Astec Industries Inc (ASTE) 2003 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Astec Industries second-quarter earnings conference call. At this time all parties are in a listen only mode and a brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star 0 on your telephone keypad. As a reminder, this teleconference is being recorded. It is now my pleasure to introduce your host, Dr. J. Don Brock, Chairman and Chief Executive Officer of Astec Industries. Thank you, sir, you may begin.

Good morning. With me today I have McKamy Hall, our Chief Financial officer, Al Gooth (ph), our Group Vice President of Administration and Steve Anderson who is our Assistant Secretary and Director of Investor Relations. I would like to ask Steve to open our conference call first with the necessary disclaimers here that we have.

Before we begin I am sure that all of you have had a chance to read the press release that we have issued on the second-quarter 2003. Our discussion this morning will contain forward-looking statements that relate to the future performance of the Company. These statements are intended to qualify for the Safe Harbor liability established by the Private Securities Litigation Reform Act. These statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions and other factors some of which are beyond the Company's control. The comments that we will make for the conference call are commentary and are answers to your questions or commentary as well. Some of those factors that could influence our results are highlighted in today's financial press release and others are contained in our annual report and our quarterly and annual filings with the SEC.

Naturally we urge you to familiarize yourself with those risk factors before making investment decisions regarding Astec industries. Don.

This morning, what I'd like to do is have McKamy first go over financials and I will briefly talk about some of the major factors that happened here in the second-quarter and then we would like to talk about the outlook for the third and fourth quarter and the rest of the year. McKamy, would you go over financials?

Thanks, Don, and good morning. Our net sales were 109,840,000 vs. prior year 126,000,669 for all 13 percent 16,289,000. If you exclude the K (ph) sales which are used (ph) sales for us this year with the product line just started contributing to sales in 2003, the core sales would actually be off by about 23 million for about 18 percent. Our international sales are 22,000,141 vs. 23,000,563 or down approximately 6 percent or 1,124,000. Our March (ph) (indiscernible) sales are at 23,000,830 compared to 24,000,340 off about $510,000.

The revenue of the segments is attached to your press release and I won't read those to you. Consolidated gross profit is at 18.1 percent versus 21 percent last year, down 6,000,797. There are several factors as we put in the press release that have impacted our gross margin.

Obviously the 23 million in the core products is the leading contributor to that reduction in gross profit and then, as the others were mentioned, the under absorption, first-time production and sale of used equipment which we have been pressured to reduce that inventory.

In the SG&A area, we have had a cost reduction plan in effect for this year and that is certainly being profitable or beneficial and excluding -- if you exclude the unusual expenses related to the termination of our formal lending arrangements for the quarter the SG&A is down about $1,500,000 or about $500,000 per month average.

In the income area, we had as we mention the unusual expenses in the SG&A of approximately 300 plus thousand as well as what we put on the separate line down below other income. The 3,837,000 -- which was the termination of our senior note expense that we incurred in this quarter. When we closed that new loan on May 14 and we issued some notes for the termination expense and we were required by GAAP to book that 3,000,837 that we put on a separate line.

Income by segment is attached to your press release as well. And then, in the interest expense area, we have reduced interest expense by about 29 percent. But please keep in mind that we still were incurring the surcharged interest rates through the May 14th closing and during that time, as well, had a lot of cash that we weren't able to use to pay down until the closing.

In the other income area, it is up -- and that relates to gain on sale of assets. The earnings per share last year were 12 cents and we have a loss this year of 11 cents. In the backlog area, our backlog is at 43 million vs. 88 million, a decrease of approximately 45 million or 51 percent.

Now in the different segments -- let me share that with you. The asphalt roof segment is off 48 percent, the mobile asphalt paving segment is actually up $2.2 million, the agribusiness and mining segment is off 65 (ph) percent in the backlog and I think Don will address some of this later.

The underground is within 5 percent of having -- it's actually down about 5 percent from last year. And that is a comparable number with the case backlog being included that is now included is included in last year's numbers as well.

In the balance sheet area, we have reduced our days and receivables from March at 85 days to 48 days, in the inventory area we have reduced inventory about $11 million from last year. I think one of the most significant things that we -- probably the most significant things we've done to strengthen the balance sheet is the manner in which we have dealt with our debt. And the debt from March 31 to June 30th of this year is down $43,920,000.

