units. We also recorded, as an offset, income of $7 million. And most of that related to a gain on the sell of properties at our former paper mill in China. So the net amount rounds to an extent of $100,000 as the earnings before interest and tax line.

This is where it starts to get confusing, because the minority interest impact of that is a charge of $3.1 million and that represents our Asian partner share of the gain. And let me reiterate, that gain then is not in base earnings, nor is the minority interest offset that in base earnings.

Now what that tells is, is the minority interest charge of $3.1 million brings the net impact, net income impact to $3.2 million for the quarter or $0.03 a share. So if we add back the $0.03 a share to our GAAP EPS, excuse me, of $0.47 then that brings us to base EPS of $0.50 cents per share. Now last year's our third quarter restructuring totaled $5.5 million. After tax that was 3.3 million or $0.03 cents a share. So if we add back that $0.03 to last year's GAAP EPS of 57 then that brings us to $0.60 a share. So the year-over-year comparison is $0.50 a share this year versus $0.60 a share last year, with $0.08 of that being the incremental pension expense that makes up most of the difference.

So with those restructuring elements in mind, let me just read out to you the full comparative income statement on a base earning basis. And starting at the top, sales for the quarter were $930.6 million and that's 12.5% below last years $1.533 billion. And little bit latter on I'll give you the usual year-over-year reconciliation.

Cost of sales was 757.5 million versus 878.5 last year. The gross profit margin in the quarter was 18.6%, and that compares with 17.4% last year. So up significantly in gross profit margin. In fact the gross profit margin was 18.3% in the second quarter, ended at 17.6% in the first quarter and going back to the fourth quarter of last year, it was 16.9. So we're very pleased with this sequential improvement that we have seen over the last three quarters in the gross profit margin.

And then coming on down the income statement, selling general and administrative cost was 98.1 million versus 93 million last year. That brings us to earnings before interest and tax or EBIT of 75 million in the third quarter versus 91.7 million in last year's third quarter. That's a difference of $16.7 million or 18.2%.

Now, remember of course that that issue is not we've had passed (ph) as incremental pension expense. So added to that incremental pension expense, EBIT would have been down not 18.2 but 3.2%. So generally with that in mind we're pleased with the EBIT performance in the quarter, especially compared with the sales decline of 12.5%.

Walking on down the income statement, interest expense was $9.4 million versus 10.6 million last year. We had lower commercial paper rates and that accounted for some part of the favorable $1.2 million difference. So I think most if the difference was due to the fact that we had a significant debt reduction. And in fact we had no commercial paper outstanding at quarter end.

Then further down in the income statement equity and earnings of affiliate is 2.4 million versus 3 million last year. And then non controlling interest, that's what we used to call minority interest is a negative $600,000. That's an expense of 600,000 versus last year we had income of $400,000. So that's a year-over-year difference of a negative $1 million. But actually that's a good thing because what that represents again minority interest is the partner's share of profits or losses. So this represents improved profitability in our Asian operations as well as in our Brazilian plastics operations. And this minority interest just represents the partner's share of that improved profitability.

So at the bottom-line, base net income is $50.9 million versus $60.6 million last year and that's a 15.1% negative year-over-year. Again though absent the incremental pension expense that year-over-year negative would have been a little bit over 2%, probably around 2.1%. And then at the very bottom, base EPS as I said earlier is $0.50 a share, versus $0.60 cents a share last year.

Now let's look at the segment reporting that's found in the press release. The numbers are in the press release, I won't go over those. But I will talk about that is the increase or decrease from the prior year. Starting with Consumer, Consumers sales were down year-over-year by 1% but profits were actually up by 45.5%. And absent that pension expense, incremental pension expense profits or EBIT would have been up 61%. So this was a very solid quarter for our Consumer Group. In fact it was the seventh consecutive quarter of year-over-year performance.

Most our operations in the segment shows solid year-over-year improvement. But especially on Matrix plastic bottles business, our flexibles business and our composite can operation. Price cost and productivity were the big drivers that influenced the segment's profitability.

The next segment is Tube, Core and Paper and their sales were down 20.5% and EBIT was down 49%, which was actually much better than the first quarter, but relatively flat with the second quarter. Absent incremental pension expense EBIT would have been down 34%.

In our US Tube and Core business, volume in the third quarter was actually, approximately 6% stronger than it was in the second quarter. However again comparing the two quarters, the second quarter with the third quarter price cost was a slight negative. And that's because with some of our contract customers we set the third quarter pricing based on an OCC level that was at that time $60 a ton, that would have been the June price. But then OCC moved up to $80 through the quarter. So we had a negative price cost squeeze there, a modest one, that affected the Tube and Core Paper segment. Interestingly OCC has since moved to $70 a ton, which should provide a little bit of margin relief in the fourth quarter.

Also in this segment our Asian Tube and Core business, although it's small, continues to show a nice year-over-year turnaround.

The next segment is Packing Services and their sales were down 13.3% and EBIT was down 33.6%. Again, absent the incremental pension expense EBIT would have been down 21%. But still well off year-over-year. But with an EBIT of $6 million this third quarter was much improved over the second quarter. The second quarter if you recall EBIT was only $1.1 million.

And then, the last, it's not actually a segment, it's the all other category, sales were down 23% and EBIT was down 53.8%. In that category, our Baker Reels business continues to be weak, and that just simply reflects the table and wire market that they sell into.

But now let me turn to the sales reconciliation. This is where we reconcile last year's sales of 1.533 billion to this year's sales of 930.6 million. And that's a difference of $132.7 million. So the make up of that 132.7 is starting with volume, volume was a negative $73.1 million price. Price, in this the price declined, price was a negative $21.8 million and FX was a negative $37.9 million. So those three numbers 73, 21, almost 22 and 38 should add up to the 132.7 million shortfall.

Let me start with volumes. As I said, volume was a negative $73.1 million. The majority of that volume shortfall was in the Tubes, Core and Paper segment. Tube sales in the U.S. were down 17% year-over-year. But again remember, Tube sales were down 22% in the second quarter year-over-year and they were down 24% in the first quarter year-over-year. So as I said earlier, we did see an improvement in volume, probably around 6%, little bit less than that between the second quarter and third quarter.

