AZZ Inc (AZZ) 2008 Q1 法說會逐字稿

Good morning. At this time I would like to welcome everyone to the first quarter 2008 financial results for AZZ earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time (OPERATOR INSTRUCTIONS).

Thank you. Mr. Dorame, you may begin your conference.

Good morning. Thank you for joining us today to review the financial results of AZZ Incorporated for the first quarter of fiscal year 2008 ended May 31, 2007. As Amanda indicated, my name is Joe Dorame. I am with Lytham Partners. We are the financial relations consulting firm for AZZ Incorporated.

With us today on the call representing the Company are Mr. David Dingus, President and Chief Executive Officer, and Mr. Dana Perry, Chief Financial Officer. At the conclusion of today's prepared remarks, we will open the call for a Q&A session. If anyone participating on this call does not have a full text copy of the earnings release, please call Lytham Partners at 602-889-9700 and we will immediately fulfill your request or you can retrieve the release off the Internet from any number of financial sites.

Before we begin, we submit for the record the following statements. This conference call has been made available by the way of webcast technology on the Internet and direct dial via conference call service to all interested parties. This conference call includes statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Except for the statements of historical fact, this conference call may contain forward-looking statements that involve risks and uncertainties, some of which are detailed from time to time in the documents filed by the Company with the SEC. Those risks and uncertainties include but are not limited to changes in customer demand and response to products and services offered by the Company, including demand by the electrical power generation markets, electrical transmission and distribution markets, the industrial markets, and the hot dip galvanizing markets; prices in raw material costs, including zinc and natural gas which are used in the hot dip galvanizing process, changes in the economic conditions of the various markets the Company serves, foreign and domestic; customer requested delays of shipments; acquisition opportunities; adequate financing; and availability of experienced management employees to implement the Company's growth strategy.

The Company can give no assurance that such forward-looking statements will prove to be correct. We undertake no obligation to affirm publicly or update or revise any forward-looking statements whether as a result of information, future events or otherwise. With that having been said, I would like to turn the call over to Mr. David Dingus, President and Chief Executive Officer of AZZ. David?

Thank you, Joe. Thanks to each of you for taking the time to join us for the conference call for the first quarter of '08. As Joe indicated, the quarter ended on May 31, 2007. Now, all of our financial data is presented after the impact of the 2-for-1 split that was affected by 100% stock dividend by our -- declared by our Board on April 5 and paid on May 4.

For the first quarter, revenues remained very strong, increasing 44% to $75.4 million. Operating income increased by 41% to $14.9 million. Net income for the quarter was $4.1 million or $0.34 per diluted share. While segment margins were up significantly, SG&A also increased over the prior year. The increase over the prior period is primarily related to compensation expense for stock appreciation rights that were fully vested and were booked during the first quarter. Stock appreciation rights is a long-term incentive program that covers approximately 25 to 30 key management personnel of AZZ.

We continue to benefit from strong market conditions and expanded served markets. International opportunities continue to play an increasing role in our growth potential. Total incoming orders for the quarter were 99.5 million plus shipments for the quarter totaled 75.4 resulting in a book to ship ratio of 132% for the first quarter of our current fiscal year. Now, bookings in the first quarter of last year were 70.8 million. Our markets have strengthened over fiscal 2006; they did that in 2007 and are continued into fiscal year 2008. We continue our efforts to achieve new business which meets or exceeds our margin targets.

The increase in margin on previously booked projects, which is now being reflected in our operating results, is a positive consequence of a strict adherence to order acceptance criteria with specific margin contribution targets. We believe that our backlog consists of primary jobs with margins which approximate those that were achieved in the first quarter of fiscal year. We are not at full capacity and we do have opportunities to continue to supplement our backlog with quick turn, higher margin jobs.

Backlog at the end of the quarter was a record-setting 144.8 million and compares very favorably to the 92.1 million in the prior year period or an increase of 57%. We believe our backlog during the balance of the current fiscal year will remain relatively constant with current levels based upon the size and scope of our domestic and international quotation activity as well as announced projects.

We do see improved conditions for our power generation products. The timing of the orders is difficult to precisely determine but we do anticipate we will see a continuation of an increased level of bookings in this market. Based upon customer requested delivery dates, we estimate that approximately 71% of the current backlog is scheduled to be delivered in fiscal '08, and of the total backlog, 35% is to be exported from the US.

