Kadant Inc (KAI) 2004 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to your Kadant Incorporated First Quarter Annual Earnings Conference Call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following today's presentation. It's now my pleasure to turn the floor over to your host, Chief Financial Officer, Thomas O'Brien. Sir, the floor is yours.

Thank you, operator and good morning, everyone. And welcome to Kadant's First Quarter 2004 Earnings Call. With us on the call today are Bill Rainville, our Chairman and Chief Executive Officer and John Painter, an Executive Vice President of Kadant and head of our Composite and Fiber-based products segment. Before we begin, let me read the Safe Harbor Statement. Various remarks that we may make today about Kadant's future expectations, plans and prospects are forward-looking statements for purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995.

Our actual results may differ materially from these forward-looking statements, as a result of various important factors, including those discussed in our Annual Report, on Form 10-K for the fiscal year ended January 3rd 2004, which is on file with the SEC, and is also available in the Investor Section of our web site at www.kadant.com, under the heading SEC filings. In addition, any forward-looking statements we make on this call represent our views only as of today. While we may elect to update forward-looking statements at some point in the future, we specifically disclaim any obligation to do so, even if our estimates change.

And you should not rely on these forward-looking statements as representing our views on any date after today. During this call, we may refer to some non-GAAP financial measures. These non-GAAP measures are not prepared in accordance with generally accepted accounting principles. Any non-GAAP financial measures will be reconciled to the most directly comparable GAAP measures during the call. And with that, I will turn the call over to Bill Rainville, who will give you an update on Kadant's business and future prospects. Following those remarks, I will give an overview of our financial results for the quarter and we will then have a Q&A session. Bill?

Thank you, Tom. Good morning everyone and thank you for joining us on the call today. Overall, we're off to a good start in 2004. First, we met our earnings guidance and exceeded our revenue estimates. As you can see in our press release, the 19 cents of diluted EPS was three cents lower than last year. This was due primarily to the $900,000 operating loss in our composite building products business, which was within the range that we had forecasted.

We are taking steps to return this business to profitability in the second half of the year. And I'll talk more about that later. Our revenue picture was a bit brighter. Strong performance in both segments allowed us to come in a little higher than we expected, at $51.7 million.

Also, we ended Q1 with a total backlog of $42.3 million, which is 13% higher than the end of 2003. Finally, we continue to maintain a strong balance sheet ending the first quarter with almost $81 million in cash. That translates to approximately $5.50 per diluted share, based on the number of shares outstanding, at the end of the quarter. We're often asked what we're going to do with all our cash. And the answer is that we plan to put it to use, but selectively and at the right time. Our cash position is an important asset for Kadant, and we want to make sure that we get the highest return for any investment that we make.

One option is to complete an acquisition that will help us broaden our markets, and allow us to incorporate our technical expertise, especially in the area of industrial water processing. As you probably know, paper production is one of the most water-intensive industries. Our separation technologies are used for isolating usable fiber from waste fiber and many other contaminants in the pulp slurry, which is 99% water. These technologies can be applied to a range of other industries from food and beverage to chemicals. And the combination could create some promising opportunities for us. Of course, buying back our own stock is another attractive alternative and we have authorization to purchase up to $25 million of our securities. We expect to benefit from 1 or possibly both of these alternatives in 2004.

Now let me give you a brief overview of the business, starting with the papermaking equipment segment, which had another solid quarter.

Starting with China -- once again China delivered strong revenues and bookings of our stock preparation systems, that are used for producing recycled paper products, with numerous orders for pulping, screening and cleaning systems during the quarter. This included our previously announced $3.2 million order for a stock prep system being used for producing white board, which is a packaging material, suitable for high quality printing. After the quarter closed, we booked an order for nearly $4 million from another major containerboard producer. Our ability to supply systems that recycle fiber for both white and brown packaging grades is a key advantage for Kadant.

On a side note, we continue to develop new technologies that improve the stock prep process for our customers. We were recently granted a patent for ID-2, ID-3 screening technology, which addresses the problems typically associated with the screening of pulp slurries. Our specially-designed screen cylinder creates turbulence that helps pulp move through the screening process more effectively, allowing more usable fiber to be recovered. Also noteworthy this quarter, in China, was the record level of after-market business we generated, primarily from the sale of spare parts.

We have been focused on increasing sales of spares, retrofits and repair services to take advantage of our large install base, and to balance out the capital equipment side of our business, where orders are typically large but less predictable. In fact, we've seen an increase in our spare parts bookings worldwide in stock prep compared with last year. Many of our technologies, including the new ID2/ID3 system are now offered as both in retrofit packages for customers who need to improve efficiency and quality, without a major capital investment. We continue to build on our leading market position in China in paper recycling equipment, and ongoing capacity there will yield long-term growth opportunities for Kadant in all of our paper making equipment product lines.

