Albany International Corp (AIN) 2006 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to Albany International's second-quarter investor call. At this time, all participant lines are in a listen only mode. Later, there will be an opportunity for your questions, and instructions will be given at that time. If you should require any further assistance. (OPERATOR INSTRUCTIONS).

Today's conference call is being webcast and recorded at the Company's request. And I would now like to turn the conference over to the President and Chief Executive Officer, Dr. Joseph Morone. Please go ahead, sir.

Thank you, Leah. Good morning, everyone. Welcome to Albany's 2006 Q2 earnings call.

We will begin the earnings call with me. I will provide some comments and then I will turn the call over to Michael Nahl, our Executive Vice President and Chief Financial Officer, who will provide his own unique perspective on the quarter. And then we will turn to your questions.

Second-quarter 2006 results reflected the continuation of the trends of the past several quarters. The highlights were record net sales driven by continued topline strength in PMC and growth in the emerging businesses, and the formal agreements in the aerospace composites business with Snecma and Messier-Dowty. These agreements validate the significant growth potential that we foresee for Albany Engineered Composites.

In PMC, we were able to offset inflation and almost all of the increase in materials cost through increased revenue, driven in part by new products and through internal efficiencies. Michael Nahl in his comments will give you more perspective on the impact of materials costs on the quarter.

In the emerging businesses, we continue to balance positive short-term performance with the measures necessary to build a foundation for long-term, sustainable growth. Earnings this quarter were negatively affected by integration costs at Texas Composites, Inc. and the ramp up of their manufacturing capacity to meet a strong order backlog. We remain confident that the acquisition will be accretive in 2007.

Looking forward, our long-term strategy remains on track, and if anything, ahead of schedule. The emerging businesses continue on their path to sustainable growth. The PMC investments in Asia and Latin America are progressing well. And we are increasingly optimistic about our PMC products and R&D pipeline.

And while there is always the risk that further petroleum price increases will undermine our efforts, we expect that companywide internal improvement initiatives will have positive impacts on margins beginning late in the fourth quarter 2006.

On the other hand, we do see a notable change in our environment that could affect earnings in the short-term. This earnings release refers to continuing consolidation in the paper industry in Canada and Europe. In addition, some of our competitors in Europe are aggressively reducing PMC prices. The combination of the financial pressures on the paper industry and the discounting by our competitors leads us to the conclusion that it would be prudent to expect a slowdown in PMC revenue growth in the near term.

Because of this downward pressure on PMC revenue, we are in this current third quarter accelerating those ongoing internal efforts to improve margins. These accelerated efforts will have a negative impact on earnings in this, the third quarter of 2006. But we are hopeful that by year-end 2006, the resulting margin improvements will offset the impact on earnings from any slowdown in PMC revenue growth. We remain bullish about the PMC industry and confident that our value-generating activities in general and investments in the growth markets of Asia and Latin America in particular will have enduring, positive impacts on our PMC business and returns to shareholders.

And now I would like to turn the call over to Michael Nahl.

Thanks, Joe. Good morning. We refer you to the comment about forward-looking statements which is contained in the press release, and we note that the same statement applies to our remarks in this conference call. This is a copyrighted presentation of Albany International, and any unauthorized rebroadcasting is strictly prohibited.

Earnings per share in the second quarter were $0.63 in comparison to $0.64 per share in the second quarter of 2005. As we showed in the table on page two of our press release, our sales growth was 5.7% in the quarter and was 4.6% when excluding the effect of changes in currency exchange rates. All three of our principal operating segments made satisfactory progress in net sales during the quarter. In U.S. dollars, we had a 5% increase in Paper Machine Clothing, 6.3% in Albany Door Systems, and 9.5% in Applied Technologies.

So why, if sales were up respectively in all three segments, were earnings per share a cent lower than the same quarter last year? The largest single factor was the increase in the cost of materials in the quarter, which in turn is driven by the record high petroleum prices.