Galvanizing demand remains strong and tonnage of steel galvanized shipments increased 28% on a quarter over quarter basis. This [voluminous] increase is spread across all of our served markets and the quarterly results do include the contribution of our recent acquisition of galvanizing operations of Witt Industries in Indiana and Ohio. The acquisition accounted for 69% of our quarter over quarter growth in shipments.

Zinc cost volatility lessened during the first quarter, trading in the range of $1.65 to $1.70. With overall demand being strong, we've been able to maintain a significant portion of our previous pricing actions. On a quarter over quarter basis, pricing has increased 37%. But if we compare the first quarter of fiscal '08 with the fourth quarter of fiscal '07, we are pleased that the volume is up an additional 6%, and pricing is down only 2.1% that has been brought about by the decreased cost of zinc. Our stated concern about the increased cost of galvanizing and the impact this might have on customers selecting alternatives fortunately has not materialized. We continue to closely monitor US industrial market indicators to determine any anticipated change or impact upon our markets, which remain very strong.

As a company, our accomplishments have improved and we continue to double and redouble our efforts to secure more profitable business, and effectively and efficiently execute on that backlog and business. Our programs have continuous emphasis on systems and procedures, the sharing of best practices among our operations to further enhance operating efficiency combined with aggressive pricing programs has had a very positive impact on our operating results for the first quarter of fiscal '08. We believe that these efforts and the leverage that we have gained from the additional volume has very positively impacted our operating results.

Now [that's] an overview. Dana will now give us a review of the operating results for the first quarter. Dana?

Thank you, David. I would also like to welcome each of you to our first quarter conference call. At this time I will review our unaudited consolidated results for the period ending May 31, 2007.

As David indicated, AZZ recorded revenues for the quarter ending of $75.4 million, 44% increase, as compared to $52.5 million in the prior year. Net income for the quarter was $4.1 million which compared to $4.1 million in the prior year as well. Diluted earnings per share was $0.34 compared to $0.35 in the prior year. Our earnings per share calculations, again, are restated after the effect of a 2-for-1 stock split and [a form under] 100% stock dividend paid on May 4, 2007. Our G&A expense, G&A and selling expenses were $7.6 million for the quarter compared to $3.5 million in the same quarter last year. Again, general corporate expenses were $4.4 million higher due to the increased compensation expense that was booked -- that was related to our cash based stock appreciation rights programs.

Strong demand for our electrical and industrial products as well as for our galvanizing services continued in the first quarter. This continued strong demand allowed us the opportunity to increase our incoming order rate and [incurring] the electrical and industrial pricing as well as maintaining our galvanizing pricing. Our improved international business and the continuation of our quick turn business led to strong volume increases and improved margin performance. Quotation activity continued at a brisk pace. While the latest increases in our incoming orders were related to high-voltage transmission products, all of our served markets reflected an increase over the same period last year. In our galvanizing services segment, our first quarter continued to be favorably impacted by positive market conditions and good pricing realization required to offset the increase in cost of zinc in our galvanizing services segment.

Our electrical industrial segment generated 54% of our revenues for the quarter while our galvanizing services generated 46%. We anticipate that 60% of our revenues for fiscal 2008 will be generated from the electrical industrial side of our business and 40% will be generated from the galvanizing side.

Backlog at the end of the fourth quarter was 144.8 million which compares favorably to the 92.1 million for the same quarter last year. Our book to ship ratio was 1.321 for the quarter. The continued strength in our markets has allowed us to achieve and increase our incoming order rate and continue our pricing programs designed to achieve cost recovery and improved margin [laps].

At this time, David will give us an overview of our electrical and industrial products segment.

The industrial demand for our power and motor control centers have remained strong due to new projects, major renovations and expansions in industrial capacity utilization levels which continue to remain above the 80% level. Projects continue to be reported by engineering procurement and construction firms. And we believe that the emphasis on the need for spending related to refining, LNG and clean fill initiatives as well as systems upgrades should lead to a continuing strength in this market.

Our specialty lighting products have seen and should continue to see very strong operating results due to new products, new markets and demand related to the strength of the petroleum market and overall strength of our industrial customers. Demand for our metal clad outdoor switchgear products remained very solid. Utility distribution substation orders, the strength of the wind energy market and the surface mining market all contributed to the increases we saw in bookings and shipments of this product offering.

Quotations and orders which utilize our high-voltage transmission products were again at encouraging and robust levels. Our backlog and quotations reflect strong domestic and international demand and we continue to operate at record-setting levels. The increased demand for our products that serve the power generation market is encouraging, and maintaining the bill schedule of new generation plants, wind energy and the addition of scrubbers to existing facilities should continue to possibly impact our incoming order rate in future quarters. Orders and shipments of our tubular products to the petroleum market were essentially flat with prior periods.

