Carlisle Companies Inc (CSL) 2004 Q4 法說會逐字稿

Excuse me, everyone, we will now begin the conference.

All lines will be muted during the broadcast. (OPERATOR INSTRUCTIONS).

There will be a question-and-answer session following the presentation.

Instructions for asking a question will be given at that time.

I would now like to turn it over to Mr. Ron Weinberg.

Thank you very much, and thank you all for joining us.

With me today is Joe Levanduski, the CFO of the Company, and Tom Gilbride, the VP of Finance.

Before we begin, I would like to point out that some of the statements we will be making are forward-looking statements, which of necessity are subject to uncertainty as they involve future events.

As a result, actual events or results may differ from what management's expectations are.

And for your reference, I would refer you to our filed materials, our 10-K and other descriptive materials that contain risk factors.

With that said, we released earnings this morning for the fiscal-year '04, calendar year.

And our sales were up 19 percent on a consolidated basis from 202 to 241 million.

Our income from operations was up 58.7 percent from 10.9 million to 17.3.

Both of these indicators were within the range of guidance that we offered a number of months in the beginning of year.

Our earnings per share reported were $0.15 on a GAAP basis, up from a loss of $0.07 the previous year for '03.

Now, in understanding what we did in '04, I'm going to emphasize a couple of points.

And they will form a theme of explanation that we want to make to give people a basis for a clear understanding and analysis.

There were two very important things going on at Hawk during the year, which were management initiatives.

They have been underway for quite a while.

One is the refinancing of our debt, the right hand side of our balance sheet, and a high yield offering that anyone following the stock would probably be aware of.

And the other is a move of one of our important manufacturing facilities to Oklahoma, or the port of Catoosa, in Oklahoma, which is where we are moving.

Those two factors, which while in the long-term are very important and positive for the Company -- and while they are initiated by us as a positive -- and they are certainly non-recurring events.

We will not be doing that kind of thing every year.

They did impact the earnings.

So the $0.15 that is seen, as what we reported, is after giving effect to a charge of approximately $0.18 for the cost of the financing and the related write-off of deferred financing costs with it.

And $0.08 related to the move to Oklahoma, where we have begun expensing certain items in '04.

So the total of those two is $0.26 a share.

And certainly for analytical purposes, it is valid to take that into consideration and pro forma in addition to the $0.15 that was reported.

Another item that I will comment on because it is always a little bit of a mystery -- our full year tax rate was larger than one would expect.

It was certainly larger than the statutory rates in the various jurisdictions we serve.

And without trying to get quite as tedious as any tax matter really is, you have to always bear in mind when understanding these that a tax rate is subject sometimes to various jurisdictions.

So we particularly were affected by having to pay the statutory tax rate in Italy.

Yet, when we have jurisdictions that are not getting tax, we don't get the benefit of those as a deduction against taxes in Italy.

So you have a number of separate silos, where a tax that is expressed may be higher than what you expect on the consolidated basis.

That also happens in certain states.

And it happened because of our U.S. taxes, where the large financing costs in the U.S. were not deductible against Italian taxes.

We'd go into more data on those when we do Q&A if anybody wants it.

And Joe will give you guidance as to what we expect as a more normalized tax provision rate going forward.

Underlying the corporate results, each of our divisions did very well or our business segments.

You will recall there are three of them -- friction, which is our Wellman brand name;

HPCG, which it stands for Hawk Precision Components Group; and racing.

Starting with friction, we were up 22 percent in revenues for the year.

And each of our key markets with one exception, which I will touch on, was very strong.

Construction was up 40.8 percent.

I should point out that construction is driven also in part by sales to Caterpillar, where we had both new products.

It wasn't just the strength of the market.

And also mining as an industry is embedded within construction.

And mining has been very, very strong due to the strength of raw materials.

Agriculture was up 19.7 percent, aerospace 6.8, heavy truck 28.

Each of those markets continues to show fundamental strength going forward with a possible exception of agriculture.