While everyone knows that the cost of crude oil has risen over the last year, it may be useful to focus on just how much it has gone up. On January 5th last year, the August 2006 crude oil future contract on the New York Mercantile Exchange traded at $40.25. This morning, it's trading around $73 per barrel.

The principal materials used in the production of many of our products, and certainly for Paper Machine Clothing, are directly derived from crude oil. Polyester and polyamide are the main materials used in making Paper Machine Clothing.

Our cost of materials compared to the second quarter of 2005 increased approximately $9 million. That equates to $0.21 per share. We had to overcome those $0.21 per share cost increases to earn the $0.63 per share we achieved in the second quarter.

Joe has explained that we are accelerating our efforts to improve margins through multiple internal initiatives. There is a lot of work going on throughout our Company to keep driving efficiency and to continue increasing the value of the products we deliver to our customers.

While our financial release focuses mainly on income statement effects and operational matters, I would like to finish our formal comments with a few words about our ability to generate cash and its effect on our balance sheet. We have proven in good times and bad that we can generate a lot of cash. In the difficult economic environment of 2000 through 2003, we reduced our net debt as defined in our principal credit agreement by $391 million, or an average of $98 million per year. In that period, our leverage ratio, as defined in the same lending agreement, declined from 3.35 to 0.97.

The following year in 2004, we purchased 2.8 million shares of our common stock at a cost of $81 million. At the end of that year 2004, our leverage ratio rose to only 1.11. Last year, we purchased only a trivial amount of our own shares, and at the end of the year, our leverage ratio was once again below 1.0, and it was at 0.61.

We have consistently explained that our decisions to purchase shares of our common stock will always be based on a comprehensive assessment of our strategic alternatives, and will be driven by the best interest of those of our investors who plan to hold our shares for the long term.

Throughout 2005, we occasionally would hear from our shareholders, why are you not buying your stock right now? That's a question we never answer in the current moment, and seldom explain after the fact. Sometimes we can't buy shares because we are evaluating strategic initiatives which are designed to add value to our shares. Sometimes we believe that investing our capital in a strategic initiative will provide a higher total return to our shareholders than buying our stock.

So far this year, we have purchased 3.5 million shares of our stock at a cost of $131.5 million and an average price of $37.57. The portion of those shares bought in the second quarter were at an average price of $40.06 per share.

In a 2.5-year period beginning in 2004, we have purchased 6,370,916 shares of our common stock. At the end of the second quarter just completed, we had 29,081,000 shares outstanding. Our leverage ratio is still below 1.43.

Even after those share purchases, we had 103.6 million of cash on our balance sheet. We have very substantial cash and undrawn borrowing capacity to fund strategic initiatives. We intend to carefully evaluate such initiatives in the context of what is in the best interest of our shareholders.

The combination of our proven strong cash generation capability and our strong balance sheet means that we have the capacity to do whatever is in the best interest of our shareholders. We can easily fund the $150 million capital investment that we are making to grow our Paper Machine Clothing business in the fast-growing Asia-Pacific region. We can invest to accelerate the growth of our Applied Technologies and Albany Door Systems businesses. And we can purchase shares of our own common stock, all as we simultaneously position each of our businesses operationally for long-term growth at attractive returns on investment.

That completes our formal presentation. Now we'd be happy to take your questions.

(OPERATOR INSTRUCTIONS) Mark Connelly, Credit Suisse.

Just a couple of things. When you look at the price cutting, your comments say that it is in Europe. Can you talk a little bit about pricing developments elsewhere? And can you talk a little bit about what you think the rationale for the price cutting is? And I look back over the last couple of years, and it is pretty clear that during the big round, everybody seems to have lost at the end of the day. Then we saw a little bit, and then it seemed to have gone away. Why is this coming back?

This is Joe. I think you are reading the history exactly right. The demand in PMC is inelastic, and so price cutting doesn't do anything but destroy value for the industry.

