EnerSys (ENS) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the third quarter 2007 EnerSys earnings conference call. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS).

I would now like to turn the presentation over to Mr. John Craig, Chairman, President, and CEO of EnerSys. Please proceed, sir.

Thank you. Good morning and thank you for joining us on our conference call this morning. During this call, we will be discussing our third quarter and first nine months results for our fiscal year 2007, as well as making comments on the general state of our business.

But before we start, I would like to ask Mike Philion, our Chief Financial Officer, to cover information regarding forward-looking statements. Mike?

Thank you, John, and good morning to everyone. As a reminder, we will be presenting certain forward-looking statements on this call that are based on management's current expectations and are subject to uncertainties and changes in circumstances. Our actual results may differ materially from the forward-looking statements for a number of reasons.

For a list of the factors which could affect our future results including our earnings estimates, see forward-looking statements included in item two, Management's Discussion and Analysis of Financial Condition and Results of Operation set forth in our quarterly report on Form 10-Q for the quarter ended December 31, 2006, which was filed yesterday with the U.S. Securities and Exchange Commission. In addition, we will also be presenting certain non-GAAP financial measures. For an explanation of the differences between the comparable GAAP financial information and the non-GAAP information, please see our Company's Form 8-K, which includes our press release dated February 7, 2007, which is located on our website at www.EnerSys.com.

Now, let me turn the call back to you, John.

Thanks, Mike. As you saw on our earnings release last evening, we continued our solid growth in the third quarter with sales up 17%. I am pleased with the fact that we held our quarterly adjusted earnings very close to those of prior-year given that the commodity cost increased by $23 million in the third quarter as compared to the same period last year. These costs would have adversely impacted our EPS by $0.33 a share if we had not been successful in an increasing sales volume, reducing our overall cost and obtaining price increases for our products and services.

Revenue growth continues strong in over 10% for the quarter after excluding the positive impacts from acquisitions and stronger foreign currencies. We saw positive growth across all geographic regions in all business segments. I am particularly pleased with the strength of our motive power business with revenue up over 15%. We believe overall market growth remains strong and we also believe we continue to increase our market share.

Now, I would like to take and -- make a few brief comments on lead. As you know, the LME price of lead has continued to increase and is currently over $0.70 a pound compared to the average of about $0.58 a pound last year. Although the price of lead is at record high levels and we believe it will come down in the future, but we just don't know when that's going to happen, so we will continue to stay focused on reducing cost while providing our customers with the best reasons to accept price increases, those being our excellent products and our outstanding services.

I believe our proven ability to increase our market share is directly due to the combination of our high quality products and our excellent service that we provide to our customers. Over the past several months, I have met with a number of customers and the common message I hear is that no one really likes price increases, but they do understand what's causing the increases and they're willing to pay for the products and services that we provide.

Turning a moment to acquisitions, our recent acquisitions are progressing well and we announced two more recently. In January, we acquired a lead acid battery business in Switzerland named Leclanche. We recently announced an agreement to purchase a Bulgarian company named Energia, which manufactures reserve power and motive power batteries largely for the Eastern European and Russian markets. We are excited about the potential of this new company, not only with its existing markets of products, but the ability to expand its production to provide additional low-cost products for our growing Western markets.

We're not going to slow our quest for future acquisitions. We continue to focus on these opportunities that will provide our share of industrial lead acid battery markets; recent examples of that being [Fiom] and Leclanche, areas that will provide alternate technologies such as the acquisition of GAZ, the nickel-based battery business, and ATK, our lithium-based battery business, and expand our low-cost manufacturing base, such as the company we bought in China called CFT. and with the recently announced acquisition of Energia in Bulgaria.

Last evening, we provided guidance for the fourth quarter to be in the range of $0.15 to $0.19 per diluted share. The anticipated level of earnings may be lower than our adjusted third quarter earnings EPS of $0.19, primarily due to $15 million of additional lead cost that we will experience in the fourth quarter. This is equivalent to an EPS pressure of $0.21 per share.

We expect to eventually achieve price recovery to offset all the higher commodity costs, but we will not realize the full benefit of our recent price increases until after the fourth quarter. We have clearly shown success in increasing revenue, reducing cost, and achieving price recovery, and I'm confident in our ability to continue to achieve these objectives. But we will not recover everything in the fourth quarter. The added pickup in the price will come in future quarters.