However it's still down significantly year-over-year. Europe tube volume was down 12%, in Western Europe, we saw volumes down 13%. All the regions there were unfavorable. I'll give you an example of that, Germany and France were down year-over-year by 16%. But then our Eastern European businesses were unfavorable but only to the tune of roughly 6% down.

And then, as I said earlier, Asia but also Latin American volumes were up. They're up a little more than 3% year-over-year.

Now to composite can. Composite can volumes was flat. We had short falls in snacks, much less than we did in the second quarter. But that was offset by powdered infant formula and coffee conversions sales up. Put it all together the composite can volumes was flat year-over-year. Flexible volume was down 5%. But that's actually versus 11% in the second quarter. So we found some improvement. That was due to new candy volume at our Vega (ph), Texas plant and some very good smart feel, that's the re-close package, a smart reel volumes in this quarter. In fact, that product was up 29% year-over-year and was a big reason for driving flexible volume stronger in the third quarter than it was in the second.

Overall packaging services volume was down slightly year-over-year in total. As the mix because we cut most of the shortfall was in our U.S. core flex business. And in the all other category, Baker Reels was down roughly 27% and molded plastics which is selling largely into the industrial related businesses was down 20%.

The next item under the bridge is pricing. Pricing was negative $21.8 million. The majority of that shortfall is due to waste paper sales coming from our recycling business. OCC was down 30% year-over-year in the U.S. and because OCC is our primarily raw material and paper making, that drop in OCC caused modest declines in the overall pricing of our paper and our tubes product, especially with contract customers.

Pricing was positive in the Customer's statement and exceeded the earlier in the year pricing increases to cover higher tin plate cost.

FX was negative $37.9 million and that just simply reflects the strong dollar and the average rates during this year's third quarter versus the average in last year's third quarter. And that's sort of interesting because the dollar is clearly weakened since beginning the year, but this is a third quarter, the third quarter comparison where the dollar was still stronger on average. So those are the components of the sale bridge.

Let me turn now that the EBIT bridge, where we're reconciling last year's EBIT of 91.7 million to this year 75 million. And that's a difference of $16.7 million. And that made up of the following categories. Volume mix is a negative $29.2 million. Price cost and this now includes energy increases, has some time was a positive $14.7 million.

Productivity is a positive 13.2 million and the all other categories is a negative 1.7 million. And then, incremental pension expanse is in negative 13.8 million. And that should all add up to negative $16.7 million. So again, volume, 29 million; price costs, 14.7; productivity, 13.2; all other negative, 1.7 and pension, 13.8 negative.

So let me start with volume. Volume's a negative $29.2 million. This just simply represents the lost profit on the volume short fall that I just talked about, a total $73.1 million.

Price cost is a positive 14.7 million. From what I said earlier about the sales bridge, we saw that pricing declined by $21.8 million. So what this means is that the cost declined even more, cost declined by 28.5 million. And then our best estimates of energy and freight is that these cost were about $8 million favorable year-over-year. So putting those three elements together, we end up with a net positive price cost of $14.7 million.

I've already mentioned that OCC dropped 30%. Now, that's from an average of a $110 a ton last year to $78 a ton this year. And that's the biggest driver in the cost, our overall waste paper cost a whole lot of that OCC at the mills dropped by 32%. And we had a similar decline in Europe.

We also got some costs -- lower cost in our flexible division, films were down anywhere from 18 to 23%, and resin cost in our plastic businesses were down 25 to 40% depending upon the grade. So all of that contributed to the positive price cost.

Productivity was a positive $13.2 million. That is well above the first quarter's 5.4 million and the second quarter's 3.5 million. In fact, what you have to do is go all the way back to the fourth quarter of 2007 to find a higher productivity number. So we are really pleased with productivity in the quarter. It was good across all of our divisions. It was especially good in our U.S. paper operation.

There machine utilization was at 95% in the quarter. That posted 87% in the second quarter. Downtime days in the paper division were 148 days in this quarter. They were 281 days in the second quarter. So the machines were running and they were running well. And actually paper division profitability with productivity within the $5 million range out of that 13.2 million.

And then last, well not last, but other is negative $1.7 million. This is our catch all category and that include savings from restructurings that we've done. It includes price control over discretionary spending, that's net of general inflation and raise in salary and benefit increases. So all other is a negative 1.7 million.

And then lastly pension, pension is a negative 13.8. And that just simply the year-over-year increase in pension expense. It was brought about by last year's negative 24% return. This is information, by the way our year-to-date pension performance through September is a little short of 18% positive. So a little bit of a turn around there.

Now let me go to cash flow. Cash flow in the quarter was extremely strong. Cash from operations for the quarter was a $176 million, which was $9.6 million more than last year. But last year had a one time insurance recovery that totaled right at $25 million. So if we take this in mind the true cash from operations was almost $35 million greater in this quarter than it was in last year's third quarter. Our working capital management continues to add value. In fact, working capital added cash of $10 million more this year than it did last year.

We measure ourselves in a number of different ways and one of them is a cash gap base. And cash gap base stood at 38.1 in September versus 41.9 in June and 42.6 in March. So we saw a good improvement there. And then looking at another statistics that we use, accounts receivable compliance which would be the percentage of the customers rule within term and it was 88% in this quarter versus 86% in June. So again, working capital management has performed well.

Free cash flow then and we define that as cash from operations minus capital spending and minus divided, was a 123.6 million for the quarter. And for the whole year cash flow, free cash flow is a $194 million. Turning to our balance sheet, our balance sheet is strong, debt was reduced by $98 million since the beginning of the year, $54 million of that was in the third quarter alone, debt-to-total capital is 31% which is the lowest level it has been since before 1990 and that's where I stop looking.

So, I'm not exactly sure where it goes back to. We had zero commercial paper outstanding in quarter ends. So again, balance sheet this has been strong, stronger than ever.