We believe what triggered it was this -- and this is our interpretation. If you look quarter to quarter in Europe -- that is, quarter 2 '05 to quarter 2 '06, we had a 14.3% increase in sale. Those sales had to come from somebody else, because that market is not growing that fast.

And we think that our rapid gains triggered -- and those rapid gains were driven by our efforts to create more and more value for our customers. And we think that success triggered the kind of reaction that we have historically seen by some of our competitors.

Does that mean that the gap now in pricing is or perceived value is getting too wide? I mean, that would strike me as something that is going to destabilize PMC for awhile if customers are perceiving big gaps in value.

If the gap between our prices and our competitors' prices grow, it is incumbent on us to figure out new ways of creating even more value. And we are trying to do that as we speak.

Let me just add one thing, Joe. We have seen it time and time again that sometimes folks in corporate offices making purchasing decisions look at two price numbers and don't fully understand the potential impact of changing suppliers. And it is not at all uncommon for an apparent price differential to be far more than offset by the actual economic effect on a papermaker's operations.

So we have been through this unfortunately time and time again over the decades. And I really suspect that some of those who have chosen to pick lower prices may conclude that it was not necessarily in their best economic interest.

Mark, if you stick with the history a bit, you'll see that in past periods where you had this kind of behavior, you inevitably got some consolidation in the industry, which then stabilizes the behavior. And the consolidation can take one of two forms or both -- individual firms start reducing their own capacity, or you get a wave of mergers and acquisitions which has the effect of reducing capacity in the industry.

And if history -- if current trends are true to historical practice, we are likely to see something like that again. And that would lead to, we would think, to stabilization as we have seen in the past.

Okay. That is very helpful. Couple of other things -- just to switch gears a little bit, you have had a little more time with Texas Composites, and obviously you have got a lot of stuff going on. We had not tried to factor in Texas Composite integration cost, because you didn't give us any indication of what they were going to be. But can you give us a sense of what it looks like under the hood now that you are inside?

We would say that there was one -- one of the developments was expected, one was unexpected. What we expected, which was the reason we had said when we made the acquisition that we thought it might be slightly dilutive this year, but then accretive next year -- what we expected were the normal, usual integration issues that arise, particularly when you are trying to merge a small, private company with a larger public company.

What was unexpected is that their order backlog, TCI's order backlog is much stronger than we thought. We actually -- when we did the due diligence, we discounted pretty heavily what they were telling us about their order picture. It turns out that they were being conservative about their order picture. And so we discounted on the conservative estimate.

So part of what has been going on at TCI is an effort to ramp up manufacturing capacity quickly. And that leads to cost as well.

Question for Michael on raw materials. Can you give us a sense -- if oil and resin -- if oil prices stay as high as they are, and presumably resin prices will too, does that put the second half at additional risk beyond what we already talked about here?

No, Mark. We have pretty good contracts locking the price in through most of the remainder of this year. The key really is, however, if crude oil prices remain up in this range or worse, it would not be surprising to see next year the effect of some additional cost increases in our raw materials. And that is why Joe's efforts to accelerate these various internal initiatives to improve our margins is really quite important. We have got to run to stay even and get back on track.

Okay. And just two financial questions, and then I will let somebody else. First, you talked about increasing the pension payment. Can you talk about what is your current level of underfunding, and how significant this increase is and how we should think about accretion -- earnings accretion?

And second, is it fair to assume that the buyback authorization is exhausted at this point?

Let me address the latter question first. We have bought every share that the Board of Directors has authorized us to purchase this year -- i.e., 3.5 million shares.

As to the first part of your question having to do with the pension fund, we have concluded that we would like to take an aggressive stance with regards to the underfunded portion of our pension plan. Actually, we meet over 100% our funding requirements in accordance with -- David Michaels -- the ERISA requirements. But in fact, as we look about the economics amount that is required in order to assure that we will have sufficient funds at every point in the future, the $20 million number looks to be about two-thirds of the amount that we would need to fully fund this on a forever basis.

