Astec Industries Inc (ASTE) 2005 Q3 法說會逐字稿

Good morning, ladies and gentlemen. And welcome to the Astec Industries third quarter 2005 earnings conference call. At this time all participants are in a listen-only mode.

A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Mr. Steve Anderson, Director of Investor Relations of Astec Industries. Thank you, Mr. Anderson, you may begin, sir.

Thank you, Dee. Good morning and welcome to Astec Industries' conference call for the third quarter of 2005. As Dee mentioned, my name is Steve Anderson and I'm the Director of Investor Relations and Assistant Secretary for the Company. Also on today's call are Dr. J. Don Brock, Chairman and Chief Executive Officer; Neal Ferry, Executive Vice President; and McKamy Hall, Vice President and Chief Financial Officer.

In just a moment I'll turn the call over to McKamy to comment on our financial results for the third quarter, and then to Don to discuss the Company operations and the current business environment. Before we begin, I'm sure that all of you have had a chance to read the press release that we issued on the third quarter that ended September 30, 2005, and in the way of disclosures I'll note that our discussion this morning may 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. Any such statements are not guarantees of future performance and are subject to certain risks, uncertainties, assumptions, and other factors, some of which are out of the Company's controls. 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 factors.

At this point I'll turn the call over to McKamy Hall to summerize our financial results.

Thanks, Steve, and good morning. We are pleased to discuss the third quarter with you. The net sales are up 33.5%. Our international sales are basically flat. Our park sales are up 34.3%. For your convenience, we've attached to the press release the revenue by segment, the consolidated gross profit by segment, so it's easier for you to understand our numbers.

The SG&A area is up, and the only noticeable thing there is sales commissions and legal fees. We did report on a separate line for you on the P&L , the gain on the sale of Grapevine, Texas, and the offset, I think is very much disclosed in both the financials and the press release, offset by the real estate impairment charge that we took.

The net of tax gain on sale of Grapevine was 4.7 million. The real estate impairment charge net of tax was .7 million, and there is a reconciliation sheet attached to your press release for your convenience, should be the back sheet, that reconciles that to the bottom-line numbers.

Operating income is 16.3 million, versus 2.2 million, up 14.1 million. The interest expense includes the write-off of the prepaid loan cost that we wrote off since he paid off the term debt early. The earnings per share is up from 4 -- up from $0.04 to $0.47, as I'm sure you noticed the shares are up 992,000 equivalent shares. That -- that is primarily from stock options.

If you take out, as we referred to the reconciliation sheet on the last attachment to the press release, if you take out the unusual items being the sale of the Grapevine, the impairment charge and the write-off of the fees of prepaid loan fees related to the term loan, then you have a net earnings per share without the unusual events of $0.30, which is up $0.26 over last year.

The backlog is up 8.2%. The mobile asphalt paving is really never really indicative of that business, and as you can tell from the volume of that business, that business has been very strong. On the Underground backlog there are some nice orders that have come in since the end of the quarter and I think Don will have further comments in that area.

We certainly have continued to strengthen our balance sheet. We have no revolver loan amount that is owed at this point. We have no term loan amount that is owed at this point. Our debt peeked at 146.7 million in March of 2002. As you can see we're down to the two IRB loans at 9.7 million today. Those have been reclassified from long-term debt to current debt. We have officially given notification that we will pay those off in the fourth quarter.

We obviously generated cash from the sale of Grapevine of approximately 12.6 million, that's preconsideration of tax, and I'll comment about the tax in a minute. The cash from the options that we generated was about 14.1 million on a year-to-date basis. Our trade receivables are at 60.3 million versus 48.4. That's up 27.1% on an increase of volume of 33.5%.

The -- the capital expenditures are 9.3 million year-to-date. The budget for the year is 13.1 million the depreciation year-to-date is 7.9 million. The budget for depreciation is 10.6 million.

