Apogee Enterprises Inc (APOG) 2010 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Q3 2010 Apogee Enterprises, Inc. earnings conference call. My name is Veronica and I'll be your operator for today. At this time all participants are in a listen-only mode. We'll conduct a question-and-answer session toward the end of this conference. (Operator Instructions) As a reminder, this call is being recorded for replay purposes.

I would now like to turn the call over to Ms. Mary Ann Jackson. Please proceed.

Thank you, Veronica. Good morning and welcome to the Apogee Enterprises fiscal 2010 third quarter conference call on Thursday, December 17th, 2009. With us on the line are Russ Huffer, Chairman CEO, and Jim Porter, CFO. Their remarks will focus on our fiscal 2010 third quarter result and the outlook for the current year.

During the course of the conference call we'll make forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. The statements with based on current expects and the current economic environment and are of course subject to risks and uncertainties which are beyond the control of management. The statements are not guarantees of future performance and actual results may material differently. Important risk and other important factors that could cause actual results to differ materially from those in the forward-looking statements and projections are described in the Company's annual report on Form 10-K for the fiscal year ended November 28th, 2009 and in our earnings release issued last night and filed on Form 8-K.

Russ will now give you a brief overview of the results and Jim will cover the financials. After they conclude, Russ and Jim will answer your questions. Russ?

Thank you, Mary Ann. Good morning and welcome to our conference call.

In difficult conditions we achieved solid operating performance as we improved productivity and aggressively managed costs. We earned $0.39 per share on revenues of $179.8 million. Both earnings and revenues were down compared to the prior year period as the nonresidential construction market continues to be impacted by tight commercial real estate credit and decreasing employment levels.

A number of positives in the quarter were more than offset by low architectural segment capacity utilization and the declining mix of work bid in stronger commercial construction markets. The positives demonstrate our focus on operating well through this challenging cycle and helped us achieve an operating margin of 8.9% compared to 10.3% in the prior year period. They include -- we executed well, especially in our installation, window and picture framing businesses. We continued to improve productivity. And we have managed our costs in anticipation of lower revenues. In addition, we also generated approximately $40 million of cash flow from continuing operating activities in the third quarter, strengthening our financial position to weather the tougher times still ahead for Apogee.

Turning to the segments, architectural segment revenues declined 28% and operating income decreased 51%. The architectural operating margin was 6.1% compared to 9.0% in last year's third quarter. Although our markets are down significantly, we believe we are gaining share by winning institutional projects, including stimulus work, capturing most of the large projects that are going forward, winning smaller domestic projects and installation projects in new geographies as well as growing our international export sales. The architectural backlog was $246.4 million, down from $295 million in the second quarter and $373 million in the prior year period.

We have stated that we didn't believe we were at the bottom of the cycle for Apogee and with the drop in backlog, we may not be there yet. However, it is important to note that reduced lead times for smaller architectural glass and standard window projects as well as the quick turns required of many of the international jobs are resulting in a higher proportion of book and bill work, which is not reflected in the backlog. As we had expected, our backlog mix shifted even more toward institutional projects in the third quarter. Institutional projects now account for 60% to 65% of our backlog, up from 55% to 60% in the second quarter. Office projects have swept to 20% to 25% of the backlog from 25% to 30%. The hotel entertainment sector remains at 5% to 10% of the architectural backlog while condos have fallen to the 0% to 5% range from 5% to 10%.

Stimulus projects continued to contribute to the institutional backlog. In the quarter we were awarded General Services Administration and Department of Defense projects on the stimulus such as the military hospital, a federal courthouse and a federal building, as well as other state and local education, healthcare and office projects. We are actively bidding on other projects and have already been awarded new institutional projects this month.

We are also seeing an increase in international work -- export work for our architectural glass business and have been quoting more international work now than we have in past years. Surprisingly bidding activity remains steady, although average project values have declined. We are also seeing bid to award timing continue to slow as customers evaluate project timing relative to the economy, obtain financing, and pursue cost-reduction opportunities before awarding projects.

Moving to the large-scale optical segment, our picture framing business performed well and is seasonally strong this quarter with revenues up slightly and operating income up 14%, as we saw a strong mix of our best value-added picture framing glass and acrylic products in the quarter. Our superior product attributes which prevent fading and control reflection are allowing us to continue to convert more customers to our value-added and best value-added products. The picture framing business is also recognizing the anticipated benefits as it leverages the significant investments made over the last two years to increase capacity.