So we are making an effort to basically defease this obligation within a relatively short period of time. I think we will find within the next couple of years that we will reach a point where we no longer have any funding requirements whatsoever, notwithstanding the possibility of a severe crack in the stock market that lasts for a long time. But under normal circumstances, I think we are going to be two-thirds of the way there to a completely funded for economic purposes, and we are already overfunded from an ERISA basis.

Arnold Ursaner, CJS Securities.

Good morning. Just a clarification comment first. You mentioned, I think, if I heard you very carefully that you expect a slowing of PMC revenue growth. But I want to be clear -- you still believe you'll have positive trends in PMC revenue for the balance of the year. Is that correct?

Yes. You are hearing that correctly.

Okay. Just want to be sure.

And revenue growth means quarter over corresponding quarter from the prior year.

Just want to be sure that I heard that correctly. In other words you are not even remotely implying negative trends in PMC revenue?

Quarter '05 to quarter '06 -- that's the benchmark.

We are excluding seasonal and other items from that -- sequential issues.

(multiple speakers) Correct.

Okay. Focusing on your CapEx here, you've spent about a third of what you intend to spend for the year. Can you expand a little bit more about how the property in Asia is going, and a little update there please?

I would say that the short answer is it is on track, and if anything, a little bit ahead of schedule.

So that is (multiple speakers) -- you have it in the 8-K. I assume that is still what you believe will be the final capital spending item for this year?

Yes.

Okay. You obviously are talking about some potential cost savings to offset some of the higher costs that you have seen. Can you attempt to quantify what kinds of math we should look for for cost savings for the year?

Arnie, I don't want to try to quantify it, but let me give you some perspective to think about it.

For the past few quarters, we have been talking about some internal improvement initiatives that we have undertaken. And let me try to just sketch them in a larger frame. This Company really grew up as a series of regional -- of acquisitions of small regional businesses. And for years, it was operated really as a family of independent process centers. So Paper Machine Clothing, even into the middle of last year, was run as 12 separate process centers.

The driver of these internal initiatives was a restructuring of the Paper Machine -- reorganization of Paper Machine Clothing into three profit centers, from 12 to three. And when you make that kind of a move, you inevitably open up opportunities for efficiencies in just about every area of operation, from manufacturing efficiencies, certainly to administrative efficiencies, all the way to procurement efficiencies. And we are just nailing down the organizational change and now seeing the array of possible efficiencies you gain when you go from 12 smaller profit centers to three larger ones. So it's in that context [that just] across the board, we see efficiency opportunities.

This is Michael. In response to your desire for us to quantify, while we will not publicly quantify these, we have aggressive, internal, specific quantified targets in each of several areas.

-- which are really the basis -- those specific quantitative targets are the basis for some of the comments that we made, that I made earlier in this call.

So said another way, it's not that just -- you are [about] to think about them. These are clear plants that will be implemented starting relatively shortly?

Yes, yes, and yes.

Okay. Going to Albany Door Systems for just a moment, one of the things I have heard you mentioned would be the idea of doing what I am going to call trials where you might try to spend more time on the distribution side almost on a test basis. Have you tried any of these, and what are your early (MULTIPLE SPEAKERS)?

We're well into our thinking about them, Arnie. We actually had a strategic planning meeting with all of the Doors folks next -- mid-September to really play out which of the multiple distribution strategies we might want to pursue. And it is very possible that we will go with a hybrid strategy. So in effect, we will be running multiple trials simultaneously.

My final questions relate to a few things related to the composite side. You obviously have finally announced the two partners you are working with. But it is a little unclear exactly what relationships you have with them. I assume there has been no capital exchange? There's no JVs or capital that has been exchanged between the two of you?

That is correct, Arnie.

And their exclusive agreements, for an example, with Snecma in jet engine -- is it exclusive for a specific product with them, or is it exclusive on the technology? Because it would seem to be quite a -- it might have a quite different impact on your valuation going forward.

Okay, first, Arnie, on the first point about capital being exchanged, they have been funding development of these activities. So in that sense, there has been some funds exchange.