If you go back to March 31 of 2002 and compare that to June 30th of this year, we have actually reduced the debt $59 million in the last fifteen months. We think that is a very important factor in strengthening our balance sheet. The (indiscernible) continue to be at 018.7 million in terms of our debt.

Our debt to total capitalization is at 31 percent. Our capital expenditures for this year through June are 2,688,000, our depreciation through June is 6,939,000. We certainly are going to be controlling the capital expenditures very, very tightly during this economic time that we're going through right now.

Don, this concludes my prepared remarks and I will certainly be glad to answer any questions later in the call.

Thank you, McKamy. Just a few comments of the main events that happened in the second-quarter. The major thing is that we did close the deal with GE credit to restructure our debt on May 14. We paid down the banks and the noteholders. And as McKamy mentioned earlier, over the last fifteen months we have reduced our debt approximately $60 million and that -- net of that is we have also spent about 25 million in cranking up the new Loudon facility, buying it moving and buying the inventory from Case New Holland and getting all that going up at Loudon, TN. We spent about $25 million.

We will -- over the next period, 12 months -- we anticipate we will reduce debt approximately 25 million more which is really the bulk of that will be the sale of the Grapevine property which we -- as we mentioned before we had anticipated selling before we bought the Loudon property but due to circumstances beyond our control that didn't happen.

So with that, we will have taken our debt down about to total of about $85 million. This has allowed us to reduce our interest expense on an annualized basis from about 10.5 million to approximately 4 million a year.

In addition to that, we gone through a lot of items to reduce other expenses in the Company. We believe that we can take our working capital as long as the market stays like it is. We believe we got another $20--$25 million in additional and working capital that we can take out of the business which, again, will bring the debt down even further.

The underground operation at Loudon has bled a lot of money this year. We lost in the first six months about 3.3 million getting cranked up. But during June, we reached a breakeven and we believe we will be able to at least sustain breakeven or profitability the rest of the year. As we mentioned before, we will get pickup about $12 million in parts business starting the first of January which has good margins and we will make that business look considerably better.

We also, in that business, have a number of new products coming online -- a mid-size trencher, the big mining machine which we're building our second one of those, and also an attachment business for skid steer (ph) loaders.

During the quarter, we continued to refocus on our core businesses. As we mentioned earlier, we've exited the finance business, trucking business. We also decided to exit the laboratory equipment business which was a small business for us, but, again, it has not been profitable in the last couple of years and we basically have exited most of the -- anything that was not producing or adding value or producing profit, we tried to get out of and refocus on our core businesses.

As we mentioned before, too, we are on track to reduce our previously announced expenses by about approximately $20 million. And that is on track. I guess from the negative standpoint, we have had this year, weatherwise, our customers have had the most rainfall that we -- that I can remember in my lifetime. It started raining in October and it seems to continue.

The good part of that is it's made them have the biggest backlogs they've ever had. Secondly, highway funding was held up from September till about the middle of March and as a result of all of this they're all busy at this point, working between the rainstorms, and there are a lot of substantial highway lettings that are going on and while our backlog is -- appears to be unusually low, last year we had a lot of systems work in there about $30 million worth of systems business that we don't have at this point and what we're seeing is people are buying and wanting it almost immediately.

Fortunately we're in a position to build equipment quickly and so the backlog is not as negative as it looks for right now.

As McKamy said, in the second-quarter, our core business was down. If you look at the numbers it's down 15 percent but if you take the case products out of it, it is down about 18 to 19 percent. Our margins were also down approximately 3 percent due to unabsorption and intense competition in the industry right now. However, if you look at -- without the restructuring of our debt the cost of doing that, the losses that Loudon -- even with the 15 percent less volume -- we were pretty well matched last year's profitability had it not been for these extraordinary expenses.

Looking ahead we see a slight pickup occurring. The third and fourth quarter is usually weak for us on an annual basis but we're seeing the attitudes pick up a little bit. Our customers, as we said, due to the rain have huge backlogs. They are letting more jobs during the second half of the year, the highway departments are. The accelerated depreciation that the new tax bill gives us, along with low interest rates and the weak dollar, all appears to be happening. I guess I have a gut feeling that we're ready kind of for a breakout of this low ebb that we've been in but we still find that everybody is still a little reluctant to spend until they have to spend.

