AZZ Inc (AZZ) 2010 Q2 法說會逐字稿

Hello and welcome to the AZZ incorporated second quarter 2010 financial results conference call. All participants will be in listen only mode for this event. After today's presentation there will be an opportunity to ask questions. (Operator Instructions) Please note this event is being recorded.

I would now like to turn the call over to Mr. Joe Dorame. Please go ahead.

Good morning. Thank you for joining us today to review the financial results for AZZ incorporated for the second quarter of fiscal year 2010 ended August 31, 2009. As Ryan indicated, my name is Joe Dorame. I'm with Lytham Partners and we're 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.

Before we begin I'd like to remind everyone 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 documents filed by the Company with the SEC. Those risks and uncertainties include but are not limited changes in customer demand and response to products and services offered by the Company, including demand by the electrical power generation markets, electrical transmission & distribution markets, the industrial markets and the hot dip galvanizing markets; prices of 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; currency exchange rates; adequate financing; and availability of experienced management employees to implement the Company's growth strategies.

The Company can give no assurance such forward-looking statements will prove to be correct. We undertake no obligation to affirm publicly, update or revise any forward-looking statements whether as a result of information, future events or otherwise.

With that having been said I'd like to turn the call over to Mr. David Dingus, President and Chief Executive Officer of AZZ. David?

Thank you, Joe, and thanks to each of you for taking the time to join us for the conference call for the second quarter of our fiscal 2010. Despite the economic and certain market conditions that we faced, the Company is pleased to report another excellent quarter. For the second quarter revenues were $95.2 million compared to $103.3 in the same period last year. Net income was very strong at $11.1 million. Earnings per share of $0.89. As we had projected, backlog was $139.4 million and did reduce $10.7 million in the second quarter when compared to our first quarter.

The increase in domestic and international quote activity which we reported in the first quarter of 2010 has continued into the second quarter. The primary increases have been in our power generation, transmission & distribution markets. While some of the increase can be attributed to the budgetary quotation of new projects that have yet to be released, it is still encouraging that overall project activity appears to have increased. The release of orders for new and existing projects remain sluggish and we've not seen any decrease in the extended evaluation period we have witnessed over the past several months.

We anticipate the slow and selective release of orders continuing into our third quarter and fourth. And while it is difficult to forecast timing of order releases in these market conditions, we would anticipate that it will be the first quarter of our fiscal 2011 before we start seeing a rebuilding of our backlog. Our international quotations are strong and we did secure two significant international orders in the second quarter. One for a Canadian project and another for a nuclear project in China. We are pleased that to date we have seen few cases where customers have requested delays in delivery of orders which are in our backlog. Additionally, cancellations have been minimal.

Based upon customer requested delivery dates and our production schedules, 65% of our backlog is expected to ship in the current fiscal year. Of the backlog of $139.4 million, 43% is to be delivered outside the United States. Operating margin for the Electrical Industrial segment was a record setting level of 22%. Volume for the quarter was up 7% when compared to the prior year. And operating income grew 23%. We continue our pricing discipline, improved project management and were assisted by favorable cost to key commodities.

Operating margins for the first six months were 20% and compared favorably to the 17% in the first six months of last year. Galvanizing demand continued to be below our record setting pace of last year. Our continued commitment to quality and service, the close attention to all operating performance criteria, combined with favorable cost commodities led to another outstanding margin performance quarter. second quarter margins were 31%. The price of zinc purchase has continued to be in the low 80 range for the past several weeks. Without some price recovery, we may see an adverse impact on margins in the fourth quarter of our current fiscal year.

The impact of the decrease in the petroleum demand for Galvanizing Services has been greater than our expectations. However increases for Galvanizing Services in the electrical transmission, distribution, and renewables has been stronger than we had thought. Competitive forces on pricing continue to be mixed with some deciding to maintain production level regardless of price and others deciding to follow a more disciplined approach. For the most part, within our served territories, the industry has resisted massive price discounting despite lower demand.

