Apogee Enterprises Inc (APOG) 2003 Q1 法說會逐字稿

Good day ladies and gentlemen. Welcome to the Apogee Enterprises first quarter conference call. At this time all participants are in a listen-only mode. Later we will conduct a Question and Answer session and instructions will follow at that time. As a reminder this conference call is being recorded. I would now like to introduce your host for todays conference, Mary Ann Jackson. Miss Jackson, you may begin.

Thanks, Julie. Good afternoon, and welcome to the Apogee Enterprises first quarter conference call on Tuesday, June 18. This call is being webcast life over the internet from Apogee's corporate website www.Apog.com, and a replay of the call will be available on the investor relations section of this site. With us on the line today are Russ Huffer, Chairman, President and CEO. Mike Clauer, CFO and Executive Vice President. Their remarks will focus on the first quarter results and the outlook for the remainder of fiscal 2003. Before we begin, I would like to remind all of you that this call contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements reflect management's current expectations or beliefs. There can be no assurances given that Harmon Auto Glass will recapture market share and improve sales. There can be no assurances that PPG Auto Glass, Apogee's automotive replacement glass distribution joint venture with PPG Industries will achieve favorable long-term operating results. In addition there can be no on assurances that Apogee's architectural segment, which serves high-end markets with value-added products, will not be further impacted by the slowed economy. There also can be no assurances that there will not be additional erosion in large scale optical segment revenues due to the severe down turn in the PC industry and a slow down in retail markets. The company cautions readers that actual future results could differ materially from those described in the forward-looking statements depending upon the outcome of certain factors including the risks and uncertainties identified in exhibit 99 to the Company's report on form 10-K for the fiscal year ended March 2, 2002. The information in this conference call related to projections or other forward-looking statements may be relied upon subject to the previous Safe Harbor statement as of the date of this call and may continue to be used while this call remains on the Apogee website. Russ will now give you a brief overview of first quarter results, and Mike will cover the financials. After they conclude, we'll open up the call to questions. Russ?

Good afternoon. Welcome to our conference call. We knew this would be a tough quarter, and I am pleased with our results. At 18 cents per share, we are well above our target of 10 cents for the quarter. Our focus on continuous operational improvements and asset management allowed us to exceed expectations. We achieved this level of earnings during a slowdown in the construction industry, which is the market for our largest segment, architectural products and services. Revenues were down as expected. We are anticipating flat to low single digit revenue growth for the year, with year-on-year growth occurring in the second half. We are expecting that an economic turn around will boost our second half performance, particularly in the architectural and large scale optical segments. We also made significant progress on our long-term debt, reducing it 18% in the quarter to $56.5 million from $69.1 million at year-end. Turning to our segments. The architectural segment turned in a stronger performance than we anticipated as operating income exceeded our expectations. Despite the slower construction market, our margins matched the first quarter of last year at 6%. We are still looking for second half growth in this segment, despite the mixed signals we are receiving on the construction industry. Although our inbound order rate and bid activity have improved slightly, construction industry forecasts just released by FW Dodge and the American Institute of Architecture show further slippage this year. They are looking for office new construction, one of our larger target markets to be down 13 to 16% in calendar 2002 and healthcare will improve only 1 to 2% down from an earlier projection of a 6% improvement. On the other hand, education is forecast to be somewhat stronger, up 4 to 7% in 2002. There is good news, though. The forecasters are looking for a recovery later this year and a healthy rebound in calendar 2003. Office construction is expected to be up four to seven percent, education ranging from flat to up 9 and healthcare up 2 to 5%. Despite the slowdown in construction that is impacting our architectural business, we remain focused on our largest segment and the opportunities here. We anticipate that our focus on higher end, class A office, educational and institutional markets, our new glazing renovation initiative and our leadership in value-added energy efficient hurricane and protective glazing products should somewhat offset the slowdown. Although both revenues and operating income for the large scale optical technology segment were down from the first quarter of last year, I am encouraged because the segment showed continued improvement during the quarter compared to the fourth quarter. These markets are improving, and we continue to expect second half growth from new product introductions and expanded distribution. Automotive segment revenues were down compared to last year's first quarter, among factors contributing to lower unit volume with unusually mild winter and weaker industry conditions due to the soft economy. The improvement in operating income for this segment resulted from asset disposal, and the amendments to our joint venture agreement. Partially offset by a modest decline in the performance of the retail windshield replacement business. Weak industry conditions continue to challenge the automotive segment. Our outlook for the remainder of fiscal year 2003 relies on the segment's ability to increase sales over last year by regaining market share. The equity and affiliates line was also impacted by the auto replacement glass industry softness, as well as the joint venture amendments. For fiscal 2003 outlook, as you saw in the release, we are maintaining our guidance of $1 per share for fiscal 2003. With improvements in our markets expected in the second half. Key to achieving this level of earnings are continued turn around in the economy, especially in commercial construction, and an increased sales in auto glass retail. Despite the economic uncertainty, we anticipate that our Six Sigma initiatives will continue to help us improve operations in margins this year. We have targeted $12 million in one-time and ongoing savings from our Six Sigma projects for fiscal year 2003, and recorded more than 3 million in ongoing savings during the first quarter. Further strengthening our balance sheet remains a priority, and we'll continue to use our strong cash flow to pay down debt and complete our recently announced stock repurchase of one million shares. Our performance over the past two years and commitment to the $1 guidance for fiscal 2003 underscore our focus on achieving consistent earnings growth. I'll now turn to CFO, Mike Clauer. Mike?

