Hubbell Inc (HUBB) 2005 Q4 法說會逐字稿

Good afternoon. My name is Katie and I will be your conference operator today. At this time I would like to welcome everyone to the fourth-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (OPERATOR INSTRUCTIONS) Thank you. I'd like to turn the call over to Tom Conlin, Vice President of Public Affairs. Please go ahead, sir.

Thank you, Katie. Good afternoon and welcome to all of those here on the call. We released our fourth-quarter and full-year 2005 earnings press release at 11 o'clock this morning. And that is available from all the usual sources including the wire services as well as the Hubbell website at hubbell.com. This conference call is available by telephone and is being simultaneously webcast also through the Hubbell web site. A replay of the call can be gained in two different ways, first, two hours following the conclusion of the call you may hear it by telephone by dialing 706-645-9291 and you will need a replay pass code number which is 440368.

You can also hear a repeat of the call on the Hubbell website beginning 24 hours from the conclusion of the call and it will be archived on the website for the following year. If you want to access the audio replay through the website at hubbell.com, click on the investor relations tab than audio archives and you'll be prompted as to how to start the replay.

Let me also refer everyone listening today to the paragraph in our press release this morning concerning forward-looking statements. Subject of our conference call today or our results for the fourth-quarter and the full year, but we're also going to look ahead and provide some expectations for next year, well for this year, 2006. These expectations will involve inherent assumptions with known and unknown risks and other factors that may cause our actual results to differ from what we discuss here today. Accordingly please take note of that caution and the paragraph and incorporate it in today's conference call by reference.

As usual with me today, Tim Powers, CEO; and Dave Nord, CFO, who will have some comments on the quarter and the year. I'll turn the call over now over to Tim for his remarks.

Thanks, Tom. Good afternoon everyone and thanks for joining us. We'll follow the regular format where I'll give you an overview of our fourth-quarter results, turn it over to Dave for more detailed information on the financials and then back to me for comments on our markets and outlook.

Overall we finished the year better than we started with our results in the fourth quarter improved over last year. Although certainly not at the level we would like, there are some bright spots as well as areas of disappointment. On the positive side, Power System continues to perform well and is an important contributor to our results. The segment continued to benefit from the impact of storms in the second and third quarter, acquisitions closed earlier in the year and continued progress in the area of cost price.

Industrial Technology also continues to report solid results with sales and profits up significantly in the quarter and for the year including the benefit of a couple of product lines acquired in the third quarter. On the disappointment side, the Electrical segment struggled in the quarter with sales flat compared to last year's fourth quarter and operating income down 16%. A significant portion of this performance relates to the wiring business. There are factors contributing to this performance most of which are not acceptable from my perspective, factoring inefficiencies and delivery performance to name a couple.

However, there are some factors that negatively impacted the profitability that relate to future growth such as project costs associated with new product introductions at Wiring Systems but at the end of the day there is much need for improvement. We saw softer order input from nonresidential construction markets affecting the commercial and industrial lighting fixtures and our rough-in products. We did see continued strength in the residential fixture market which helped to somewhat mitigate this impact.

Energy related costs continued to be an area of attention for our management team. As we have worked to mitigate the impact of commodity cost increases over the last year, we are now dealing with the impact of higher fuel costs which have created a headwind on transportation particularly in lighting but also affecting the energy costs of all of our factories.

Another area of improvement in the quarter has been asset management. As evidenced, our cash flow in the quarter continued to improve as expected. We made progress on improving our trade working capital position despite higher sales and planned inventory builds in select businesses.

Now I'll have Dave give you some more details on the numbers for the quarter and I'll come back with some market perspective and guidance for next year. Dave?

Thanks, Tim, and good afternoon everyone. Let me start with some specifics on the overall performance for Hubbell and then a little more detail for segment performance. Sales in the quarter were up 36 million or 7% from last year, about 3 points of that growth coming from businesses acquired earlier this year. Operating profit was up 6 million or 12% and diluted earnings per share $0.84 versus $0.77 in the fourth quarter of last year for an increase of 9%.

Those were all on reported basis. Some of the items of note that impact comparability. First, we had a settlement of a tax audit for the years 2002 and 2003 in the fourth quarter resulting in a benefit of 10.8 million or $0.18. You may recall we had a similar settlement for years through 2001 in the fourth quarter of last year for 10.2 million or $0.16. So the favorable impact year-over-year is $0.02.