As a Company, our accomplishments have continued as we double and redouble our efforts to better position the Company for a market recovery and continue to efficiently and effectively execute on the business that we do have. The strength of our balance sheet, our strong cash position, combined with access to borrowing under existing banking agreements should facilitate the execution of our business strategy. The completion of another excellent quarter, the financial strength of the Company, successful identification and assimilation of strategic acquisitions and a great group of employees is reflected in our strong operating results and in the confidence of our future. We do believe that we're structured for sustainability and we continue to navigate through challenging waters in this period of extreme economic uncertainty and continue the execution of our strategies.

Now with that as an overview of our results, Dana will now give us a review of the operating results for the second quarter and first six months of 2010. Dana?

Thank you, David. I would also like to welcome each of you to our second quarter conference call. For the second quarter financial results remained strong during these adverse economic times. AZZ recorded revenues for the quarter ending of $95.2 million as compared to $103.3 million in the prior year. And net income for the quarter was $11.1 million as compared to $11.3 million. Diluted earnings per share were $0.89 as compared to last year's $0.92. Given the economic environment we are operating in, we continue to be pleased with our second quarter results. Our book to ship ratio for the quarter was 89% compared to 74% at the end of our May 2009 quarter, ending the quarter with a backlog of $139.4 million. The backlog at the end of our May quarter was $115.1 million.

While our quotation levels, as David indicated, remain strong, we have not seen a corresponding increase in our incoming order rate. The backlog should start to see some modest improvement in the first quarter of fiscal 2011.

Our Electrical and Industrial segment generated 58% of our revenues for the quarter while our Galvanizing Services segment generated 42%. We anticipate that 58% of our revenues for fiscal 2010 will be generated from our Electrical Industrial products business and 42% from our Galvanizing Services.

At this time David will give us an overview of the Electrical and Industrial segment.

The industrial and petrochemical demand for our power distribution and motor control centers has significantly slowed when compared to fiscal '09. The timing of new projects and release of orders related to energy infrastructure, rebuilds, expansion and upgrades remains an issue and is impacting incoming order rates. We believe that most of the projects will eventually go forward but we are unable at this time to fully assess when these projects will be released. There is some level of optimism within the industry that we will start seeing some recovery and the spending of the petrochemical companies. The low utilization levels of existing manufacturing capacity is also having an adverse impact on new Industrial orders. The demand for our metal clad outdoor switch gear products did see a continuation of flat demand during the second quarter. Although it has definitely reached a plateau, it does appear to be holding at a current level. We will continue to monitor closely the announced budgeted utility spending levels for calendar 2010.

Quotations and orders for our high voltage transmission bus duct products were again at strong levels and reflect strong international demand. Pricing continues to be a major challenge on the very large high profile orders particularly in China. We've remained consistent in our pricing and have seen some improvement in competitive pricing levels but it is still too early to forecast that discipline has returned to the pricing of projects in China. Increased US infrastructure spending on the grid would provide additional opportunities for years subsequent to our fiscal 2010.

The power generation market remains strong and while some schedules are shifting, overall we believe the market is relatively stable. Domestic emphasis on renewables such as wind and solar energy and environmental upgrades should continue to positively impact our market opportunity. We did see some increased pricing pressure in the domestic market for power generation in the second quarter. Our specialty lighting products sales were down due to reduced petroleum and industrial demand and we do not anticipate any additional volume improvement until there is some economic recovery. Our product development efforts continue and we will continue to very positively position ourselves for market improvement.

Our tubular products for the petroleum market is operating at very reduced levels primarily due to the lower selling price of gas. We believe that they will remain at this level until we see sustained increases in the pricing of oil and natural gas.

Dana will now cover the operating results for the second.

In our Electrical and Industrial Products segment we recorded revenues for the quarter of $55.6 million which compares to our prior year results of $52 million. Our increased revenues were generated as results of increased shipments from our record backlog that we achieved in fiscal 2009. Operating income for the quarter was $12.1 million as compared to $9.8 million and operating margins were 21.8% for the quarter compared to 18.9% in the prior year period. Our operating margins and profit improvements for the year are attributable to the leverage gain from our increased volumes, improved operating efficiencies, and favorable commodity prices.

At this time, David will give us an overview of the Galvanizing Segment.

