A O Smith Corp (AOS) 2010 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the second-quarter 2010 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. (Operator Instructions).

As a reminder, this conference is being recorded. I would now like to turn the conference over to our host, Mr. Paul Jones. Please go ahead.

Thanks, Christina. Actually, we are going to turn it over to Pat Ackerman, VP of Investor Relations and Treasurer.

Thanks, Paul. Good morning, ladies and gentlemen, and thank you for joining us on this conference call. With me this morning participating on the call are Paul Jones, Chairman and Chief Executive Officer, Terry Murphy, Chief Financial Officer and John Kita, Senior Vice President of Finance.

Before we begin with Paul's remarks, I would like to remind you that some of the comments that will be made during this conference call, including answers to your questions, will constitute forward-looking statements. These forward-looking statements are subject to risks that could cause actual results to be materially different. Those risks include, among others, matters that we have described in this morning's press release.

Paul, I will now turn the call over to you.

Thank you, Pat. And once again, good morning, ladies and gentlemen. We are pleased to report that we have achieved record operating performance in the second quarter of 2010, the second time this year that we have reported record performance. Here are a few highlights from this outstanding quarter.

Second-quarter earnings of $0.54 per share includes $0.68 per share in one-time flood costs. Excluding the flood costs, our operating performance improved by over 50% from last year. Sales of $573 million were up 15% year over year.

Our Electric Motor business experienced increased demand globally and operating margins of 13.1%. The higher volumes contributed a great deal to the margin improvement, but the excellent execution of our strategy to lower our cost structure over the years, including plant closings, product rationalization, and manufacturing process streamlining, is showing up in the margin improvement as well. I am sure you can hear the pride and enthusiasm in my voice, as it is exciting to share the transformation of this business with you.

Our water heater operations in China grew significantly over the second quarter of 2009. Market share gains and new product introductions are contributing to our growth. We expect our water heater sales growth in China this year to be 2 to 3 times the country's GDP, just as it has been in previous years.

The disastrous flooding in our Ashland City, Tennessee water heater facility is largely behind us. The plant is not yet operating optimally, but we have not lost a customer and are now current with market requirements. I'm very proud of the teams who pulled together to bring the facility back online so quickly.

We increased our guidance last month, which includes one-time flood expenses to $3.05 to $3.25 a share as a result of the strength of our second-quarter results. I will now pass the call over to Terry Murphy, who will provide more details on the financials. Terry?

Thank you, Paul. Before I go through the financial results, I would like to remind you that the required GAAP accounting for the Smith Investment Company transaction, which closed in the second quarter of 2009, distorts our 2009 results on a historical basis. For that reason, we will provide non-GAAP information in this presentation. A reconciliation from GAAP to non-GAAP is provided in the press release that we issued this morning.

Total sales for the quarter increased to $573 million from $499 million last year as a result of higher sales in China and seasonal demand by our US-motored customers. Earnings of $16.6 million or $0.54 a share include a pretax charge of $34.2 million or $0.68 per share in one-time flood-related costs. As Paul mentioned, without the one-time charges, earnings from our underlying businesses are up significantly from last year.

It should also be noted that the tax rate used to calculate the net flood expense was a 39% statutory rate, which results in a below normal tax rate for the second quarter of 10%. We expect the tax rate in the second half of the year to be 28%.

Second-quarter sales of $375 million of Water Products were up 11%, compared with the second quarter of 2009. A 38% increase in China water heater sales and higher sales in Canada drove the increase in overall sales. Sales in North American residential and commercial water heaters were up modestly.

In Electrical Products, second-quarter sales of $198 million increased 22% compared with the same period in 2009. Global demand for our motors was higher and many of our North American OEM customers restocked depleted inventories ahead of the summer selling season. The largest year-over-year increase was in our HVAC segment, which includes residential hermetic motors used in air conditioning compressors and in our distribution segment, which is largely replacement motors.

At Water Products, second-quarter operating profit, excuse me, excluding the one-time cost associated with the flood increased 15% to $42 million from the $36.5 million reported in the second quarter of 2009. Volume increases and higher margin China water heater sales and higher volumes in Canada contributed to higher profit. As a result, operating margins improved to 11.2%.

Electrical Products earned almost $26 million in the second quarter, a significant improvement over last year. Higher volumes, including new products, lower operating costs, and global cost reduction activities, contributed to the significant improvement in performance. Electrical Products operating margins expanded to 13.1%.