Dana will now cover the operating results of our electrical and industrial products segment.

In our electrical industrial products segment, we recorded revenues for the quarter of $40.9 million, a 29.7% increase as compared to prior year results of 31.5. Operating income was $6.3 million, a 55% increase as compared to $4.1 million in the prior year. Operating margins improved to 15.5% for the quarter compared to 13% in the prior year. The increased revenues were generated from continued strong market demand primarily from our high-voltage transmission as well as our petroleum markets as well as improved market conditions with the power generation market.

Improved operating margins resulted from the continuation of quick turn business as well as leverage obtained through increased revenues and improved market conditions which allow for more aggressive pricing to recover a portion of the material cost increases for raw materials that occurred over the past two years. We continue to emphasize on booking business at specific target margin levels, pursuing price increases to recover increase costs of materials.

At this time, David will give up as an overview of the galvanizing.

We are pleased that we saw reduced volatility in the zinc costs in the first quarter that allowed us to maintain a significant portion of our prior year pricing actions. The zinc demand forecast new production coming online and projected increasing inventories lead us to believe that we could see reductions in the cost of zinc in the current fiscal year. Even though we have seen some downward movement in the price of zinc this past week, some forecasts do reflect that we may see a leveling or even some increase before we see a sustained downward trend. We continue to monitor very closely.

Demand for galvanizing services remain strong across all of our served markets. Our results do reflect the improvement in the industrial US market that has resulted in increased capital spending for expansion and maintenance and increased production associated with our recent acquisition.

Demand in our traditional geographic market areas continues to be strong. We are extremely pleased with our operating results and marketing conditions in our new Midwestern US territories. While we have seen limited occurrences of customers going to other corrosion protection methods or materials, it has been less than we had feared. We continue to monitor closely to see the impact of the increase costs of galvanizing on demand.

Dana will now give us our view of the key operating statistics for this segment and cover the key balance sheet items.

Revenues in our galvanizing segment for the quarter were $34.5 million, an increase of 64.7% compared to $20.9 million recorded in our first quarter in fiscal 2007. Our volumes of steel shipped as well as our selling prices were up when compared with the same quarter last year. Operating income was $8.6 million, an increase of 32.4 compared to 6.5 in the prior year. Operating margins were 25% compared to 31.1%.

Our first quarter includes revenues and income generated from an acquisition of Witt Galvanizing as we have talked about in previous conference calls. This acquisition added three plants to our galvanizing operation, bringing our total galvanizing facilities to 14. Our comparative higher operating results were achieved through increased revenues as well as operating leverage achieved through improved pricing and higher volumes. We have seen improvement spread across all of our served markets which are all showing strong demand.

Revenues for the year continue to be significantly impacted by pricing actions required to offset escalating zinc costs. While zinc costs have been less volatile over the first quarter for fiscal 2008, any increased volatility in future zinc prices could have an adverse effect on our earnings.

At this time, I will cover some of our key cash flow and balance sheet items.

For the [three] month period, cash provided the operations with $7.7 million which compares to $4 million in the prior year. Our receivable days in inventory turns remained good. Accounts receivable days outstanding were 50 days at the end of the first quarter as compared to 53 days last year. Year-to-date capital improvements were made in the amount of $2.8 million and our depreciation and amortization amounted to $1.9 million for the quarter. Our total outstanding bank debt at the end of the quarter was $27.7 million.

At this time, I'll turn the conference call back over to David for closing comments and then we will open our question and answer session.

Thank you, Dana. As we indicated, we are very pleased with the results of our first quarter. The aggressive steps we've taken in seeking out new domestic and international marketing opportunities, improving our distribution channels, lowering of our cost structure, increasing our pricing levels, improving operating efficiencies are all reflected in the approved operating results.

The improvement of volume [has advanced] the gains we've made due to leverage. We continue to seek out additional products which can be added to our current product offering for the electrical industrial product customers and we looked for additional expansion opportunities of our galvanizing services segment.

Our products and services are well positioned to continue to benefit from a continuation of a strong industrial economy. Operating results as a result of the energy legislation, expansion (inaudible) spending in the petrochemical market and the recovery in the power generation market are all additive to these conditions.