But there is (multiple speakers) no capital in the sense of capital on the balance sheet.

Correct. Secondly, these are agreements regarding specific products.

This means, Arnie, that we retain the right to use our exclusive technology in --

(multiple speakers) other applications.

-- product applications that are not part of this agreement.

-- so that our proprietary composites technology can be used for a variety of other applications. The relationships with Snecma and Messier-Dowty preclude us -- are focused on specific applications of that technology, namely fan blades and landing gear. And when we apply our technology to those applications, we will work exclusively with our two very valued partners.

So we view this both as very important product agreements in and of themselves, and perhaps even more importantly, as a significant validation of the power of the underlying technology here, which will be applied potentially to a variety of other applications.

You have not announced anything related to fuselage. And I think there was at least an expectation that you were working towards a development path there. Is it still something that is open ended, or have you chosen not to go that route?

It is still open ended. There are a lot of applications, some of which will be evolving out of TCI in the nearer term, and some of which will be evolving out of the application of this technology that we are using with Snecma and Messier-Dowty in the longer term.

Given -- one of the things I wanted -- just as a final question, I apologize -- (multiple speakers) you obviously are spending more to develop this. You obviously are making tremendous progress here. You spent quite a bit of money expanding capacity.

To the extent all this is true coupled with a larger backlog, whatever accretion you may have thought about for '07 -- why wouldn't it be materially larger at this point, given that this seems to be happening much faster than expected?

Well, let me try it this way, because I think what you are observing is -- I think you are tracking correctly with what's going on. What we have been saying in previous calls, and what we have been thinking is that we would see incremental growth in 2007 from the TCI acquisition, and then a step change in growth, beginning in 2010, 2011 from the Snecma relationship.

There are two new developments that alter this picture. First, the TCI backlog is substantially stronger than we were expecting. And secondly, the Messier-Dowty agreement -- if we can bring that product to market overcoming the remaining technical hurdles, that will hit sooner than the Snecma fan blades.

So we would say right now -- our best estimate of future trends is we continue to expect an incremental impact in 2007, but we might well see the first step change in 2008 followed by a second step change in 2010, 2011.

Thanks very much. Look forward to seeing you at our conference.

Likewise, Arnie.

John Emerich, Iron Works Capital.

With now the advantage of hindsight, what were the integration costs -- [so as the] dollars spent on Texas Composite in the quarter?

We have not disclosed, and will not be disclosing those. And I'm trying to think of something useful to say here, but I can't. (laughter) It's typical small integration costs. And the reason -- frankly, we haven't even got them quantified ourselves because of the nature of integration costs. But I'm happy to take a look at it see if it makes any sense. (MULTIPLE SPEAKERS)

Well, I could have asked it, I guess, in pieces. If you have combined it with the dollars that you spent on integration costs with the kind of inherent dilution of the business, the profitability relative to what you spent on it, relative to your own margins, do you know -- order of magnitude in total how dilutive the acquisition was in the quarter?

No, we're not going to say. (multiple speakers) I'm sorry, we are just not going to go there. I've would say, however, that there is a part of the premise of your question that is incorrect.

There was nothing in connection with this integration that adversely affected our ongoing operations in Albany Engineering Composites.

Well, I was asking just -- backward looking, absolutely.

Okay. I guess we're just not going to go there on this one. I'm sorry.

Okay. Can you say how much you are going to be spending in the second half on the PMC cost-saving initiatives that you have kind of accelerated?

The PMC -- he's talking about cost (multiple speakers)

I couldn't quite hear you John.

The question was (MULTIPLE SPEAKERS) costs in the second half with regards to (multiple speakers)

Yes, we really can't talk about that, John. Sorry.

Well, we are doing a terrific job for you so far, John. (laughter) (MULTIPLE SPEAKERS) What else can we do (multiple speakers)

Two for two. I'm going to stop before I strike out. Thanks a lot.

Ned Borland, Next Generation Research.