Thanks, Russ. Our first quarter came in much better than we expected. Given the softness in the economy, it was a positive to have the architectural operating income above our plan and to see large-scale optical continue to improve. Revenues were down 9% compared to prior year, which was expected. We anticipated that full year revenues will be flat to single digit increase, with growth occurring in the second half of our fiscal year. EBITDA was up 6% to 15.8 million in the quarter. Our margin improved 140 basis points to 5.3 percent. During the quarter, we reduced long-term debt by $12.6 million being, ending at $56.5 million. We are planning to use the cash that we generated the remainder of fiscal 2003 to pay that down further to well below $50 million, and to fund capital expenditures and our new stock buy-back program. Our debt to total capital ratio is now at 24%. Capital expenditures were $3.4 million in the first quarter up from $2.7 million in the prior year. Although architectural segment revenues and operating income were down from last year's first quarter, the segment's performance was much stronger than we had anticipated as we continued to improve operations. Or architectural backlog which had about 190 million for the past five quarters, declined slightly to 183.4 million at the end of the first quarter. A portion of the backlog decline has resulted from more than a 25% improvement in lead times over the last year by Viracon our architectural glass fabrication business. Overall the backlog continues to reflect the segment's focus on complex, value-added projects which have longer lead times from project approval to production and less predictable schedules. Our capacity utilization for the segment was 65% at the end of the quarter with our three manufacturing businesses essentially at this level. We expect this segment to have flat to low single digit revenue growth this year with growth in the second half, depending on improving construction industry. As expected, the large-scale optical segment's performance in the first quarter was well below that of last year. The good news though, is that this is the third quarter of operating income improvement for this segment. We have both businesses focused on products that should return the segment to profitability for the full year. For the remainder of the year, large-scale optical revenue growth is expected to average approximately 25% compared to last year with revenue building as the year progresses. The automotive segment operating income increased from Q1 last year, but due to a 1.4 million gain on disposable assets and the amendments made last year to the supply agreements related to PPG Auto Glass joint venture, these gains were partially offset by a modest decline in the performance of the retail windshield replacement business. Segment revenues were down because of the mild winter and the soft economy. Our retail windshield replacement business must regain market share to leverage cost reduction and operational improvements it has made. An increase in units is needed for this segment to achieve its revised outlook of revenues, that will be down 3-5%. Equity and affiliates reported a loss for the quarter compared to income in last year's first quarter. The PPG Auto Glass joint venture which was reported here, was also impacted by the mild weather and the slow auto industry. The equity and affiliates also decreased due to PPG Auto Glass supply amendment changes I just noted. The decline here was partially offset by elimination of funding for the Terra Sun joint venture, which was shut down last year. The outlook for equity and affiliates was revised to an expected loss for the year for the reasons I have outlined above. We are maintaining our guidance of $1 per share for the fiscal year 2003. The economic down turn and backlog shift have changed the seasonality of our business from historical trends. We are providing targeted quarterly guidance for fiscal 2003 due to these changes of Q2 we are looking at 28 cents for quarter 3 we are looking at 34 cents and for quarter 4, we're looking at 20 cents. The elimination of amortization under the new method of accounting for goodwill contributed about a penny to the first quarter earnings and will contribute a total of approximately 5 cents for the full year. Please see our release yesterday for our complete guidance. For the year we continued to anticipate that overall revenue growth will be flat to low single digits with year-on-year growth occurring in the second half. We expect gross margin percentages to improve slightly with operating effencies achieved, largely to Six Sigma initiatives offsetting inflation increases. At the same time we expect increase margin pressure in the architectural and automotive segments driven by competitive actions and soft markets. Capital expenditures remain targeted at 20 million for the year primarily focused on repairs, maintenance and safety projects. We remain focused on delivering consistent earnings growth and strengthening our balance sheet. I'll turn it back to Russ at this point.