While we anticipate the current market demand will continue, the timing of projects and the release of orders will always have an impact on the quarterly recognition of bookings, revenues and earnings and will result in quarter to quarter fluctuations, which may be greater than true changes in market demand and our competitive successes. We will continue our efforts to aggressively manage our way through these conditions in order to build upon [further] accomplishments and minimize these fluctuations.

Now, based upon the evaluation of the information currently available to management, we are increasing our previously issued guidance for fiscal 2008. We are pleased to project that we believe that we'll have another excellent year for AZZ in fiscal '08 with the record-setting revenues of 310 to $320 million. Net income is projected to remain very strong and is estimated to be the second-best income year in the 51 year history of the Company. Our diluted earnings per share is estimated to be within the range of $1.65 to $1.75. These projections do reflect the impact of the 2-for-1 split effected by a 100% stock dividend which was paid on May 4 of 2007.

We always appreciate your support and thank you in advance for a continuation of that support. We appreciate your participation today and at this time we will open it up for any questions that you might have.

(OPERATOR INSTRUCTIONS) John Franzreb, Sidoti & Co.

My first question disregarding the SARS expense. What I'm wondering here is, is this is a onetime hit, if you will, are there rolling SARS expense in the future that we should be keeping our eye on?

John, it is a long-term incentive program that was put in for, as I said, the 25 to 30 key management personnel of AZZ. So it's an annual program where stock appreciation rights are awarded. We are in the fourth year of that program. Now, the first two years were to be settled in cash and the subsequent ones will be settled in stock. So naturally we had more volatility quarter to quarter earnings impact on the cash settlements. Now, one of those years is now behind us and has been invested and is settled. So we have one more year of that. So we think there's going to be a lot less volatility quarter to quarter than we have seen in this period. So while there was a (inaudible) amount in the first quarter, yes, we will continue to see some expense and we have taken that into guidance.

Now, if we -- if anyone wants a further or more detailed explanation of the difference of the two (inaudible) detailed in the 10-K footnote 9 on page 44 and 45 which I'll lead you through why there's a difference between the impact of the cash and the impact of the stock base, John.

Okay, great. And second question unrelated to the SARS expense is you raised your guidance on the revenue side by 13% from the previous guidance. Is that -- can you tell me how much of that is based on your electrical expectations going up versus your galvanizing expectations going up?

About two-thirds of the increase is related to electrical and one-third is related to galvanizing. So it's pretty consistent with our mix of business. But we're growing naturally on the electrical when you had to double the size and that impact is more measurable there.

And digging down a little bit more to the electrical side. What's the end market mix currently look at on the electrical side of the business today?

If we'd look at just the electrical industrial segment, not the total company, you're looking at current gen at 10%, transmission and distribution 31%, and industrial 59%. Now if we look at it on a total company basis, and combine the galvanizing with that, you've got a 10% in power gen, 59 in industrial and 31 in T&D.

And staying with the electrical industrial side, when you look at that breakdown, I'm assuming this is the first quarter breakdown? Is that right, David?

That's our projection for this fiscal year.

Oh, that's the projection for the fiscal year, I'm sorry. Okay. Looking at this projection then, where are we seeing the fastest growth out of those three segments?

Power generation. And we, last year for the total company, we projected 6% of our revenues to be in the power generation and we're now saying 10%. So that's a combination, as I said, of new power plants, the favorable impact of wind energy as well as the growth in the scrubber market.

I'll ask one more question and get back into the queue. How much of the short cycle business flowed through the P&L in this quarter?

I don't have that number in front of me. I would estimate it to be in the 1.5 to $2 million range.

Ned Borland, Next Generation Equity Research.

Just a follow-up question on the guidance. If I take what your comment -- what you reported in the electrical industrial business this quarter and then go with the run rate of what you expect that'd come out of the backlog. Are you assuming in your guidance about 40 to 50 million in quick turn business?

No, not at all.

Are there any assumptions in there for quick turn for the year?

No, only what we achieved in the first quarter, Ned.

Okay. Because I was just going off it like you expect 60% of your revenue to come from the electrical and industrial market.

And that's growth in the backlog -- as changing that, Ned, from what we'd previously forecast. We previously had it at about 56, 58% and we increased that to 60 but that's growth in the backlog.

Got it. Okay. And then switching over to galvanizing, you guys are on the FIFO accounting for zinc there. Has the $2 level of zinc flowed through? Because your margins stayed pretty steady sequentially and I'm just wondering if that level is sustainable or are we now working off of lower levels of zinc?