Next I'll cover our outlook. We have delivered a solid performance to date in these challenging economic times. And continue to focus on outperforming our markets in gaining share. We also continue to expect our large-scale optical segment to convert more customers to higher value-added products, despite soft retail markets. Our balance sheet remains strong and we expect to continue to generate positive operating cash flow in the fourth quarter and fiscal 2011.

Okay, I apologize. I skipped a page. Let me back up to start over with our outlook.

We have delivered a solid performance to date in these challenging economic times and continue to focus on outperforming our markets and gaining share. For the current fiscal year, we are anticipating a revenue decline of 22% to 24%, and an operating margin of 6.3% to 7%. Our outlook has improved slightly from our previous expectations. Since Apogee is a late cycle commercial construction Company and our markets are showing signs of a longer downturn than had been anticipated, we still expect that fiscal 2011 will be tougher than the current year.

In varied challenging market conditions, we are securing projects and seeing some success in filling in architectural backlog for fiscal 2011 although at more competitive prices and margins. In the past four quarters we have seen dramatic declines in the McGraw-Hill Construction project start values. The overwhelming decrease in large commercial construction projects, which were more than 50% of our fiscal 2009 architectural segment revenues, has been a difficult challenge to overcome. While starts for Apogee's overall target markets were down about 20% for the past four quarters, according to McGraw-Hill Construction, large projects, those more than 10 stories tall, were down more than 60% for the same time frame.

We are feeling the affect of this decline today and it will impact fiscal 2011 with our architectural glass business hit especially hard since large projects have been the focus for this high fixed-cost business. To manage through the downturn, we have reduced costs more than $55 million on an annualized basis since last October, including headcount reductions of more than 35% from our peak in summer of 2008. We continue to evaluate further reductions in headcount and discretionary spending and also are working continuously on productivity improvements.

An expanding future opportunity for Apogee is the retrofit market, which has historically averaged 20% to 25% of our work and has been growing today with a mix of projects we have moving forward. McGraw-Hill Construction is projecting a dramatic increase in green retrofit activity in the long-term after major legislative and competitive drivers forced building owners to engage in retrofit projects to address climate change. They see education and office as the sectors with the largest green retrofit opportunity.

Apogee's energy efficient products and services are ideally suited to serve this retrofit market. Today we are pursuing a number of energy efficient retrofit projects, many of them federal stimulus projects. Current retrofit projects include government stimulus work as well as a hotel that incurred tornado damage and office buildings, including one in Canada. We believe that our architectural segment is well positioned to continue to gain share by leveraging our brands, national presence, quality, service levels and financial strength.

We also continue to expect our large-scale optical segment to convert more customers to higher value-added products despite solve retail markets. Our balance sheet remains strong and we continue to generate positive operating cash flow in the fourth quarter and fiscal 2011. With our $83 million in cash and short-term investments, our untapped $100 million revolver, we are confident that we have the financial strength to work our way through the expected on-going weak market conditions and to remain focused on our growth strategies for the recovery.

Our growth strategies, including gaining share and our core domestic markets to further penetration of the small project market and expanded geographic presence of our installation and storefront businesses and the possibility of an architectural glass international presence, we continue to look at locations for an international facility and are currently focusing on Asia where we have customers and a brand presence and the market. As part of our growth strategies, we are also continuing to develop and introduce new products focused on green and energy efficiency. They range from all recycled aluminum content for our storefront entrance systems to new aluminum framing systems with thermal brakes and advanced energy efficient coatings, for example, to meet more stringent California building codes.

Apogee will be well positioned when commercial construction markets improve. We have production capacities in place, our plants have been upgraded to state-of-the-art, and we are committed to strategies that will allow us to grow, gain share, and deliver significant shareholder value. Jim will now comment on the financials. Jim?

Thanks, Russ. Given the difficult market conditions, we're pleased with our third quarter operating performance. We made progress in improving productivity, and also closely managed our costs.

We earned $0.39 per share versus $0.63 last year. The prior-year period of $0.63 included earnings of $0.06 per share for long-term executive compensation expense adjustments, primarily related to lower payouts of stock bases incentives, as well as a gain of $0.04 per share in equity and affiliates on the sale of Apogee's minority interest in the auto glass distribution joint venture. Gross margins were up from the prior year while Apogee's operating margin declined. Gross margins were 24.8% in the third quarter, up from 22.9% last year, with great project execution in our installation and window businesses, positive mix in the large-scale optical segment, and improved productivity across the board, partially offset by the inability to fully leverage fixed costs over lower volume, primarily at our architectural glass business.