One other comment about the sale of Grapevine and cash flow, the negative cash flow for the taxes on the Grapevine sale would normally be felt the fourth quarter in the form of cash flow, but because of the tax deductions that will be generated by the exercise of the stock options, we basically will offset that tax. So it will been we'll basically not have any cash outflow as a result of those two off-setting items.

That concludes my remarks at this point and I'll certainly be glad to answer questions later on. Thank you.

Thank you McKamy. Dr. Don Brock will now discuss company operations for the third quarter of 2005 as well as an outlook from general business environment. Don?

Thank you, Steve. As McKamy mentioned we had a number of unusual items during the third quarter we finally sold the Grapevine, Texas property. We also had a second plant that we had idled it was one of the third manufacturing facility of the Astec Inc. division that we idled about four years ago. We looked at various uses of it but decided to write that plant down and proceed with selling it. It's a plant located north of Chattanooga here. That, again, reduced the gain on real estate that we had.

We also, and McKamy mentioned, paid off the term loan, and we had -- although it was non-cash, we had to write-off the amortization of that loan fee.

In the third quarter we experienced -- as everyone knows -- we experienced really three hurricanes, two of them in September that were quite disruptive to a lot of our customers. The major problem that it caused, I guess, particularly in the southeast was the rapid rise in fuel and asphalt prices. And in some areas, our customers experienced actual shortages both in asphalt and fuel.

Operationally we had a good quarter. Our net income was approximately 6.4 million if you take out the unusual items. We had, at the end of the quarter, two asphalt plants that were completely ready to ship, checked out and everything, but it was delayed -- they were supposed to ship in mid September, they were delayed due to obtaining air permits from the two different customers. They were not really related to the hurricanes going in different areas, but just normal delays. Seems to always take longer today to get air permits then we ever expect.

Also our Underground operations, while profitable, were below expectations. We took over the distribution, as you know, a year ago of the Case small trencher line. We maintained or re -- resigned about 25% of the former Case dealers. Those that specifically worked or specialized in trencher sales. A number of these dealers purchased the inventory that was kind of in the pipeline from the cancel dealers, and as as result reduced the number of utility trenchers purchased by -- from us.

We have in the last 12 months added a number of dealers, and the former Case dealers that are now Astec Underground dealers, have pretty well used up these machines that were in their pipeline and are starting to reorder. But as a result of that, our utility sales or the sales of the small trenchers, are much less than we had expected. Either of the above items that I've just mentioned would have made our third quarter even better -- considerably better, but unfortunately that -- those two things did occur.

As we -- as McKamy mentioned in the next two to three weeks we will be paying off the remaining debt and for the first time in about 20 years the Company will be completely out of debt.

As we look forward to the fourth quarter in 2006, our fourth quarter is always seasonably weak, but we believe it will be okay. Our backlog is, again, a little better than expected due to somewhat the disruption from the hurricanes in late September, orders -- the companies that sell direct to the larger ticket items such as asphalt plants and big crushers, some of those orders were delayed a month or so and so our backlog really in October has picked up considerably.

Also our customers that did distribute through dealers, two of our aggregate companies in particular, we have in late September what we call dealer days and they generally place their orders for next year in -- in October. The orders were much stronger than they were a year ago, and we're out into February delivery in two of our aggregate companies at this time.

On the negative side, I guess, we are worried a little bit and concerned about the high energy prices and the high asphalt prices and its long-term effect on the profitability of our customers. However, the volume of work is extremely strong and growing. It's helped by the hurricanes and the highway build, and we see a large volume of work for next year even if it will be at higher prices.

We believe there's a good opportunity to grow in 2006. Over the last 15 months we have developed 35 new products or new models of machines. We are reviewing every product that we build to make it more reliable, more energy efficient, and in some cases removing unnecessary costs. We're basically focusing on our products. We are introducing the most energy efficient asphalt plant on the market.