Overall, I continue to be very pleased with our performance this year in this very challenging environment. And with that, I would like to ask Mike Philion to cover -- go into a little bit more detail on our financial results. Mike?

Thank you again, John. The results of our third quarter and nine months of fiscal 2007 were solid and continue to reflect strong topline growth, improving pricing recovery and challenging commodity cost pressures. We believe these results continue to clearly demonstrate the strengths of our global business and our industry-leading position.

Our third quarter net sales increased 17% over the prior year to $378 million. On a business segment basis, net sales in the reserve power business increased 12% to $157 million, while our motive power business increased 22% to $221 million. Our third quarter 17% growth rate includes approximately 4 percentage points due to our ongoing pricing recovery actions, 6 percentage points due to foreign currency translation, and 1% due to our acquisitions.

In summary, our base business experienced solid revenue growth in the quarter. Our net sales for the nine months of fiscal 2007 also increased 17% over the prior year to approximately $1.1 billion. On a business segment basis, net sales in our reserve power business increased 14% to $474 million, while our motive power business increased 20% to $617 million.

The nine month 17% growth rate includes approximately 4% due to our pricing recovery actions, 4% due to foreign currency translation, and 2% due to our acquisitions. Again, our business experienced solid revenue growth for our nine month period.

Now, a few comments about our as-adjusted consolidated earnings performance. As you know, we utilize certain non-GAAP measures in analyzing our Company's operating performance, specifically excluding highlighted items, which are primarily litigation settlement income and an income tax settlement benefit in fiscal 2007, and restructuring charges in fiscal 2006. Accordingly, my following comments concerning operating earnings and my later comments concerning net earnings exclude those relevant highlighted items. Please refer to our Company's Form 8-K, which includes our press release dated February 7, 2007 for more details concerning these and other highlighted items.

Our third quarter of fiscal 2007 as-adjusted operating earnings were $21 million or an increase of 8% in comparison to the prior year with the operating margin decreasing 50 basis points to 5.6%. This earnings growth was achieved in spite of higher commodity costs of approximately $23 million in the quarter. Clearly our commodity cost headwind was more than offset by the favorable impacts of higher revenue, selling price increases, cost savings programs, and the successful integration of our acquisitions.

A major contributor to the improved profitability in the third quarter was the continued progress made in our ongoing pricing recovery actions. We estimate that price increases of approximately $14 million or roughly 4% of net sales were achieved in our third quarter. Further, we anticipate improving pricing recovery results will be achieved in our fourth quarter as we begin to realize the benefit of our recently announced price increases in November 2006 and January 2007.

However, our improved fourth quarter pricing recovery rate will still lag from a tiny perspective relative to the additional lead costs we will experience next quarter. We have seen this timing pattern in the past and as John commented earlier, we remain confident in our ability to fully realize additional pricing in the future to offset increasing commodity costs.

For the nine months of fiscal 2007, as-adjusted operating earnings were $68 million or an increase of 27% in comparison to the prior year, with the operating margin increasing 50 basis points to 6.2%. The nine month improvement in operating earnings was driven by the same factors as experienced in our third quarter. Our ongoing cost savings program remained a vital element of the improved earnings in both the third quarter and nine months of fiscal 2007.

In general, our 2007 programs are on schedule as to both timing and their full-year cost savings objectives. We remain highly focused on continuously identifying new cost savings opportunities throughout our global business.

As John has already discussed, our third quarter results have been significantly affected by the higher cost of commodities. Lead alone, which is roughly 25% of our cost of goods sold, represents approximately 80% of the $23 million increase in total commodity costs absorbed in the third quarter.

The average LME cost per lead incurred by EnerSys as it affected our third quarter income statement was approximately $0.55 per pound compared to approximately $0.39 per pound in the prior year or an increase of over 40%. Further, we expect our fourth quarter LME lead costs to increase to approximately $0.67 per pound as LME lead prices have continued to increase to record levels.

As you may recall, it takes approximately three months for lead purchased today to impact our future income statement due to our FIFO accounting method. The unprecedented volatility in lead costs continues to be a major business challenge for us in our industry. Most lead experts still anticipate lead costs are likely to fall later in calendar 2007. Our current lead hedging position and strategy reflects this lead market outlook and assessment.