Higher working capital needed to support higher sales in both businesses tempered operating cash flow during the first six months of 2010, when compared with 2009. That being said, progress in reducing cash cycle days continues with cash cycle days now at 41 days, compared with 62 days last year. A large part of our improvement is from improved vendor terms in both businesses, but invoices related to flood expenses also contributed to an increase in payable days.

We are projecting operating cash flow in 2010 to be between $140 million and $150 million which will be after an expected $30 million contribution or pension plan. Capital spending during the first half of the year was $22 million and is expected to range between $90 million and $100 million in 2010. The capital expenditure projection includes flood-related capital of approximately $20 million. Depreciation and amortization is expected to total about $70 million this year. Our debt to capital ratio fell slightly to 23% from 24% at the end of 2009. At this leverage level, our balance sheet provides ample flexibility and support for growth initiatives which will add to shareholder value.

Paul will present a few more details about our outlook and then we will open up the call for your questions. Paul?

Thanks, Terry. We have all read and heard about the speculation surrounding a slowdown in China's growing economy. I want to leave you with a couple of positive trends which will have a direct effect on our continued water heater growth in this important region.

First, our big-box customers in China continue to open new stores. [Suning] and [Gomei] are on track to open 600 new stores between the two of them by the end of this year. The new stores are opening primarily in Tier 2 cities where we believe our market penetration is only about 10%, providing great opportunity for growth.

At the end of the year, our water heaters will be sold in over 2,400 retail stores in China. Additionally, the number of smaller wholesale distributors, or specialty stores as we call them, will add another 260 outlets.

Second, our market share in China reached a record last month of 22%. Considering that we had less than 10% share at the beginning of 2005, our brand reputation and product quality clearly represent the go-to products of the upscale China consumer.

Third, our new products with higher margins like balcony-mounted solar and heat pump water heaters continue to represent a growing piece of our overall China portfolio. And as I said earlier, all of these trends support our growth estimate in China of two to three times GDP.

Noteworthy trends are also unfolding in North America with regard to energy efficiency. Both operating segments have energy-efficient products in their respective portfolios. We are seeing an increase in demand for all of our energy-efficient products. It has been most pronounced in our multi-speed motors used in HVAC applications, but the increases are across the board.

This is not surprising, given the tax credits that are currently available to individuals. We are keeping track of and participating in the discussions Congress is engaged in, regarding energy efficiency initiatives -- incentives in the Home Star and Building Star programs. In addition to these potential rebate programs for the energy-efficient products, we expect the existing tax credits to be extended by the end of this year or early next year.

Finally, a quick update on Shanghai Water Treatment. We are progressing slower than we expected with the water treatment acquisition we made last November. Sales of the underlying business were not as stable as we thought, and we made some recent changes to the sales force to get back on track.

This is a short-term setback that impacts our jumping off point for revenues. But the tremendous long-term opportunity to deliver drinkable water to China's families is still sound.

We expect to introduce the A. O. Smith-branded Water Treatment Products into our water heater distribution channel next month. So while we have achieved very strong operating earnings for the first half of the year and have great momentum in Asia, we are cautious about the second half of 2010, due to the seasonality of our motor business and the overall fragile nature of the global economy. Our projections for earnings per share for the full year after the one-time cost for the flood are the same as we announced last month, $3.05 per share to $3.25 per share.

We now welcome your questions and ask the Operator to open the phone lines at this time. Christina?

(Operator Instructions). Ned Borland with Hudson Securities.

Good morning and great quarter, considering all the challenges you guys faced.

Thanks, Ned.

On the guidance, if we were to sort of adjust for the flood and back into the back half of the year, now in the high end you're looking at about $0.85 a quarter. Does that sort of suggest either that the sort of false start in the filtration business or is that a commentary more on the sustainability of the margins in Electrical? Can you help us think about that?

Yes. It is a little bit of us being conservative, but the -- a couple of things that I think are noteworthy on that. Last year in the third quarter, we had a lot of motor replacement business. That came in the second quarter this year. A year ago, our OEMs did not stock up and they ended up getting replacement motors in July and August instead of the April/May time period, like they have traditionally done. This year is more of a traditional year.

And a couple of other things. Our steel cost in the third quarter are 50% higher than they were third quarter last year. There's just a lot of things that are causing us -- maybe we are being too cautious, but we think it is just prudent to be maybe a little more cautious on how the second half is going to play out.