On the charge side, the special charges related to lighting streamlining that were higher by just over 2 million at 5.1 million or $0.05 EPS versus last year's 2.8 million or $0.03 EPS. So the impact to the quarter-over-quarter comparison was unfavorable by $0.02. So for these two items, no net impact on the quarter-over-quarter comparison.

If you take those out, we've got in the fourth quarter this year adjusted for both the tax and the restructuring, we end up with $0.71 earnings per share right in the middle of where we expected to come out in our guidance last quarter.

In the fourth quarter's results, we also closed on the sale of the building that we had mentioned was pending on our last call and was likely to be in our results. It did close, resulted in a gain of 4.9 million that we've recognized this quarter. So for the full year, diluted earnings per share was $2.67, compared to $2.51 last year, an increase of 6%.

Turning now to operations, overall operating profit margins for the quarter on a reported basis were up 50 basis points to 10.9% versus 10.4% last year. Excluding the building sale gain and some special charges, operating margins were down just slightly from last year. Year-to-date, operating profit margins were up slightly to 10.8% versus the 10.7% reported last year. Excluding the charges and gains in both years, margins of 11.3% this year were just below last year's 11.5%.

Similar to the third quarter, fourth-quarter results reflect strong Power and Industrial Technology segments performance offset by a soft Electrical segment. Let me take a little detail discussion of these segments.

First looking at the Electrical segment where sales were 370 million, essentially at the level of last year. A softer nonresidential construction markets negatively impacted our commercial industrial lighting, rough-in electrical and commercial wiring. This was offset by increases in other businesses within the segment including strong double-digit growth in our harsh and hazardous business and continued strong residential lighting markets.

The Electrical segment profit was below prior year as we experienced in addition to the volume impacts mentioned unfavorable mix, higher costs and factory inefficiencies. Margins in the quarter were 9% compared with the 10.6% reported in the fourth quarter of '04.

Some additional factors also included within the commercial industrial lighting still very much engaged in plant moves as part of the lighting rationalization which have added some costs and lowered factory inefficiencies.

We've had significant outsourcing activity in our strategy for low-cost country sourcing that's also produced some factory inefficiencies as well as some continuing SAP learning curve issues in our wiring business.

New product programs as Tim mentioned, required an increased level of investment in the quarter to support those launch efforts which had a negative impact on margin. And lastly, the continued escalation of freight and utility costs and high commodity costs extracted from profits as we were not able to fully offset all of those by selling price increases.

Turning now to power. Power segment reported very strong sales and operating profit margin gains. Continuing we had some momentum from the third quarter, Power results benefited from the residual storm activity and acquisitions. Those two items in total comprising almost half of the quarterly sales increase of 25%.

In the Industrial segment benefited from a strong industrial economy as well as the impact of recent acquisitions and showed a good profit improvement despite the cost of integrating these newly acquired businesses.

Working capital and cash flow year to date operating cash flow of 187 million modestly exceeded last year's level, primarily due to higher net income and lower year-end accounts receivable balances. Quarterly CapEx of 27 million compares to 13 million in the fourth quarter of last year with the increase related to a combination of investments in new equipment, new product launches and higher capitalized SAP project cost.

Share repurchase in the quarter totaled 4 million, just under 100,000 shares, bringing this year's total purchases to 63 million, 1.4 million shares significantly over last year's 6 million or 150,000 shares. Overall we have just over $45 million remaining against our current $60 million share repurchase authorization.

During the quarter we also funded a $100 million repayment of a long-term note that matured on October 1st. And with the Hubbell 2006 project -- I mentioned it capitalized as being one of the contributors to our increase in CapEx, project expense in the quarter was comparable to last year at about 4 million. This excludes incremental amortization on what's already been put in place and in use of just under $2 million. Year-to-date project expense of 8 million is below last year before the increase in amortization. And capital year-to-date for the full year was 18 million for the Hubbell 2006 project versus 12 million last year.

So project to date expense is 23 million; capital to date 30 million; total project cost to date 53 million with about twelve months of work remaining.

So with that, I'll turn it back to Tim for a comment on our markets and some guidance.

Thanks, Dave. First let me give you an overview of what I'm seeing in our markets. The pace and magnitude of recovery in many of our markets continue. Industrial production, MRO spending and increased capacity utilization continue to be a positive and our forecast to continue to improve well into 2006 which is certainly good news for our industrial business.