Now, a few comments concerning our as-adjusted net earnings. As-adjusted diluted net earnings per share were $0.19 (technical difficulty) [in the third] quarter compared to $0.20 in the prior year or a decrease of 5%. We are satisfied with these results given the challenging third quarter commodity cost environment in which we operated.

For the nine months of fiscal 2007, as-adjusted diluted net earnings per share were $0.64 compared to $0.53 in the prior year or an increase of 21%. Although we are pleased with our nine month earnings results, when considering the formidable business challenges we have faced, we are not satisfied at our current profitability levels. I can assure all of our shareholders that the recent commodity cost pressures do not alter in any way our longer-term strategy and objectives for improving earnings and enhancing shareholder value.

Our effective book income tax rate for the third quarter was 16.5%, which included a nonrecurring $2 million tax benefit from a tax settlement. This highlighted tax benefit is equivalent to $0.04 per share in both our third quarter and year-to-date results, and represents roughly a 15 percentage point reduction in our book tax rate in the third quarter.

Excluding this third quarter nonrecurring tax benefit, we estimate that our book rate will approximate 32% for the full 2007 year. Further reductions in our book tax rate remain an important focus and I expect significant additional progress will be achieved in fiscal 2008 and beyond.

Over the last three years, we have successfully reduced our book tax rate from 38% to 32% with our current goal of 26% by fiscal 2009. Each 1% reduction in our book tax rate is equivalent to approximately $0.01 of EPS. And finally, concerning taxes, our cash income tax rate for fiscal 2007 remains very favorable at roughly 20%.

Now let me make a few comments about our financial position and cash flow results. Our cash flow and liquidity positions are solid and the relationship with our bank group remains good, as evidenced by the following five points.

One -- year-to-date cash flow from operations was $52 million, which is more than double the prior year.

Two -- net debt, which we define as total bank debt minus U.S. short-term investments has decreased approximately $13 million since the beginning of fiscal 2007 to $387 million.

Three -- we have in excess of $100 million in borrowing capacity available under our existing credit facilities.

Four -- we remain in full compliance with our loan agreement financial covenants.

Five -- as announced yesterday, our lenders agreed to a reduction in our credit spread of 25 basis points to LIBOR plus 175 for our senior secured term loan debt of $356 million. This will further reduce interest expense by roughly $800,000 per year. We certainly appreciate the ongoing support from our banks and their confidence in us.

Primary working capital, which we define as Accounts Receivable plus inventory minus Accounts Payable, was $381 million at the end of our third quarter, and as a percentage of annualized trailing three month net sales was 25.2%. Primary working capitals have increased since the beginning of fiscal 2007 by $51 million due primarily to our sales growth with our primary working capital ratio increasing 1.8 percentage point.

This change in our working capital ratio was expected and is in part caused by plan increases in selected inventory levels to further improve service to our customers plus the unfavorable impact of higher commodity costs on our inventory balances.

Our nine months of fiscal 2007 capital expenditures were $28 million compared to $30 million in the prior year. Capital spending continues to focus heavily on the reduction of cost, introduction of new products, expansion into new geographic markets, increases in manufacturing capacity in our lowest cost regions of the world. We expect capital spending for the full 2007 year will approximate $39 million.

As you also know, on December 12, 2006, certain of the Company's major shareholders sold 6 million of their common shares to Lehman Brothers in a block sale transaction. No proceeds from this transaction went to the Company. As a consequence of this stock sale, our public float has increased by approximately 50% to 18.5 million shares. We believe this increased public float will benefit all our shareholders in the future.

As John mentioned previously, we expect to generate diluted net earnings per share of between $0.15 and $0.19 in our fourth quarter. The three primary factors that will impact our fourth quarter earnings are first -- the anticipated sequential quarterly increase in commodity costs of approximately $15 million coupled with the normal timing delay associated with our recent price increases.

Second -- continued progress in further improving our pricing recovery, and third -- the expected historically strong fourth quarter sales volume.

In closing, I remain very confident in our Company's future, believe we will successfully meet our future challenges, and continue adding to our industry leadership position.

Now, let me turn the call back to you, John.

Thank you, Mike. I continue to believe that the global diversity of our business, the diversity of our customer base and by EnerSys having the best employees in our industry, we will continue to be successful. Our sound business strategies coupled with a solid and consistent execution continue to provide the foundation for us to achieve our goals.