It is strong now, but we see not quite as strong in '05 in ag as we did in '04.

But basically, the markets are strong right now.

In our HPCG area, a couple of the market -- I'm jumping here -- but lawn and garden was down two.

And that was because one part was engineered out of the product that we serve.

By and large though, we have pretty good strength there, especially going forward in '05.

Pumps and motors, which is a strength for HPCG, was up 22.8 percent.

Now, within these strong markets, it is also very important to understand -- one of our fundamental goals at Hawk is to develop more than just riding the crest of a strong economic cycle.

And that is true in these cases.

A good part of our business -- of our growth, based on new product introductions, or NPI's, as we call them -- where it is a new business award -- a new development of a material.

We talked extensively about the mining truck break material that we developed and started marketing in '04.

So those things are going to provide a fundamental strength for us that goes beyond the cycles.

Income from operations in the friction business went up 57.8 percent from 8.3 to 13.1 for the year.

At HPCG, which is largely powdered metal, sales were up 15.4 percent.

And income from operations was up 5.2 percent.

We have increased momentum that is starting to show itself -- not a lot of in '04 because it was picking up at the end.

But we really kicked in our sales initiatives, as we reorganized our sales force and reorganized our efforts the latter half of '04.

The selling cycle is long enough such that in HPCG, we don't get the business right away.

There is probably a 6-month lead time between a sale and actually going into production by the time the part is engineered and so forth.

But we really have kicked up our new product -- our new business awards there.

And I think the benefits are starting to show at the end of '04 and definitely in '05.

In our racing segment, sales were up 10 percent -- operating income up 133 percent.

And you may recall, that's one of our smaller divisions but very visible because we make transmissions and clutches for high-end motorsports.

In fact, if any of you happen to watch NASCAR, we had transmission on the winning number 24 car that Jeff Gordon drove the other day in Daytona.

In a longer-term snapshot of our strategies, we are positioning ourselves at Hawk working on three things.

One is technology -- to bring superior technology to these fields.

And we do it in many, many ways.

It wins business for us and solves problems for our customers.

We're working intensely on new business awards to find -- or spreading geographic coverage and broadening our sales into new markets.

And we continue to focus on operational excellence, particularly Six Sigma (ph).

With those things as background, I'd like to turn this over to Joe Levanduski and Tom Gilbride.

Joe will go first, and he will cover the financials in more detail.

And then when he and Tom finish, we will be glad to take Q&A.

Thank you, Ron.

I will not reiterate a lot of what Ron mentioned on the revenue sections, since he went into a great deal of detail -- other then to indicate that the revenue increase of 19 percent, recognized by the Company in '04, exceeded the guidance range that we had out there in the market of 13 to 16 percent for the year.

So we were pleased on that performance metric.

And income from operations in '04 -- 17.3 million versus 10.9 million, an increase of 6.4 million or 58.7 percent.

Operating income as a percentage of revenues improved to 7.2 percent versus 5.4 percent in '03.

These strong results were despite the negative impact that the increases of certain raw material costs, especially steel, had on the Company during the course of the year.

So we were able to overcome a pretty high obstacle during the course of the year.

The results are at the high end of the range that we provided to the market.

And there are two specific events -- one that impacted '03 and one that impacted '04 that also contributed to the increase.

In the fourth quarter of 2003, the Company recorded a non-cash charge of 1.9 million related to a pension curtailment issue that was associated with the closure of -- our announced closure of our Brook Park, Ohio facility, as we have moved that facility to our new Oklahoma facility that is under construction right now.

The associated relocation project in 2004 -- the Company incurred $1.1 million of charges for the full year associated with that relocation.

And that was just slightly under the guidance that we had provided to the market.

We had indicated that we would spend roughly $1.2 million during the course of the year.

The relocation project, since I mentioned it, is going along extremely well.

The construction of the facility is near completion.

Equipment is currently being installed in Oklahoma.

And in fact, some of it is operational, where we were actually generating revenues out of that facility, which was ahead of plan.

