Astec Industries Inc (ASTE) 2006 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Astec Industries fourth quarter results 2006 conference call. At this time, all participants are on a listen-only mode. A brief Q&A session will follow the formal presentation. [Operator instructions] 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.

Thank you, Jen. Good morning, and welcome to the Astec Industries conference call for the fourth quarter and fiscal year ended December 31, 2006. As Jen mentioned, my name is Steve Anderson, and I'm the Corporate Secretary and Director of Investor Relations. Also on today's call are Dr. J. Don Brock, our Chairman and CEO, Neal Ferry, COO, and McKamy Hall, our CFO. In just a moment, I'll turn the call over to McKamy to summarize our financial results and then to Don to comment on 2006 and provide some insight into 2007.

In the way of disclosures, I'll note that this 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 and assumptions.

Some of those factors that could influence our results are highlighted in today's financial news release, and others are contained in our annual report and our quarterly and annual filings with the SEC. As usual, we ask you to familiarize yourself with those factors.

At this point, I'll turn the call over to McKamy Hall to discuss our financial results for the fourth quarter and full year of 2006. McKamy?

Thanks, Steve. We appreciate your joining us this morning. We're excited about the historical highs in sales, net income and backlog. We also look forward to continuing improvement in 2007, beginning with a nice backlog.

In sales, we had $162.1 million in the fourth quarter, or an increase of 20.5%. Our international sales were up to $48.6 million from $45.7 million in the fourth quarter. The increases came primarily from Africa, South America, Europe and Canada in the quarter. Our domestic sales were $113.6 million, up from $108.9 million. Part sales for the quarter were up from $34.8 million to $38.5 million.

For the year, net sales were up to $710.6 million, up from $616.1 million, and an increase of 15.3%, or $94.5 million. Our international sales were up from $116.2 million to $192.2 million. Increase in sales came primarily from Europe, Canada, Middle East and Africa. The domestic sales went up from $499.8 million to $518.5 million. Part sales were up for the year from $144.2 million to $165.5 million, for an increase of 14.8%, and that is 23.3% of our total sales. That normally runs somewhere in the 20% range.

Our sales increased in all segments. If you look at the slice of the pie, the Aggregate sales make up 40.7% of sales, Asphalt 26.3% of total sales, Mobile 18.2% and Underground 14.8%. The sales by segment are in the segment report attached to your press release.

The consolidated gross profit for the quarter increased from $25.8 million to $34.7 million, an increase of $8.9 million, or 34.5%. Also, the bps for the quarter increased 220 bps.

In the year, the gross profit was up from $133.2 million to $168.3 million, or a 26.3% increase. That is a 26.3% increase in gross profit on a 15.3% increase in sales, for an increase of 210 bps for the year. All segments improved with the gross margins percentages being up from the prior year. This reflects work done by our focus groups, application of LEAN design, LEAN manufacturing, material cost improvements, combined purchasing and the benefits of increasing volume. This was achieved while we were occupying new facilities and relocating and repositioning equipment in plants being expanded.

In the SG&A for the quarter, we were at $27.7 million versus $24.5 million, or at 17.1% of sales for this quarter versus 18.2% a year ago. In the SG&A for the year, we were flat at 15.2% in each year. The primary increases in SG&A and dollars from 2005 to 2006 was in salvage, commissions, employee benefits. Basically, we're making investments in people, sales, marketing, et cetera to continue our growth.

The income from operations for the quarter were at $7 million compared to $1.2 million, for an increase of about $5.7 million for the quarter. For the year, our income from operations was at $60.3 million versus $46.3 million, or a 30.3% improvement. If you look at the income by segment, which is on the attached sheet, you will see the results by segment, and when you look at Underground, you initially look at it and see that it reflects a decrease.

Let me call your attention to the information below that and on the next page, which reconciles the sale of the property that was in the Underground segment in 2005. If you exclude that sale of property from the Underground segment, instead of it reflecting a $1.4 million decrease, it would reflect a $6.3 million increase, or a 444% increase. The attached reconciliation also reflects that when you take out the unusual items for 2005, our operating income increased from $40.3 million to $60.3 million, or an increase of 49.8%.

For the interest expense area for the year, our interest declined $2.5 million. In terms of the effective tax rate on the quarter, you might ask why the change there. A couple or three things I would point out to you. One is that the increase in international sales had a favorable impact. Two, the R&D tax credit, which was all booked in the fourth quarter because Congress only extended or reauthorized the credit in the fourth quarter, so we couldn't book it until that occurred. And also, the domestic production activity deduction was higher than expected in the fourth quarter. For the year, the effective tax rate remained flat.