Utilities continue to spend on storm damage repair and higher spending is likely to continue particularly in an effort to catch up with normal maintenance activities put on hold during the storm recovery period. As expected, the growth in the residential markets is beginning to slow as a result of continued Fed tightening although there continues to be a high level of new construction activity.

Non-residential construction markets remain the variable. The last two months of the year were positive bringing the full year to a flat growth rate despite forecasts early in the year that the market would grow 6% in 2005. In spite of the late year improvement, we did not see any significant increase in project activity or higher price levels before the end of the year.

Overall we continue to see positive indicators in most of our markets with uncertainty surrounding the ultimate impact of higher interest rates and energy costs. We are currently forecasting a full year 2006 sales to increase 5 to 7% above 2005 or between 100 to 150 million higher. About one-third of this comes from acquisitions completed in 2005; the remainder consistent with GDP growth forecasts of 3.3%; and some favorable price realization. We expect full-year margins on a reported basis to be at about the same level as 2005 but remember this includes the impact of stock based compensation which is worth about 50 basis points. This also includes the impact as we ramp up the new product introduction at Wiring Systems and we work to bring the 2005 acquisitions up to Hubbell performance levels.

Our 2006 earnings per share is expected to be in the range of $2.60 to $2.80. This includes the impact of expensing stock compensation of approximately $0.11. It also includes the costs associated with streamlining the lighting business which is expected to be about the same level as 2005.

We also continue to expect that cash flow from operations will exceed net income for the year despite the need to support sales growth and strategic inventory builds with additional working capital. As you saw in 2005, we are investing our strong cash flows and cash position in a number of areas in support of future business. We expect that to continue in 2006. We expect capital expenditures relating to ongoing activities to approximate depreciation with additional investments related to the final two implementations of SAP and our new lighting headquarters. In addition, we anticipate additional investments in acquisitions and share repurchases based on market condition favorability.

And finally some comments on our strategic initiatives. Our strategic initiatives are unchanged; lean thinking, the execution of restructuring actions, a focus on working capital efficiencies and low-cost country sourcing initiatives and acquisitions. We continue to make progress on our lean initiatives including new product development areas and our integration of newly acquired businesses.

2006 will be an important year in the SAP implementation. We have the last two planned implementations after which we will be able to leverage the value of one common system. Our lighting restructuring actions continue as planned with plant and opposite moves both underway and planned. Just yesterday we announced the further consolidation of salary employees in our fluorescent business from Spokane Washington to South Carolina. We continue to increase the amount of product that we source from low-cost countries. Whether from our own factories in Mexico or sourcing from third parties in the Far East.

And finally, our ability to finance substantial growth remains strong. We continue to search for acquisitions that will enhance our position in our four core markets similar to those completed in the third quarter. We have a history of buying smart and integrating businesses smoothly into Hubbell. You saw that activity start to pick up in 2005 and should continue in 2006. We're confident we can continue to find attractive acquirable companies that are priced right.

In summary, 2006 will be a peak year of change particularly the SAP implementation and the lighting integration that I expect to begin to show positive returns in 2007. We are cautiously optimistic. We have the usual market uncertainties particularly the impact of higher fuel costs and interest rates on all the markets we serve. But we believe that our efforts will make 2006 the fifth consecutive year of growth in sales and earnings for Hubbell.

Tom with those remarks, we are now ready to take questions.

Katie, if you would assemble the queue please and we'll answer any questions there may be.

(OPERATOR INSTRUCTIONS) Bob Cornell with Lehman Brothers.

Good afternoon, everybody. Clearly the question on a lot of people's minds is just more detail on why electrical is down? I mean you mentioned Wiring Systems initially in your comments, then the order of weakness in non res but I mean but it wasn't clear listening to the call exactly which of the businesses is down the most and why? Whether it's Wiring Systems or Lighting? Maybe start there.

I would say the one that contribute most of the weakness is our Wiring Systems business --

How much -- just help us, Tim, of the 16% down, I mean how much is Wiring Systems and how much was other things?

I don't have that in front of me but I'm just telling you in sequence of what contributed the most -- Wiring Systems certainly was the largest challenge and we're having some factory efficiency problems and some delivery problems which are also limiting sales. But I expect that position to begin to turn around in the first quarter and get back to normal as the year goes on.

Why exactly -- you had the SAP problems early in the year -- I think you lost some share. I understood you were sort of back on track sort of mid year. What happened here in the fourth quarter all of a sudden in Wiring Systems?

I would tell you it is a series of operational issues and we've made some changes to the way we procure product and we've had some difficulties with that transition.