Let me turn to the forecast. This will be the forecast for the fourth quarter and for the full year 2009. Our guidance for the fourth quarter is $0.42 to $0.47 per share and that will bring our full year guidance to $1.62 to a $1.67 per share.

Our fourth quarter guidance is largely unchanged from the forecast that we gave in July after our second quarter. Obviously for us then, the third quarter was stronger quarter, stronger than we projected. And so, we project the fourth quarter to be back inline with what that earlier second quarter of July projection was. In looking at the fourth quarter, now talking about the guidance of $0.42 to $0.47 versus to the third quarter of actual $0.50, there has been a couple differences that stand out.

One big difference is taxes. We are assuming a 30.5% effective tax rate in the fourth quarter compared with 25% in the third quarter. The third quarter is when we adjust our 2008 tax accrual to file tax return, it is also when we fine tune tax reserve period.

We will have no similarly adjustment to that in the fourth quarter. And that probably accounts for about $0.03 of the difference. From an operating prospective, we are projecting a seasonal drop off that we always see in packaging services and in flexible. That the November and December decline is typical as the holiday volume goes away.

We assume that in this projection, the tube, core and paper in the U.S. holds. So we also factored in what our customers are telling us about the holiday shut down. And we are projecting a modest decline in Europe and that's because we usually face higher energy cost there in the fourth quarter and we factored all that in. That means that for the full year, at a $1.62 to $1.67 per share will have played out pretty much as we expected it to.

At the very first conference call that we placed in February, we projected 2009 EPS at a $1.55 on the low side and we said any upside will come from improved volume. And we did see improved tube volume, it is modestly pick up in June in the U.S. and it has carried on through the third quarter and we are projecting here on through the rest of the year.

Our cash flow forecast for the year, with the free cash flow to exceed $200 million. I know if you think about that, we think we are not saying a whole lot given the free cash flow is already at a $194 million due three quarters. But as I said, our working capital management was extremely affected in the third quarter.

What we saw in the third quarter was with improved volume, we saw some changes in that mix of working capital. The improved volume gave us overall higher levels of accounts receivable and our receivables went up $28 million. We did see inventories go down and we saw accounts payable increase by $41 million. So with the increased volume in the third quarter, receivables were up 28, payables were up 41.

I think when we experience the usual December slowdown we will see some reversal of that $13 million accounts receivable, account payable difference. So, maybe we have been a little bit cautious but we felt some of that reversal into the fourth quarter guidance.

Last year, our fourth quarter free cash flow guidance, not guidance but actual was $10.7 million. The press release also mentions the likelihood it will make at least a $50 million pension contribution by year end. Let me speak to that for just a minute, there has been some very new IRF guidelines that's dated September 25.

And they have loosened the funding requirements for the year 2010. Nevertheless, we're still likely to fund $50 to $100 million by year end. These new guidelines let us use a more favorable discount rate, but that's only for funding purposes. It doesn't really change the economics of the unfunded position that we have.

So, what it was down to as we have the cash and, in fact there is $194 million worth of cash on our balance sheet in total. Our balance sheet couldn't be any stronger. There are really no significant acquisitions that are pending at the present time. So, as I have said, we feel that funding between 50 and $100 million into the pension plan is probably the best use of our cash today.

So with that let me just summarize. We had a solid quarter. We were real pleased with it. If you recall in July we said that tube and core volume in the U.S. had picked up in the moth of June. We were pleased that that up tick in volume carried through the third quarter and it is carried through this so far into the month of October.

Price cost was positive for us. Productivity was extremely good, so we were quite pleased with the overall quarter. So with those comments now, I'll turn it over for questions for Harris and for myself.

Question-and-Answer Session

Operator

Thank you. We will now be conducting a question and answer session. (Operator Instructions). Our first question comes from Joseph Naya from UBS.

Joseph Naya - UBS

Good morning guys.

Harris DeLoach

Good morning Joe.

Charles Hupfer

Good morning Joe.

Joseph Naya - UBS

I was just curious in packaging services in the quarter; you saw some pretty significant improvement there versus the second quarter. Are there any particular things going on there that led to that?

Harris DeLoach

Joe, this is Harris. I don't think there was anything in particular that caused it. We see in all known seasonality, we see a much stronger third quarter than generally a second quarter and we actually saw that again this year. But that volume is still not back up to what I would call traditional level at this time.

Joseph Naya - UBS

Have you seen, I guess what kind of trends have you seen there and in other businesses in terms of customer activity. Have you seen any pick up or any sequential improvement?

Harris DeLoach

We've seen sequential improvement quarter-over-quarter in most all other businesses. And obviously, for a second and third and the first, it varied and in fact in the second. So we have clearly seen there and most all other businesses, and our customers are, I will have to say, our forecast which Charlie referred to it is basically a bottoms up forecast, it starts with the customers.

And I would say that our customers based on what they counted last November-December are optimistic but very cautious. And I would say that guidance reflects that same trend.

Joseph Naya - UBS

Okay. In terms of new products, obviously you've done well with the coffee cans and or in the infant formula. Are there any other things that you can point to at this time, or kind of what is the pipeline that looks like there?

Harris DeLoach

Well, the pipeline of the new products is quite strong. I don't know that if Charlie has mentioned it, but through the quarter, we had year-to-date, we had about a $124 million of new products, a $125 million versus 136 for the total of the year, last year. I think it was about $42 million for the quarter.

And in that we have some things that actually are grand fathering all, the snacking seal, but you mention the coffee cans and the Maxwell House coffee can and we have some another conversions and all the ranks that are coming out as well Joe. So we are quite optimistic and confident that we will hit that 125 to $150 million next year as well.

Joseph Naya - UBS

Have you seen a lot of interest from your customers in term of growing out new products? Do you see any sort of change there?

Harris DeLoach

Absolutely. Particularly on the plastic side, we got... you mentioned the coffee can within that, you got the layer in that, we got some fluid calls and some bottle sales. We've got new six or three net can that is out there. And we got some re-talked bows (ph) and a lot of that sort of... probably a lot of activity going on, we are quite optimistic about it frankly.