In terms of net income for the quarter, we were at $6.3 million. Earnings per share were $0.29, compared to earnings per share last year of $0.05. Looking at the year, we were at $39.6 million. Now, that is a 40.9% increase on a 15.3% increase in sales. Our earnings per share were up from $1.34 to $1.81, for a 35.1% increase in earnings per share.

As I mentioned in the introductory remarks, our backlog is at an all-time high. At December 31, we were at $242.5 million, up from $127.7 million, or up $114.8 million for an 89.9% increase. We always try to update you as well on January, because that's a more current month, and you're always interested in the most current information. At January, it was $261.6 million, versus $161 million, or $100.6 million increase, and an increase from December to January of $19.1 million. The backlogs are very encouraging, and Don will give you more insight on customer outlook and expectations. The backlog information is at the bottom of the segment sheet for your attention.

The balance sheet is very strong. We're positioned financially to handle the growing volume and, at the same time, to consider other opportunities that may be available. Our days outstanding are in good shape at 37.7 days. Our terms are at 3.5 versus 3.6 last year. Nothing is owed on the credit facility. We have a borrowing availability of about $81.2 million.

Our capital expenditures for 2006 were at $30.8 million. Our projections for 2007 are $28 million. The depreciation and amortization for 2006 was $11.9 million. For 2007, it is at $15 million, and we will attach the cash flow to our March filing for your observation at that time.

This concludes my prepared remarks on the financial details. I'll be available to answer any questions you may have later in the call. We do appreciate your interest in Astec, and we strive to improve profitability and return for the shareholders.

Thank you, McKamy. Dr. Don Brock will now discuss Astec's business operations for 2006 and give some insight for the outlook in 2007. Don?

Thank you, Steve. As McKamy said, we're very pleased with our performance in 2006. The revenues for the fourth quarter were up 20%, as he mentioned, from $134 million to $162 million. Our net income was up 516%, from $1 million to $6.3 million, and our earnings per share increased from $0.05 to $0.29.

Our fourth quarter is always our weakest quarter, and it's very difficult to predict. We were pleased with the quarter. Every quarter, we always have some delayed shipments, and likewise, we did this year, but we still had a very strong quarter, considering the seasonality of it.

2006 was a record year in both revenues and profits for the company. Our sales reached $710 million for $616 million, for an increase of 15%. Our net profit reached $39.6 million versus $28.4 million, for a 41% increase.

'06 had no significant adjustments, such as sale of assets or other things. It was what I would call a very clean year, just a good growth year. Gross margins increased 210 bps. Our return on capital employed reached 16.2%, and our cash flow return on capital employed reached 27.05%.

In July, as you may recall, we were very concerned about the economy with oil prices reaching $76 a share and were somewhat pessimistic about the outlook. However, as oil prices began to moderate, we saw a pickup, particularly in the Asphalt segment, in sales starting in September, and it's remained very strong.

Our backlog was $242 million, as McKamy said, versus $127 million at year end, and it continues to grow. All four groups were profitable in '06, and all four group revenues and backlogs have increased. Our part sales grew from $144 million to $165 million. International sales from $116 million to $192 million.

We're looking forward to '07. With the increase in backlog, we're comfortable that we will achieve at least a 10% growth, organic growth, that we had predicted in '07. Federal highway funding will increase about 9 to 10% for '07 versus '06. The appropriation bill was about four months late on coming out, so we expect over the next eight months to see some very large highway lettings due to the fact that there will be rushing to get this additional money spent during the government's fiscal year.

We continue to see a wide swing in asphalt prices, but we also continue, on a positive note, to see states more [technical difficulty]. Our part sales continue to grow, and we continue to concentrate in this area to try to improve the growth in the rebuild and parts area. International sales are also continuing to be strong, helped by the weak dollar and the generally strong world economy.

We believe that our new and innovative products will help us to continue to gain market share in each market that we serve as we enter into '07. As McKamy mentioned, we remain debt free, with a strong balance sheet. We continue to look at a number of acquisition opportunities that fit our business and culture.