Cost impacting '04, as I mentioned, is $1.1 million -- is roughly equates to $0.08 per share on an after-tax basis of diluted earnings per share on an after-tax basis.

Below the operating income line, the cost to complete the high yield offering, as Ron indicated, we went through in the fourth quarter of 2004 -- the Company recorded a $2.4 million charge or roughly $0.18 per diluted share on an after-tax basis, primarily related to a write-off of deferred financing charges, consent payments and other fees associated with the retired financial instruments that we had on the books when we did the transaction.

Our effective tax rate, as Ron mentioned, went to 66.1 percent, which was an increase from the 42.9 percent that the Company had recorded as of September 30th, 2004.

Obviously, this rate is driven by a mix of our foreign income and domestic losses, as Ron detailed, as well as the inability of the Company to utilize certain tax credits during the quarter.

Our earnings per share on a full-year basis finished at $0.15 per diluted share from continuing operations versus a loss of $0.07 a share in the 2003 year.

Moving and looking forward into 2005, the Company expects revenues to continue to improve versus the '04 year.

Our full-year expectation is for our revenues to improve 10 to 12 percent.

Our first quarter, which normally starts out stronger due to some of our markets that we serve, we anticipate being up 13 to 15 percent.

Looking at some of the markets that are driving that strength, we expect construction to be up roughly 20 percent off a very strong 2004 year.

Heavy truck continues to improve; we expect that market to increase about 17 percent.

Performance break, which had a record year in 2004, will continue to perform very well, improving about 30 percent per our expectations.

As Ron mentioned, our agricultural markets due to a variety of factors after having several years a very strong year-over-year improvement, we expect to be flat to slightly down for the 2005 year.

Aerospace, where we actually saw a 7-percent improvement in 2004 over 2003 -- we expect to be flat to slightly up.

Income from operations for the corporation on a full-year basis, we expect to be up 7 to 9 percent for the first quarter of 5 to 7 percent.

This is on a GAAP basis.

It includes relocation charges of roughly 4 to $4.5 million to complete the relocation project to Tulsa, Oklahoma.

This is consistent with the prior guidance that we had provided to the market.

We still anticipate being on track, and the project to be completed in the 2005 year.

The impact on the '05 results, on an earnings per share basis, is $0.30 to $0.33 per diluted share.

Our tax rate, which as Ron indicated, is higher than one would anticipate in '04.

We do expect to see a slight decline in the effective tax rate; although, we still are facing certain issues related to the mix of domestic losses versus foreign income in the '05 year -- largely attributed to the cost associated with the relocation projects that fully impacted domestic locations.

The tax rate guidance that we're providing for the market is 48 to 53 percent.

We do expect to provide a lot of attention to this area.

Hopefully, this number will not be as high as this range.

But it is the best guidance that we have at the moment given our current annual operating plans.

Our earnings per share on a GAAP basis, we anticipate to be $0.35 to $0.40 per share after giving the effects of the relocation costs, so -- which is $0.30 to $0.33, as I previously mentioned.

Excluding this relocation cost, we would expect the range to be between $0.65 to $0.73 per share.

Moving over to the balance sheet, I just want to touch on a few items.

Our working capital increased $16 million after excluding the Company's $24.1 million bank facility, which was classified as a current liability in 2003.

The new bank facility, which we brought on in the fourth quarter of 2004, is appropriately classified as a long-term debt in the balance sheet as of December 31, 2004.

So there is a little bit of classification issue regarding the bank facility, and I just wanted to point that out.

Our working capital increase resulted in a growth of our receivables, resulting from a higher sales volume and our expanded inventory levels that were required to support the increased production volumes as well as the support the safety stock required to transition smoothly to our new facility down in Oklahoma.

Our total debt increased by $18 million to support the working capital needs as well as CapEx in 2004, which was approximately $18 million.

As Ron indicated, we did complete a high-yield offering in the fourth quarter of 2004.

In November, the Company issued $110 million of 8 3/4 Senior Notes due November of 2014.