Most of my questions have been answered, but I just want to revisit one thing that popped up on the last call with regard to a global PMC customer. There was some sort of an inventory adjustment. What do you think the timing is going to be on that, or where does that stand now?

We have no news to report. So we are in exactly the same place we were last call.

Okay. So just sort of an unknown still?

Yes.

But the magnitude would still be the same? I think we were 8 million on the sales line and 3 million on (MULTIPLE SPEAKERS).

Yes, yes -- we think that is about the right number.

Mark Connelly.

Just a couple of things -- no particular order, but with respect to the landing gear, you have talked a little bit about the new initiatives in aerospace and timing. Is the landing gear going to come any sooner or later than some of the other stuff? You have sort of talked about '09, 2010 as a time when those things would have (MULTIPLE SPEAKERS).

What I suggested -- what I tried to suggest is unlike what we've said before where we saw incremental revenue increases until 2010 when you see a step change, we now think that if we land the landing gear, so to speak, if we overcome the remaining technical hurdles, and taking into account the order of backlog in TCI, we think that there is the potential for a step change in '08. So incremental growth in '07, step change in '08, step change in 2010.

And that includes the landing gear?

The reason I say step change in '08 is two variables that are different from where we were last call. One is the landing gear, and the other is the TCI backlog.

Okay, perfect. That's helpful. And second -- in the release and in your comments, you talked about the volumes in PMC, and you did well. Can you give us a sense of that regionally? Is it fair to assume that Europe was down, and the rest of the world was up enough to offset it? Or is that not right?

Quarter to quarter, '05 to '06, Europe was up 14% in sales.

Okay, so the price cutting hasn't clipped you too badly there yet?

No, we actually think there's a cause and effect here, Mark, that that strong movement of our business in Europe probably -- could well have triggered the competitive reaction.

Well, I'm just trying to get a sense of -- how far along is it? I mean, did the price cuts come so late in the quarter that we haven't seen the full impact yet, I guess?

Yes, I would say yes. And that's why we tried to give that to you in our forward-looking --

Right, fair enough. And just back to the door business, maybe a broader question -- over the years, you get a lot of questions about why you're in the business, and -- not so much from me, but are you committed to keeping that business at this point? Can we stop asking that question?

Yes. (laughter) You should stop. I should give you the background. You know, 10 years on the Board, I asked that question every quarter -- why are we in this business? And I gave Michael Nahl, in particular, endless grief about it.

Now that I'm on the other side, I've joined the dark side, I realize that this is a very appealing business. And I think we haven't really tapped the full potential of this business. If we can innovate in the business model for distribution and aftermarket, there is a lot of upside in this business.

(multiple speakers) If we can't and it is strictly a product business, there is still upside. But we're going -- you know, the aftermarket is a factor of 10 larger than the product side.

Okay. One last question, and this is really just a philosophical question for you. Albany has got a lot of balls in the air right now. How concerned are you about that? You have got PMC expansions, you have got market consolidation on the other side of PMC. You've got changes in the way you are going to run the door business. You have a major new acquisition. You have got just a pile of stuff. When you look at the overall management team and the capacity to manage this many moving parts, what concerns you most about it?

I really like the management team. I really do. And we've got a relatively simple structure with strong people in place running each business. So I'm not -- I'll tell you, I'm not worried about the balls in the air phenomenon, because as long as you've got a good team there handling each of the balls, and that is basically what is happening.

Look, I think what's really at work here are two forces that we have limited control over. One is petroleum prices, and the other is whether or not the European PMC business consolidates. And we think we can offset the impact of both. But if we get jolted on either one, on the petroleum prices, or if there isn't a rationalizing of PMC capacity in Europe, then the headwinds remain strong, and it gets tougher than tougher to move forward.

That's what is really going on. But in terms of what we can control, I think we have got very strong management team in place to manage the initiatives underway.

Arnold Ursaner.

Couple of follow-up questions, if I can. One is you obviously have spent a lot of time talking about the pricing environment in Europe. Two questions related to that. In your view, are your competitors still profitable with the cuts they've put in?