Our strategy to provide premium level of service and quality to our customers has continued and will continue as we will resist downward pricing pressures. Revenue dollars will be impacted in future periods if market pricing as required to be adjusted further as a result of reduced demand. A significant portion of our business is reflective of the GDP, as well as the infrastructure buildout. We're striving to maintain our market share without sacrificing price, a strategy that has worked well in the first six months of our fiscal year and we intend to follow that strategy in subsequent quarters. There remains concern over the impact of the economic conditions. We do anticipate that we will see some additional bridge and highway work as a result of the stimulus package. Renewable energy projects could provide some growth opportunities, as well.

The assimilation of our latest acquisition is progressing nicely and it is a natural extension of our served geographic territory. We will continue to look for opportunities for further expansion.

Dana will now give us a review of the key operating statistics for the Galvanizing segment.

Revenues in our Galvanizing segment for the quarter were $39.6 million compared to $51.3 million recorded in our second quarter of fiscal 2009. Our second quarter revenues were negatively impacted by reduced reduction in volumes of steel produced in the amount of approximately 15% and a reduction in selling price in the amount of 5%. Operating income was $12.3 million compared to $15.5 million in the prior year. Operating margins for the quarter increased to 31.1% compared to 30.2% in the prior year as a result of improved operating efficiencies, as well as lower zinc costs. As we have indicated before, the results from this segment have followed closely the condition of the industrial sector of the general economy and should continue to do so.

At this time I will cover some of our key cash flow and balance sheet items on a comparative basis. For the six month period, cash provided by operations was $36.9 million compared to $12.6 million in the prior year. Our receivable days and inventory turns remain strong. Accounts receivable days outstanding were 51 days at the end of our quarter as compared to 51 days at our fiscal year end. Year-to-date capital improvements have been made in the amount of $7.5 million, and our depreciation and amortization has amounted to $8.4 million for the first six months. Our total outstanding bank debt remains at $100 million and our cash balance was at $72 million at the end of the quarter.

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

As we stated earlier, we're extremely pleased with the operating results of our second quarter and the first six months of our fiscal 2010. The strong margin performance was most encouraging. Our primary concern as we've shared with you and discussed previously is the incoming order rate and the impact that it may have on revenues and operating income in the latter part of the current fiscal year and the beginning of our fiscal 2011. Our products and services are extremely well positioned to benefit from any market improvement and/or increased infrastructure emphasis and program. Our lead times are shorter and should provide for more expeditious benefits when improved market conditions occur. The timing of projects and the release of orders will always have an impact on the quarterly recognition of bookings, backlog, revenues and earnings and will result in quarter to quarter fluctuations which may be greater than true changes in market demand and our competitive position and success.

Based upon the evaluation of information available to management, we're revising our previously issued guidance for the fiscal year 2010. Our earnings are estimated to be within the range of $3.00 to $3.10 per diluted share and revenues to be within the range of $370 million to $380 million. The previous estimates were for earnings to be within the range of $2.70 to $2.90 per diluted share and revenues to be in the range of $370 million to $390 million. Achievement of these projections would be our 23rd consecutive year of profitability and the second best year in the history of the Company. Our estimates assume that we will not have any appreciable change in our current market conditions, competitive activity, or significant delays in the delivery or timing in the receipt of orders of our Electrical and Industrial product and demand for our Galvanizing Services.

Again thank you for your participation today and we would like to open it up for any questions you might have at this time.

We will now begin the question and answer session. (Operator Instructions) Our first question comes from John Franzreb of Sidoti & Company.

God morning, David, Dana and Joe. David my first question is you're pushing back your expectations on the recovery of the backlog. Could you talk a little bit about that, what's changed from three months ago versus your expectations and why you pushed it so further back versus, say, one quarter away?

John, I think it is just the continued delay in the petrochemical market and the industrial market. Our power generation is staying on schedule. Our transmission is staying on schedule and we have not gotten a real feel for what utility budgets are going to be in the distribution substation market for next year. So I think that we're more confident that we're entering in a period of more stability in it but I don't think we'll see that recovering to the first quarter. It's still we can't get a feel, John, of what the delay cycle is going to shorten back to normal between quote and order release. The same projects are out there. It's not a reduced level of quotations. It's not a reduced level of projects. It's just further delays in the order release and we just haven't gotten the confidence that that's going to happen in the third and fourth quarter like we previously thought last quarter, John.