As we move forward into 2007, we are continuing to focus on better execution in our business and continue to make margin improvement through our initiatives to contain and improve our purchase component cost through better raw material purchasing and utilization, smarter product design and enhanced manufacturing and continuous flow processes in our manufacturing facilities.

We'll be glad to answer any questions that you have at this time.

Thank you. Ladies and gentlemen, at this time, we will be conducting a Q&A session. [Operator instructions] Our first question is from Jack Kasprzak with BB&T.

Thanks. Good morning, everyone.

Hi, Jack.

Good morning, Jack.

Congratulations on the quarter.

Thank you.

I was going to ask first -- this morning, there was also an announcement that Ingersoll Rand is selling their road development business, as they call it, to Volvo, and I just didn't know whether you guys had any views on how that might affect you, positively or negatively.

We have, I guess, Jack, heard that it was on the market. They have been aggressive in the last three months in their pricing on pavers in particular, and I guess we see it as a positive. I think it will cause -- it'll give us, I would say, some opportunities in the short term. Long-term, I don't see much difference. The short-term opportunities are there's going to be a lot of rearrangement of their distribution. Ingersoll sold a lot through their direct branches, which will have to be restructured. We think it'll probably be a stabilizing effect in the market. There have been rumors for a long time that they were going to try to get out, so I think this will be a positive move.

Similarly, CRH, of course, bought APAK back in the middle of last year or so. Have you seen any change in APAK's behavior yet in terms of their desire to purchase equipment?

Yes, we did. In fact, if you really look at kind of a slow start in the Asphalt group last year, I think it was hurt by the APAK situation and by oil prices. After Olcastle bought it, they have continued to start the -- they sold off a number of areas, as you know -- Georgia, South Carolina, parts of North Carolina, Virginia, all except for the western part of Virginia and part of East Texas. After those sales, they have started to invest in the other areas, and we have a number of orders from them now that would fit in the older APAK operations and a number of other orders pending, so we see a stabilizing of that, and it's really positive for the market. Olcastle is an excellent company and doing a good job.

Okay. Thanks very much. I appreciate it.

Our next question is from Arnold Ursaner with CJS Securities.

Hi. Good morning.

Hey, Arnold.

Congratulations on the quarter. Can you perhaps expand a little bit? You're seeing unprecedented backlog growth. Could you comment a little bit about your views on why you're seeing it? Are people expecting significant price increases? Are you incenting people? What is leading --? Are you penalizing them if they don't accept deliveries in a certain time? What's sort of driving this tremendous growth in backlog?

Arnie, I'd like to appear more brilliant than I am, but I'm not sure I know all of the answers to it. There was a certain pent-up demand out there that we see. We also see in the Asphalt side of it a push to be able to do more recycle. It has a tremendous economic benefit to the customer and to the state, and that means a re-equipping of a lot of plants. We're selling a lot of our double-barrel plants, what I would call partial plants, not complete plants, but where they're just buying them in order to increase the amount of recycle. That's the one driver in the Asphalt side of it. It also helps with -- doing more recycle, you do more milling, so it helps the milling machine business at Rotec or coal planing, depending on how you want to refer to it. The other area we see us continuing with energy prices where they are is the pipeline industry looks like it will continue to be strong through 2010, continue to grow anything related to energy. So it's a combination of a number of those things, but I would say the Asphalt is driven more by the economics to do more recycle.

And my final question, if you would, is you've been completing a very significant capacity expansion; can you give us the status of that and your view of how you think that could impact margins in '07?

The four expansions we had were: one here at Astec, which was a facility to build our own burners for the drums and the new [inaudible] coal burner. There in that, I would say their functionality is probably 75 to 80% of where I'd like to see it. Rotec is in their facility, and it is running, I would say, at 80 to 90% of where we would like to see it. Every time people move, it takes them a while to get their nest built, so they're improving significantly. Astec Mobile Screens is operating well in their facility. [Colbert] is really just getting cracked up with theirs. I would say they're probably 60% there, but by the end of the quarter, they'll be running good. I would say all of them will be running where we'd like to see them by the end of the first quarter. It will increase capacity. Probably right now where we have our toughest problem on production is in the Astec operation with the asphalt plants. We've really been barraged with orders there, and that's probably the one that's struggling the most right now, and it's not one that we added onto.

Well, again, you normally have pretty significant leverage. What do you think the margin degradation in Q4 was or the benefit you hope to get in '07?