In summary, these basic strategies are, first -- expand market share by continuing to take care of our customers and give them the best overall value; second -- achieve additional pricing to offset higher commodity costs; third -- continue to expand our manufacturing in low-cost areas; fourth -- continue our highly successful cost savings programs; and finally, pursue appropriately priced acquisitions.

In summary, I continue to be pleased with our results and remain confident in our future. And with that, I would like to open the lines for questions.

(OPERATOR INSTRUCTIONS). Dan Whang, Lehman Brothers.

First question was, compared to what we had modeled and kind of the general expectations, revenues and margins both came out meaningfully stronger. Just wanted to get your thoughts versus what your expectations, your plans going into the quarter, what turned out better and just kind of a comparison versus your thoughts going into the quarter?

Yes, I think that the best way of describing that, as we said in the last conference call that we were going to go after pricing. We pushed pricing very hard. We expected the volume to go down. So when we look forward to where we thought we'd end up in the quarter, the big surprise to us, our volume was higher than we anticipated. The pricing came through, cost savings came through, volume came in much stronger than we anticipated. As I said earlier, I've been out talking with customers recently and the message that comes through is they understand the reasons why that we're increasing pricing, but the thing that we've also really focused on is taking care of our customers, and that, I think has really paid off for us.

And now that -- obviously I think everyone is cognizant of the unusually high lead prices and you went out with another couple of rounds of price increases that you mentioned this year and late last year. What has been the receptivity so far from that from your customers and have your competitors kind of reacted in kind?

Yes. The customers, as I said earlier, they understand the reasons. I think our sales force worldwide has done an outstanding job of explaining to the customer base what's happening with commodities, and I think that the services we provide that the customers are willing to pay a higher price than they have been in the past.

The second part of your question relative to competitors, we are seeing competitors increasing pricing, more so now than ever before. There's more discipline I believe in the market today than there was even a quarter or so ago.

So in terms of your outlook going into the fourth quarter and just -- it seems like all the geographies and product segment generating very solid strong demand. Are you sensing anything? I think there -- in general in North America, some folks talk about some slowing. But what are you seeing out there in terms of customer sentiment and kind of the outlook on the next quarter or so?

I think in our last conference call, my words to management, there was a slow-up I felt that was coming. We kept looking for it and every time we'd turn around, we find out that that is incorrect. Things are very strong. This economy, not only in the U.S. but in Europe, is very strong and we do not see a slow-up taking place.

And finally, my question was around the lead hedging. I saw on your 10-Q that you, on a sequential basis, increased the amount of lead hedging a little bit, about 53 million, and just your thoughts around that and a decision to increase that hedging position and how you expect to kind of keep that program going and move forward?

Yes, in the Q, we had mentioned 53 million pounds as you brought about 12%. Since the Q, we have increased that. We are about 30% forward bought right now at approximately $0.695 ballpark. What we've been doing is looking at the market and with some of the things that's recently taken place, specifically with one large hedge fund, there's a lot of volatility. So we put out some prices that were considerably below what the spot market was at that point in time, hoping they would hit, and in fact, they did hit. So with lead at 30%, forward bought in the $0.695 range, I'm pretty happy with that right now.

Now I will say the 30% forward bought is in quarters -- that this quarter and next quarter is where most of that falls. We are not going out long right now because we still believe that it will come down in time. So as far as looking out a year from now, taking [large] positions, we are not doing that. But in the short quarters, this quarter, next quarter, and a little bit into the following quarter, we put out some -- call it bottom fishing, if you will. We're putting out low prices and some of these are hitting and if lead does drop down considerably, we think we're in a pretty good shape with it that still we would recover from it. On the other side, if it does go up, we'll be very happy we have these positions.

I think I'll let someone else have a try but congratulations on a great quarter.

Bill Benton, William Blair.

Congratulations as well. Just quickly, you just talked about 30% forward bought at $0.695 and if I look at kind of average lead during October/November/December, it looks like an average of north of $0.70 on the spot market. And so I know you think $0.67 is what's going to be flowing through the income statement this quarter, so I'm trying to get my head around how you guys were able to get maybe that relatively lower price than what I would have expected just looking at the external market indicators.

Mike, why don't you go ahead and take it?

Sure. Thanks, John. Really two things. As we've documented many times, we continue to emphasize our lead [foaming] program and that is progressing well, and we get an advantage in the $0.02 range broadly versus where the LME would be. And the second, more significant piece of that is we did have some lead hedge positions that will influence our fourth quarter that were obviously very favorable. So it's a combination of those two factors that has us certainly below the spot rates that you referenced.