Part of it is due to the rainfall and due to the fact that they couldn't get their work done, our customers are facing cash problems. Cash flow problems. And that makes them reluctant to turn money lose on capital equipment. equipment.

We're anticipating the new highway bill to be passed this year. For next year they're looking at appropriation of about $34 billion, which is about a 10 percent increase. That will be voted on in the House next week. I guess our feeling at this point, where we are is we think the new highway bill -- a number of the leaders in the industry think it will be north of an average of $40 billion a year. I've heard numbers from 36 to 42 and I guess any of those on an average basis would be darn good for a six-year build starting at about 34 billion and climbing from there.

Finally, I guess in final comments we kind of expect the recovery to start pick up real well during the last of the fourth quarter and see 2004 as being the first year of a recovery. Our debt is down, and as I mentioned earlier, we anticipate it to be reduced even further. We have -- our cost of reductions are working, we reduced our costs significantly. We believe when we see the recovery come as we see it coming that we will benefit greatly from it over the next 18 months.

With that, I'll stop and Megan, we will be glad to take any questions.

Thank you, sir. Ladies and gentlemen, at this time we will be conducting a question-and-answer session. If you would like to ask a question press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. To remove your question from the queue please press star 2. For those of you using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Our first question is coming from Arnie Ersner of CJS Securities.

This is John Reilly (ph). You mentioned a couple of items that impact negatively impacted gross profit in the quarter. Could you quantify some of these impacts? Specifically the first time reduction of the double barrel drum mixer?

John, we built a 11 ft. double barrel which is a 750 ton at our plant, ended up -- the forces on the thing were a little more than we expected so we had to practically totally rebuild the plant and that had a pretty significant I guess in total expenditures probably $800,000 on the Astec division. I think for the quarter, we showed like 450 somewhere around that but, in total, it was around 800 when you consider the reworking that we did during the first quarter on it.

Underabsorption I guess is the other item that affected us. We're still -- while we made substantial cutbacks, we have reduced employment in our core businesses about 425 people, we've added about 100 additional people in the new Loudon operation. So, over the last 12 months we are down about 325 people. But during the quarter we were unabsorbed (ph)by approximately $2 million.

Focusing on your turnkey systems for the aggregate -- for larger aggregate quarters -- have you seen any increase customer inquiries related to these? What is the status on that?

THe large companies that are doing us have pretty well gone into hiding I guess. We see, we don't see a lot of those systems right now. More smaller -- small improvements more focused. They're really looking at (indiscernible) anything they do and, right now, we have some that -- some large systems jobs that are on the horizon, but nothing that's imminent right now.

Thank you.

Next question is coming from Jack Casperzak (ph) of BBNC.

Just a couple of specific questions. The $800,000 you mentioned for the Loudon plant costs (indiscernible) -- would that have impacted the gross profit?

Yes, basically, it was in the gross margins. For the quarter the loss at Loudon was about 800,000 and as I said it I think I mentioned it before, these are approximate numbers, but we lost about 1,000,001 (ph) in January, about 800 in February, 600 in March, 500 in April, about 250 in May and then we were about breakeven in June. So the approximate 800 was just for the second quarter.

Okay. And you mentioned the interest expense $4 million dollar -- would that be going forward annual run rate?

That's correct. Right.

And, McKamy, can you breakout, if you have it, the receivables line between trade receivables and finance receivables?

The finance receivables, I don't have the exact number here -- David is looking for it, but it's down to a couple of million dollars on the Astec Financial side. And the rest of it is 2.4 million.

2.4 --

(indiscernible) and that we will work out over the next year plus. They're all different (indiscernible) but we will work out those over some time.

Okay and you have your cash flow from operations, what the cash flow statement for the first half of the year would report?

For the first half of the year?

I guess the queue typically be for the second quarter through six months on the cash flow statement. Or if you just have the quarter number that would be fine.