Joseph Naya - UBS

Okay. Great, thanks a lot.

Harris DeLoach

Thank you, Joe.

Operator

Thank you. Our next question is coming from George Staphos form Bank of America/Merrill Lynch.

George Staphos - Banc of America/Merrill Lynch

Hi, guys. How are you, good morning.

Harris DeLoach

Good morning George, how are you?

George Staphos - Banc of America/Merrill Lynch

Not too bad. I guess the question I had to start, and we look at it a little bit differently here, I apologies, busy day with earnings. Even with the sequential pickup in the third quarter and 2% cores and paper. The EBIT number if we look at it correctly, didn't really move much from the second quarter level.

If that's correct, what were the impairments to think a better, if you will conversion of volume sequentially to dollar profitability?

Charles Hupfer

George, let me comment just briefly, obviously the Tubes and Cores/Paper segment was up from the third quarter. And that would have been the volume, that would have been the 6% and it is actually by 5.7% if I recall correctly, that was up.

And then, where we did see some squeeze. We had a positive price cost in the second quarter in that particular segment and modestly negative one in the third quarter. And again that's because we set those contract prices when OCC was at $60 a ton and then propylene moved up to 80. And so I think that the volume was there or as I said, improvement in the volume was there.

But we did see a flip between positive price cost in second quarter and negative price cost in the third quarter. And again though, I mentioned earlier that we may see some of that same impact in the fourth quarter because we would have set the same prices with the September OCC at $80 a ton. And then propylene moved down to 70, and I don't know what it will do through the rest of the year, but it probably shows more weakness than strength.

George Staphos - Banc of America/Merrill Lynch

Okay, understood. I guess, I would have expected to see a bit more incremental profitability given that sequential pick up in volume. But was there any other factor as in the price cost flip that kept if you will led on the Tube and Core segment profitability in the quarter?

Harris DeLoach

George, I would say two things to that. Actually we had two product quality claims in the quarter, and it cost us 7.5 or $0.02 a share which was very disappointing in that one time occurrences and I think behind us. And in addition to that with metal volumes on the industrial side of the business, we have some more on accruals or performance based calculations that kicked in and we had to go back to the first of the year and catch that up and the quarter as well.

So that would be... those would be the other few factors that will impact full earnings down a little bit.

George Staphos - Banc of America/Merrill Lynch

Okay. To follow-on and I will turn it over. The product quality claims, can you give us any color on that? And my take on that was that the $0.02 in total impact, right Harris?

Harris DeLoach

I would say more to 7.5 George.

George Staphos - Banc of America/Merrill Lynch

Okay, got it. And the other thing, Charlie do you happen to have for the consolidated operations, the pre-tax had after-tax affect of the restructuring and the gain?

Charles Hupfer

Yeah, I do. Actually, looking at that, I just walk down once again; the EBIT impact, there is a little bit of rounding here. So, it is about $100,000 negative at the income before equity line, and then... so that the income line, its $100,000 negative, there is no tax impact on that number. And then the minority interest, it's a negative 3.1 million and that's what brings the total to 3.2 million.

So, as I am looking across this, the as reported EBIT was $74.8 million, $200,000 of restructuring takes back to 75 million. And then interest is unchanged, taxes are unchanged. That means that the income before equity and others is 49 million and base equity and affiliates is 49.1.

Everything is unchanged until you get controlling in for its minority interest, which shows that the reported negative $3.7 million, I'm going to adjust that 3.1 of that to take that to on a base earnings income statement to a negative $600,000.

George Staphos - Banc of America/Merrill Lynch

Okay. Thanks very much. I will turn it over.

Operator

Thank you. Our next question is coming from Ghansham Panjabi from Robert W. Baird.

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Hey guys, good morning.

Harris DeLoach

Good morning Ghansham, how are you?

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Good, thank you. So historically on tubes and cores; can you give us a sense as to what volumes do between 3Q and 2Q typically?

Harris DeLoach

Between two and three? I don't know percentage wise, Charlie may as normally in uplift, third quarter is generally better than the second quarter. The fourth quarter generally reflects more like about the second quarter from...

Ghansham Panjabi - Robert W. Baird & Co., Inc.

But about the 6% improvement is clearly up there, right?

Harris DeLoach

Yes, it is.

Charles Hupfer

It is about what the, the year-over-year improvement was, because as I said, with 22% down second quarter over second quarter and 17 down third quarter over third quarter. And when we compare, just looking at volumes this us another analysis that division does, it was up 5.7%. So, I think all those pieces fit together reasonably well.

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Okay. And then Charlie, you commented on the consumer business, Matrix, plastics has got some improvement there, can you give us some more color there please?

Charles Hupfer

Well the Matrix, plastics sales, they are benefiting from sanitizers sales that in fact running full loud. So, I don't know, and that is obviously related to that H1N1 Flu. And then also we had certainly seen improved volume in the insure products and for grease product, as well as running full out with some of that energy between products that we do. So just a solid quarter for them, from a volume prospective.

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Okay. And just one final one Charlie if I could. On pension, the year sort of ended today in terms of where the Pen rates are and what your pension performance has done year-to-date. What can we look forward to for pension expense for next year, in terms of the variance between this year and next year?

Charles Hupfer

Well, the one variable I mentioned that we're running a little bit less than 18% as a positive return but the discount rates will be down to 5.5% range versus a little over six. And so that's a negative factor.

I think if you close it right now, there will be about a $25 million improvement in our unfunded position. So it gets sort of washed out there. There are two things that will affect us next year. One of them is the change that was made in February to freeze the plan after 10 years and then the other change would be just this improved performances, the net return versus the discount rate and that will probably add 5 to $0.06. Those two elements alone, if we just close them will add probably about $0.06 a share.

Ghansham Panjabi - Robert W. Baird & Co., Inc.

Okay, great, thanks so much. That's very helpful.

Operator

Thank you. Our next question is coming from Chris Manuel from KeyBanc Capital Markets.

Christopher Manuel - KeyBanc Capital Markets

Good morning, gentlemen.