Operating margins were 8.9%, compared to 10.3% for the third quarter last year. This year's margin was impacted by the inability to fully leverage fixed cost over lower volume, while last year included the pick-up from the incentive based comp adjustment already noted. The architectural segment operating margin declined to 6.1% from 9.0% the prior year, due to lower capacity utilization, a declining portion of work bid and stronger commercial construction markets and the fixed cost burden over these lower volumes. The factors more than offset productivity improvements and cost reductions. We estimate that about 40% of the our revenue in the quarter had been booked in stronger markets and expected decline from 60% in the second quarter.

Architectural segment revenues were down 28%. Although as Russ said, we believe we're gaining share in institutional, smaller project and international work. Third quarter capacity utilization in our architectural segment averaged almost 55%, compared to 60% in the first half and approximately 75% a year ago. Our architectural capacity utilization at the bottom of the last cycle was roughly 60%.

The large-scale optical segment operating margin increased in the segment's seasonally strongest quarter as new and on-going value-added product customers continue to convert to our best picture framing products. The large scale operating margin was 34.4% compared to 30.4% in the prior-year period, due to product mix and productivity. Segment revenues increased 1%.

We increased our cash position significantly in the third quarter. We generated approximately $40 million of cash flow from operating activities in the quarter, and approximately $74 million year-to-date. Capital expenditures year-to-date were $7.7 million, down from $49.5 million in the first three quarters of fiscal 2009. We're estimating that our Capex for the current year will be less than $15 million, down from our previous outlook of $20 million. Fiscal '11 capital spending is expected to be less than $20 million, including maintenance Capex of approximately $10 million. This level of spending provides adequate capital for maintenance and safety, given the key strategic capital investments previously made in both segments that position us for efficient growth when markets improve.

Cash and short-term investments totaled $83.1 million at the end of the third quarter, up more than $30 million from $52.3 million at the end of the second quarter. Although our day sales outstanding remained at a positive level of 48 days, we saw an increase of five days in this metric largely as expected due to a slight decline in our agings on a lower receivables balances. In general, we continue to feel good about the quality of our receivables.

I'll turn to our outlook. We fine tuned our outlook for the full fiscal 2010 as we entered the fourth quarter. We're now expecting a full year revenue decline of 22% to 24% compared to the previous outlook of a decline of 20% to 25%. We anticipate a full year operating margin of 6.3% to 7% which is at the high end of our earlier mid-single operating margin expectation, due to good execution in the first three quarters. Consistent with this full year outlook, fourth quarter revenues will be down from the third quarter, reflecting a slight fourth quarter seasonality for both segments, along with a gap between completion of some projects and start up of new work for our architectural segment.

Our current visibility into fiscal 2011 is significantly lower than normal and as Russ said, we expect fiscal 2011 will be tougher than the current year. Although the economy has started to show signs of recovery, it appears the commercial construction markets may remain depressed longer than originally anticipated and Apogee is a later cycle Company. We remain focused on productivity improvements and managing our costs in an effort to somewhat offset the impact of declining revenues on earnings. At the same time we continue to focus our sales efforts on markets that demand our value-added, energy efficient, aesthetic, hurricane and glass products. We've seen strong bidding activity for projects in the institutional sector for education, healthcare, and government projects, including federal stimulus work.

We continue to pursue our longer term strategies to gain share in our markets, identifying attractive international markets for architectural glass, potentially with off shore glass fabrication. Developing new energy efficient products and systems for the green building trend, expanding our storefront and standard window penetration, broadening the geographic presence of installation and converting more of the picture framing market to value-added glass and acrylic. We expect to continue generating cash in the fourth quarter and fiscal 2011. Our priorities for use of the cash are that we expect to invest in and grow our international architectural glass business in markets where we already have a leading international brand but no off shore fabrication.

We'll also continue to invest in maintenance and safety, productivity improvements and new product development. And we plan to continue paying our dividend. We're focused on effectively managing through this slowdown and emerging stronger than ever when our markets rebound. Russ?

Thanks Jim. I'm very proud of our employees who manage the team. They have been very proactive in managing costs and profitably gaining market share in this troubled economy. Apogee is in great shape to survive the downturn and thrive when markets cover. We'd now like to open it up to the Q&A.

(Operator Instructions) And your first question comes from the line of Tom Hayes from Piper Jaffray. Please proceed.

Good morning, gentlemen.

Good morning.