We do not have it ready yet (indiscernible) and we will have it with the Qs. The recent (ph) -- on the quarter, Jack, maybe this will be helpful. Your depreciation -- I think we mentioned that it's about 3,000,345; total gain on sale of assets, 980; amortization expense about 215; and just (indiscernible) (inaudible) and then the cash from (indiscernible) 1,000,331. (indiscernible) 5 8 I guess.

5.8?

One of the things with the closing of the finance company we still have some finance receivables we are gradually collecting with some of this was the sell off -- some of that makes it -- we will have that in the queue as we said.

I guess the big one, Jack as I mentioned, obviously it was sitting there (indiscernible) the quarter was all the cash (indiscernible) down like 33 million.

We had about 40 million sitting there until we could pay off the noteholders.

Sure. Okay and, Don, you mentioned the Loudon plant has reached break even in June -- hopefully it can stay there -- and if you take out some of the unusual items in the second quarter the 4.2 million and that 800,000 from the losses and the quarter on the Loudon plant, as you say, your profitability was pretty much in line with last year in that you turned a profit for the whole Company and with interest expense lower would you think we could return to profitability in the third quarter from what we know today?

Jack, this is hard -- it depends totally on volume and for lack of a better hand to mouth. We're going to be close to profitability and not profitable. We're not anticipating any big loss. We pretty well reduced expenses sufficiently that our goal is to be profitable the rest of the year, but a little early to tell.

There are so many -- there are -- we have a lot of prospects out there, but people are just reluctant to close for some reason. And there seems to be everybody waiting on everybody else. If all of the deals that we got we're looking at happens we will be in good shape.

What do you think is the major holdup in causing that general reluctance, is it just (indiscernible) with the overall economy or do you think it'd be more specifically tied to getting a new highway bill passed? Or is it weather?

I think for one time -- well, it's weather which affected their cash flow. I think the second thing is we have a disconnect between the administration and Congress on the highway bill. You know, what the administration has proposed is a bill that is about flat with what we got right now, starting backing up at 29 billion and then going to about 34 is what they're proposing, and no one is really taking that very seriously because both houses of Congress are looking at much larger deals. But that threat hanging out there sure doesn't help people's attitude.

And I think that -- along with the weather -- has been kind of the two negatives.

Fair enough -- thank you.

Thank you Jack.

Mike Craig (ph) of AG Edwards.

Good morning. McKamy, could you repeat the export numbers and the parts numbers? I'm afraid I didn't get those.

The international for this year is 22,141,000 versus last year of 23,563. And the parts for 2003, second quarter is 23,830,000 versus 24,340,000.

All right. Thank you.

Our next question is coming from Frank Herman of Herman Equipment.

Good morning. I got a couple of questions. On the asphalt group decline, I was wondering how much of that might have been from the market versus market share?

I think, Frank, it's probably mostly from the market as the overall market is down. Our competitors don't -- we don't seem to be losing a huge amount of deals. It seems to be just the market is very weak.

Okay. On the mobile side I noticed that your sales were up pretty healthfully, your margin rate is down so that your total gross profit dollars actually declined. Is that a short-term strategy to get inventory down? Or is that a long-term strategy to increase market share?

A large percentage of that was affected by -- due to the downturn of the last two years both in the asphalt plant side and the Roadtec mobile side. We have historically done a lot of trade-ins and over the last two years basically the market continued to decline and the value of those things declined. And as we went through this refinancing, we decided we had to reduce our used inventories and we made a concerted effort during the first half of the year to bring those used inventories down both at Astec and Roadtec. And we're bringing them down and, as you know, in not a very strong market. So the sales of that have been at most breakeven or even lost in those areas.

What part of your remaining finished goods inventory, then, would be used versus new?

It's a much smaller amount. We've reduced it in the Astec division since first of the year over 40 percent on the used is down approximately 40 percent and I would say at Roadtec it is down about 50 percent for approximately half of what it was at the beginning of the year.

One of the prior questioners had asked about third and fourth quarter and I heard your comments. But as I look at your P&L in general, while you cut expenses, really, the rate of decline in sales -- it appears to have slightly accelerated downward a little bit faster than your cost control on your SG&A. Of course, there's a margin decrease, part of which you explained by underabsorption, I'm not sure how much of that is underabsorption, but I mean -- just looking at that and having some kind of a feel for the market as it is, it would seem to me that there's no way to really turn this thing around in the remaining six months of this year.