Okay. But if we were to think about sort of a kind of a new jumping off point for margins in electrical, I mean maybe 13% isn't sustainable, but have you effectively turned the corner that these margins could be looked at as -- at least high single-digit to low double-digit going forward, maybe around 10%?

Yes.

Okay. And then one last one on the filtration business. I mean, it looks like things got pushed to the right a little bit. Do you have a sense for what this business could contribute next year?

We're working on that right now. The sales are going up month after month. Every month is an improvement over the month before.

As I've reported earlier, we had -- the first thing we did, which we always do with a China acquisition, is lower the sales by eliminating things that we don't do. And we are a conservative company and we follow the law and we did that. We probably ran into a few more salespeople that we weren't comfortable with, relative to the Foreign Corrupt Practices Act, and so we've made a lot of changes in the sales force.

That is probably -- getting it cleaned up, for lack of a better word, has taken us just a longer and we've had to go a little deeper than we originally thought. The quality of our sales are good. They are improving. We are still excited about the long-term strategy here.

It's just that this year is going to be break even to a little profit instead of the $0.10 or $0.15 I think that we were saying when we bought it. But that is not a major deal. We have a team engaged there and I'm very proud of what they are doing.

Great. Thank you.

Matt Summerville with KeyBanc.

Morning. Couple of questions. First, back to the Motor business. Paul, can you give us some sort of sense how incoming order rates in the Motor business looked April to May, May to June and then what you've seen so far in July? In fact, is your order book indicating and is that order book supporting kind of this view that 2Q will see outsized seasonality this year?

Well, Q2 order rate was actually expected it to be the cause and talking with all of our OEMs, they all said they would go back to a normal seasonal period, which would put some more volume into our second quarter. And we saw that.

We are maybe doing a little better in distribution in HVAC than we originally thought. And, so far so good. We were very pleased with the -- and once again, we don't run with a backlog there. So you want to look at our order rates, just look at our sales. There's only about a week's lag. In many cases, less than that.

So we -- you can pretty well see that the volume improvements are there.

So, Paul, have the order rates then held up, based on your comment you've seen almost two weeks of orders in July? Have the order rates tailed off at this point? Or are they still at a level consistent with your revenue performance in Q2?

They've tailed off a little bit, as we expected it would in the third quarter. But it's still running above -- I think it is still running above forecast for the month.

Okay. And then with regards to China, maybe you can give a little color. If you look at, you mentioned how many locations your products are going to be in in the core water heater business. What kind of sellthrough are you seeing in the location, Gomei or Suning locations, that have stocked your product for a year or two now?

I guess I'm trying to get a sense for in the more mature stores, if I can use that term, what sellthrough is looking like, relative to China's GDP? Trying to gauge how much of your growth is coming from these new store openings versus kind of the core, if you will, A. O. Smith China water heater business.

Okay, I will try it this way. The majority of our growth is coming from the new stores, but the existing stores, we don't get data and don't report data on same-store sales like US retailers. But our market share has gone from 10% to 22% in five years. And I think that is indicative that we are doing pretty well across the board.

No, clearly, I mean that's been an excellent business for you guys. Any discussions you are having with your major retail partners there in terms of how they are thinking about further expanding into next year?

Yes, they are both growing. Gomei actually is not adding a lot of stores this year. They are trying to improve the quality of the stores they have. And by the way, it is showing up in the order rate. Our order rate has picked up very well with Gomei.

Suning is still in go-go growth mode. We are just going to make sure we're there to support them.

That's all I have for now. Thanks, Paul.

Scott Graham with [Boenning].

Good morning. Nice quarter. Just was hoping to get a little bit underneath more the sales numbers by segment. So my sense was that HVAC was obviously the big driver for Electrical Products.

I was wondering if you can maybe differentiate residential versus commercial? I think I heard you say that commercial sales in HVAC were up in the quarter. Is that correct?

Yes, commercial sales were stronger than we expected them to be. They have been all year. The other thing on the motor side is don't forget distribution. Our distribution business is really, really doing well and that is a good margin business for us.

But on the commercial side, we are trying to get a handle on it and so I can give you an opinion. There's a lot more retrofitting going on while new construction is down. I hear a lot of stories about restaurants and small retail outlets and the like doing an upgrade, a retrofit to more efficient products. And that is actually going to bidding to both motors and Water Products, commercial sales. In other words, we think maybe the overall market is old stronger than we originally thought because the replacement piece is actually bigger than we originally thought.

Obviously, new commercial construction is still a concern. But it looks like there's a little more replacement business.

Right. So just to make sure I am hearing you right, commercial sales in both businesses were up year over year.