Thanks, Mike. I would like to go ahead and open it up for questions at this time.

Thank you. If you have a question at this time please press the number one on your touch tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Once again, if you do have a question please press the number one. One moment for questions. First question comes from Steve Jacobs.

Good afternoon Russ and Mike.

Good afternoon.

Hi, Steve.

Mary Ann, how are you doing?

Good, thank you.

I've got a couple of questions for you. Let's start with the segments. This is the second quarter in a row now, Russ, where you have talked about a pick up in activity in the fourth quarter you also highlighted that. What -- what do you track in terms of determining, you know, where the pick up is happening, and the extent of the pick-up? What do you watch?

In the architectural segment, we are watching several things. But the comments specifically here were tied to our inbound -- actual inbound activity and order quoting activity. So what we saw in our architectural segment during this quarter was an actual pick up in the order entry rate, so the amount of new orders coming in were increasing. We watch a rolling eight-week average, and that rolling eight-week average bottomed out in the fourth quarter of last year, and now we are seeing it continued improvement in that one going forward. So that is what we are specifically commenting about. The other thing is inquiries and -- that are coming in and billings for the Architectural Institute is their inquiries and billings. And we believe that is a leading indicator. That bottomed out in December/January time frame and has been steadily showing improvement and is now showing positive growth for the last couple of months. So that is a little bit of a more forward look than our actual inbound rates. But those are the -- those are the things we track specifically.

Based on what you are seeing, that gives you -- you guys -- the basis for giving us the guidance with regard to top line revenue growth improving in the second half?

Right. And right now, you know, we have, obviously we've got a very good line of sight to our second quarter. The second half we are more -- we are relying more on the activities and the commitment levels, as well as the long-term backlog that we are showing for that time period.

Okay. And the second question in the architectural side referencing the short lead time products.

Right.

Could you, kind of, maybe profile the difference in terms of maybe the process or the coding, a short lead time product, versus a -- you know a longer, you know, maybe a customized product or something like that?

Well, it really is interesting. What's happened is that our lead times used to run anywhere from 8 to 18 weeks, and it would depend upon the complexity, and that really meant how many steps did you have to go through to finalize a product? So, between cutting, tempering, silk screening, painting, coatings on the glass, laminating and insulating, how many steps you went through would determine those overall lead times. Today, with the improvements that we have made in our scheduling through Six Sigma and lean projects, our lead times now are down to the same level as the competitive lead times that we saw on plain vanilla products from the regional fabricators and glass fabrication. And our lead times in our customized windows which are more standard now because of our configurators, are now down to the eight weeks that's comparable to standard windows in -- from our Wausau group. So we really have seen both of these companies take their high end, high value-added products that have tremendous aesthetic and energy and operational advantages over the market and reduce lead times to them to the standard commodity kind of levels that are in the market place. That's proving to be very positive and why we are seeing a pick up in our inbound activities.

So to summarize then, your lead times are declining?

They have declined. We are down to five weeks in glass for the most complex things we do, and we are at eight weeks on total window systems.

Steve, there really just the operating improvements that the Companies have made over the last, you know, 18 months.

And it's not being driven by change in mix?

No.

No, not at all.

Not at all.

A more simple type of glass structures?

Nope

We're just simply able to get through all of these processes a lot more efficiently than we have ever done.

Good. And over in auto, what is your market share? Do you estimate? And what kind of industry unit numbers are you aware of?

We're in the 4 to 5% market share, and the unit numbers for the market place, the estimates, and it's really -- there's some difficulty in getting to the industry totals because of the mix of imports and domestic production. But we are estimating, right now, and other people are as well, around 11 to 12 million. We think it's probably closer to 11 million with all the softness we have seen. 12 million was probably what was more expected for the year.