As it relates to the highway bill, I mean the highway bill as we talk about increases, I think we have to remember that when we first started out with Iced T (ph) and T 21 and now what will be the new Safe T and the numbers having been growing dramatically and certainly through the '90s we all enjoyed good times. So the level of appropriation that we're talking about, whether it's at or a little just slightly below or slightly above where it was it's still pretty healthy. I think there's a big issue with the health of the states today which are projecting budget shortfalls to the tune of about 85 billion with only a $20 billion program from the feds.

So even if we get the highway bill, what are your thoughts about the states being able to match it? And how will that affect your results into 2004? And also please give me a little bit more on how you feel about 2003 given the general nature of the economy and what I am seeing in the P&L.

First thing, in 2003 there is a lot of SG&A expense as it related to the restructuring or debt expense. The banks kind of just -- we've paid fees, we've paid higher interest, we've paid consultants that they forced us to hire, so we have a lot of SG&A that will go away going forward. So it is a little hard to look at the first six months SG&A and say that's going to be continued on through the rest of the year.

What would you say your run rate is, then?

Run rate right now I guess we're looking at -- you got it there? (indiscernible) We are not making projections here. The -- at the end of June, SG&A we can give you that number which was basically unaffected.

SG&A if you look at it quarter to quarter SG&A went down $1.5 million from March to June for an average of $500,000 a month -- if you exclude the unusual expenses related to the termination of the lending.

In relation, I don't disagree with you at all on the state problem. Most of them have funding problems. That won't get straightened out until the general economy returns, but the thing we have seen in the past is the states will spend what money they're going to spend to match the federal funds. They pretty well have to do that, if it's a 90/10 or an 80/20 they're going to put their money there. Now that affects a lot of the secondary roadwork, but they will spend it, they'll put the money where they got the most matching funds is what it amounts to.

If you look at the consensus bureau data on highway and street spending it's been relatively level over the past couple three years and I think you're right that they're putting money into the federal program and cutting back the secondary programs which means overall spending is not going to increase at all. It possibly could erode a little bit depending on how much they continue to reduce secondary spending because of their budget problems. So, as I said before, I asked the question can we really expect to look at a recovery based on a highway bill? I'm not so sure of that.

The highway bill is just one -- just a portion of it. That is the biggest bright spot that is out there. The general economy will help our business and help our customers more than anything. That drives the state revenues and the other.

Just out of curiosity, what is your total employment? You mentioned how much you took it down -- what is total employment now.

2500.

That's all. Thanks for helping us out.

Next question.

Mark Dagenhart (ph) of Oppenheimer Capital.

The reduction in annualized interest expense -- 10.5 million down to 4 million?

Right.

Is that assuming what is already paid down or is that assuming the additional paydown of 25 million from the proceeds of the lend?

No. We're sitting at debt of around 85 million at this point if you look at it -- 85, 86 million and take our present interest rate, that's basically where I am coming from there.

Okay so the lend (ph) proceeds would reduce that even further.

Right as we reduce if we come down another 40 million we cut that in half.

Okay. January 1, you're going to start to get the parts business?

Yes.

I didn't catch that number -- is that 50 million or 100 million annualized?

We're about at 100 million right now in the Company and that adds an additional 12 million of what the case business has been.

And my last question and you know this is my favorite question, picking up on what you said I think on the last conference call, you've been hearing from people out there in the industry that you haven't spoke to for years, that is because of some issues of some of your competitors where engineering and support and marketing staffs have been significantly downsized. Could you give us an update on that, are you still talking to people that you haven't spoke to for years and are they actually coming through?

Yes we've -- a number of our sales that we got particularly on the asphalt side had been what I would consider not our core customers. We've been fortunate with the large companies to get the predominance of their business. We were selected to manufacture the year for Peter (indiscernible) Sons Company which is one of the premier contractors in the country and they have standardized on our product. And so we feel pretty good that we're gaining market share, particularly with the major players in the business and we're adding to our core base of customers, I guess.