And second question relates to Asia, where there has even been more of a price discrepancy, if you will, versus Europe. Can you comment a little bit about pricing trends in China and Asia?

Well, you know, Arnie, I think your question is right on, because in this industry -- you know, we've talked about this before -- PMC generates a ton of value for its customers. And that means there's a lot of profit potential in this industry. And my guess is our competitors, even after the price cutting, are still making money. And I think that's true.

In Europe, in Asia, we haven't seen any major changes yet in the pricing picture. I will say this -- based on everything I'm seeing, I'm increasingly optimistic that the investments that we are making there are absolutely, strategically right on. And this is one of those cases where after the fact, the more information we get, the more confirmation we get that that was dead-on the right decision.

A final question I obviously don't expect you to answer, but I would be remiss if I didn't try. (laughter) Composites --can you give us any feel for current revenues? And you've spoken quite a bit about this expanding backlog. Can you give us any feel for that type of number?

Stay tuned.

Well, when you say stay tuned, I assume it's not going to be large enough in your view to be a separate segment in the foreseeable future, or --?

Well, it depends what you mean by "foreseeable." If by "foreseeable," you mean three to five years --

I'm going to modify his statement slightly. No, we cannot say that we will not have it reported as a separate segment in the near or intermediate term.

I think what I'm trying to get a handle on is it's a lot more important to the valuation of Albany International than it is to pure financial. So at some point, just from a materiality point of view or disclosure point of view, it would seem to me you may almost have to do it to meet your requirements for disclosure.

Arnie, I think again you are tracking [with our] thinking. And we agree -- it is very important for the future of this Company, and therefore for the future valuation of this Company. And we are aware of it.

On the other hand, we are trying to balance that awareness with the need to be sensitive to our partners' competitive requirements. And our work with Snecma and Messier-Dowty is absolutely critical to their future. So we have to be very careful about what we say here.

(multiple speakers) Arnie, let me just add that we will report this as a segment. At the moment, it becomes a 10% of our total revenue. And for us to go any farther than that would be a forward-looking statement we are not inclined to do. But clearly, we are very, very encouraged by this opportunity. We think that there is some real value here.

Well, I think you have said previously, Michael, that there would be announcements that we as outside investors should look at as pretty critical. One would be when you actually expanded capacity and make the acquisition. That was a verification that you thought you really had something in composite. And I think your message was stay tuned to when we can announce the customers and the broad opportunities [thereat]. I think you gave us that today, and I'm trying to take that to the next level as per your view of the business.

You are clearly on the right track, Arnie.

We will continue to try to -- as information becomes available that we feel we can disclose without harming our partners, we will continue to provide that information.

(OPERATOR INSTRUCTIONS). Robert Jacapraro, [ICM].

Could you in any way talk about just the product sets or what you are producing out of Texas Composite now just in general terms, either application or -- I wouldn't want you to give customer. But just to get a feel of what the current business and backlog is targeted at.

You can actually get a pretty decent picture of the broad range of products by going right onto the Texas Composite Inc. website if you use your search engine, and you'll get some pretty pictures and a whole range of products. It gives you a sense that we are all over the aircraft.

And I would say that in looking at those pictures, that represents products that are going out the door today, but does not in any way, shape, or form limit the direction that we are headed in the future.

Terrific. And the, quote-unquote, positive problem, unexpected [cost there] -- would that be related to things like additional shifts or overtime to ramp up to (multiple speakers)?

Yes, exactly.

Right.

Okay. Thank you very much, gentlemen, and great -- commend you on your efforts in this type of challenging environment on the materials side -- the way you have managed through it.

Thanks, Robert.

Thank you all for participating on this call, and we'll see you in a quarter. Thank you.

Thank you. And ladies and gentlemen, this conference is available for replay at the Albany International website.

And that does conclude your conference for today. Thank you for your participation and for using AT&T Executive Teleconference. You may now disconnect.