Okay. Last question on LSO. In the fourth quarter, you talked about some purchase orders being signed for significant ramp in revenues. Is that reflective in your 25% guidance?

Yes.

Okay.

Yes, it is.

Then lastly, my sense is that PCs didn't fall as much as originally thought, and are coming back a little bit better. Any comments there?

Well, we have seen our glare filter business, it's not decreasing anymore, at this point in time. So we've actually had, you know, the inventory channel sort of depleted itself at the same time the market was going down. So, now the inventory channel is sort of being refreshed. We've seen our production levels not continuing to decrease, but actually increase slightly. In the long run, glare filters will go down. We have to look to other markets and other products. And that's why we are very pleased to see the acceptance of our first surface mirrors and anti-reflective coatings on acrylics accepted in the projection television business.

O.K., thank you very much.

Operator: Our next question comes from Robert Kirkpatrick.

Good afternoon. You mentioned earlier that your seasonality has changed, and you gave some fairly specific guidance about what you expect for the rest of the year in terms of EPS. Could you talk about how it impacts how you run your business, and whether that seasonality is something that will continue, or is that just this year in particular?

I think the reference is to the readjustment of the forecast for the year. Some of the asset sales, we had anticipated, but we had not anticipated they would all come in on the first quarter. So that accounted for some of the shifting of income from second quarter to first quarter. I think the rest of our concerns about second quarter is sort of a balance of the -- what's going on in all of our businesses with auto glass being softer, architectural being stronger, but still growing for the year. So that left second quarter a little shorter than -- that combination left second quarter a little shorter. Not so much a seasonality of any one business, but sort of adjustments to the way we had forecast versus how the year's rolling out.

Okay. And secondly, what was your cash and cash equivalence at the end of the quarter, and in future quarters, would you please release the full balance sheet as well as the income statement?

Well we -- this is Mike. We do release the balance sheet with the 10-Q. Our cash at the end -- cash equivalence at the end of the quarter were $4 million.

And then did you buy back any stock during the quarter?

Yes, we bought back approximately 100,000 shares during the quarter.

And spent about 1.3 million, something like that?

Something like that.

Okay. Great. Thank you so much.

You're welcome

Our next question comes from Dwain Carryl.

Good afternoon, Russ and Mike.

Hi, Dwain .

Hi Dwain

Mary Ann, how are you doing? First thing is, I guess you mentioned the four to five percent market share before. What market was that referencing?

Auto glass. Retail replacement .

Domestic?

Yes.

Okay. And how many black belts did you add during the quarter?

Um -- I think we completed our training late in the fourth quarter. We now have 80 black belts fully trained, but the full-time equivalency is about 60 black belts. They are now all fully engaged in projects at this time.

And, Dwain, this is Mike. We actually, during the quarter shifted to what's called green belt training. It's a scaled down version and I believe we are targeting 200 or so people this year to be trained as they augment the black belt.

Right. So you have other projects, earmarked, you know for the rest of the year?

Right The current project total projection is over -- now over $12 million for one-time and ongoing savings. And we realized about 3.5 in the first quarter. So we have good -- great start to the year, and very good momentum.

Okay. You mentioned before that capacity utilization was at 65% for the quarter?

Correct.

Could you compare that to year ago quarter and fourth quarter as well?

You know,Dwain, this is Mike, we don't have the data from prior years yet. We scrambled to start getting it reported now. Intuitively, I would say our capacity was a little less than that. I think Six Sigma is really starting to find capacity. Probably with the revenue being down, we were probably up in the 70 to 72%. We plan on trying to get that information for the next conference call.

Right. There's no question that Six Sigma work has had some major impacts on improvements in capacities, especially at Viracon and Wausau.

Okay. Could you talk a little bit about the, you mentioned new products in the LSO segment, as well as new distribution expected in the second half of the year.

The new product that specific to Viratec is the anti-reflective coating on acrylics. That's for the -- for the front screen of the large projection televisions that use an acrylic front panel. The new panels are --

Are those flat screen T.V.'s?