At the same time, we brought on a new bank facility with a revolving credit commitment of $30 million, which includes a $5 million letter of credit sub-facility.

The availability under that bank facility as of December 31st was approximately $27 million after giving the effect of about $3 million of letters of credits outstanding.

We had virtually no cash outlays, only a couple of $100,000 utilized underneath the facility after taking into account the letters of credits outstanding.

As a result of this transaction, the Company believes that we have sufficient availability and flexibility under a very convenient covenant structure to provide the kind of growth requirements that we are going to be facing as we go into '05 and beyond.

So we are very comfortable that our balance sheet is structured well from a debt side.

And we're looking forward to going forward and implementing our growth strategies in the future.

With that, I am going to turn it back to Ron for concluding remarks.

Okay.

Well, good -- I think what we are going to do right now is open the call to question and answer.

So anyone has a call, please indicate.

(OPERATOR INSTRUCTIONS).

Jordan Teramo, MacKay Shields.

I'm relatively new to this situation but wanted to just understand -- clearly the market, the stock down 5 percent today -- something missed at least with expectations.

I know you said you hit the high end of guidance.

And then in terms of the guidance for '05, things looked okay.

I do not know if it was a tax rate.

But I just want to at least understand from your prospective what you think might have been disappointing in either the numbers or the guidance.

And then to what extent -- I do not know if the guidance you provided -- do you think is conservative for some reason because I know last year you did kind of come out and improve guidance as the year went on.

This is Joe Levanduski.

Let me respond first, and Ron can add his flavor to the comments as well.

Obviously, how the market is reacting is something that is beyond our control.

However, I believe that we did in the '04 year deliver either beyond or within the guidance ranges in both of the guidance metrics we provided.

I think obviously the tax impact and the tax rate is something that is somewhat challenging to get comfortable with and get your hands around it.

It is obviously is a very technical matter, and we try to provide significant explanation to cover the reasons why we have a 66-percent rate in '04.

In '05, we actually expanded our guidance.

We normally don't provide guidance on an EPS basis or an effected tax rate guidance but felt it was necessary to provide the market with sufficient information to help get a better, clearer, transparent picture of how the Company expects to perform.

We believe that our operating strength is very solid.

We are doing very well in all our operational fronts.

Obviously, the tax rate is impacted by certain domestic charges that are fully burdening the domestic locations, the relocation costs in '04, the refinancing charges.

These things have a tremendous impact on the mix of the earnings and the effective tax rate that is driven and shown on a consolidated balance sheet.

I think that from a guidance range on revenue and operating income in '05 -- while I think by nature, we are somewhat conservative in our guidance.

And as we go forward during the year, if we expect the strength of our Company to be even stronger than what our guidance range is, we will obviously come back and provide additional guidance.

As we did in the '04 year.

But right now, we feel very comfortable with the ranges that we're providing.

Okay.

And just beyond that -- in terms of strategically -- after getting the plant relocations and some of these things done, any thoughts regarding ways to improve the stock price -- whether it be -- I do not know if it is consolidation in terms of you buying add on buys out there -- companies that you think might be cheap that might be a good strategic fit?

Or to what extent you would be -- it would be a better value as part of a larger company or stock buybacks or anything strategic that you guys are thinking of given where the equity is?

Well, first of all, Jordan, your question was a very good one.

Why is the market reacting?

We don't ever hold ourselves out at experts in predicting the market.

But let me just give you kind of a personal sense of what has happened and then segue into your other question.

The factors that we referenced that -- the refinancing cost and the move to Oklahoma were certainly not a surprise to us.

Obviously, they are very strategic important initiatives, and they are probably not a surprise to anybody that follows our stock.

We have talked about them extensively.

We even had a code name for the project -- of the move, which -- it was "Project Hurricane."

However, whenever someone sees what I would call "noise" in a financial result, it produces some people who just are skittish.

And it is sometimes to be expected.

What we hope to communicate are the strong underlying fundamentals that are doing very well.