Because of the demand for these additional products, we are adding to the plant -- to four of our plants, both bricks and mortar and equipment. Four of our 15 manufacturing plants will be expanded in the next 6 months. Each case we're adding to these plants to build new product lines that we haven't previously built.

We're growing our repair parts business, as you can see from the numbers, as McKamy mentioned, our parts were up from 89 million in 9 months to 109 million. We believe there's significant growth opportunity in the parts and service area of our business, both for existing customers and to pick up additional customers in the competitive parts area of our business and asphalt plants, crushing and pavers.

During 2006, we're focusing on growth -- some growth in the Company, but mainly on improving our gross margins. We hope to improve at least 2% during '06 and gradually get our margins back to where they were in 1999.

In summary, we're very pleased with your results. We're -- we are pleased to be out of debt. We believe that our balance sheet will position us to actually give us the ability to take advantage of opportunities as they arise in the next couple of years. As we look forward to '06, we're excited about a better year than we had in '05.

Be glad to answer any questions.

Thank you. Ladies and gentlemen, at this time we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question cue. You may press star two if you would like to remove your question from the cue.

For participants using speaker equipment it may be necessary to pick up your handset before pressing the star keys. One moment please, while we poll for questions.

Our first question is coming from Jack Kasprzak of BB&T Capital Markets. Your line is live for questions, sir.

Thanks, and good morning everyone.

Good morning.

My first question is on the delayed shipment of the two completed asphalt plants. Do you think they are going to be shipped in the fourth quarter, and is there anyway to help us quantify what the impact of those might have been?

Jack, one of them has already shipped. The other one will be shipped probably in the next two weeks. Dollar volume, they were about $4.5 million gross margin probably 18 to 20%. They -- they are lumpy -- lumpy sales. In the past, we have done more in situations like that. We would probably have done a bill and a hold. But with Sarbanes-Oxley and the focus on in -- inven -- on revenue recognition, we just -- just about cut that out everywhere. We've even had, in some cases, where we have had plants paid for completely because people couldn't take them, but we don't -- you know, you don't -- if you don't meet about seven different criteria you can't take it as revenue.

Sure. Sure.

So that's the two plants we're talking about.

Jack, on an after-tax basis it's about $0.02.5.

$0.02.5?

Yes.

Okay. And on the Underground Group the -- am I -- am I correct -- when I look at the operating profit in that group in the quarter, $7.5 million. But that includes, does it not, the pre-tax amount of gain from Grapevine, which is like 7.7?

Yes.

That's correct.

And Jack, if you look carefully -- and I hope all of you got it. I know when these things get past through the wire services, sometimes this stuff gets compressed. But the second sentence under the table in the center of the -- of the third page.

Yes.

Says, exactly what you are saying the gain on the sale of the Grapevine facility is included in this Underground Group. The real estate impairment charges included in the Asphalt Group, the charge-off to prepaid loan fees is included in the all other segment.

So I guess the question is that means ex the charge, Underground lost a little money, you know, basically it's around break-even, and you were talking about, you know, some of the issues, there. But I mean, that's -- that's -- seems to be an area where we -- where you guys should have potential for much much more improvement in 2006, would that -- would that be a fair characterization?

I think else that right, Jack. I mean we -- there's two areas of that. In the Underground Group we have come out with a new line of small trenchers. There's four models of these smaller ones that are really selling well, we're really just getting up to production on those. I say small trenchers -- small directional drills.

We also have in this trencher line, we've introduced a small walk behind, a larger, what we call -- 960, 125 horsepower machine. We've introduced two mid--sized machines. The machines that the dealers sell, we have introduced quite a few models both in the directional drills and the trenchers. We -- I think -- you know, I guess we -- we could have been more aggressive in picking up dealers, but we want to make sure that we pick up dedicated dealers that their livelihood depends on selling just our products, they are very focused dealers.

I guess the surprise, quite frankly, that we didn't anticipate, is Case was buying the product from us, and reselling it to their distribution network and there was more out there in the pipeline than we anticipated. And the -- the dealers that we did not pick up after the cancellation by Case, they in turn sold to the dealers that we did, and the anticipated volume on the utility machines, was a lot worse than we expected.