About flat.

Flat. Okay, but better than what you were expecting?

Yes, some segments up, some down. Let's say about flat.

That's fair. Now also (multiple speakers)

It was better than we had expected though. So --.

Understood. Also a comment from Terry that North American Residential was up only modestly. And that is a business that had a kind of an easier comparison on -- given the rolloff of housing starts last year.

What do you think is going on in that business? Is that -- or why are we seeing maybe a little bit more growth in North American Residential, do you think? Given the large replacement component now?

Well, we are not disappointed with the volumes we're getting there and they are pretty much what we forecasted. The things that we are working on there, obviously, is all the OEM new products, energy-efficient products. That has been our primary focus.

We did eliminate a few product lines. But I think all of that has been behind us for a couple of years, so I'm not sure that is in the comparison.

Was -- in order price, was retail or wholesale a better channel for you this quarter?

They were both good.

Okay. Fair enough.

I would say wholesale was a little more than retail in the quarter.

Understood. And I guess the final question is regarding the margin and water heaters which was up solidly 40 basis points, but off of a volume increase that you had maybe, and the mix going in the right direction. Maybe I would have [fell] a little higher, but then all of the offset, I assume, or a lot of this offset here would be relative to steel prices, yes?

A lot of it is steel prices and a lot of it is -- you know, it's hard to capture all the flood costs. We have a lot of inefficiencies. We shipped a lot of product from -- our shipping costs went up significantly last quarter because we were making normally Ashland City products in three other plants and shipping them in.

Then in auto -- we are still -- don't have all of the automation back in Ashland City. Our man-hours per unit is up about 20, 25% from where it was before the flood. That is why I said we were not running optimally yet. We will get there.

So there are a lot of things that are factored into that, but I was in Ashland City last week to give a big hearty thank you to that whole team for just doing an absolutely incredible job of serving our customers, hanging on to our customers. Our backlog did go up. We did get an overdue for a while.

Our customers hung in with us. And we have now got it, we are current with demand. And we are bringing the efficiencies back where they were before the unfortunate flood.

Yes, that was quite a recovery. That's all I had. Thank you.

William Bremer with Maxim Group.

Good morning, Paul, Terry, Pat. Let's stay with the additional expenses that you just brought up from the flood, the SG&A. We'd assumed that over the second half we will get more back down a little bit from this 104 level?

Just a quick comment on that. That -- the increase year over year is mostly related to China selling and commission costs, China advertising costs, any additional costs in the China water heater, and the costs associated with SWT. Although there are some costs in there for the Water Products group, they are mostly related to moving the call center from India back to the United States and things like that.

So the flood-related costs that Paul talked about were in the inefficiencies that occurred as a result of the flood are buried into our normal costs. The accountant [ENY] allowed us to identify the direct cost and to segregate those on a separate line. And that's the $66 million number. But this other number that $8 million to $10 million of inefficiencies, increased freight costs, etc., are buried in the end part in cost of goods sold. They are not all in SG&A.

All right. Will we have any other lingering restructuring costs in the second half?

No.

Okay. Excellent. And just going back up to the top now, as I hear you, electrical power, Electrical Products maybe not as strong as the second quarter, but probably between -- is it fair to say between the first and second quarter in terms of revenue?

Are you talking about for the last half of the year?

Yes.

Well, a lot of it depends on the economy and how much -- we had a lot of strength out of, for example, Commercial [Hermetic] out of China has been very, very strong. If that continues we will be between first and second quarter, yes. Maybe approaching the second quarter, if it is really strong, but looking at all the segments, it's doing well.

And can you give us some granularity on Water Products as we approach the second half?

In what respect?

In terms of topline sales there?

Well, we are going to see very good growth in China, probably 20 to 30%. That will continue. We have our India water heater operation up and running. We are getting revenue there. That will be $10 million to $12 million revenues for us this year. That is up about $4 million to $6 million over last year.

Still going to be at a loss, though, because we need the volumes to get up to about [14 or 15] to get to break even which we expect to get to next year there. And then it's just -- we continue to see North American Commercial be a concern. And yet we continue -- I've said this now for about three or four quarters, we are doing better than we thought we would do on the commercial side.

And the only explanation I can give is we have got a great sales and marketing team and a lot of customers are doing some retrofits for energy efficiency.

And Paul, my last --

And just to remind you, the Cyclone product is the most efficient product out there. Customer can put it in and pay for it in about a year. We are selling the heck out of that product.