Is there any way this can be quantified in terms of either sales during the quarter or the current backlog? How much of it is from people that you haven't done business with in the last five years?

Well (indiscernible) Mark, it makes it a little difficult is international business has picked up at least on asphalt plants and we sold a plant last week in New Zealand, for example. We shipped two to Australia this year, one to Russia, some of those, obviously, are not what I call core customers. The ones out of Australia were -- I guess both of them had thought before, but New Zealand is a new customer. It's a little hard to quantify. My gut feeling to answer your question is probably 25 percent.

25 percent of sales in the quarter was related to...

What I'd say to new customers.

And all that would be related to competitive issues or only half of that?

I wouldn't -- I'd say half of it.

And one last quick follow-up that came to mind based on your international comments there. I know there's a lot of disappointments in terms of how things are progressing in Iraq and Afghanistan, but when we spoke in the past you mentioned opportunities there. Are you seeing any sort of increased opportunity coming out of any places in the Middle East?

Saudi is spending a lot of money on their infrastructure for the first time that we've seen in a while. There is a lot of business in the Trencher side in that area and in Qatar -- Qatar is right on the gas dome where the natural gas is and they're liquefying a lot of gas, and they're also bringing it in from the other countries there so there's pipelines coming in from Qatar. So, infrastructure-wise for roads and other Iraq hasn't quite got up to where they, I guess, feel comfortable of doing much on that yet. There haven't been a lot there, there are some projects in Afghanistan. Unfortunately, the federal government is letting to the big general contractors and the generals are subcontracting the roadwork to the cheapest foreign bidder they can get, which doesn't necessarily spend the money back here.

So we haven't -- I'd say if we get one out of every four deals over there, we're lucky. The big generals, they get their commission but they don't necessarily sub it to American contractors.

Thanks very much.

Our last question is coming from John (indiscernible) of Sidoti and Company.

My first question regards the SG&A line -- did I hear you correctly in saying you have 1.5 million in extra expenses during the quarter that you would consider unusual. Is that the absolute figure?

No. What I said, John, if you exclude the unusual expenses for the quarter -- which was about $370,000 -- then the SG&A for the quarter excluding unusual expenses from both first and second quarter came down about $1.5 million -- okay? If you look at it I guess just in the -- just at the change, it would be -- your change is about 1.7 million (ph) in the SG&A in the area. SG&A is about 1.5 million excluding unusual reductions for the quarter, John.

So that's a sequential reduction.

(indiscernible) I knew a lot of you would be after so that's why I had that number handy.

So how do I reconcile from the loss reported to the quarter to a flat EPS because I pulled the numbers and just leaving everything else as a constant I'm getting at best 5 or 6 cents and not 12 cents. Do I have to owe the rest to underabsorption or am I missing something here?

Well maybe we should try to do that after the call. If I could help you.

Secondly, you're talking about paying down debt based on the sale of Grapevine and you're saying that it will probably happen sometime this year. Can you update us on why you have the confidence that the property will be sold sometime in 2003?

I think I said, John, over the next 12 months. The Opryland Hotel I guess will preopen in February of next year which we're looking at about eight months out. It's -- the grand opening is in April of next year. We feel like with the opening of that will be about the peak value of that property. Al and Steve were out there this week really talking to realtors and developers on the property. It's sitting right in front of where the hotel is so we have a number of people talking about it. I guess it's a matter of what when do you pull the trigger -- at what number. That's one piece of property. We have a piece of property in Atlanta -- right outside of Atlanta, we have a piece of property up in Cleveland, TN, and the 25 million numbers - a number of those items that we're talking about that are onetime events that we really do not need in our basic operation in the future.

Okay. Fair enough. Now piggy backing on an earlier question, last week (indiscernible) released the numbers for the May period and the value of the contracts awarded in May were down 18 percent and the number of contracts awarded were down between 7 and 8 percent. What does that suggest to you about the revenue outlook in 2004?