They are 50 to 70 inch diagonal T.V.'s. They are not plasma T.V.s, they are projections. They use mirrors. It's a big box. It's like a big piece of furniture with a big screen. They have first surface mirrors behind them that help get the image to the front screen, which is flat, but it's an acrylic front that was very reflective, especially the new brighter televisions. And so the AR coatings have been a terrific fit. We have already delivered against the contracts we have mentioned last quarter and, in fact, those contracts have now doubled in volume, because of our demonstrated ability and quality of what we are delivering to our customers. So we are very positive that this is a winning new product for us. The other product at Viratec was first surface mirrors. We've always had first surface mirrors. But our renewed efforts were with new productivity, new efficiencies that allowed us to be a lot more competitive in the market place and it's enabled us to profitably take on new customers and see that grow as well. So those are the markets distribution channels. On the Tru Vue side, Tru Vue has continued to see the true guard or uv protective glass for picture framing continue to roll out and more and more of their customers are converting to it 100%.

The big news there, Dwain, is they actually added Michael's probably saw in our annual report is becoming a big customer of ours. We are continuing to convert their national chain to where true guard is the standard. It's a nice distribution opportunity for Apogee.

Okay. Could you talk a little bit about the -- your backlog composition? I mean, obviously backlog was down a little bit. Are you seeing any, you know, higher margin type projects or -- how would you compare the backlog composition at end of the first quarter versus fourth quarter? And year ago?

I think one of the things that's interesting here, is that even though the backlog is down slightly, I think from 190 to 183 million or so, most of that decrease is within our viracon group where the lead times are now much shorter. When I have shorter lead times, you will inherently have less work in progress, less finished goods and less material on the backlog because the customer doesn't have to put it in now at eight to twelve weeks, he can now put the order in at five to six weeks before it's due, and have fewer changes, fewer problems, fewer issues, and quicker delivery. And because of that, you have to learn to live with a smaller backlog in that business. Our other businesses, Wausau and Harmon Inc., who are also included in that backlog number, we knew that a lot of their work was going to be second and then Harmon Inc., third and fourth quarter. So those numbers are holding up for us. So the downward movement is more of a getting accustomed to shorter lead times with the same sales output.

Okay. And you brought down that again this quarter which was very good, you said that will be outstanding debt will be somewhere below 50 million at the end of the year. Could you -- do you have any specific goals in mind? Anything you are targeting in terms of, you know, a long-term debt figure by year-end? Fiscal year-end?

You know, Dwain, this is Mike. You know through our conversations, I mean at this point, you know, we continue just to focus on improving operations, look at some growth initiatives. And from a cash flow perspective right now, you know, after capital, buying back stock and dividends, in essence, the rest of the cash goes against debt at this point. So to answer your question, no, we have not targeted yet what our optimum debt to equity ratio is going to be long term.

Okay. And final question here. I guess, while you are keeping your guidance at $1 for the the year, I guess you mentioned the asset sale that happened this quarter, you were expecting it to happen, I guess the second quarter. I mean, X-ing that out, how much was the asset sale in terms of a per share basis? Two, three cents?

I think it was about three cents. Three cents.

Okay. So, I mean, really what's changed in terms of, you know, the outlook for the second quarter that, you know, is accounting for the downward revision?

I think I mentioned, you know, softness in auto glass, just not being totally made up by the improvements we are seeing in architectural.

That's it in a nutshell, Dwain. It's the auto glass segment trends, you know, even though architectural is doing better than we thought, as is large scale optical, you know, we are sufficiently concerned with what we have seen as far as trends.

Right. Okay. Alright, thanks a lot.

Our next question comes from Paul Hagenson.

Yes. Good afternoon.

Good afternoon, Paul.

Russ, on the dollar a share estimate, what would be the equivalent EBITDA on that number? Roughly for the year.

I think it's just over 70. We are checking.

We'll get it.

And again on the debt, what do you expect there, 40, 45 million, something like that?

We do have share repurchases, but I think that those are good targets that you just mentioned, 40 to 45.

Okay. And in terms of the -- um -- you know, could you give us any help for the year in terms of the operating income by segment? Because I'm a little confused that auto glass was up so much in the quarter, I guess there was a gain in there, but even backing out the gain, it was up, but the equity in affiliates was way down.

Right.

Okay.

Can you help me out with that?

Sure. Let me go back to the first question on the EBITDA. 76.5 would be the dollar share. But you are right on track with your other comments, Paul, about the auto glass segment up and equity and affiliates down. If you remember, we changed the contracts which shifted where the income is realized and it's been, you know, fully up in all of our news releases, I think since the second quarter last year or third quarter, I'm not sure which one. But basically, what that did is that shifted income into our manufacturing operation from the equity and affiliates. And that's why we -- you saw the swings in the first quarter because last year we were not reporting it that way.