Okay.

I guess, on the good side of it, the big trenchers have been pretty good this year and look like it's going continue to be good in that area.

And then my last question is, you know, just on your comments about adding to bricks and mortar and equipment basically expanding capacity at four of your 15 plants over the next 12 months, haven't heard you guys talk about that, your know, in a long time, I guess, and you know, Don, your comments notwithstanding about higher asphalt costs and diesel costs and we certainly know those are major factors and -- and risks, but the capacity expansion speak for themselves, certainly looks like there's every reason to believe not only could '06 be up from '05 but a very good year here.

And it's interesting, Jack, your comments. The plants we're adding on to, the Kolberg Pioneer Plant, we can't build enough track mounted crushers, and a lot of those are used for recycle, you know, for crushing concrete and -- they -- they are used in the aggregate industry, bah predominate amount is used in recycle, and we're adding on to that facility, we're adding a new line of telescope and stackers at that facility.

At Roadtec we've added a new stabilizer line. And our, milling machines are selling more than we can build. Again, milling, I see more milling and more recycling with higher liquid asphalt prices so Roadtec is the second one we're adding to.

The third one is Astec Mobile Screens. Again, track mounted screening plants are selling extremely well. That business is doing very well and growing. Here at the Astec division, as I mentioned before, we came out with our own line of burners. We're adding a facility to build those, and we are coming out very shortly with a new pulverized coal burner, which will substantially reduce the drying cost of our customers.

That's great. Thanks very much, guys.

Thank you.

Thank you, our next question is coming from Mr. Scott Mackey [ph] of Robert W. Baird & Co. Please state your question.

Good morning, gentlemen.

Good morning, Scott.

Quick question, just to follow up on the bricks and mortar, what is the CapEx budget for 2006? Or just to give us a rough idea of how much we're talking about adding.

We're -- we really are submitting that to the board in the next few weeks, but you know, it's in the mid-20s, somewhere is where we're going to be.

Okay. And then when you talked about the improvement in the Underground backlog, and I think there were some allusions to the trend core picking up. If you could talk about within the mix between American Augers and the former Case products, where that pick up in backlog is occurring and what's triggering that demand.

Scott, I guess first in the American Augers it's primarily in the small trenchers -- pardon me, yes, the small directional drills, excuse me. It's the new line of small directional drills that are really picking up more of the last mile hookup to homes and to businesses. The big trenchers, big drills -- excuse me -- the drill, the big drills are really down a little bit this year. We had a lot of those that went to China the last couple of years, and that's really softened a little bit in the big end.

In the Underground end of it, it was announced Friday that ConocoPhillips is going to be -- that they have agreed on the route of the Alaskan pipeline, and ConocoPhillips is going to be the lead on that. It's a 2100-mile line, that bodes well for us for these great big trenchers when that happens, they may be two years out but with the number of machines that's going to be needed, there's going to have to be some early orders on that.

We're also internationally, we have shipped two machines, or one in the third quarter and one in the fourth to a Russian contractor. We have got other deals there. We have got deals in South America on the big trenchers, so it's primarily international work on the big trenchers. The utility trenchers, as we said we think it will be a refilling of the pipeline.

And former Case parts business, is that still running around $3 million?

That is growing -- we're getting up close to a million a month on that now.

Okay. I'll hop back in queue. Thank you.

Thank you.

Our next question is coming from Arnie Ursaner of CJS Securities. Please state your question, sir.

Hi good morning. You mentioned in your prepared remarks that you saw a pretty big pick up in orders after September 30. Could you be a little clearer on where and magnitude of those, if you would.