And so why would you be confident that this would be fixed in this quarter, for example?

We believe we have our arms around it and we are well on the way.

In the lighting business and rough-in, I mean you talk about the orders coming in -- order input was not that great -- I mean exactly what were the orders? Are they up or down and were they relative to expectation in the non res market?

I would say our orders were nearly flat like our revenue is nearly flat. Talk about the lighting business, for instance, we're doing quite well in the stock products and we're not doing as well on job bids. And again this is reflecting what the price levels are in the markets and we're improving but we're trying to find that price level that allows us to win, you know.

Just a comment on industry pricing. Are you still ahead of the market or is the market caught up? I mean where is pricing and where are you relative to the competitors?

On job bids, we're finding the market to be lower than we were bidding earlier in the year. I don't know that it's lower relative to the absolute level of the market but let's just say we were bidding higher as the year began and winning less. As the year has gone on, we've adjusted our price on job bids and our win rate is getting up a little bit. But not what we'd expect it to be.

Just one final question, Tim. I've never heard Hubbell talk as much about factory inefficiencies as I heard in this quarter. I mean it seems like a lot of factories are having difficulty. What is going on?

We are moving a lot of things between outsourcing and restructuring and there's a lot of product movement. That is why you are hearing so much from us. I would say by and large most of it is going well but the magnitude of what is being done is substantial.

What is the timing of when this is going to start getting back to normal?

I would say our lighting restructuring will be substantially complete by the end of 2006. And that our wiring business will settle down as the year goes on. And you won't hear much about this after that.

Okay, thanks.

Tony Boase with AG Edwards.

Thanks. I wonder if you could just contrast the third quarter and the fourth quarter because in the third quarter electrical margins were according to what is in my model 11.4%. And now we're at 9% or a shade below 9%. I mean did some of these -- were any of these issues kind of bubbling up in the third quarter or is this all kind of a fourth-quarter phenomenon?

No, for instance one of the things we're in the middle of is relocating the manufacturing of our fluorescent lighting business. We're also having more difficulties with our wiring system manufacturing factories in the fourth than in the third. But again, as I tried to describe, it has a lot to do with I think positive direction for the future and the difficulties we're having in the short term just getting through this stuff.

Right. But I guess the question -- I mean people are trying to understand is how come you seem to have a pretty good grasp of it in the third quarter but the fourth quarter got away from you? Is that even a right characterization?

Well, I think it's -- I don't think it got a way from us. I think we are battling some difficulties but I don't think it is has gotten away from us. We understand what those problems are and we have corrective actions under way to get things back on line.

On your guidance, is there any way you can break out the expectations as far as topline growth and margins between the three different businesses for '06?

We're not prepared to talk to that level of detail today.

And then lastly, just kind of a housekeeping. What would be the split on your stock based compensation between how much would be attributed to electrical, Power Systems and industrial?

I don't have that, Tony.

Okay, thanks. I'll take it up off-line.

Yes, sure.

Jeff Sprague with Citigroup.

Good afternoon. Could we maybe just start with power. What is the size and percentage of the acquisition impact in power, like 2 or 3% or is it larger than that?

What period, Jeff?

Fourth-quarter.

We will get that for you in just a second.

Just give us a second on that. We've got to look that up.

Okay. I know, Tim, you suggested we will get past the storm surge and people will kind of pickup on MRO that maybe had a pushback. Can we expect a relatively uneven year in power looking in '06? I mean is there a little bit of a hiccup in air pocket in Q1 or Q2 before things stabilize? How do you really see the year progressing there?

It could be but I can tell you January started off fine. So the first 15 days or 12 days of orders in January look just fine. That is the only advise information I can give you. We're not expecting it to be and obviously you have different utilities and different situations. But we're talking about utilities who sent crews to work in the affected areas deferred work that they now have to catch up. And they deferred projects that they now have to catch up.

We're not talking about spending at the same levels down in Louisiana, obviously that is not going to continue. But on a national basis, we would expect public utilities to spend a little bit more in grand total than they did in 2005 on these transmission and distribution kinds of expenditures.

Where do think we are in the storm related repairs?

We have shipped every single order that was related to any of those major storms that can be identified as emergency type work. Now we're in the period when secondary orders come you know where you are really -- power has been restored but it's been restored on a temporary basis and now you have to come back with the kind of gear that is protective and what should have been installed in the first place. So you have a secondary but slower paced level of spending. That is what is going on right now.