Harris DeLoach

Good morning, Chris. How are you?

Christopher Manuel - KeyBanc Capital Markets

Okay, thank you. A couple of questions for you, kind of follow-up with regards to what Ghansham was just asking. With respect to the volume trajectory, was there any change as the quarter progressed or was it the lift kind of came in June, it's been running at that same improved June level the whole way through. And if you don't mind, Harris, could you kind of address that, looking both -- across the different pieces of business as well?

Harris DeLoach

Well, let me take the Tubes and Cores business. Chris, I would say that what we saw in June basically continued across the entire quarter. We in North America, we didn't see much of a pick-up. But it stayed within the band. In Europe, actually, the first part of the quarter was flat. We did see some improvement in Europe in September and that has continued into October. So we're hopeful that we're starting to see some improvement in Europe in the Tube and Core business.

I think Charlie commented on South America and Asia, both of them were up, low single digit range. On the consumer side, the composite can volume is showing more of what I would call a normal seasonality pick-up that we normally see going into the third quarter and fourth quarter. And that's probably the same for the rest of the consumer businesses. And I think I commented in response to -- on the Packaging Services business.

Christopher Manuel - KeyBanc Capital Markets

That's helpful. At what point would some of these industrial businesses will start to lap on, what are going to be obviously much easier comparison in the next couple of quarters. Do you anticipate that at some point as such in turn, one would anticipate some of that will start to flip and potentially flat not return positive?

Harris DeLoach

I would think, they will turn positive in the first quarter of next year. The fourth quarter of last year, October was a reasonably strong month as I recall. And we saw, certainly the downturn in October and November. So we speculate our fourth quarter is going to be comparatively vast. But clearly in the first quarter, we'll start running in much easier comps over time.

Christopher Manuel - KeyBanc Capital Markets

Yeah that's helpful. And then last question I had was, kind of few parts, was on the restructuring side, some of the stuff you announced going from 19 divisions to six. I think you mentioned a 20 million savings. How should we anticipate the phasing of that flowing through, is the first part?

Harris DeLoach

Chris, we are in the embryonic stages of that now. We've obviously seen some of the savings as we had some reductions of people. There will be also be some structural savings that will probably take place in the first quarter of next year. So I would think by the second quarter next year, you should start seeing that coming in.

Christopher Manuel - KeyBanc Capital Markets

Okay and then the second part of my question with the restructuring stuff was, from looking through that release, it seems that most of that has generally been business realignment and streamlining the organizational structure.

Harris DeLoach

Oh that's exactly what it was. Chris, the intention of this was obviously -- I mean, to reduce some cost which is positive. The idea and objective of this was to basically streamline the organization to what we felt like volume levels were going to be when we come out of this recession and create an organization structure to grow the business for the next decade. I think that's what we've done.

Christopher Manuel - KeyBanc Capital Markets

Okay. So let me -- may be I -- as I look at how you've been running and that too in Core segment who's volume are in the high teens, low 20's, you kind of at about half the profit levels you used to be, looking at last year or even going back '07, '06 sort of level?

It seemed that at least my impression was most of the actions were -- that you've taken thus far have been more personnel streamlining and less of structural, i.e. closing footprint consolidation, things of that nature. And there A, maybe correct me if I'm incorrect there, but B, could you talk about the thought process to potentially address the footprint as well?

Harris DeLoach

Well, that is an ongoing exercise, Chris. But you are, in my opinion, you are incorrect as well. Because in -- this process started not to realign the process, but addressing the footprint. We basically started at the beginning of '08 and since that time we've taken about 16% of head count out of the industrial side of the business.

We've close four paper mills. I forget how many converting plans seven or eight in the process. So we have clearly been addressing over the period of time. And there are couple of more plants that will likely come out over the next 12 to 18 months internationally. But and that's in the Q I think, Charlie is looking at.

Charles Hupfer

That's right. We'll delineate all that in the Q that'll be out next week. But what we have taken out a number of plants. So I'm just reading this, the 2009 actions, the company initiated closures in it's Tubes and Cores paper segment, including a paper mill, five tubes and cores plants, three in U.S., one in Europe, one in Canada. I think if I read through the rest of this, we'd see that this has been an ongoing thing and there's been a lot of structural change.

Harris DeLoach

So I would say Chris that we've been aggressively ahead of the curve on what we felt the curve was going to be when these volumes started falling in the middle of late '07 downwards.

Christopher Manuel - KeyBanc Capital Markets

Okay, thank you for the color, gentlemen.

Harris DeLoach

You're welcome, Chris.

Operator

Thank you. Our next question is coming from Claudia Hueston from J.P. Morgan Chase & Co.

Claudia Hueston - JPMorgan Chase & Company

Hi. Thanks very much. How are you?

Harris DeLoach

Hi Claudia, how are you?

Claudia Hueston - JPMorgan Chase & Company

I'm good, thank you. It was quite challenging in the quarter and I know Charlie, you talked about some of the puts and takes of the first quarter but it is still looks like you're going to see and really get to the sense (ph). I was wondering if you could just talk a little bit about your priorities for cash, how you are thinking about things? And may be just comment also on the M&A environment. I know you said when you were talking about the position to put money into the pension, that there weren't any acquisitions that are eminently happening here that but maybe just comment on the environment as a whole and what you're seeing out there? Thanks.

Harris DeLoach

Claudia, thank you. As Charlie said, we've been looking over the couple of months. We're not required to make a pension payment this year. And in fact with the new regs of September, we're probably not required to make one in 2010 either. However, we have as you pointed generated a nice amount of cash this year. We have no commercial paper outstanding at the end of the quarter and our debt to capital is frankly lower than I'd like to have it.

And as I look at over the next couple of years, I think we are going to see a fairly active M&A activity for the company and environment driven by a couple of things, the least of which is not the fact that some individuals who own businesses, I think probably think the taxes are probably going to go up in this country. And that -- maybe the sentiment was right.

So we're probably being a little conservative about our pension situation and saying, we have the cash now and we're not going and replacing the pension contribution and we'll probably do it before year-end rather than late into 2011 or 2012 when we maybe -- we would be more active we think in the M&A.