Arnie the major place where we have seen that is the optimism of our dealers in the Aggregate side of it. At KPI, JCI, we have a dealer -- what we call a dealer days, which we show all of our equipment, have meetings for your dealers in late September then they order in October and early November. I guess their optimism is better than it has been in three years, we have seen on that we have also seen a pick up in the Underground from the former Case dealers that were really what I call trencher dealers, we have seen them start to order now.

So, again, given the backlog numbers you gave us in your press release, the 40 or so million you had in aggregate and mining you're mentioning is materially higher now versus that number?

Yes, sir.

Can you give us any sense of where we are?

It would be kind of be hard to make a comparison, but it's probably 30, 40% higher than where it was then.

Okay. Again, in the mobile asphalt paving group, the two machines you didn't ship or couldn't recognize the revenue on, were they included in that backlog number?

It's really in the Asphalt Group, not in the Mobile Group, and yes, they were included in that -- in that number.

So that backlog would be down a fair amount versus what you have --

It -- it's been -- it's basically the same or up a little now. We -- we have sold -- you know, we have sold product in October.

We have been involved with you a long time, and I know last time you built some excess capacity and found the market wasn't quite as robust as you thought. What gives you more confidence this go around?

Yes. I take a deep breath when you ask that question. We have tried to not add bricks and mortar, but I guess the difference I see is where we're adding the bricks and mortar is to do two things, it's additional products that we didn't have in the past, and it's demand for those, and there's enough demand for our existing product lines that we're utilizing that capacity there.

We're also -- in a couple of though places -- well, I guess in three of the four place -- I probably should say in about all of them, we're putting a straight flow type operation in, which is -- we think is a considerable cost savings that will reduce our cost. We still have some of our facilities where we internally move a lot of pieces around, where we are building new facilities, rearranging existing ones. We're trying to go to straight-flow type operation, where you pick up the steel on one end and go out the other end with a product. So some of it is doing that, Arnie.

Put it out of inventory in the meantime.

Yes, and keep it out of inventory in the meantime, as McKamy said.

I guess my final question, if I would is obviously, we've been focused on the 200 basis point hoping for improvement in operating margin, if you were to expand this capacity, what sort of revenue-type of growth would you need to see to effectively fill in these facilities to give you that kind of margin?

Actually 10% is about all it will take. I mean, we're not -- we're not talking about huge expansions here. I mean in the -- in the '90s we added over $100 million. And we talking about depreciation of 12 -- we're probably going to be 12 million over a depreciation is all we're doing. And in the last two or three years we really haven't spent up to depreciation. This year we will. But basically this would be the first year that we really exceeded depreciation in the last four of five years.

Can you prioritize your use of free cash flow now that you're essentially debt free?

Number one, for internal growth as we're talking about here. And you know, I guess as we look forward we -- we see certain strategic acquisitions that we're looking at, and will allow us to grow the parts side of our business and -- as well as add products, so I think that's -- you know, long-range if we don't find the right acquisitions, then we'll look at some other use of the cash, but at this point there's enough -- there's two or three potential acquisitions out there that we'll look at.

Thank you very much.

Thank you.

Thank you our next question is coming from Mr. Rich Wesolowski of Sidoti & Company. Please state your question, sir.

Thanks, good morning.

Good morning.

Don, you mentioned the fuel and liquid asphalt kind of stuff we've been talking about for a quarter or two, the prices potentially hindering your gross margin expansion, has your expectation changed within the last, you know, three months or since the last time we spoke on the call regarding the timing of when you'll be able to get up towards the margins that you got to during the last peak?

Richard, let the clarify one thing, the fuel and asphalt cost really affects the cost of our customers much more than it does us. We get a little impact from it, but it's pretty insignificant compared to what it does to them. In regard to the margin improvements we -- we are focusing on taking cost out of each of our products, and a lot of these expansions will allow us to do some of that. To answer your question, though, we think it will probably be second quarter before we get full realization of the --

Okay. And you also had mentioned during the past couple of calls, the consolidation of the suppliers, I assume that's the programs you were speaking of just now.