About one-third of that expensive zinc went through the P&L in the first quarter; the balance will be in the second quarter. So we got a significant piece of it behind us but our forecast for margins, as we're saying, the total year will reflect the rest of that flowing through. They won't be quite as strong in the second quarter but we still are forecasting a full year of 21.5%.

And your assumption for zinc within the guidance, is it -- I mean what range are you sort of baking in there?

Essentially in the 160 to 165 level.

160 to 165, okay. Let's see, and then I guess your comments on capacity within the electrical and industrial operations. What level are you running at there? How much room do you have?

In total we say we're about 72 to 75%. Now there are isolated instances which we're working on that would be in the 85 to 90% and some are down in the 60, 65. But where we think the opportunities are for those quick turn jobs are probably in the 70% capacity utilization level. I still have room to add those in, Ned.

Jim Schwartz, Harvey Partners.

Quick question on power transmission. Can you go over what's driving that internationally and is it the fact that you guys are the only manufacturer in 60 foot lengths that's doing it?

Well, there's no doubt that our resume of the extensive jobs that we've done from very complicated Hydro projects to very difficult operating conditions, but a lot of it is -- has been, particularly in the Middle East, has been related to the growth of power plants and having to get those high voltages from the power plants over to the existing grid. And many of the customers have elected to do to that with our product. Now, you naturally have a distinct advantage when you can use the longer links that we manufacture because that's less couplings (inaudible) through it. But we think that, particularly on the international side, that we're just seeing more and more projects because our resume is just so extensive on the different conditions that we've seen. Now, in the US there's no doubt that we're the only supplier of the 60 foot links and that has led to and improved our market share.

Great. And then in power gen, you talked about wind energy but this business was sort of in a [lull] for years and sort of -- it's come back. Replacing the old baseload plants, does that seem more sustainable? Is it the new -- is it the impact of wind energy? What's driving this and what's going to make it sustainable, do you think?

In the current fiscal year, we're going to see more benefit from wind energy and from scrubbers. But the announced projects are the replacement and the upgrades of the baseload plants. Now, even though some of them have got slowed down and there's still a debate on how those will be fired, we're more encouraged about the sustainability of the improvement than when we saw the big peak back around 2000 with the peaking plant strategy. So, we're very encouraged by the overall condition of it. Like I said, what has happened faster and greater than we had originally forecast is the favorable impact of wind energy and the favorable impact of the upgrades resulting in our work related to the scrubbers.

Great. Thanks.

Mike Christodolou, Inwood Capital Management.

I just wanted to clarify -- so you mentioned that the forward deliverable backlog in electrical is running at the 15.5% margin, which is up, what, 250 basis points from last year. Should we surmise that orders that you're taking, say tomorrow, are going to be priced above the 15.5 given that you're moving up the capacity utilization?

No, Mike, I wouldn't make that. The only correction I would make -- the 15.5 that we've got has the added benefit of the short term which isn't reflected in that. If you take our guidance, which is reflecting a contribution rate of about 14%, that would be more representative of what's being added to backhaul. Now, we continue to try to push that, Mike, but for assumption purposes and for guidance purposes, we've assumed that that incoming order rate [since] they're going to replenish that backlog is going to be at the 14% level.

And where do you think you could go in terms of capacity utilization? Can you go to 92%? I mean, could you go into the '90s?

I'm not sure that we could get that high. We'd like to -- I think we'd say our practical capacity is 85. Now, in a given month, yes, it can go up there to meet a delivery but we wouldn't sell it above the 85 level. We'd back off on deliveries because we're very serious about meeting our delivery times and most of our contracts have pretty significant liquidated damages for late delivery. We think our reputation is better preserved by sticking with a philosophy where we have better on-time delivery and which allows us to push a little more on the price envelope.

Understood. And lastly, if you were -- if and when you get to the 85%, will you still have capability to take some quick turn projects? Or could we actually see you're just booking the normal course of normal products for normal delivery schedules at 14 plus percent margins, but then when that higher margin quick turn opportunity comes up in a year and one-half, could you see yourself having to turn away quick turn? Or are you always going to have some safety capacity to be able to fulfill those types of orders?

When we take orders to book to that 85% level, it is reserving a portion for quick turn jobs. So that's built into our baseload projection.

Thanks very much, gentlemen. Great quarter.

Thank you. Appreciate it.

(OPERATOR INSTRUCTIONS) John Franzreb, Sidoti & Co.

I think you said that you had $2.8 million in capital spending in the quarter? What's your forecasted budget for the year and what are you spending it on?