What gives you the confidence it's going to happen in the first?

It's the confidence that the customer is displaying that they feel that it is now a go, that the excellent position that most of them are in on the funding side, improvements in the availability of credit and just the overall economic confidence, John. I think it lends people to go forward with these projects that they need to do.

Okay, the Galvanizing business had a great quarter again. But you've mentioned that zinc prices are going up and you had actually given back 5% on pricing last quarter. When are you going to have to increase prices? What price per pound is it? Could you just talk a little bit about that environment?

Sure. If you take the second quarter, John, and if you were to substitute the current replacement cost of zinc versus what we expense through the P&L, our margins would have been 28.5% rather than the 31%. So that gives you a flavor. If we don't get the recovery in it then you would see that level change in our fourth quarter margins versus what we got in the second quarter. So we're naturally using it as an opportunity to resist more downward pressure and then it buys customers that were going to have to make an adjustment in that fourth quarter to do that. Now, market conditions don't lend us to believe that we will have an across-the-board success of that. It will be isolated. But that's included in our forecast. But again, as we look back, even if we slid back to 28.5%, we're pretty encouraged with that level.

No argument there. Thanks a lot, David. I'll let somebody else in.

Thanks, John.

Our next question comes from Ned Borland of Next Generation Equity Research.

Just trying to clarify some of your backlog comments, David. Are you talking stability for the next six months or further decline?

Ned, our fourth quarter is always our most difficult quarter even in good market conditions, so we may have a little further adjustment in that period but it won't be as concerning as some of the discounts we've had at this point. It will be more of a timing issue. So I think we're going to see relatively stable backlog between now and the end of the fiscal year, and then start to see some improvement in others. Now, like I said, if we see a little further decrease in the fourth quarter than we are forecasting, I don't think I'll get terribly concerned but I'll put it more on the weakness that we normally have in the fourth quarter. So we are expecting relative stability, still fluctuations but not as dramatic as we've had quarter to quarter up to this point.

Okay, and you had two international orders in the quarter. Just wondering how they compare to previous international orders. Are we looking at orders in the $8 million to $10 million range or was it something a little more significant?

The two of them combined were in that $15 million dollar range, Ned. So nice orders, not the largest we've had, nor the smallest, but the two of them combined would total in the $15 million range.

Okay. S basically, the push out of backlog stems largely from US customers? Is that the case?

Absolutely. As you noticed in that 43% of our current backlog we delivered outside of the US is the highest it's been and our shipments in the second quarter, 37% were outside of the US. So yes, it's petroleum and Industrial and domestic distribution market that is hurting us the most.

Okay, and then on the margins in Electrical and Industrial, very impressive, 22%. I'm just wondering, what was the cause there? Was there a surge in quick turn volume or was it just the commodity cost issue? Or what was going on there?

It was, I believe, better execution on our part. The favorable cost of commodities definitely favorably impacted us, and it was just the organization was extremely focused on the need to execute to the maximum in this down market. But the difference, there was not an unusual amount of short-term business. It was base load business, and I think with volume up we got a little help on the leverage side, and then the cost of commodities played a good role, and I give credit to our team for outstanding execution, Ned.

So these margins can be somewhat sustainable above 20%?

I knew that was your next question. No, we still believe we're in the 19% to 20% range.

Fair enough. One final question, you're sitting on $72 million in cash. What does your acquisition pipeline look like, what things are you looking at there?

Our strategy has not changed on the Electrical. It's how do we sell more products to the same project, same customers that we currently are, and more geography in the Galvanizing. We're being very selective. Leaving our basic strategic approach. We're aggressive. Nothing is moving as fast as we would like for it to, of course, but we're confident over the long term that we're going to see positive. As I've shared with you before, we would like to see a little more of our revenue stream being in the renewables, in the services side of our power generation and transmission products. As our revenue stream goes up to the commissioning point, we do not have a revenue stream that continues through the life of the power generation plant and we would certainly like to find something in that area. Okay, thank you very much.