That's one -- one area. We -- we are looking -- we're getting -- we think we're going to get significant savings in our steel purchases in other areas in the purchasing side. But we're focusing on each of our products of really looking at how we improve of how we take pieces out of the product, and what I call focus groups where we are reviewing every product that we build. Sometimes it's how we build it as well as taking purchase cost out.

As you look out towards '06 of that 200 basis point improving the margin, would those improvement internally alone be enough to generate that, or would you expect it to be some improvement in pricing as well?

I think it's a combination of -- of -- of all of the three items. You know, price -- there will be some price increases. We're not anticipating a lot to be able to increase our process a huge amount, although we do anticipate some. But it will be from -- from the savings primarily.

Okay. Thank you.

Thank you, sir. Our next question is coming from Mr. Bentley Offutt of Offutt Securities. Please state your question, sir.

Good morning. I wonder if you could talk a little bit more about the impact hurricanes and damage to the gulf coast, et cetera, how that will help or expect it to help your business next year? And then secondly, what impact the safety program and the improved economies in the states, what impact is that having on your customers, even though I know the high price for liquid asphalt, et cetera, has impacted them too.

Bentley, I guess to answer your first question related to the hurricanes, we -- we had sold an asphalt plant in Louisiana right before this happened, and it's now up and running there is some potential for more sales down there. I guess at this point there is a lot of capacity and unfortunately we build the plants too -- too well, they -- with probably one exception, all of them pretty well withstood the -- the hurricanes. We had one where we had water damage that one of our customers bought some equipment related to it. But that's -- that's about it. There's still one in New Orleans that is practically still under water.

So there's going to be a lot of work down there. We see some additional sales for all of the equipment in that area. A lot -- primarily more money spent on bridges than anything, though, than on pavements as far as the infrastructure. We think the Underground side of the business that they'll put a lot of utilities below ground in the future. And we think that will come to pass probably six months to a year from now. It will take a while to build all of that up back there.

Gulf cost and New Orleans apparently talking to all of our customers. Mississippi has passed a bill where they now build the casinos on land instead of on water and real estate has gone crazy down there on the coast, so there's going to be a lot of development work and growth down there that should bode well for our customers first and us second.

Secondly, on the highway bill, there is a lot more optimism due to the highway bill having finally passed. There is a lot more work now being let out. Unfortunately with these higher prices, you can't do as many tons as you could, but we think all in all -- I personally think you're going to see a little softening in oil prices and a little drop back. There was a lot of run up during these hurricanes that caused it to go artificially high we're not seeing -- we're seeing that soften some.

Okay. And you mentioned during your comments that you have -- one of your new products is the most efficient, I guess -- most energy efficient --

We --

Facility.

Yes, Bentley -- I guess what we see is we got to do things to help our customers make money, and we focussed in the last 6 months to a year on asphalt plans of trying to reduce the electrical power consumption. We have gone to variable frequency drives on the exhaust fans on the burners. We have developed a new pulverized coal burner that will cut their drying cost to 30% of what it was, or cut it probably 70%.

And as fuel prices go up, coal obviously goes up, but coal is still way cheaper than fuel alone, so we see a lot of potential both to reducing drying cost, reduce the electrical cost, the ability to do more recycling by processing the ramp just like the virgin aggregate allows them to go to higher percentages of recycles. Looking to the future I see more and more recycle, more milling machines, more plants that will run higher percentages of recycle.

What is the percentage of wrap now to your total in put, is it 50%?

If you take the nation as a whole it's probably an average of 11 to 12% that's being used. There are spots where people are using as high as 50%, but more and more you are going to see mill out two inches of pavement to put back down two inches. So you're going to generate more and more recycle. And our plant is one of the few that will do 50% recycle without consuming any more energy so that, we believe, really will be beneficial to our customers.

All right. Thank you, Don.

Thank you, Bentley.

Thank you, our next question, is again coming from Mr. Scott Mackey of Robert W. Baird & Company. Please state your question.