I think, really, the problem that you got in looking at numbers, you're talking about highway numbers that are down the leadings (ph). I think one of the problems you got into this year that has just been totaling screwed up -- for lack of a better way of saying it -- is that appropriations money did not really get out until the middle of March and, as a result, they didn't know whether they were going to 22 billion to spend or 31 billion to spend and they really -- the leadings for the first five months were very low and they're trying to get up to speed and North Carolina had a huge leading that before yesterday. They're having a second leading next week. There are quite a few big leadings coming out in July, August and September which is trying to catch up. They're either going to spend it or they are going to lose that money.

John, I think I pointed out to you one of the and I don't have that with me but either at the end of April or May one, it was the largest amount of money ever not obligated -- largest amount of federal funds available ever not obligated -- and they have got to get those things obligated by September 30th. So I think there is going to be a tremendous push and (indiscernible) talking about that right before the call this morning, to get that done because if they don't get that done, it was -- if you figure the 20 percent into what wasn't obligated it was $12 billion and all of that stream (ph) was slowed down based on what Don was saying in that they finally reached some agreement in February which was to start funding into the middle of March on a prior year number they should have been funding for 5 1/2 months.

So all that catch up has got to come here in the next couple of months or we're going to have states turning money back into the Fed to be reallocated to those states that are spending -- that has never happened. I talked with the key people at Ardva (ph). The only time a state has ever sent money back to the Feds was a mistake that was made in reporting (indiscernible) Hawaii several years that. I reconfirmed that just within the last six or eight weeks. It's never happened before now. As the gentlemen from Herman Equipment pointed out, sometimes that may cause and Don talked about as well, secondary roads not getting as much money spent on them but I don't think that's going to happen with the federal side.

So I guess, we should expect to see at sometime in the July and or August period the numbers from (indiscernible) reporting about the contracts awarded and the total value should spike significantly.

If it doesn't, I would be surprised.

That's our opinion, that it is going to spike there but what that's going to do that work will be obligated -- it won't necessarily get done this year, but I think it will -- when people get loaded up with work it certainly helps our business.

Sure, but implies a decent spring 2004.

That's correct and also just the normal annual cycle starts in about November for us. People are going to buy for deliveries in the spring. So that's why we're a little bit optimistic that we're going to see it turn. And I guess the question is: will there be sufficient funding for it to continue all next year? We think we will see the upturn next year.

John, in that same article there was about an additional 5 billion in projects that they were allowing to be carried over to 2004. So you got a total backlog out there that's to be awarded in a $17--$18 million range. Billion (ph) dollar range.

I guess the last thing, John, I would comment on too is the accelerated depreciation is, certainly, in the eyes of all these privately owned companies a Big Bang. If they're making money, I think you'll see a lot of spending in the fourth quarter to try to capture a portion of that. They operate for cash flow not for profitability. And we're seeing that drive -- beginning to drive some of the decision-making.

One last question -- you kinda stepped on to it, Don, what's the current revenue mix, relative to government vs. private business? I know the private business has to be a lot more profitable for you. Is there any shift in that mix at all (indiscernible) stand at today?

It is more profitable for customers which says that if they're making money they spend money. It doesn't directly affect us, it's indirectly affecting us. My gut feel on the mix today is about 70/30 with 30 percent being the private sector. The biggest thing we're seeing in the private sector is big Wal-Marts, Wal-Marts Superstores, Targets, distribution centers for these big retailers that are still -- that's the biggest single jobs that we see. We saw one asphalt plant in Texas just to be put on a Wal-Mart distribution lot. It was 120,000 tons of mix on it. So I was in Kansas the other day and went by where one of our customers had a plant set up on a Target distribution center lot. So they were -- basically, that is the largest part of what I would say commercial work is going on right now. The normal shopping center, parking lots, restaurants and things like that, office buildings sure are slow -- still slow.

Sir, there are no further questions at this time.

Okay, thank you very much. Steve, you have any other comments?

Thanks Don. We do appreciate your participation on this conference call and thank you for your interest in Astec. As our press release indicates today's conference call has been recorded. A replay of the conference call will be available through July 22nd and an archived web cast with be available for 90 days. A transcript will be available under the investor relations sections of the Astec Industries web site. All that information is contained in the press release sent out today. Again, thank you for your participation and this concludes Astec's conference call for the second quarter of 2003.

Thank you very much.

Thank you, gentlemen. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.

(CONFERENCE CALL CONCLUDED)