My question is your guidance seems to apply a gross margin in the fourth quarter of around 20%. Would you be at this level of gross margin as reasonable to expect under the current pricing and competitive environment as we look towards fiscal 2011.

I would say, Tom, in terms of the pricing environment, I think that's consistent with our outlook. One of the key drivers of course in our gross margins is capacity utilization. In our Q4 we do have a little bit of a gap in terms of some lower capacity utilization than we expect in fiscal '11, largely in our window and installation business, but depending on our ability to fill in and to be able to increase the capacity utilization is probably the key variable.

And that leads into my next question. Is based on that declining backlog -- you indicated it may fall further, as well as some market weaknesses -- where do you see utilization bottoming out in the cycle?

This is Russ. Utilization right now is about 55%. I think we'll see some minor fluctuations around that. It doesn't feel like it's going to -- we know that we're now entering this on an annual basis the slowest time of the year and that -- so that seems to me to be an indicator even a floor for what we think we'll see in next year.

But you have to remember, this is -- it's hard to see. Our visibility in the future is tough but that's what it feels like today.

Okay. Last question and I'll get back in the queue. You mentioned in this quarter about 40% of business was delivered in better times, in 2Q is about 60%, do you any outlook as to what you think the fourth quarter will be.

I would say Q4 is probably 25% to 30% would be booked in prior times. And it's essentially used up. There is probably a few million dollars going into fiscal '11 that were booked back in those time periods.

Okay. I appreciate it. I'll get back in the queue.

And your next question comes from the line of Eric Stine of Northland Securities. Please proceed.

Good morning, everyone, nice quarter.

Thank you.

I was hoping we could touch on the backlog and as you talked about a pretty substantial drop. Can you tell us were there any cancellations in this number?

No cancellations. We really haven't seen a cancellation now for sometime. For several months -- or several quarters, yes.

Okay. And then can you just talk about, the order level that you experienced in the quarter -- should we think of that -- that sort of level as -- any reason it would be a one-quarter anomaly or is that the level we should think about here in the near term?

You have to recall that our order entry can be lumpy and will be lumpy. And so it -- we've seen -- this was a quarter where it was down. We also have to remember, and so we could see larger projects come in later. Especially some of these stimulus projects could really move this number around.

And then we also have to remember the amount of book and bill business. The book and bill business actually is remaining because of our efforts, international and smaller projects, is staying pretty steady for us. Has not been affected to the same level as the normal -- what you normally see flowing through the backlog. So there are off-sets.

Okay. That's helpful. Maybe last question and then I'll just jump back into line. Can you just give us an idea how much of that backlog is stimulus related?

Yes. So first of all, the hesitation is two fold. One is I don't actually have that number, but one of the things we're seeing is on federal projects, we can pretty clearly tie those activities back to the stimulus bill. We're also successfully winning a number of projects at local county and state levels which are indirectly coming through in terms of how the stimulus money is flowing through to the states. But I would say we probably have maybe half of that backlog might be tied directly and indirectly to stimulus.

I would agree with Jim's assessment. I would also say to you that the timing of the dollars of the stimulus -- the bigger the project, the longer they're going to go. So we'll see affects not just in 2011, but into 2012. So those stimulus dollars will be with us for a while.

Okay. So you said half of your current backlog that you quoted -- the 246, approximately -- is stimulus related,.

Maybe a third to a half. It might be closer to a third.

It's material, we just don't know the exact amount.

Okay. I appreciate it. Thanks.

Your next question comes from the line of Brent Thielman from D.A. Davidson. Please proceed.

Good morning Russ, Jim, Mary Ann.

Good morning.

Good morning.

Just wondering, on the large-scale optical segment, if you look back in fiscal 2009 and what looks to be the case here in fiscal 2009 -- or 2010, excuse me, at least on an annualized basis you've been running in the low to mid-20s for operating segment and I'm curious -- as you look out in fiscal 2011, is that a sustainable run rate in terms of profitability for that segment?

In terms of the low 20s, yes.

Yes. Okay.

I believe so.

Okay. And then just trying to get a feel for the backlog. Are you finding yourself rejecting more projects out that there you do not feel meet desired margin levels and also are you seeing competition becoming more irrational out there in the bidding environment?

I wouldn't say that -- what we see is when we see rational bidding, most of the projects are attractive to us. With we see irrational bidding, and that's -- it appears there is more rationality to the marketplace than one would anticipate. So I think we're actually being more successful today gaining share. Although, albeit, at competitive margins. They're still competitive.