Good morning, again.

Hi, Scott.

I think we give you a chance to answer this same question every quarter, but especially with the suggestion that there are three or four acquisition opportunities that might be imminent out there. Just give us a quick run down of what you are thinking strategically where -- where those acquisitions may take place.

Oh, Scott I can't go to detail there, you know. We're going to try to look at things -- the one continuing part of this business is kind of not cyclic is parts business. Anything that will allow us to grow our part side of the business. You're aware of the areas of the business we're not in, which are not too many of those, but some acquisitions in the white side instead of the black side may be something we look at along the way.

Fair enough, thank you very much.

Our next question is coming from Mr. Greg Cools [ph] of Metropolitan Capital Advisors. Please state your question, sir.

Hi, guys. This is a question little longer term I think for you, Don, related to as you mentioned about the Prudhoe Bay Alaska Pipeline, as I understand it the plan there is that pipeline, because it will be natural gas and under high pressure for securities reasons that it was to be underground. So, not only the need to kind of dig the hole but to fill in the hole and around the pipe seems, from the work we have done, to take an ungodly amount of aggregates and limestone. Do you think you're going to see some pick up in that area?

And also there are a lot of oil sands development going on, which takes a ton of aggregates up in Canada, do you think that derivatively, you'll see some benefit from the demand from the aggregate side of your business?

Yes, Greg, your are very -- you are on top of what is going on up there. The line up there is 2100 miles long, you know, that's like from Chattanooga to the West Coast, I mean it's a huge line. It's inch and a quarter wall pipe. Big line, 3500 PSI pressure, it will be about -- 12 to 16 feet underground so it's going to take some big trenchers. The big question is that, coming through the permafrost, some of it is in the discontinuous permafrost and as a result they are looking at various techniques to somewhat insulate the pipe with limestone or aggregates like that.

Also there's a tremendous amount of road work and railroad work that's got to be built to get -- get all of that pipe up the line so there will be road and railroad along the line also. I think there -- I mean, there's people that we have talked to said it will be the biggest mobilization since D-Day. It's a huge, huge product. Large number of big trenchers and a lot of crushing equipment. So it could be excellent for us and our competitors. The problem I guess I see is the route has now been determined. There's probably three years of engineering. Then they want to build it in three years. A lot of this equipment is going to have to be bought ahead of that because you can't build it overnight. So I think it's a matter of how -- how well the people in charge plan or there will be a huge shortage there in about three years.

Got it. Don, while I got you, can I also ask you can you discuss the water infrastructure that's going on. You got the highway to build but you've also got a lot of money allocated for the sewer systems that have been underspent for the last 80 years. And how do you think that's going to impact your Underground and trenching business.

Really, our reason for getting into the Underground business, you know, making more investment in it is we feel like that someday will be as big as the highway side of it. There's as much infrastructure below ground that you can't see as there is above ground. Tremendous amount of money in the next 10 years will be spent on repairing water, sewers. Some of our water lines and sewer lines are 50 to 100 years old. So yes, there is a big, big program for water and sewer going on right now, but we're -- we're excited that -- a lot of the products we're building is to -- you know, we got a new pipe buster that will go in that you'll replace existing sewer line with another line by pulling it back through the existing one, and we got devices now that will cut through rock. A lot -- lot of different things in the Underground side of it.

Thanks so much, guys. Take care.

Thank you.

Again, ladies and gentlemen, if you would like to ask a question, please press star one on your touchtone keypad at this time. Mr. Anderson, there are no further questions at this time.

Thank you, Dee. We appreciate your participation in our conference call this morning 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 October 31, and an archived webcast will be available for 90 days.

A transcript will be available under the investor relations side of our website within the next seven days. All of that information is contained in your press release. Again, thank you for participating in our conference call for the third quarter of 2005, and this will conclude our call.

This concludes today's teleconference. Thank you all of your participation, and you may disconnect your lines at this time.