And my last question, if you could just give us some insight on underlying commodity, steel, copper, etc., that are affecting you? How you guys are offsetting it and in terms of that as well as maybe some automatic pass-throughs? Just go through that little bit?

Well, steel, as I mentioned earlier, is up 50% over where it was third quarter last year. That is not unexpected.

We have contracts with all of our OEMs on the motor side and with our retail customers on the water heater side that we're where we can -- when steel goes up we just have an index that we use for buying the steel and use the same index on our contracts for selling. Additionally, there was a price increase announced in the last quarter. It goes into effect next month through the wholesale channel.

Excellent. Thank you. That's what I was looking for. Appreciate it.

Paul Mammola with Sidoti & Company.

Good morning, everyone. On the China side, it looks like sales are obviously up 45% through the first half of the year. And even at a slower 10 to 20% rate through the back half of the year, I would think that Nanjing might be getting packed.

So, where is the utilization there? And when do you have to spend more to expand that capacity?

It's -- it is doing very well. It is running very efficiently. Our capacity utilization is going up and we will have an announcement before the end of the year on the next capacity expansion.

Okay. Perfect. Understood. And then I noticed that you mentioned Canada a few times. I guess, what is driving a better market there? Do you think there is still a propensity in the US to put off replacing a water heater?

First question. You know, Canada didn't have a subprime problem. They didn't have a Fannie Mae and a Freddie Mac out there loaning money to people that couldn't pay it back. So their residential market has been a lot stronger.

We've got some new energy-efficient products in there. We have a terrific leadership team at our [Fergus] plant, that has really made great strides at improving the operation of that business. So there is a lot going on there.

On the US side, on the replacement, there's still some discretionary replacement business. But still, by far, the largest driver of the replacement business in the US is a water heater that fails and people replace them. There is no delay. People in this country just will not live without hot water.

Okay. That's helpful. And taking a look at the product portfolio, and given where you are leverage-wise, does it make sense to go out and acquire a tankless or a variable speed motor company? Have either of those thoughts crossed your mind?

We acquired a tankless company last month, Takagi.

Yes.

So, I would say yes, those things do cross our minds and we are looking at those things.

Okay. Understood. Thanks for your time.

Ted Wheeler with Buckingham Research.

Good morning, all. Couple of just follow-ups on the comments about the electrical growth in OEM and distribution. Could you just give a little color of, I guess, OEM is more cyclical and would be stronger. I mean, the whole business was up [like] 20 plus percent. So, what would the percentage gains in OEM and distribution be, roughly?

Well, they are in that, maybe a little stronger than that in those two segments. Our pump business was also up. It is hard within the OEMs -- a lot of what goes into that is replacement. We don't know when we sell a motor to carrier, whether it is going into a new unit or a replacement unit. It goes into their air conditioning compressor unit assembly that either gets -- it goes out to a new home construction or it gets replaced.

One driver, I think, was the very hot weather. You know, we do enjoy watching news reports that there is some very hot weather hitting parts of the country. We don't enjoy the discomfort that people go through, but it does drive some business our way. And there was (sic) some pretty toasty days, especially on the East Coast.

I would like to think of them as in the past, but regrettably they are not.

Yes, I hate to say that that's a positive for us. But the fact is, it is.

But there was definitely an OEM normal pattern of stocking as against not stocking. And normal --

Yes and again last year where they did not stock. That's true.

Right. And then they had to catch up. So, I wonder, just what would that do to the third quarter if you factor all that in? Would they be down 20% perhaps, just in that one bucket, the OEM electrical?

I think they will be down. I don't think they will be down as much as you said, but I think that business will turn -- it is season -- you can look at our history. The third quarter is our weakest quarter, both in Commercial Products and in our OEM Motors business. It is always our weakest quarter from a -- traditionally. Last year it was not. Traditionally it is our weakest quarter and we are thinking we will be back to more of a normal pattern there.

Okay and when do you expect you will have normalization on operating efficiency in Ashland City? I mean, it can't be immediate.

It's going to take us till the end of the year. I mean, right now, we -- first of all, getting the plant up and running. We are running over 4,000 units a day there now. It was running a little over 5,000 before.

And we immediately moved production to our other facilities and we incurred a lot of overtime. We had to bring on a lot of people, a lot of extra transportation, a lot of premium freight. We got all of that stuff behind us. It is just a matter of getting the -- as Terry mentioned, the $20 million in capital investment in there.