But that does feel better about what we're doing. I just think that that's -- it's just a tough market. It's harder -- there are just fewer projects being bid. That's just really the bottom line.

Okay. Thanks, guys.

Your next question comes from the line of Eric Glover from Canaccord. Please proceed.

Hi, good morning, guys.

Hi, Eric.

You talked about the retrofit market. What percentage of your market was retrofit related and looking forward to fiscal 2011, what are your expectations for growth in the retrofit market?

Eric, historically we've seen roughly 25% of our business in retrofit. We're seeing a little bit of an increase in that both in terms of our current revenues and in terms of our backlog. Frankly that's probably a little bit skewed by some of the federal projects that are retrofit in nature. I'm not sure that we're ready to say we're seeing the secular trend towards the drive in retrofit. We've seen a little bit of an increase, but I think that's a little bit more tied toward the stimulus as well as economic factors.

Do you think that the -- your retrofit business will grow next year or decline?

Well I think the retrofit business will remain at least what it is today. I think that what you'll see is if the government does indeed put some incentives on retrofit and continues to drive that, then we'll see it become more and more of an important part. There's no question that retrofit can substantially change the energy consumption on older buildings that are not very energy efficient. There is a good reason to do those. So we still have to see the money being attracted to that.

We do expect it to grow some as a percentage of our revenues next year.

Okay. Thank you very much.

Your next question comes from the line of Robert Kelly from Sidoti. Please proceed.

Russ, Jim, good morning.

Good morning.

Just on the year-over-year change in operating income for the architectural segment, could you just give us some help on how much cost savings there, how much productivity, how much offsets those two issues -- material savings as well -- provided as far as -- bridge the change in operating profit year-over-year?

So first of all, for starters, Bob, in terms of the year, we do have roughly half a point impact on operating margin from the pick-up that we had in our compensation adjustment prior year versus this year. But I think in terms of the factors -- in terms of order this year, I think what we see is capacity utilization partly offset by productivity improvements, but not fully offset is probably the key factor. Starting to see some kind of pricing margin pressure flowing in. We've started to see the impact of that this quarter. But I would put them in that order.

Okay. Great. That's helpful. Now as far as the sequential move in backlog, is there any -- it looks like you saw a drive in demand, but is there any seasonality that is causing the sequential drop in Q3 from Q2?

There is some of that, but I wouldn't -- I would say it's more the lumpiness that we see coming in that could be more of a factor.

So could you just give us a little bit more help on the gap that you're seeing in Q4? Jim had referenced it earlier, the gap you're seeing I guess in your schedule? Is that how you're seeing it? Is that a one-time event or maybe just some help there.

Well, particularly where we have -- we have a little bit better visibility in our window business than our installation business because of the lead time visibility we have on projects. And in those particular businesses we actually have a number of projects where we're actually -- we actually have or are concluding those, but then the new projects that we have in our pipeline don't really start to flow until mid Q -- Q1 of next year. That's not the whole business, but in terms of a percentage of the mix of business. So we do have a little bit of -- what we hope is a one-time gap. But based on the visibility that we have in those particular businesses, we do have a little bit of increased excess capacity unique to Q4.

But were you to get some -- or be more successful with the quicker turn business, you might be able to sell that gap and that's where your offset to prices has come in the past couple of quarters here? Is that the way to think about Q4?

In terms of the ability to fill in with quicker turn business, less ability to do that in our installation business as well as our core engineered part of the window business. We have seen pretty steady demand and good success in the standard window portion of the window business. Which has a quicker lead time associated with it. And so we will continue to fill that in. But those factors are all not included in our outlook.

Okay. And then just as far as new orders and the success you're having in institutional and some of the stimulus driven work, how do those margins compare to the rest of your backlog -- the verticals of your backlog -- and what proportion are using the value add, the glass proof, the efficiency, what have you.

The margins are mixed. And certainly there are some that are tougher than others and we know that they're being -- overall they're being compressed more -- they were in better market conditions. Value-added is showing up quite a bit though. Especially on those most notable projects, value-added, whether it's blast walls, all energy efficiency, things like that, are showing up. And that really helps us to not only win the project, but maintain it at some reasonable margin level.

The stimulus projects that frankly we're targeting and going after tend to be projects that include those value-added components. So they're really virtually all or a very high percentage of them include a multiple elements of value-added characteristics.

Great. And then you've taken costs down quite a bit here in the last 12 months. What wiggle room do you have for F-11 should the market continue to go against you?