Our next question comes from Fred Buonocore of CJS Securities.

Good morning, Dana, David and Joe. Congratulations on a very nice quarter. Just to drill into what Ned was asking about with respect to the margins, and not just specifically on the Electrical products side but on the Galvanizing side, as well. Can you just help us understand, really, where, it seems like you're continually getting surprised on the margin side lately, or over the last several quarters, and I'm trying to understand how much of that is maybe just natural conservatism in the face of an uncertain environment. I'm just trying to understand. You know what your price of raw materials and inventory will be. You have a decent sense for what your pricing is looking like. Granted, the execution part is an ex-factor but clearly you've proven the ability to execute on these projects. So I'm just trying to understand on both sides of the business, how you're continually surprising in showing such robust margins, thank you.

In total for the Electrical and Industrial -- I'll address that first -- the very strong margins in the Electrical for the second quarter were part of our guidance we issued last time. We knew it was going to be our best quarter of the fiscal year because there you're looking at projects that are in your backlog. But there's no doubt that your earlier comment, Fred, about the uncertainty of the economic conditions. The Galvanizing is a day-to-day, week to week, month to month business. The economic impact, and we have an industry where the competitive forces are behaving very rational. That behavior could change if volume gets to a certain level and people start trying to preserve headcounts and preserve capacity utilization levels. So we're naturally going to be conservative on our pricing judgments for Galvanizing. That doesn't mean that we philosophically change, but there's a lot of forces, there's some market forces, the customer forces, and the competitive forces that can change pretty rapidly and pretty significantly in that market. So we naturally have to be a little more conservative on that. But on the Electrical, we pretty well know, that's coming out of backlog. Now, if we do a little better on execution, yes we pick up some points there.

Got it. Fair enough. That's helpful. Then on the backlog side, I don't know if I'm looking at this overly simplistically but assuming you end up the year with your backlog down relative to the end of fiscal '09, backlog down about 20%, should we extrapolate that or does it make sense to extrapolate that level of decline in backlog to what your FY11 Electrical products revenue decline would look like, assuming your expectations for stability through the second half of the year hold true?

As I've indicated before, we're still within our reaction period, that we can offset some of that. Now remember, when our backlog hit that record of $195 million, we knew it was coming down and that became part of our focus for 2010. So I don't think there's a linear relationship from going from $195 million to $139 million to our 2010 revenues to our 2011 revenues through that, because we had built that in. But there's no doubt that if we haven't had a little more encouragement by the end of the third quarter that we will see a 2011 Electrical revenues that may struggle to equal 2010.

Got it. So in other words, if your assessment that second half may be stable with where it is now, you would think you'd struggle to equal 2010? Or when you say a little bit of encouragement, would that just be on the quotation side or would that be bookings specifically?

That would be a shortening of the cycle from quotation to bookings, our market returning to a more predictable level. Because if it started doing it, Fred, in the fourth quarter of this fiscal year and that trend continues, I've still got reaction time to buoy up in the third and fourth quarter of 2011 and to recover for any shortfall I may hit in the first and second quarter of 2011.

Got it, that's very helpful. And then finally the decent sized project in China for nuclear generation, was this a generation related project? Was it transmission as you've been successful with in China over the last year or so? And with this project, is this outside the scope of the stuff that some of your larger European competitors have been getting aggressive on? Thank you.

No. It is very similar to everything else we have been quoting as far as on the transmission side. It was driven by a new nuclear power plant, the same players, the same type of job that has had some very erratic pricing, was the very same scenario. So we don't know whether they have built up some of their backlog or may have realized their margins in their previous jobs weren't at their expected level. Regardless, we are the constant factor in here and they came back up to our level. And of course our resume had more projects of this type so we won on the evaluation side of them.

Got it. So in terms of the concern that maybe some of the aggressive pricing practices had resulted in a structural change in the China market, maybe that's not the case and maybe things can go back to where they had been, say,a year ago potentially.

As long as we underline maybe, Fred. I think we can't take one or two quotes and say it's recovered but I certainly hope that maybe it is more definitive when I talk to you at the end of the next quarter.