We had 2,100 machines that were underwater and they all needed to be either rebuilt or replaced. And a lot of the automation that we put into that plant over the previous several years, which showed up in our margins, we are having to replace that capital. And it is going to take us a while to get that up and running optimally.

I had thought the price increase was the July event. I guess you said it is now August, is that correct on the water heater for --?

It was announced in June with an effective date, I think, of the middle of August.

Okay. So, would there be some pre-buying that you would expect? Or will this sort of disturbance -- the disturbance in Ashland City prevent pre-buying?

There has been pre-buying.

There has been.

And we have been supporting it.

Okay. And then, I guess, just lastly, the Commercial water heater business is, I guess, outperforming, but I guess you are still thinking that is going to be weak for a while longer?

I keep saying it is going to be weak and it keeps being stronger than I thought it would be. It is. It is off to a great start in the third quarter. Some of that is what was just mentioned, the pre-buy. But so far it is that order rate is very strong.

One last thing, the incentives that relate to your products that are out in the marketplace, are there -- what -- do you have specific deadlines on some of those expire?

Yes, there are several. A lot of them are set to expire, I think, at the end of this year. But we are fairly confident those will be extended.

So you would say the majority of them, at least on paper, will be expiring? (multiple speakers) until changed?

Yes, I think you'll see, it's our belief it's -- I hate to -- I had enough trouble trying to predict how our business would do. And you get me started trying to predict what Congress and the regulatory agencies will do is kind of tough.

But I think you'll see an increase in programs related to energy efficiency as part of an overall jobs (sic) as well as energy program, relative to -- pick anything, climate change, anything you want. The fact remains we can put in much more efficient motors than what are out there running right now. And that can reduce the requirements for coal and oil and natural gas power plants.

So we think that is a good thing to have more higher efficiency regulations. And we are ready to support that when they get their act together.

But we should, obviously, stay tuned and see how that tracks.

Yes. We will keep you informed.

Thank you. Great quarter. Thanks.

(inaudible) with Robert W. Baird.

Great quarter. If we could dive in a little bit into the margins again, starting on the Electrical Products side. With the 13% margins this quarter, I guess I just want to be sure that you guys do view this kind of as a sustainable run rate at this volume level? Or is there something in there like a [life flow] benefit or a copper hedge that's inflated it, at all?

Steel is now higher than it was last quarter. I think that would be a stretch to say that the 13% is sustainable. We are a lot more comfortable with something around 10% right now. Obviously we are doing some things to take that up as time goes on.

And you mean that as a kind of a full-year run rate, or it's a current 2Q peak volume level kind of run rate?

No. Full year is what we've said and we are still sticking with that. Maybe we'll take that number up a point or two next year. We'll see.

Makes sense. Okay. And then on the water heater side, just make sure I understand. The steel costs, I believe, do go up sequentially next quarter versus 2Q. You have the price increase that will go into effect in the wholesale channel, so net net, assuming if volumes are flat, you come out probably at a similar margin level. Is that a fair way to look at it?

Yes.

Okay. Great. And I guess, finally, one more on the flood impact here. Is it also fair to assume that, because of some of the delays that were incurred, that you might have pushed some orders from 2Q into 3Q?

Very little. We did lose some orders. I said we didn't lose any customers, but we have a lot of wholesalers who split their business and obviously for a few weeks, we -- from what our production would have been, we lost about 60,000 units of production during the time we were repositioning everything. Plus we lost about 60,000 units in finished goods inventory in the flood that were all destroyed.

So we had about a 120,000 unit deficit from our normal run rate. And some of that volume went to our competitors. Now we have got it back. We've closed the gap and have our leadtimes down to normal leadtimes and are meeting our customers' requirements.

But for a period of time there was a few million dollars of revenue that we would have normally gotten without the flood. But that is all behind us now. We are current with all of our customers.

Got it. That's all I needed. Thanks very much.

I see no other questions at this time.

Thanks again, everybody. We appreciate your support. As you mentioned this was a rather interesting quarter. I wouldn't wish a flood on anybody. But I'm real proud of how the team has responded and we will keep working and, as always, we are only a phone call away. Thank you.

Thank you. Ladies and gentlemen, this conference will be available for replay after 11 AM Central today through midnight tomorrow Wednesday, July 21. You may access the AT&T Teleconference Replay System at any time by dialing 1-800-475-6701 and entering the access code 165109. International participants may dial 320-365-3844. Those numbers, again, 1-800-475-6701 and 320-365-3844 with the access code 165109.

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