Now, when you talk about future -- where's the stock price going?

We come at it in two ways.

I am personally the largest shareholder.

So when you talk about value for the business or shareholder value, it is important to me.

Like a lot of people, I sort of make that calculation probably once a day.

And the Board and the other insiders are in the mid 30's in terms of percentage ownership of the Company.

So there is a lot of thought, real care that goes into where we can take this Company long-term.

We begin with a very fundamental long-term precept is that I want us to create a great company.

One that has got a lot of value.

One that is enduring.

One that can compete at will in any market, anywhere in the world of the markets we serve of what we do.

And so, we have spent a lot of time on the quality of what we're all about as a company.

Whether it comes from the technology that I just referenced so that we really can outgun anybody else and offer better solutions to our customers, from the quality of the people that we have got, to how we do business and where we do it.

If we build on those things and continue to drive EBITDA to higher levels, which is our clear goal -- just keep moving it up, the rest gets easier to follow.

Now, in terms of call it "corporate finance techniques," we are aware of them.

When we throw off cash in the past, we have done stock buybacks.

And we have nothing on the drawing board now, but it's not to say that we could not consider it.

It is an important tool of sort of economic value-added thinking -- to use as little capital as we can to have to produce the growth, produce it in a lien capital fashion, use the capital to buyback stock and therefore kind of leverage the equity base.

And that's -- we are not unaware of it.

I want to emphasize nothing on the drawing board, but we know about that.

In terms of acquisitions, we grew a lot in the '90s through acquisition.

We certainly know how to do it.

We grew a large part of our growth -- was through acquisition.

Anything we look at now would be directly in line with our current markets.

And so, we from time to time look.

And we are careful about what we do, and it would be very focused.

I do not like the word "bolt-on" because nothing is that easy.

But that's kind of the term that you could use to the things that we look at.

So we are aware that.

As in terms of whether we would be better off as part of a larger company, that's a subject for a future day.

That is a price discussion not a strategic discussion -- but you know, who knows sometime in the future.

If that answers your question, that is kind of a rundown on our thinking.

Joseph von Meister, Jeffries.

Well, I had a couple of bookkeeping items that I wanted to see if I could get from you, which is -- can you give us the EBITDA from your segments in the fourth quarter -- friction, precision and performance?

We don't provide the guidance on an EBITDA basis.

No, not guidance, the actual numbers -- you gave us operating income.

And I guess when your Q comes out, you will have operating income and depreciation expense.

Right, we will have all of that by segments.

So it will be in the Q -- in the K with all of that where you would be able to calculate the EBITDA by segments.

Okay.

And then CapEx for the year was 18 million?

Yes, approximately 18 million.

So, 5.3 million in the fourth quarter?

Yes.

And CapEx for next year is 14 to 15?

Yes, that guidance is still 14 to $15 million of CapEx in '05.

And the guidance that you gave in your note is as usual really specific.

And I sort of noodled around the numbers a little bit.

And I get -- you know, if you take out the 4 to 4.5 million of plant closure cost, an increase in operating income for 2004 versus 2003 of perhaps 30 percent.

Is that consistent with your thinking?

Or am I leaving something out?

It would probably be slightly stronger than that if you exclude the Hurricane costs, the relocation costs.

But yes, it would be slightly higher than 30-percent improvement.

So, something like 25 million plus in operating income for 2005 versus 19 million in 2004.

I'm not quite sure where you are coming up with those numbers, Joe.

Maybe we can talk off-line.

Yes.

Okay.

I just want to make sure that I got this.

Were you trying to take the guidance that we did for operating income and add back Project Hurricane, the Tulsa move?

Right.

Okay.

Well, it is aboutly (ph) analyze it, Joe will have to go over with you whether you hit the numbers right.

I didn't --

Yes, I just want to make sure I do not get them wrong.

That would be a wonderful result for, I think, the shareholders and everyone at the Company.

We agree.

And you have to remember that we're not a short-term place.