It's primarily -- will be $10 million this year in total. We will spend about 4 to 4.5 in our galvanizing segment as maintenance CapEx, and then we've got a little bit for general use on the electrical industrial side of our business, and we're also expanding our capacity for our distribution product. We expanded our high-voltage transmission capacity last year and we're moving over to the distribution side this year and increasing that factory as well.

Okay, and David, [just quick], could you just kind of take a longer view of the electrical industrial market? Beyond this year what are your expectations of the three to five-year cycle? How is it playing out right now in your mind based on your discussions with customers?

I think if we stay with the power generation, transmission and distribution I think it's playing out very favorably for us. I think we're seeing more and more fundamental discussions on replacement of baseloading plants. We're seeing more and more discussion on the grid and the distribution equipment that's in it. Naturally, as we look out three to five years, the risk lies in the industrial application of the electrical products.

Now, we think that these longer-term projects that are going on, particularly in the petrochem market, will hopefully offset downward pressures on the general economy and keep that sector at least flat in the lower case scenario. Now, we still see good projects coming through that. Now, we've always had some concern that due to the level of those we may start seeing some delays of those. But normally when those major projects come out, they've got a three to five-year life in them. So as we sit and talk among ourselves, John, if that will sustain itself, it may help us offset the cyclical of the greater downturn of the US economy. And then -- but we're quite encouraged about the opportunities in generation, transmission and distribution.

So, I mean, again, I don't want to peg you down to a number. As we kind of look at the backlog trends and how things are shaking out, I mean you would assume another year, maybe a sequential quarter to quarter growth before you'd start saying, okay, maybe the industrial economy is going to start pulling back a little bit and it will be tough to achieve that kind of rate of growth, if you will?

I would concur with that totally.

Kevin Goldstein, Great Gable Partners.

Good morning, thanks for taking my question. If I look at the guidance you gave for the galvanizing side, 40% of the '08 revenues come from galvanizing. It looks like -- I was just doing very simple math -- that you're suggesting that the first quarter is kind of peak revenues for this business. Is that the intention -- is that due to falling zinc prices, maybe bringing down ASPs? Is it due to the industrial economy? Or is it just due to conservativism?

No, I think that we will not be at peaking on the revenue side. I think it's a peaking on the margin side because that more expensive zinc coming off the balance sheet. As we look at -- and you know we have pretty good visibility for the second and third quarter. We're a little more conservative in the fourth quarter. But based upon talking with our customers and the projects coming out, as far as tonnage produced, we think that we've got equal quarters in the second and third quarter. And then coming back to an earlier response on our zinc assumption, we had to give up 2% price in the first quarter. If zinc will hang in there at that level, we don't think we're going to give up much more price in that range. So we just got to work off that one more quarter of that $1.90, $2.00 zinc that we incurred last year. But the biggest dip on that is what's going to happen in the fourth quarter. So yes, we're a little more conservative in our fourth quarter forecast than we are in first, second and third.

So, that's how I should look at it. When you said that equal tonnage in the second and third quarter, is that relative to the first quarter or is that just equal to each other?

Equal tonnage -- in the second and third quarter our forecast says our tonnage will equal first quarter.

(OPERATOR INSTRUCTIONS) Scott Billeadeau, Fifth Third Asset Management.

I'm wondering if you could characterize kind of the customer base on the galvanizing side. Just if you could kind of -- and how much -- is it different from a year ago? I'm just wondering if you could lay that out

Okay, the only change that really from a year ago that we've seen is, as a result of the acquisition in the Midwest, their mix is pretty identical to ours in the South/Southwest with the exception of petrochem. So that has lowered the petrochem of our total but we're still looking at about 21% in the electrical and telecommunications. We're looking at about 17% in OEMs; 19% in general and industrial; [90%] bridge and highway and 34% in petrochem.

So, as far as what's going on in demand from our customers, we have not seen any significant fluctuation whatsoever. Now, what's going on with the power plant work and with the petrochem work in the Gulf Coast, that is skewing a little more of that towards the petrochem in that traditional area. But when we add in the contribution from our midwestern acquisition, it's lessening our impact on the petrochem market.

All right. Great. Thanks.

(OPERATOR INSTRUCTIONS) I would now like to turn the call back over to Mr. David Dingus for closing remarks.

Again, I appreciate your participation today. Look forward to, again, doing this in three months and we are encouraged about the operating results of the Company and the opportunities. Again, thank you and have a great day.

This concludes today's conference. You may now disconnect.