And the other thing I wanted to just follow up on, you guys obviously are guiding, I think for pretty strong results given the lead price environment. So I know you've been getting price. I'm just trying to get a general sense and Mike, I know you touched on several items that could impact you but, how much price realization improvement are you expecting within your guidance? Are you expecting improvement or are basically these the price improvements that you already kind of have in the bag [as you were saying]?

Clearly we are expecting some improvement to be realized from the November and January. So yes, there's an element that's in the bag, but clearly there's an element of step-up that we do expect to realize in the fourth quarter.

Is that more significant than it has been in prior quarters? And is it because maybe you guys, I know, have been out on the road talking to customer so you're maybe feeling a little bit better about that?

Yes, the step-up is higher in this next quarter, but a couple of things on that step-up. We also have pass-throughs with a certain portion of our business, which are automatic pass-throughs, and we're going to see those effects kick in, in this quarter, the fourth quarter, from the step-up in the commodities or in lead that took place late last year. So some of it is in the bag, so to speak.

The second portion of it, though, is how much that we actually will get on pricing and what percent of recovery we'll get. And as we've said during our earlier comments, that we're not anticipating getting a large portion of that in the fourth quarter. We will get a portion, part of it in the fourth quarter and then we will see the remainder of it pick up in the first quarter of our next fiscal year.

And then also, just looking at the CM results, I guess Europe in general, it did appear to be quite a bit stronger. Is there anything specific going on there or is that just a general economic plus pricing maybe being a little better there?

It's a little bit of both. The markets are strong. We are picking up marketshare over there, and it's a good [do] situation for us, specifically in the motive power area.

Thanks again and congratulations.

Jeff Bencik, Jefferies & Co.

Nice quarter, guys. Just wanted to make sure I'm understanding the EPS here correctly. Obviously there was a nonrecurring tax benefit of $0.04 per share, but it also looks like there was a $1.8 million after-tax restructuring charge that I'm just trying to understand. Is that recurring or is that nonrecurring? And if it's nonrecurring, should I think of it more as those two wash each other out and your actual results were around $0.23 per share?

Jeff, there was no restructuring impact into the third quarter of fiscal '07. There was a restructuring charge in the prior year, but when you just look at 2007's third quarter, the only highlighted item is the $0.04 benefit. So, in simple math, we reported $0.23, you take the $0.04 tax benefit out so the as-adjusted number is $0.19 per share versus the as-adjusted prior year of $0.20 when you strip out the restructuring in the prior year.

Right, okay. I see that now. In terms of, can you talk a little bit about what your volume growth was and then your capacity utilization and then both the motive and reserve sections?

Our capacity utilization in certain areas, we're running right up very tight Europe and motive power is an example, we're running close to a very high 90%, close to 100% there. We are trying to run our plants all out obviously and try to get, as I said in prior meetings, we're not going to be adding capacity in high-cost areas for two reasons. One, we're going after the pricing, but the second reason was the objective of moving more manufacturing to low-cost areas.

We've talked about Energia, the Bulgarian operation. As we see an increased demand for capacity, we will be moving production into areas like Bulgaria into our China plants and our Mexican plants.

Are you finding it cheaper to make acquisitions to add capacity relative to expanding on your own?

Yes, and the expansions in many of our locations, the expansions, it takes a lot longer time to do it. It's a lot more training. If we can go in and buy a distressed company in a low-cost manufacturing area and pay a fairly low price for it and have a trained workforce, that is really the type of things that we would like to do. We do do expansions in other areas. As an example, in our China plant, we've done expansions there. Our Poland plant in Bielsko-Biala, we're in a process of a major expansion taking place there. So we really are expanding those plants, but also doing the acquisitions that are, we think, favorably priced to increase capacity.

John, can you talk a little bit about, I mean obviously, for the last year, year and a half, you and the industry have been increasing your prices. Can you talk about the pricing of your product relative to other technologies and how that has changed over the last year and a half?

Well, we, in this conference call, we speak a lot about lead costs and being higher at $0.70 a pound or roughly today at let's say at about 15 -- $175 a ton. That is pale in comparison to some of the other technologies and the nickel-base systems is an example or lithium-base. We do not see a threat at all because of lead going up that we're going to see fork trucks with different technology batteries in them because it's just cost prohibitive.