We still have some things. We still have some leverage to pull. So we're not out of that yet. And, we just continue to be very aggressive of keeping the organizations right-sized to the business that we have ahead of us.

We continue to -- we continue to look for opportunities in both variable costs as well as fixed costs. But we're really keeping our eye on the market because we're as focused on F-12 and beyond as we are in F-11 and we want to make sure that we maintain the appropriate infrastructure to really grow when the market recovers.

Yes. We're not going to pull back on bringing new products, R&D, or keeping our facilities modern.

So at this point it would be more of the variable side?

Yes.

Okay, great.

Some on the fixed side.

Your next question comes from the line of Michael Martin from the SmallCap Report. Please proceed.

Hi. Thanks for taking my question. I just wonder if you can give us a little bit more color on the stimulus portion of the backlog. Is it likely that that percentage of the backlog will increase here? It seems that there is a chance that the overall stimulus program spending could accelerate over the next year. Is that in your thinking?

If -- certainly if that spending does increase, we would anticipate being able to increase our business associated with that. We feel that we're able to win an increasing market share relative to what we've won generally in the past on these stimulus projects and we would expect to be able to continue to do that.

We have not seen -- we're not aware of -- that there would be a significant increase in that rate. At least we have not been made aware of it as of yet.

Okay. Thank you very much.

Your next question comes from the line of Tyson Bauer from Wealth Monitors, Inc. Please proceed.

Good morning, gentlemen and good job in managing the situation.

Thanks.

Quick question in regards to your bidding margins, especially in the architectural side. Can you give us a comparison of how those are going. You talked about utilization capacity wise, but in these bidding of those margins, how that compares to last trough that you went through a few years ago?

I would say that so far we've been able to offset more of the decrease in bidding margin than we did in the last trough. And that's been just a great accomplishment by our people in their ability to keep after decreasing their costs and increasing productivity. I think that we have an opportunity to continue that, but it just depends on how -- what direction the market takes. As we look at it today, we think we're going to be okay. We think we're going to be able to continue to offset some portion of that.

Given the gap you've talked about in the fourth quarter, and the guidance that you gave, if we go on the different ranges, is earnings profitability then in question for Q4 and walking into Q1? And then we'll see how things develop from that point forward?

I think as you do the numbers and as you've done that, you've been able to certainly see that that's a possibility. And I think its important for us to recognize that that's a possibility. But at this point in time, we also feel that our opportunities are better and give us the opportunity to still look at being profitable both fourth quarter and into next year.

Okay. And last question for me, I see in November you made another round of headcount cuts at manufacturing facilities. Are you pretty much down to your -- as low as you can go, or depending on how the market goes, is there more room for further cuts?

Yes, certainly as the market goes, there would be room for more cuts. We would like to think that we're -- we're always trying to look ahead and make sure we're aligned for what we have in front of us, and that's what we see today. So as that may change, then we would be able to make some additional ones. It doesn't -- it feels reasonable at this point in time, is probably my -- it is the best way I can describe it. We just do not have that long-term visibility we used to have.

All right. Thanks a lot, gentlemen.

Your next question comes from the line of Frank Bisk from Pilot Advisors. Please proceed.

Yes, hi, good morning. Could you just refresh me, how much of your business in architectural is international?

International in the last year was about -- in '09, it was about $20 million, $20 million,$25 million. This year it will be around $35 million -- mid 30s. We think we can grow that again next year. It's a small number. But we think we can grow that and it will be a material portion of our glass fabrication business next year.

And that's mostly Asia?

Mostly Asia. Some South America. A little bit Middle East. Occasional projects in Europe or eastern Europe.

Okay. Very good. Thank you. And then lastly, just talking more about stimulus and as we look forward, could you just talk about what you're seeing or what the government is talking about. I guess you have gotten some decent stimulus work. I guess that's not coming to an end and just explain why, what is out there or what stimulus dollars have not been spent, et cetera?

Yes, this is Jim. I think what we're seeing in our markets is similar to what you're seeing I think broadly reported -- is that there is still less than half of the stimulus dollars thats have been spent or even awarded. And so we actually still see a number of projects in the pipelines, many that have actually been in the bidding process and not awarded, but also several of them that we know are on the boards but haven't gone out to bid yet.

Okay. Great. Thanks a lot, guys.

There are no further questions. I will now hand the call over to Mr. Russ Huffer for closing remarks.

All right. Well thank you for your time today. And again, we appreciate it and we feel that we're in a great position to move ahead. Have a great day. Happy holidays.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.