As Charlie said, we don't have anything significant, large significant acquisition on the board at this point in time. I generally say, I'm not going to comment about acquisition activity, that Charlie's already commented on that. But we do in fact; we always have dialogues going on. But that's still our top priority and we'll look from time to time and start buybacks and that's the second priority. So hopefully that that gives you some flavor of my thought process.

Claudia Hueston - JPMorgan Chase & Company

Yeah, that helps quite a lot. You mentioned that the caps are probably a bit lower than you'd like. I mean where are you really comfortable with that on a longer-term basis?

Harris DeLoach

You know I think we have been obviously over 50% level I think in the mid 40 level, debt cap is probably where we're more comfortable.

Claudia Hueston - JPMorgan Chase & Company

Okay, great, thank you.

Harris DeLoach

Charlie's even agreeing with me.

Operator

Thank you, our next question is coming from Chip Dillon from Credit Suisse Group.

Chip Dillon - Credit Suisse

Hi. Good morning.

Harris DeLoach

Good morning, Chip.

Chip Dillon - Credit Suisse

First question; just on the pension, you mention that if you froze everything today, I guess the plan... the liability would be 25 million lower. But when you look at the actual cash contribution from that, do you see that changing a lot from this year to next year?

Charles Hupfer

It would have been affective. I don't know how to answer that because if the pension protection actually rules are entirely different from the FAS 87 calculation. And that's why we said that, if the unfunded position hasn't change substantially, we still be around 28% unfunded and at this, if just you take in the consideration, the performance today than the change in the discount rate.

I would think that over the long haul and that may make some concessions obviously is the results of this release act to put this company in a position where they don't have to make it sizeable pension contribution. But over the long haul, you got to recover that on deficit position.

So, before this, we would have said that, that the thinking was over above a five year period of time, that unfunded position had to be covered. That's not true for 2010, but I don't know any reason why it wouldn't be true, going out.

So, we certainly still have to have to some combination of improved pension performance and funding to recover that negative position.

Chip Dillon - Credit Suisse

Got you. And Harris, I know you were talking and not to forget, price that closed one of your own acquisitions, but you brought up a great plate which was, at the end of 2010, capital gains rates go up and there is a lot of other uncertainty about what people pay? Will they sell their businesses or sell their stock?

And my question is I guess is, when you sort of look at your flexibility to look at all your alternatives, what is your... could you just review for us quickly, what your unused lines are, you mentioned you don't have commercial paper out. What kind of capability would you have there assuming you did issue equity?

Harris DeLoach

Well, let me clear, I intend not to be the issue of equity. So let Charlie talk about the credit side.

Charles Hupfer

I can certainly talk about part of it. This third quarter isn't anything like last year or fourth quarter isn't anything like last year's fourth quarter. We could certainly... the bond markets have opened back up for us and we could certainly issue that and it would probably be under 6% range for 10 years.

So, I mean that's always a possibility. Now our commercial paper program is a $500 million program, its fully back stocked, its going to back stop and then expire until the year 2011, I think April or May 2011 and we have been in talks with the banks to know that those markets have open back up again.

So we won't have any trouble re-establishing the back stocks when the time comes. So, unless we hear on the credit side, we have all the flexibility that is required. And frankly, when you talk about pension and unfunded position, we considered that a debt too.

And so, using some cash and/or debt capacity to pay down some of that unfunded position really is just a wash from the perspective of capacity.

So I don't think anything we have said suggest that we don't have the capacity on the borrowing side, not equity but on the borrowing side to do everything that we would expect to do in inside our strategic thinking.

Chip Dillon - Credit Suisse

Got you. And then, just last question. As we kind of gone into this tailspin that hopefully we are comfortable well on the way of coming out of have you, can you talk a little bit just in general terms about what your customers, especially in the customer side are thinking in terms of developing new delivery/packaging systems. I know that's a big effort you have there. And has the appetite for that, did it vain from point, has it started to come back or did it just remain constant throughout the recession?

Harris DeLoach

No Chip, it hasn't remained calm, constant. I think our consumer customers were clearly impacted by our customer spending turning down and they reacted in advertising dollars and hunkering down. You know they certainly have not turned on performance lease, but we are certainly seeing more discussions about sustainable packaging, about how we can create new offerings that can help us grow the side of our business which fits right into what we talk to them about creating value products like Maxwell House Coffee is obviously a good example of that. They are advertising now this new package with the seal click, there is a way to try to grow market share. So the elevation that we are doing plays right in to what they are trying to do.

Chip Dillon - Credit Suisse

Got you. Thank you.

Harris DeLoach

Thank you very much.

Operator

. Thank you. Our next question is coming from Steve Chercover from D. A. Davidson.

Steve Chercover - D.A. Davidson

Thank you. Good morning.

Harris DeLoach

Good morning.

Steve Chercover - D.A. Davidson

When Charlie went through the EBIT bridge, I guess I would say that volume and price cost ratios, basically you had good control but productivity is perhaps the one thing that you can't control, is there still much to be secured there?

Harris DeLoach

Absolutely. We have productivity efforts. If you go back, I guess eight to 10 years and it's based on Lean Six Sigma and we have a goal that we are trying to drive somewhere around 2.5, 2.75% cost out of our business on productivity. And when we look out in to 2010 right now, I mean we know basically what the 2010 productivity number is going to be because we have found if you don't have productivity lined up from mid-year for the next year, if you generally just don't get it.

So we funded it, we put people in and we feel very optimistic about the ongoing productivity program.

Steve Chercover - D.A. Davidson

Great. Many of my question been answered but with respect to the cash, I heard you loud and clear that you would talk about the pension. You mentioned share re-purchases as maybe second priority. I'm surprised that the dividend wasn't mentioned since it's the first year that you haven't raised in a decade?

Harris DeLoach

Well actually, you said some thing's right and some things wrong. Actually our second priority would be to grow the business and with acquisitions and the share re-purchase would actually be our third priority.