The price dynamics have been dramatically different electrical versus power. Can you characterize a little bit the magnitude maybe electrical with little or no price given what's going on in lighting but power could have been mid --?

Power has been able to recover its costs whereas our electrical business has had more difficulty with that.

From percentage terms, how much pricing is that for power? We're talking mid to high single digits maybe?

Mid single digits.

Mid single digits.

Yes.

Jeff, the answer to that question on the acquisitions, in the quarter acquisitions contributed a little less than one-third of the 25% growth.

Okay. And can you just give us a little sense of what's going on in the acquisition pipeline? I mean there's been an aspiration to do deals and obviously you've got a few things done in a couple of places. But do you see an active pipeline going into 2006?

There are a number of active things right now. But the price of major large properties is extremely high. My guess is that they would be on the traditional size acquisitions that Hubbell usually makes on the smaller side.

Given the struggles that you've had internally on all this kind of reshuffling and everything, I mean is there any -- how do you approach an acquisition at this point? I mean you've got another year of major changes, restructuring in wiring, lighting, you got the Hubbell 2006 you are wrapping up. You know, you get the sense from the difficulties in the quarter that maybe the managerial resources are strained a little bit kind of dealing with all of this. Are you comfortable that you could actually bring acquisitions in when there is kind of so many balls up in the air like this?

Well you can see where we have been bringing them in and that is businesses that are largely unaffected by restructuring. We've added one to the utility business. We've added a couple in the industrial business. So we are picking our spots where we have the management capability and resources to cope with that change.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Robert McCarthy with CIBC.

Good afternoon, gentlemen. Can you hear me?

Yes.

Okay. I guess the first question is just to make sure we button this down, the guidance for 2006 includes any kind of restructuring in connection with the lighting acquisition?

It is everything.

Everything is then there. Okay, thank you. With respect to pricing, maybe you could talk and a little bit -- maybe you don't want to quantify -- but talk about maybe the stock business and then the large project business. Is there a bifurcation we were seeing there in pricing trends?

No, there is not really a bifurcation. But when you don't have a lot of large projects there is more competition. There is a tougher price fight over winning the big jobs, that is all. That is just the way the cycles of business are.

And between bidding and actually recognizing the sale, what is the kind of lag there?

Depending on the size of the -- usually it goes directly in proportion to the size of the project. The smaller projects turn around and become realized faster than the larger ones. So if you are bidding on a new stadium or football stadium or something, you could be half a year to a year away from delivery by the time that is awarded.

On the other side, if you -- you got a whatever -- a school or something like that you are in within eight weeks or something, 12 weeks of delivery of the job.

And basically your experience with the large bidding is that you've been consistently coming down on price throughout the year and your win rate has come up?

We are trying to find that market, yes. The market level.

All right. And I guess it's fair to say that in conjunction with the moves with your florescent lighting that you could defer that the market is up the last couple of months that you could be losing share in those (inaudible).

I can tell you we are having some delivery problems with one of our plants in Pennsylvania. We shuffled products to Mexico which has gone just really well. Excellent. But we've moved some of our standard product to Mexico to get competitive with our major competitors on that cost basis. And we made a -- moved a group of products that are made to order to our Philadelphia plant and we've had some difficulties with that because this is the high variety, low-volume kind of product that takes a little longer to come up that learning curve. So, yes, it has cost us some market share during this transition.

All right. With respect to the Wiring Systems business, any incremental color on the extent of quantification on the cost with the factory inefficiencies) Is there any way you can quantify that?

I would say it -- certainly they earned less than they earned -- less this year than last year. And part of it is lower volume because our deliveries aren't up to par and part of it is increased costs in our factories to produce it. But I can't give you the precise details of those -- the mix of those two.

Okay. Talk about your go live dates in '06 and kind of the volatility around them in terms of executing upon them?

Sure. Let me talk about the go live that was October. We had a go live in October for about 25% of our business which included our Electrical Products and some of our lighting product lines including Progress. And I would say we did about as well as you can expect a company to do in the implementation. We wobbled a little bit on deliveries for a week or two but I would say that all of our business units are absolutely current with deliveries and some customers didn't even know we went live in those business units.

So if we can have future implementations be as good or a little better than that one, I would certainly be happy with the remaining two. We have our next implementation April -- the beginning of April. And our final one in the beginning of October. We learned a lot from our first go live. Our second was substantially better than our first and we expect our third one to go even smoother than our second.