(OPERATOR INSTRUCTIONS). John Franzreb, Sidoti & Co.

My questions is almost a follow-up to the previous question about your appetite for acquisitions over the past year. You've had a nice combination of geographic expansion acquisitions and also adding to the product portfolio. Are you A, satisfied with the product portfolio mix right now? Are there some technologies you'd like to add on? And B, are you more likely to make a geographic purchase versus that product addition?

One portion of your question there, for competitive reasons I wouldn't really want to take and tell our competitors what we're looking at but let me describe it this way. We're in, and I've said this many times, that we're in stored energy solutions that make a good return or stored energy solutions that make money. We are interested and very inquisitive on every type of technologies, everything from fuel cells to alter capacitors to -- you name the technology, we've looked at it at one time or another, and we strategically will make investments in areas that we think we can give our shareholders the best return.

So I'm not trying to be evasive here but we have a number of things going on and obviously I do not want to tell the competitors what those are, but if we think we can make a good investment for a good return to our shareholders in a different technology, like we have with lithium, like we have with nickel-based systems, we will continue that.

Has private equity money increased the cost of these acquisitions or are they not involved in your space as much?

They're really not involved as much. There has been one that in particular that we would like to have got into but private equity money came into it. But most of what we've done, they've been -- I'm going to call them as bolt-ons. Without synergies, they would have been tough deals to do for other areas.

Now, I don't know if you answered this previously, but there was a question about the unit volume versus the, I guess, currency and/or pricing. Do you have those numbers? Or no.

Yes, Mike, go ahead, repeat those numbers if you would, please.

Sure. As we said, in the -- essentially, I'm going to talk year-to-date because the quarter and the year-to-date numbers are essentially one and the same, but we were up 17% in total and roughly 7% of that is what we'd characterize as unit volume for the nine month period; 4% price, 4% FX and 2% acquisitions. So for the specific question, the volume fees again remain strong. And so we -- and as John commented earlier, we really don't see any fundamental difference in demand patterns as we look into the next couple of quarters.

Yes, and one other point on that. When you take a look at the 7% in unit volume worldwide, obviously we could make that number a lot higher, but what we've been pushing as management and what we've all been pushing or leading ourselves towards is let's not go after volume. I'm not looking at picking up market share; I'm looking at improving earnings to our shareholders. And if a situation where we're running at the high-end of capacity, which we are right now, instead of investing additional capital in expanding at low margin business, it's just not the thing to do. So what we're doing is we are driving the pricing because we're running at a high-end capacity and if the market follows as it has been, our competitors have followed, then we will continue to take and add to the capacity. But the additions to the capacity will be in low-cost regions of the world.

Now, is it fair to assume then that the reserve power segment, the volume was actually flat to down?

It's up slightly. It's not up at the same level and part of the reason for that is it's tougher to get pricing.

My final question actually flows from that. What are you hearing about telecom spending in the year ahead? Can you give us a little color what the expectations are going forward in that business?

We think it's going to continue to be fairly strong. I think there's been some slow-ups because of some consolidation taking place, but we think it's going to continue to be in high single digit growth.

(OPERATOR INSTRUCTIONS). Jeff Bencik, Jefferies & Co.

Yes, quickly, John, in terms of the industry capacity utilization, where would you say we're at now in both the two segments? And where we were, let's say, two years ago?

I would say that capacity utilization, this is a guess, Jeff, because it's hard to get data on this, this is just by what I hear from people within our organization. I would say capacity utilization is higher in the Western worlds with our competitors right now. Many -- there's been movements that have taken place where operations have been closed down, consolidations. China is the wild card. It's hard to tell on China exactly because it's very difficult to get data. I don't think the capacity has gone up. There's been added factors in China, but I just don't know for sure on that portion of it. But to answer your question, I would think that the percentage is higher today than it was a few years ago.

5% higher? 10% higher? Any idea?

I really don't know the percentage on it. I'd be guessing on it, but it wouldn't surprise me that it's gone up 5%. The reason I say that is the market has increased. The markets have grown. The demand for our products globally has grown. And with the exception of China, I don't know anyone that's added major capacity.

I show no further questions in the queue. I would now like to turn the call over to Mr. Craig for closing remarks.

Again, thank you very much for your interest in our Company and everyone have a good day. Thanks again.

This concludes the presentation. You may all now disconnect. Good day.