Actually our first priority is that dividend because I probably get links (ph) of our shareholders if we did something with that. So obviously, we will continue to pay the dividend. It's very important to us. We have the cash flow to do it and at the proper time we will look to increase that.

Steve Chercover - D.A. Davidson

Thanks very much.

Harris DeLoach

You're welcome. Thank you.

Operator

Thank you. Our next question is coming from Al Kabili from Macquarie Group.

Al Kabili - Macquarie Capital Advisors

Great. Good morning guys.

Harris DeLoach

Hello, Al. Good morning.

Al Kabili - Macquarie Capital Advisors

Just Harris, I wanted to ask you a question on the competitive environment and one of your major competitors just recently been emerged from Chapter 11. And wanted to see if there's been any meaningful change in the competitive environment in Tube and Core?

Harris DeLoach

I would say there's not been any increase or decrease in competitive activity than we would have expected in any kind of economic downturn. In fact, I would say it's probably been less competitive than the activity that now we're seeing in all the recessions and the competitor you are talking about has always been a good competitor. And in fact, they understand about making money and I think they may have led the last price increase in paper. So competitive activity is quite good.

Al Kabili - Macquarie Capital Advisors

Okay. And they what's certain I guess is that paper board prices have been increased recently with OCC. I haven't heard the same on Tube and Core and usually, that follows a paper board price increase. I wanted to get your thoughts there?

Harris DeLoach

Following my lawyer's advice, I don't talk a lot about pricing on these conference calls but much of our business is under contract and we are always renegotiating these contracts as we go along.

Al Kabili - Macquarie Capital Advisors

Okay, okay and then lastly, just wanted to clarify on the guidance for 4Q. Are you assuming tube and core big volumes flattish sequentially in the guidance? I'm just trying to struggle with that. If you take away the kind of the $0.03 benefit from the unusually low tax rate, you're at best, flat sequentially in terms of earnings.

You've got price mix potentially at tail-end as you've mentioned in Tube and Core, you got a little bit of a benefit from FX. I mean seasonally there's not been, usually too much difference, I'm just trying to reconcile that.

Harris DeLoach

Normally, what we are budgeting, I think our forecast is that we will see the normal seasonality in Tubes and Cores in the fourth quarter. But we're saying would be the normal shutdowns that we would anticipate and our customers in particularly the Tube and Core, they only take down around Thanksgiving and depending on inventories, around Christmas.

And we're saying that we think we will see a normal year there. And normally the fourth quarter's a little volume wise is a little down from the third quarter. And that's what we're anticipating to the extent that obviously the economy, the inventory levels are having in fact more downtime to the extent that -- sales are better they will probably take less. But that's probably the best color we can give at this point, Al to be perfectly honest.

Al Kabili - Macquarie Capital Advisors

Okay, very good, thanks.

Harris DeLoach

Thank you very much.

Operator

Thank you, our next question is coming from Christopher Shunk from Deutsche Bank.

Christopher Shunk - Deutsche Bank

Yeah thanks. Good morning, Harris. How are you?

Harris DeLoach

Good morning, Chris.

Christopher Shunk - Deutsche Bank

Hey, I -- just wondering, what is your normal tax-rate, what should we use for 2010 and beyond?

Harris DeLoach

Charlie.

Charles Hupfer

Yeah. And we'll obviously give that with some fair guidance at our Analyst Meeting that's coming up. But I would expect it would be about 31, 31.5% would be ordinary rate. And we have certainly benefited from some of the tax planning initiatives that we put in place. And then actually I guess, just thinking that through, this 30.5% that we've projected into the fourth quarter doesn't have any special adjustments to as such.

I would be inclined to think 31% would be a pretty good overall number we'd use.

Christopher Shunk - Deutsche Bank

Okay. And then I have a question about perspective margins in consumer packaging in 2010. As far as I know you don't want to talk about potential crisis. But this is more a question about how your contracts are structured and the lag that may be in place between the movements and resident implied costs. If those costs remain where they are today, should we expect a meaningful change in those margins in 2010 compared to where there are in quarter two?

Harris DeLoach

If they were to stay where they are, I would not expect a meaningful change. I think the key to that is basically returning some of these contracts. Some of them, we said the first year and some mid year. And we'll try to give you some more color of that in December, Chris as we get along and see what the movement really looks like.

Christopher Shunk - Deutsche Bank

Okay. So there are not any significant sort of lags that are waiting to be adjusted at the end of the year?

Harris DeLoach

I wouldn't think so.

Christopher Shunk - Deutsche Bank

Okay. And then my final question has to deal with Tube and Core margins and OCC cost. Here you mention that the higher OCC cost in 3Q were a head wind for margins, but you do your own collecting. So I guess I am wondering, how what you pay at the point of collection varies with public OCC cost, whether that's just a one for one ratio there?

Harris DeLoach

No, not necessarily. But I think what Charlie was saying is basically on the tubing cost side in the third quarter we had an $70 OCC, a $60 OCC at the beginning of the quarter and we actually had $80 OCC and that was the hidden one that we had. I think he also mentioned in the fourth quarter, we said in September that I think $80 a ton and now its $70 a ton. And we can speculate on what it's going to be in the next quarter.

But we don't see a lot of variation over the course of the year in that because we're restating that quarterly Chris to be honest.

Christopher Shunk - Deutsche Bank

Right, but I guess I'm wondering how much variation is there in terms of what you pay at the point of collection per recovered paper?

Harris DeLoach

I'm not sure that it has a lot of variation. They move on under different basis. So we buy at a percentage below yellow sheet price or we may buy at a dollar amount below yellow sheet price. And whenever I was talking about the $78 compared with 110. Our contracts will use as an index, the yellow sheet, obviously that's our basic raw material. So it goes into our production process from that point that we buy OCC, there is freight, there is dealing, the whole collection effort, but our overall costs are going to run pretty much in portion.

So when OCC dropped 30% and now they have mentioned as the fact that our total furnish cost which is that loaded cost was down 32%. So they are moving in large steps.

Christopher Shunk - Deutsche Bank

Okay. That's helpful. Thank you

Harris DeLoach

Okay.