Have you quantified anything with the go live in this past year in October in terms of the impending cost?

No, I don't really have a precise number on it. I would say we lost zero sales but we had some inefficiencies in labor costs and things like that where our warehouses would have more labor in them than normal or something like that. But I would describe it as very minor.

Okay. So the second quarter and the fourth quarter is when that volatility is going to potentially creep up in your results for 2006?

Possibly.

Okay. Thank you for your time, gentlemen.

[Alana Wood] with Merrill Lynch.

Good afternoon. Just wondering if you could give us some more color on hurricane related demand and maybe how the demand stacks up relative to your expectations maybe from the three months ago?

Well certainly 2005 was an absolute record year for that kind of business for us. Probably exceeded the previous year by a good dozen million or something, 12 million or something like that. Yes, about $11 million above the prior year to be more precise and that would represent a very extraordinary year. Certainly you could see the magnitude of those storms were historic by proportion. But this is the nature of our utility business and this is how it is built to serve our utility customers in times of needs. But it is probably a magnitude of more than double a normal year.

And will there be any carryover into 2006?

I tried to describe that, let's say the emergency portion of the demand for product is over and it has been delivered. And there was another storm in the fourth quarter in the Upper Midwest in the Dakotas which got very little press but was as devastating to those residents as the Gulf Coast was which was an ice storm. But now they are back to buying what I would call the secondary equipment, not the emergency equipment which is to restore the grid to its full and normal use.

You will get what I would call the quick and dirty installation while storm repairs are being made and then you come back and put more protection equipment into the lines on a secondary basis. For us this is cut outs and other kinds of gear. And there will be some transformer manufacturers will get business out of this. So this will be at a higher level for the storm affected areas than I would call let's say normal business. But certainly lower than the peak when it was -- the storm was in -- being repaired.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Tony Boase with AG Edwards.

I just wanted to clarify something about the difference between the third and fourth quarter regarding demand. Was there a difference in demand between the two quarters for electrical? Hello?

Yes, I'm here. I'm just trying to think about that question. The third quarter, Tony, is the normal construction peak and was a pretty good quarter. And the fourth quarter I wouldn't describe as the market was terribly bad. I would describe Hubbell as having some problems in the marketplace with deliveries which may make our quarter look a little bit soft. But I'm not disappointed with the situation in the marketplace. I think it is steadily improving in general terms. I think our 2006 outlook reflects the fact that overall we expect our total business to grow in 2006 and have it be a better year. And I think the fourth quarter was okay.

So then would it be right for me to assume then that the primary or the majority or almost all of the impact in the fourth quarter comes from the factory inefficiencies and the energy challenges that you face?

And also lost business for deliveries. So part of our, if we were delivering flawlessly we would have an increase in sales in the Electrical segment. We would have had higher orders.

Right and so if you don't sell it in that quarter, that doesn't go to backlog, that is it?

No, most of our business, Tony, turns around in within 30 days, within 30 days. So it is only the project business in lighting and maybe our industrial test equipment that has longer cycles. But generally when you take an order probably 50, 60% of it ships within five business days and most of the majority of the rest of it ships within 30 days. It's pretty much an in and out kind of business. Our total backlog is about a month's worth of our sales. Approximates. But during the month, about half or so of what you take in as orders is what you ship in that same month.

Right. Thanks, Tim.

Sure.

Robert McCarthy with CIBC.

Tim, could you comment on is there any -- have you seen any rise in kind of your backlog for your more longer cycle project business?

I can tell you the industrial business of test equipment reflects the increased level world capital spending. And our backlogs in that area have for the large test equipment --.

How about for the large project business and lighting?

No. They have not.

Okay. How about just talking about general what backlogs you are seeing with your lighting agents?

I would say there is an improvement each succeeding quarter during the year. Even though the fourth quarter is a little softer, the fourth quarter is always a little softer. But certainly if you follow the numbers of nonresidential construction the year 2005 started out as exceptionally weak and got stronger as the year went along. And the last quarter really brought the full year equal to 2004. So I have some pretty good decree of optimism about nonresidential construction beginning to turn up. But again, I'm not talking about a wildly optimistic upturn. But steadily improving market conditions.

And when will we have a better sense of that whether that is materializing?

I would say by the end of first quarter we will know.

(OPERATOR INSTRUCTIONS) At this time, there are no further questions.

All right, Katie, it's Tom Conlin. Thank you for your help this afternoon. And thanks to everyone who phoned in.

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