Great. Thank you very much.

(Operator Instructions) Our next question comes from Brent Thielman of DA Davidson.

Yes, hi, good morning. Just a question on the acquisitions in Virginia, West Virginia. Can you just provide what that contributed during the quarter?

As we indicated in our press release from them, what the annualized revenue would be and those continue right at the pace we had anticipated, Brent. So we are not going to get specifically into location by location for competitive reasons but that revenue range that was in our original press release is that it is the level they're operating at.

Okay, and then when you talk about volumes in the Galvanizing business, maybe on a sequential basis can you talk about what end markets are growing for you as a percentage of what you're servicing to, what end markets are working for you and what aren't?

The strongest market, and where we see some positive impact, of course, those that are related to the electrical and telecommunications markets. The poles associated with transmission grids, the utility poles through that cycle has been good. And actually, where we've been hurt the most is those that are driven by expandable income or by the general Industrial market, whether that be general construction or some of our OEM businesses. We have seen a slight uptick in our bridge and highway. And then petrochemical, while it's still strong, is down from last year, and we thought it would be flat from last year. So the most positive we have are some of the work that we're doing related to that. And as I mentioned, the potential for additional work that may come from some of the solar projects, if they totally go forward and the wind projects and anything to do with putting up or extending grids has a tremendously beneficial impact on our Galvanizing business.

All right. And then just on SG&A, it was flat on a year-over-year basis despite the fact you added new capacity during the quarter. Just talk about what sort of steps you've taken and which end of the business that is.

Really, when you track our SG&A from quarter to quarter if you see fluctuations it's normally related to an item that hit in that quarter, not a structural change over the years. So we've been watching it closely. But like I said, we have not been in the position where we've been forced to get into a retrenchment mode in our overall structure. We just believe so strongly in our long term markets that we're continuing with our programs and our strategic direction on that. So I don't think that you'll see over an annualized basis any significant change in our SG&A for this year versus last year, Brent.

Okay, thanks guys.

(Operator Instructions) Our next question comes from Tim O' Toole of Delta Management.

Greetings and great quarter, I'll throw that in there. Obviously the margins are very impressive. I wanted to dig in a little bit more, we've had discussion already but maybe I can understand some of the dynamics better. Which commodities seem to help most in the I&E segment? Would it have been steel? Steel is the one that makes most sense to me because copper is volatile but still seems to be at a fairly high level historically.

It was overall, you're right on the steel, but there were some shipments in there, Tim, where we had bought some copper when copper was at a lower price and that was actually put in production and delivered. So we got some help from copper in the second quarter.

Okay based on a little bit of tactical buying on that case.

Yes.

Okay, great. Now, as you look at some of the bidding you're doing currently and also if you would put a little extra flavor around these international orders, especially if one of them was from that China market which had been a little bit squirrely as you'd mentioned in the past, are you bidding those jobs with a little bit sharper pencil? You've mentioned some pricing competition because some folks have a little excess capacity, for lack of a better term. Or are the gross margins, as you look at those jobs, the ones that you've bid and ones you're bidding now, very much similar to what you've been bidding over the last couple of years?

Very similar to the last couple of years. Very similar. Now, we have done a little bit more in the side of sourcing some of our structural components locally in China, some of our add-on expense type items there, so we lowered our costs a little bit, not anything that measurable due to lower freight and some favorable there. But overall it's not an abandonment of our approach. We just believe that we have the best resume, the best application of those jobs, the best technology, and our pricing levels are correct for the product.

Okay, that's actually helpful, though, if you're doing a little bit, you can only do so much of that, I think, but you're doing a little bit of the local sourcing on maybe some steel componentry or something, then that's maybe less critical. That would explain a little bit of that. You can offer a little bit more competitive looking quote and still retain your margins by turning those dials. All ll right, great, that's helpful. And then the other thing I was curious about, I think I know the answer to this question but it doesn't hurt to ask, is a lot of folks, at least domestically, in industrial related businesses have seen tremendous declines in backlogs, orders, et cetera. And you haven't, your profitability is still very solid, but many of those, they're not necessarily competitors, but peers, have taken action, some temporary, some permanent, to pull costs out -- furloughing people, this and that. Your volumes have stayed up so I'm assuming you have not done any of those kinds of measures but it doesn't hurt to ask. Have you done any of that kind of thing given the environment?