Okay.

We should see consistency starting in Q2. But the decline is a combination of that and the LLC is also being affected by the same things we see happening in our retail business, just a soft market is year-over-year we are seeing declining units. I think somebody asked a question earlier on competitive data. There's really only one other publicly held auto glass company which is Diamond Triumph (ph) and I know looking at their first quarter results, their volumes were down, also, year-over-year.

So if we were to look at this auto glass operating income for the year, what did you report in that sector last year for the year?

All operatives was about 22 million last year EBITDA if you took our share of income from the LLC and combined it with our entity.

Okay. So it was 22 million EBITDA. This year, this upcoming year, you would be expecting that to -- how would the compare look, do you think? Would you be 15 million this year?

I think our guidance at this point is the range of 15 to 17 million.

15 to 17?

Right.

Okay. And the equity in affiliates, which was a million dollar to loss in Q1, what's that going to look like for the year?

Well, the number I just gave you, Paul, is that number included.

Is a net number included?

Right.

The net number, right.

If you really look in the equity and affiliate line going forward with the Terra Sun funding gone, that's a pure -- if you take the auto glass segment plus that that equals what we are generating from auto glass.

Last year in the architectural segment, what was the operating income for the year?

What do you think that comparison might look like?

The operating income reported last year was $34.4 million. And actually our outlook for the year was to be up slightly.

And you are sticking with that?

I think -- actually, I think at this point, you know, with the performance we saw in Q1, I think we feel pretty comfortable at this point that's a very achievable objective.

So maybe use 35 million there and 15 to 17 million in the auto glass. And now the large-scale optical was off -- was about a million dollar loss operating in Q1. Can you give us any help there for the year?

We will be profitable on a full year basis in our guidance.

Okay. So what are you thinking a million or two million for the year? Or better than that?

Um -- better than that

Okay. When does that start to swing around for you? Is that in the second quarter, or is that third and fourth quarter?

We'll see the large-scale optical will trend positive all year long. So each quarter will be better than the previous one.

Okay. This is the low point of that business?

Yes.

Okay. And are you seeing any pick up in the retail sector there at all? Are you starting to see that?

We are seeing the seasonal pick up in the retail sector, but not as fast as we had hoped or as we had planned. That's why we continued to look at softness on that retail side. So, you know, I think right now where we have our greatest risks are on the retail side, the auto glass retail have the greatest upsides are on the architectural side. And I think that that's why we are still saying the dollar a share.

Okay. One last question. I'll give somebody else a chance. But, in the architectural sector, this is a theoretical question, but if you had flat sales on a year-to-year basis, right?

Right.

What sort of underlying productivity do you have going on in that division? Particularly with regard to people, overhead productivity, yields, what do you think with the Six Sigma effort, what is your underlying productivity rate now on flat sales?

Well, on flat sales, you know, I'll have to -- I don't have a specific answer for you. I'll have to give you the best indicators of the answer. But, the best indicators would be that we believe we can do the same business year on year with maybe 300 plus less people than a year ago. So that's somewhere in excess of $12 million reduction in labor and improvement in productivity. On the yield side, we are definitely seeing yield and quality improvements as well. Our cost of quality is down significantly year-on-year, in other words our ability to get through our processes in our architectural group and complete work the first time without an error, has gone up significantly to the point where our cost to quality is really down a few percentage points of sales. So there's some nice improvements that, if they are sustained for the year, that's why I talk about the better upsides are in the architectural side. There are indicators like that that give us some encouragement.

Paul, this is Mike. I wanted to clarify one point. You asked on kind of the EBITDA for the auto glass segment. I quoted you our business plans of 15 to 17 million.

Right.

In the dollar guidance in the revised outlook, you know, we have taken that number down to 10 to 12 million.

Oh, 10 to 12 million.

That's right. That's one of the reasons I think Dwain asked earlier our concerns on Q2, which is really our strongest quarter for auto glass from a seasonality perspective.

Right.

You know, with the soft market, you know, we are just being cautious.

Okay. So for the year you are thinking EBITDA of 10 to 12 million --

Correct.

-- versus 22 last year?

Correct.

Okay. All right. That makes more sense there. Yes. Okay. Thank you. I'll give somebody else a chance.

Alright, thanks Paul

Once again, if you do have a question please press the number one. Our next question comes from Steve Jacobs.