Well, again, I think that there's a potential for 100 to 150 bps or probably more in margin. The leverage would probably get more in SG&A, though. We've increased SG&A, and I don't think we'll see as much increase in this year as we have last year. We've added salespeople and are continuing to try to get them up to speed. But we see some -- if we can increase 10 to 15%, we'll see pretty good leverage, probably.

Okay. Thanks very much.

Thank you, Arnold.

Our next question is from Scott Macke with Robert W. Baird

Good morning, gentlemen.

Hi, Scott.

Good morning.

Congratulations on a great year.

Thank you.

I first wanted to ask just in terms of gross margin expansion. And again, congratulations on the 200 bps, plus, in '06. I was wondering if you had a preliminary target for what you might be able to achieve in '07.

Scott, we're trying to get another 100 to 150 bps. My reluctance of being too optimistic there is we still see a lot of inflation, and we're obviously pushing back all we can on that. We're trying with all of our initiatives to control purchase component costs, but there is still an underlying inflation there that continues to creep up on us. Steel prices are -- we're seeing them trying to push up again. We also see some opportunities in buying the steel, but they just announced a recent increase of about 5%, and they seem to be in sync with each other. Everybody seems to go along with it when one raises the price. So my reluctance to get too optimistic on improvement is due to the inflationary part of it in our purchasing area.

As I look at that by segment, it seems there's an interesting dynamic. The growth margin expansion in '06 was kind of where one might have thought it would have been. There was a little more runway in the Asphalt group and particularly the Underground group, where maybe capacity constraints a little more so in the other two segments. As you look out to '07, is there a reshuffling in terms of where the expansion opportunity is, or would you still expect to see disproportionately more expansion in Underground and Asphalt?

I think Underground has got a lot of room. I think the Mobile group has got a lot, because they went through a total reorganization of their manufacturing facility last year, which was disruptive. It can't help but be, and so it affected their margin last year. And as we added about 60,000 square feet there with the continuous flow type manufacturing, and they're still adjusting somewhat to that. Improvements have been made, and I think you'll see quite a bit more room there in the Mobile side of it just as they get up to speed. In the Aggregate side, I think we'll make a significant difference at Colbert Pioneers as they get their continuous flow going. We moved a lot of the stuff around out there from one -- you fabricated here, you painted there, and then you moved back and assembled somewhere else. Now it's all in a straight line, and as it gets up to speed, it will make a significant difference there. Asphalt is going to be helped, I think, just by volume as much as anything. We're making some changes, but not -- it's like changing your shoes while you run the 100-yard dash there, because they are wide open on manufacturing right now

I guess just a follow-up on that quickly, especially with your promise earlier on bumping up against potential capacity constraints in that business. As you look by segment -- and you commented earlier that you expected to potentially achieve 10% organic growth or more in '07 -- how should we think about that by segment?

Good question. It's kind of all the way across. I think I would have to -- what are your comments, Neal? I'd say it's pretty well --

Yeah. We see it being somewhat even. Again, it could possibly be a bit more in some of the expansion-related companies, but it's pretty much even across the board as we look at it.

The only thing, Scott, I'd add to that, Astec Group -- the asphalt plant is probably going to be a little more than that, because they were down the first part of last year. If you look at the backlog down there, they were $37 million last year and $110 million this year, and they continue to add volume. We really think we have the equipment of choice with the high amount of recycles, so they've got very strong backlogs right now, so they have the opportunity of being up a little more than normal.

Sounds great. Thank you.

[Operator instructions] Our next question is from Rich Wesolowski with Sidoti & Company.

Thanks a lot. Good morning.

Hi, Rich.

Good morning.

Hey, Don, just to confirm where you are with liquid asphalt prices, if oil stayed at $50 for the remainder of the year, would that be a meaningful help or hindrance for the business?

I think it's a good number if it stays in the $50-$60 range. I think the industry is fairly comfortable with that, Rich. The rule of thumb on it is take the price of a barrel of West Texas crude and subtract $10 from it and that's what heavy crude is going to sell for, and multiply that by six, and that's what a ton of asphalt is going to cost. Going through that math, that puts you at around $300 a ton, and that's what we're seeing. We've seen some winter fills where people are buying on the spot market in the winter down in actually in the low $200s. One thing that really helped the attitude of our customers was that huge spike last July, where they were up to $400 a ton. They bid a lot of work at that, and then when it came back down in the fourth quarter, it sure helped their profitability and their optimism. So I personally think you're going to see oil stay around where it is. You can get a reading anywhere you want to on that. I was up in the tar sands the week before last in Canada, and they're predicting that within a year, it'll be at $100 a barrel. So you can hear whatever you want to hear on prices. But to answer your question, the $60 is okay.