Operator

Thank you. Our next question is coming from David Leibowitz from Horizon Asset Management.

David Leibowitz - Horizon Asset Management

Good morning or good afternoon at this point.

Charles Hupfer

Good morning.

David Leibowitz - Horizon Asset Management

Firstly, the acquisitions you are looking at, are they more consumers or are they more industrial.

Harris DeLoach

I wouldn't say they were more either David. We are looking on both sides of the equation with different types of acquisitions on those side, but I would say its probably 50-50.

David Leibowitz - Horizon Asset Management

Do you have a preference?

Harris DeLoach

Well, I am looking both of them differently. Actually, on the consumer side, if its tube and core, they have consolidation opportunities and they have probably more of the P&L impact immediately, because we're consolidating into number of our plans. I look at the consumer side more in the long term growth side of it. So its all of the balancing act actually.

David Leibowitz - Horizon Asset Management

And in terms of pension funding, when we enter next, you said don't have make a contribution but you probably will, is that correct Charlie?

Charles Hupfer

That's what I had said.

David Leibowitz - Horizon Asset Management

And coming out of next year, presuming that the stock market is kind to you and meets your necessary allotment. Where do you wind up, will you then be equal to what you actually have unfunded or you still have an un-funding?

Charles Hupfer

There is still an unfunded position. Because as I said, we are about... our U.S. plant is probably $260 million, $265 million unfunded to-date. So there would still be an unfunded position.

And that I will point out that any funding that we would make in 2009, really is carryover into 2010-11, 12, and so we are really preserving that credit or that carryover credit on the future year. So, we are not doing anything to limit our flexibility here.

David Leibowitz - Horizon Asset Management

And the last question, what are your biggest concerns Harris, to the next year?

Harris DeLoach

My biggest concerns, clearly over the economy that we would be sailing into David.

David Leibowitz - Horizon Asset Management

And that appearance, there are no major accounts you are concerned about losing there in all competitive, evolution is coming up that would make you pause or anything of that nature?

Harris DeLoach

Well, you have always got customers you are concerned about. You have always got competitors you are concerned about, but the thing which keep me up would be the general accounting, we will all be swimming into and the rest of the things we manage quite well as we normally do.

David Leibowitz - Horizon Asset Management

Thank you very much.

Harris DeLoach

Thank you.

Operator

Thank you. Our next question is a follow-up from George Staphos from Banc of America.

George Staphos - Banc of America/Merrill Lynch

Thanks. Hi guys. Well, I will try to ask you in sequence, since we are getting late in the call. First question: Harris, in the industrial business, given all the restructuring you have been doing and the further productivity move that you have underway, do you think you should be able and manage the up turn that we hopefully are in relatively well but differently.

Is there a level of volume pickup that would begin to impact your efficiency within tubes and cores and industrial business overall? And then related question, I don't know if this is an emergency orders again or lead times or whatever in execute to use to gauge it. But dies it feel like a normal recovery at this juncture given those metrics that you look at?

Harris DeLoach

George, we have plenty of capacity. As we went through this realignment of restructuring, we made certain that we have plenty of capacity to handle on up tick back to what we would consider will be on a normal level. So, capacity is not an issue with us even on either side or our converting side or tube and core, or any of our businesses for that matter.

George, I don't know its emergency orders or like that, I don't think that's a right term. But clearly it feels like that as a slow up-tick taking place in all of our businesses, as I said earlier, we saw sequential improvement in all the businesses and that just continued on into the October, least till yesterday and probably this morning.

So it feels like an improvement. I think we will see our customers as they approach the holidays. I believe last year they were expecting a much better holiday season and obviously they had. So, I think a lot of the November-December slowdown last year was because of inventories dealt that obviously we are not moving.

They have been pretty cautious this year and building that inventory and pulling it down. So I don't think there is a lot of inventory out there, and I think to the extent that we keep at this level, we will continue where we are, if there is an improved concern or containment improve, we will continue to see an up tick.

George Staphos - Banc of America/Merrill Lynch

It sounds like a hands and mouth kind of recovery, it sounds like.

Harris DeLoach

It really is I believe.

George Staphos - Banc of America/Merrill Lynch

Harris, two last ones. One; in terms of the priorities for CapEx next year, you think that you are more new products or productivity driven. And then, what's the latest with the GP arrangements? Thanks, out of the quarter.

Harris DeLoach

I think the bulk of the capital next year would be more new product and they have been basically maintaining a productivity capital. We haven't gotten through the budgets yet, but early signs that is the case. The GP arrangement; we are in discussions now on our contract, some contractual arrangements with them. And I think it would be basically mature presumptuous to me to comment on it George.

George Staphos - Banc of America/Merrill Lynch

Okay. Thanks guys. See you next time.

Harris DeLoach

Thank you very much.

Operator

Thank you. At this time, we have no further questions. I would like to turn the call back over to the speakers for any closing comments.

Roger Schrum

Thank you again Sherry. As Harris and Charlie mentioned, we want to extend an invitation to all interested investors to join us on Friday December 4th, for Sonoco's Annual New York Analyst Meeting.

The meeting will be held at the New York Grand Hyatt. However, because of growth and participation, we are going hold our meetings in our larger conference room on the slain level of the hotel. The meeting will also be webcast for those of you that cannot join us in person.

As we've done in the past, Harris and Charlie and other members of our senior management team will be on hand to provide you with an update on the company's business performance in 2009 and offer an outlook for 2010.

We will also supply you with information on new business developments and hand-on-hand some new products that we will be launching in 2010 as well. We will be sending out electronic invitations letter today regarding the specifics of the meting. If you are interested in attending, please RSPP us in advance so we will have a better idea of the total number of participants.

As usual, the meeting will begin with breakfast starting at 7.30 AM and presentation will begin promptly at 7.50 AM. The meeting should be concluded before 9:30 depending upon questions.

And again thank you all for joining us today. We always appreciates you interest in the company. And always, if you have further question, please don't hesitate to contact us. Thank you.

Operator

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

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