So from a long-term perspective looking out into '06, which we haven't provide any guidance on obviously -- but as we get through the relocation costs aspect of the project, which is 4 to $4.5 million of impacted items in the '04 guidance.

In '06, as we get into full production in that facility, we expect to have savings of about $2.5 million.

So, it is going to be a pretty strong swing in operating performance on a GAAP basis between '04, '05, to '06.

And how can you -- can you help me with the 4 million of costs?

How that will fall in Q1, 2, 3 of 2005 -- the relocation costs?

Yes, give us a second.

Joe is checking it.

The only thing that I probably feel comfortable right now giving you, Joe, is the first quarter, which is obviously part of the guidance that we are talking about as part of our guidance.

If you hang on one second --

While he is looking at that, Joe, the nature of it is it flows to some degree through the year.

In other words, it is not one spike.

Because what is going to happen is not we operate the plant in Ohio, and then 1 day, bang, we close it and move to Oklahoma.

It would be a migration through the course of the year.

But the first quarter operating costs impact of the relocation move to be approximately $700,000 out of the 4 to 4.5 million.

You know, while you were saying -- I was thinking of Mr. Jordan's earlier comments.

And I note that the stock has gone from about 4.5, 5 in the beginning of this year to somewhere between 8 and 9 currently, which is pretty good.

We were the third most productive stock in the state of Ohio.

Some of the papers wrote about us out there for '04.

The last question I have you for you guys is -- any color you can give us on other new business awards?

I know the differential lockup program was something that we had talked about and was pretty meaningful.

Here's a little local background color I can give you.

I do not have numbers in front of me.

But the momentum at Wellman was about 2 years ahead of the momentum at HPCG, largely because sort of management.

Our current management was in there a couple years ahead and really clicking along.

When we made some management changes at HPCG, they began work on kind of call it organizing and reorganizing the sales effort.

And that really went through Q2, Q3 of '04.

They really started clicking in with NBA's, as we call it, or new business awards, in Q4 of '04 and Q1 of '05.

And it is really starting to happen.

So that they really track on a weekly basis, new sales awards and making sure that we do not lose any existing customers.

And our won/loss ratio, we really haven't lost anything in the last couple quarters or been engineered out of anything.

And the new business awards have clicked up dramatically.

So as background color, that is one of the things it gives us -- confidence and comfort.

And when we talk about a new business award, that is as distinguished from just good quantities on existing work, which is what is driven by a strong economy.

When the economy is strong, there will be more copies made of a particular product.

A new business award is plus new business.

And that is what is flowing in.

And that is what is being won by the technology that we have been talking about for a number of months that is new and HPCG.

And the beauty of that business is -- any industry, it can virtually be a candidate.

We have got certain ones where we are strong and well-known.

But any place that uses metal parts, we have an opportunity for the conversionearing (ph) -- we call it, which is converting something from more expensive way of manufacturing into powdered metal.

The other thing that is happening, ironically enough, is -- we do have plants in China for both Wellman, which is friction and powdered metal, which is HPCG.

But ironically enough, there are cases where we are winning business that is coming back to us in the United States that has been sourced to low labor costs countries, such as India.

Because while the labor may be cheaper, the delivery times, the cost of freight, and the levels of quality are not always there.

And so when you have parts that are not really long runs where you can get them tuned up, it oftentimes is equally or better efficient -- more efficient to produce them in the U.S.

Very good.

I appreciate that color, and I think I will jump off and let someone else prompt.

Thanks a lot guys.

Ben Papay, Key McDonald.

I apologize if I missed any of these questions, but I jumped on the call about 5 minutes late here.

I was just wondering if you can give me some more color on the raw material cost pressures -- give me kind of an update what you seen so far in the first quarter mainly for steel?

Well, first quarter of '05?

Yes, you've been in January, mid-February, I was just wondering -- have you seen any increases in the cost of steel on an absolute basis over the fourth quarter, which I believe the fourth quarter was flat with the third quarter.

Yes, the best story there we can tell you it is -- of course we are only 45, 50 days into it - is no news is good news.