Just kind of another hypothetical question, since we are asking them right now. If at the end of the fourth quarter, it turns out that earnings per share are above a dollar, would you looking at things how they stand today, would you think it would come more from better top line revenue growth, or greater cost savings?

I think that at this point in time, I would say that we are probably going to get more improvement from cost savings yet than we will from top line growth. Than we have in our plans. We have, in our plans, an improving economy for the second half. So there are some improvements, clearly, at Harmon Inc., Viratec, Tru Vue, for the third and fourth quarters -- Viracon -- third and fourth quarters that we have in our plans. But if you say -- I would say the upside is more on the cost cutting side.

Okay. Finally, I just want to make sure I understand. You amended the PPG joint venture agreement last spring.

Right.

What we are seeing is the tail end of this amendment. There hasn't been multiple amendments, has there?

No. What we did was we changed the way we price windshields that are bought from both curve light and PPG industries. And what it results in is a shift in, you know, a reduced the profits in equity and increased the profits in the segment. Q2 is when we adopted those amendments last year. So on a year-over-year basis you should start getting some come comparability in Q2, correct?

I just wanted to be clear. So you anniversary it here in the second quarter?

Yes. And annually the pricing agreement, the formula adjusts in December of every business year. So, that's the only time the amendment changes is when the pricing formula changes.

Okay, great. Thanks.

Our next question comes from Robert Kirkpatrick.

Thank you. Could you provide a little bit more detail on the asset sale such as what it was you sold, and also where is that booked under your income statement? Is that as a credit to cost of goods or a separate line item below the operating income line?

Well, first of all, we sold four either retail or distribution facilities that weren't occupied. Or we just had excess real estate or they were occupied by the LLC. We generated about $2.4 million of cash which was the real motovator for the sale as we had been evaluating and getting rid of excess real estate. It's recorded as a credit to SG & A

Thank you. And, um -- secondly, what's the level of EBITDA trailing basis for the PPG joint venture?

I don't think --

I don't think we should --

I don't think we report that.

We don't report it.

Okay. Thank you.

Once again, if you do have a question, please press the number one. Our next question comes from Paul Hagenson.

Yes. Is it possible, do you think, by the end of the following fiscal year, not this fiscal year, but next year, that you could be debt free at this point?

That's -- that is conceivable, barring any significant capital expenditure in capacity or acquisition.

I mean, at this point, you don't have big capital spending plans for the following year, do you?

No, we don't. Not really. We don't see any range 20 to 30 million.

It's not like you expect robust demand in that period.

Not to where we would have a capacity. So I wouldn't think you would have a capacity issue or working capital requirement. That's correct.

So you -- so -- I mean it's not unreasonable to think that you might be near there?

Correct. We could actually, at our current capacity, we could add about 120 to 150 million of revenue in architectural, without -- in the manufacturing piece of architectural without adding capacity.

I would assume, at that point in time, if that were to be the case, that you might even contemplate some meaningful buybacks?

Well -- We would have to evaluate it at the time.

Versus acquisitions, right?

Right.

That would be the alternative.

There's an alternative there, correct.

Those are the alternatives.

What is in the acquisition pipeline at the moment? How active, how hot is it?

I think, Paul, what we've said before and what we will continue to do is to keep our eyes and ears open for opportunities that can come up that are in close step with current core competencies and strategies. And I think that the uncertainty of the economy, the decrease in construction, will lead to some things that we'll be able to look at in these areas, and if we can find something that makes sense, that is accretive to our shareholders, then we'll act on it. If we don't, then we'll continue to pursue our current strategies.

Mmmm-hmmm.

The only area we are evaluating is, we are looking at this mid-performance glass and we are evaluating greenfield opportunities versus partnerships, versus alignments, versus possibly a acquisition, as we look harder at that opportunity.

Mmmm-hmmm. Mmmm-hmmm. I mean, it seems to me, in many ways, what's going on at the moment is not all that bad. I mean the demand is slow, it gives you a chance to get your cost down, your working capital down, your debt down. I mean, you really ought to be well positioned when sales start picking up.

That's correct. That's the plan. Absolutely.

All right. Great.

I am showing no further questions at this time. I would like to turn the program back to you.

All right. In closing I would just like to reiterate we are doing what we said we would do. We are improving our operations. We are working hard to achieve consistent earnings and earnings growth and improve shareholder value. So thank you for your questions and for your support.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may disconnect at this time and have a nice day.