Okay. At what stage are you --? In terms of investing in the sales and administrative personnel, we saw that grow at just about the rate of sales in 2006. Concerning the higher backlog, what sales growth do you expect this year?

I don't expect it'll grow as fast as it did last year. We've had a number of other increases that McKamy didn't mention. We've added people for Sarbanes-Oxley, we've added an internal audit staff over the last couple of years, we've added a number of overhead things that will not continue to grow and, as we make acquisitions, should not continue to grow. I hope we're plateaued, but to tell you -- my goal is always to get it back down to around 14%, but I don't think we'll quite get to there. Maybe 14.5%.

Okay. And finally, could you just detail the major projects within the $28 million '07 contracts closing?

About 75% of that is in machine tools. Basically, we're adding a [inaudible]. We're adding, just about all over the company, primarily new automated machine tools. The rest of it will be pretty well maintenance CapEx -- automobiles, trucks, things like that. But about 60 to 70% of it is in machine tools.

Okay, great. Thanks.

Yes, sir.

Our next question is from John Evans with Wells Capital.

Can you talk about two issues, I guess? First of all, relative to acquisitions, can you give us any insight into kind of where you are potentially on the acquisition front? And then I guess if your [inaudible] prices are too high, is there a point that you return some of that cash to the shareholders on the balance sheet?

We have looked at, within the last year, probably six to seven acquisitions. We personally think the prices are pretty lofty, particular if a financial buyer gets in it, we don't have a chance. We're working on a couple of potential acquisitions right now. One of those we think is pretty far along in due diligence, but again, it's too early for us to make any comments on that. Your second part of that question was --?

Well, I guess if you get to some kind of point, do you just return some of this cash to the shareholders, like in a special dividend or something?

Yeah. We've looked at that considerably last year. We've been asked that question quite a bit. Our board had a dedicated meeting just to discuss the subject, and at that time, we had a number of acquisitions, some that are still working. Secondly, we are just in the process of redoing our loan agreement, and that was up in the air last year, so if we do not come up with an acquisition, we'll look at either doing a stock buyback or giving out dividend amounts on some of the cash. We're not going to just sit on it.

Okay. And then one last question. I think last quarter you talked about that you had raised prices, and I guess because you're seeing maybe some steel prices or raw materials starting to go up for April, are you thinking about putting any more price increases? And maybe the other thing is, can you help us with the backlog? Do you have the ability to go back to them and push price if raw materials go up?

Well, the answer to the last part is no. We're fixed-price contracts, and again, our backlogs, while we've got substantial backlogs, everything we've got would be out of here by August at the latest, so we don't have long, long delivery stretched out there. We did have one large plan in California that was long delivery, and it had an escalator in it, but in general, we do not have an escalator. We increased our prices a little earlier last year, particularly in the Asphalt side of it, so we have been able to push up, but we're more pushed back now than there was, just like we're pushing back on our suppliers. When steel was leaping up at 200% a year, well, they were more amenable to us raising our prices substantially than they are now. So we have increased prices, but it's been more in the 4 to 5% range and not at great numbers.

So does that mean you had another price increase, or the 4 to 5% was the one you already had?

That's the one we've already had.

Okay. Thank you so much.

Yes.

[Operator instructions] Our next question is a follow up from Jack Kasprzak with BB&T.

Yeah, Don, I just wanted to see if I heard you correctly or interpreted you correctly. We know the backlog was up from the end of December to the end of January. Did you indicate that it continued to grow, has continued to grow here through the end of February, or were you just referring to that number that you guys gave from December to January? I'm just trying to get the more up-to-date, I guess, view of the backlog.

Yeah. Jack, I guess one reason that helps it grow, just frankly, is January is usually a weak month. Now, that's one reason it grew, but we're continuing to get sales, and this is the busy time of year. It's when people are buying. The Mobile side of it -- they really don't start buying until right now, and they want it all in the next two or three months. So we're seeing a very strong market, I guess, to answer your question. I think that's what you were looking for. But we think the market is very good right now.

That's certainly what I was hoping you were going to say, yes. Thanks, Don.

Yes.

Our next question is a follow up from John Evans with Wells Capital.