Nothing dramatic has happened.

It is our view -- not view -- but we have neutralized the cost.

If nothing else changed, we would be -- have neutralized all of the stuff that happened in '04.

To give you a little bit of a recap of '04, there was something like $4 million of cost of steel.

This is really a Wellman, but it gives you the flavor.

And we during that year, taking into account the lags, we raised our prices about 2 million.

Then, we had increased scrap realizations of about 1.5 million.

So it left us with 5 to $600,000, I rounded a little bit, of uncovered hit.

And that was in the friction part of the business.

We had something similar over at the powdered metal part.

But it's our policy -- we jump on these things as fast as we can.

We try and minimize the lag, but as you can expect, there always is one.

And that's the way we reacted.

My sense of it is that reading the stories of other companies, that we probably reacted a little bit quicker and more effectively than many companies did.

We were not afraid to go for it.

We just had to because these prices of steel are too dramatic to sit back and absorb it.

So, we didn't.

And nothing new that has happened yet in '05.

You know, nobody has a perfect crystal ball.

But a lot of what we hear is that some of that surge and pressure from China is eased off, and maybe we will have a little bit of a flatter year in terms of steel and commodity prices.

Okay, are you baking a flat year into your '05 estimates?

Or --

Yes.

Are there any availability issues for steel right now?

Or is that kind of corrected itself a little?

That was a phenomenon that happened in the first part of '04 in the spring.

And it played havoc with manufacturing inefficiency.

But by the end of the year, as the old saying goes, the best cure for higher prices is high prices.

Things assume an equilibrium pretty quickly.

Okay.

Is there anything else in your cost of sales that are kind of not letting you bring down the full extent of your sales growth to the bottom line?

Your sales growth is excellent, but it seems like you got the raw material costs under control.

Are you just thinking conservative on your first quarter '05 guidance?

Or are there more costs to it than that?

I think by nature, we are on the conservative side.

Okay.

Just in terms of working capital in 2005 -- do you expect working capital to be a use of funds in '05?

I would say we would expect working capital to turn and start being the source of funds.

You know, we saw the major increase in working capital assets, some of that related to the buildup with regard to Oklahoma.

I think we talked the last couple of calls with regard to the Pep Boys relationship.

That initial stocking order had payments coming due in '05, which had been made.

So I think we will see a turn in '05 on the working capital.

The only flavor I want to add to that comment is -- obviously, the transition to Oklahoma is something that we are on top of.

We're working very closely with our customers that are involved in this transition.

We're not going to do anything silly from a working capital standpoint that will affect the customer service aspect of this transaction.

We will protect ourselves to make sure that we continue to provide uninterrupted service to our customers.

Okay.

And then lastly, can you talk a little bit about your guidance for aerospace?

Is the fact that you only expected to be flat to slightly up in '05 -- is that just due to the tough year-over-year comps?

Or what are you kind of seeing there?

Well, I think obviously when we first went into the '04 year, we were actually expecting our aerospace business to be down slightly.

And as we progressed during the year, there was some additional buying in the fourth quarter.

I think more from a maintenance standpoint of providing a stock supply from our major customers in the aerospace business.

So we actually saw a trend strengthening in the second half of '04.

We expect to see it to be slightly up for the '05 year but in single digits, low single digits.

You know, by definition, aerospace is not going to do anything dramatic.

Traffic is out there.

The economy is stronger.

And people are flying more after the last few years.

A few people might have been spooked on the 9/11 situation.

And so there is steadiness there.

On the negative side, you've got airlines that are scrambling for their own market positions.

They are losing money.

They still have to buy our product.

But there's no -- there is just no big surge.

And so that's why we just see up steadily.

Next question?

Jessica Tan, Goldman Sachs.

Thank you.

My questions have been answered.

Thanks.

And there are no further questions in queue.

Okay.

Thank you very much, everybody.

We're always pleased to talk with you.

And anyone that has questions always free to call us.

Thanks a lot.