There has been some reduction of our labor force as we've adjusted the direct side, and there has been some cases where the attrition has taken that. But if you look our headcount of the August quarter of a year ago versus the August quarter of this year, we've gone from 1,764 employees to 1,714 employees. So you're right. There's not been much adjustment. Now, there's a few that were added there and the acquisition in the Virginia and West Virginia but overall, we've not seen any dramatic change in our headcount. Now, if we don't start seeing some recovery in the third and the fourth quarter, naturally we're going to have to adjust a little bit more than we have up to this date, but we don't classify this as dramatic.

Have the reductions been mostly in Galvanizing or has it been a little bit on either side?

Oh, it's been on both sides.

And then the other thing that just occurred to me is obviously you've been laying in a few acquisitions on Galvanizing. How much would volumes be down in Galvanizing on a per site basis, or same-store basis, if you will, as opposed to -- because obviously your volumes may be up because you're adding sites in via acquisition.

The measurable impact, that was one of our, it was very strategic, very glad we did it but it was very small so I don't think that if you took our appreciable change by market versus the impact of that you're going to have anything in it. And remember, that acquisition is only in our results for one month.

Right, right. But the one that you'd done prior which was a decent sized one, you would more than anniversary that; is that correct?

Yes.

Okay, I just don't have all that in front of me in my notes. Okay, I'll jump off.

Thank you.

Thank you.

(Operator Instructions) Our next question comes from Fred Buonocore of CJS Securities.

Yes, just a follow-up on the improving quotation activity. Could you just give us a little bit more color on where those quotes are coming from? You said generation, transmission & distribution. Could you get a little bit more granular on that on the types of projects. Just a little bit more color would be helpful, thank you.

Sure. It is on the power generation side. We actually have more quotes outstanding for solar projects than we ever have. We have strong quotes outstanding for the wind through that. We also have increasing quotations on an international basis for expanding and new power generation plants. The transmission, of course, is primarily internationally based on that. And since we combined T&D, Fred, it's the T part that's showing the increase. The D part is pretty flat.

That's what I wanted to try and understand, got it. And then those solar and wind generation projects, are these things that potentially could be out more than 12 months? It's my understanding that we're still in a period where the go forward with solar and wind projects right now is stretched out as investment in those areas have paused through the downturn and potentially a bit of a hangover effect. Would these be beyond FY11 projects?

Some of our customers are telling us they could hit as soon as eight months from now. But some are stretched out. But again, the level of quotation, the level of activity is so much higher than we thought, even if it stretched out it's a positive to that forecast. But some are saying that their target date is eight months from now, to launch the project.

That's very positive, and then just to clarify, would you say that Galvanizing volumes have likely bottomed at this point?

Galvanizing has pretty well bottomed. Yes, we feel that way. Going back to the solar, Fred, you have some actually solar projects going forward in Florida right now. And pretty good sized projects. But some of the ones that we're working on on that. But yes, we feel like the volume for our total network now is relatively flat. There's still some areas that may adjust a little bit further and some that's going to start picking up a little bit more but we're feeling pretty good that we reached a plateau level in that volume demand.

So we could track it out or think about what our expectations are for GDP and basically use that trajectory for growth?

If we were doing a forecast that would be how we would be doing it right now.

Great. And since you went back to solar I'll go back to solar really quickly. Since these are new generation projects, would there be potential transmission opportunities related to those?

Absolutely. Absolutely, because what we're working on now is more on the Galvanizing side because all that works on the front end of the project.

Okay, very good. Okay, thank you very much.

Thank you, Fred.

(Operator Instructions) We show no further questions at this time. I'd like to turn the conference back over to Mr. Dingus for any closing remarks.

Again thank you for taking the time today to share with us your comments and questions related to our business model. As I say, we remain very encouraged over the long term aspects and long term opportunity, and look forward to talking to you again in three months. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.