One last question. Because your backlogs are so strong, is there any kind of issue, do you believe, that you're missing any kind of sales? I guess are customers concerned about that?

John, on asphalt plants, we missed a couple a couple of weeks ago, and then one of them came back to us. But we, for the first time, are beginning to see some people can't wait.

Because they've got to get it ordered, right, if they're going to get it?

Yeah. If they've got work, they've got to get it ordered. We're right at that point right now. The frustrating part on a lot of these big orders, both on crushing and asphalt plants for large orders, they order and then they get delayed because of permitting or something else, and it's a constant shifting around. International sales are also strong, too. Again, those you've got to meet a boat, so generally those don't get pushed back, but domestic sales with permitting often gets pushed back. But specifically, we have lost one or two -- I know the week before last, we lost two, and then we got one of them back.

Relative to Arnie's question, are you making people take delivery now just because the backlogs are so strong, or are they being able to push out because of permitting, et cetera?

The customer is the boss.

Okay.

We can't shove it down their throat.

Gotcha. Thank you so much.

Okay.

Our next question is from Arnie Ursaner with CJS Securities.

Hi.

Arnie.

I wanted to follow up on a couple of things. One is, you mentioned share repurchase as a possibility. Just to remind us, do you have an authorization in place already?

Our board basically said when we get to that point, they'd be ready to talk. We don't have one in place right now.

Okay. I know you -- we've been trying to avoid focusing on delayed shipments because they tend to happen pretty regularly, but can you quantify the impact on the delayed shipments in Q4?

Again, it would have probably been $10 million in volume. There are some of those that are paid for, totally paid for, and so it's a mixed bag. With Sarbanes-Oxley and with the focus on revenue recognition, we just can't recognize it until we ship it. I hate to even talk about it, but as McKamy and Neal and I have talked about before here, it seems like every quarter, we're looking at $10 to $12 million in delays, so it carries from one to the next, obviously.

My final question is, obviously, strategically, you've focused on international growth as an area for you. At what point do you think you would like or are planning to build some capacity directly in international markets? And if so, is there a stronger way at the moment?

We don't have any thoughts in that area right now. Again, we build niche products, and to get the volume in any markets -- various markets are pretty good for us, but it's added capacity to our plants here, and the more volume we can run through our existing facilities -- we can ship an asphalt plant, Arnie, to Australia for about 15% of the price of the plant, and to try to build over there would run us more than that, so right now, from an economic standpoint, it still makes more sense for us to build it here. China is different, but the demands in China -- they really won't lower -- we sell a few plants in China now, but they've got so much protectionism, and to go over there and compete for the local Chinese market, the technology they want is so much lower. They're not after manpower reduction or labor reduction, and so there are plenty of competitors already in place over there for the lower tech equipment. So right now our strategy is to try to build an export from here.

Okay. I think you mentioned you're going to have about $28 million of capital spending in '07, yet '06 was a major build year for you. It was one of the greatest years for capacity expansion, and yet there's less than a 10% decline. Can you comment a little bit more about where that capital spending will be going? Is some of that lingering or carryover stuff from the '06 build?

As we added in '06, a lot of the money we spent was on bricks and mortar at those four facilities, and this year, as I said, we are adding capacity in metalworking equipment and machine tools. A lot of the machine tools we're buying are $1 million, $1.5 million purchases, and we're trying to upgrade and get the most modern machinery, and as we up our continuous flow through the plant, we're just trying to up the throughput through by more modern machine tools and more metalworking equipment. So it's tools this year instead of bricks and mortar.

But as we think towards '08, should that number be drifting down to a more normal maintenance CapEx type number?

Yes.

And what would that number be?

Well, our maintenance CapEx is around $12 million a year, somewhere like that.

Okay. Thank you.

Uh-huh.

Our next question is from Alex Mitchell with [Inaudible] Asset Management.

Actually, all my questions have been answered. Thank you.

Gentlemen, I'm showing no further questions in queue at this time.

Okay. Thank you, Jen. We appreciate your participation on the fourth quarter and year-end conference call for 2006, and thank you for your interest in Astec. As our news release indicates, today's conference call has been recorded. A replay of the conference call will be available through March 6, 2007, and an archived webcast will be available for 90 days. A transcript will be available under the Investor Relation section of our website within the next seven days. All of that information is contained in your news release that was sent out earlier today. Since there are no further questions, this will conclude our call. Thank you very much.

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