Now to North America and Europe -- we were encouraged by the increase in activity we saw in North America and European markets during the quarter, especially from tissue producers in the U.S. Revenues in our paper machine accessory business were up 14%, including 9% from foreign exchange, and up 9% in our water management product line, including 5% from Fx. This is a direct result of increased mill up time in these mature markets and shows the effect that even a marginally mill run rate can have in our business. Simply, when paper machines are running more, they use more blades and parts. In the first quarter, a number of major paper producers reported higher pricing and improved profitability, especially in the tissue, colored and corrugated grades.

Price increases in packaging grades were fuelled by the lowest March inventory levels in containerboard mills and box plants since 1981. This is an encouraging sign. The question is whether these increases will be sustained. Based on my years of experience in the paper industry, the likely scenario is that recovery will be sporadic at best, but run rates and pricing should gradually improve over time and that will certainly benefit Kadant in the long run. Technology continues to play an important role in our accessories and water management products lines as well.

Bookings of our ProCrepe blade, for tissue production, were up 70% this quarter over last year as more and more mills realize the quality and productivity benefits this proprietary technology can offer. In addition, we had an excellent start up of one of our key Petax fine filtration systems at our first North American tissue mill installation. I'm told that the customer credits the Petax system not only with savings and water use, but also with a higher than expected gain in machine production, due to the ability to reuse processe water, filtered by our system.

Now I'll turn to our composites business where the news is mixed, but somewhat encouraging. As I mentioned earlier, Composites reported an operating loss for the quarter, in-line with what we expected. Two factors led to the loss. First, lower production rates at our Green Bay plants as we worked to reduce our inventory, and second, warranty expenses that was greater than the year ago quarter, but less than the end of 2003.

We expect production rates to increase throughout the year-end and with a solution to the board contraction problem in-place our warranty claims should gradually decline. On a more positive note, revenues from Composites were $4.2 million in Q1, close to the record level we reported last year, indicating that demand for Geodeck products remains strong. Our bookings for the quarter were more than double those of last year at over $3.0 million. In addition, bookings in Q2 are off to a strong start, at just under $1.5 million to date. In general, the decking season is starting off well. The weather has been cooperative and home equity rates are low, although a rise in interest rates could have some effect on the home improvement market.

While these conditions are favorable for us, they also serve to intensify the competition. We're taking a number of steps to strengthen our GeoDeck brand in the marketplace. Our primary focus is on expanding the national network of local dealers and lumberyards that carry our products and put them in the hands of builders and consumers. At the end of 2003, we had approximately 80 of these dealers. We stated on our last call that our goal this year is to increase that number to 250. With close to 200 dealers already, we're well on our way to achieving our goal. We're also in the process of adding new wholesale distributors in several central and western states.

The Internet is another valuable tool for both dealers and consumers, and we're currently upgrading our GeoDeck.com web site to gain visibility and make our products more accessible to the end user. In terms of new products, we have nearly completed the development work on our Shake Roof Tile. We plan to begin limited production for product testing. In addition, we're working to improve the flame-resistant properties of our roof tiles to reduce the underlying materials required during installation.

All in all, as production rates rise, warranty claims decrease, and expanded distribution begins to produce results, we expect this part of the business to regain profitability in the second half of this year. In the near term, however, we will continue to report an operating loss in Composites in the range of 500 to $700,000 for Q2 on revenues of 4 to $4.5 million. Factoring this in for the total Company in the second quarter of 2004, we expect to report GAAP diluted EPS of 21 to 23 cents on revenues to 55 to $57 million. For the full year, we are maintaining our guidance of 90 cents to $1.0 of GAAP diluted EPS on revenues of $205 to $215 million. With that, I'll turn the call over to Tom to review the financials. Tom?

Thank you, Bill. I'll start with the first quarter revenue results. Consolidated revenues were $51.7 million in the first quarter of 2004, up 1% from last year. The revenues include a favorable currency translation effect of $3.0 million or 6% in the quarter. Revenues in the first quarter exceeded our guidance, which was $48 to $50 million, due to stronger than expected revenues in both our papermaking equipment segment and in our Composite and Fiber-based products segment.

Let's now look at revenues in those segments. Revenues in the papermaking equipment segment were $45.6 million flat with last year's quarter and included a 7% favorable effect from foreign exchange. On the positive side, revenues in our accessories product line were up 14% compared to last year, including 9% from foreign currency. Likewise, our water management product line revenues increased 9% over last year, including 5% from foreign currency. The result in these two product lines were quite encouraging, especially given the continued choppy conditions in North American and European paper industries. Offsetting these increases entirely, however, was a decline of 11 percent in our stock prep revenues in the quarter, which included a favorable effect of 6% from foreign exchange. Revenues in this product line were lower in both North America and Europe. Although lower than last year’s $8.3 million, stock prep revenues in China remained strong at $6.7 million in the first quarter of '04.

Remember that we had record bookings of $16 million in China in the first quarter of last year and this contributed to the higher revenue results in that quarter. We are optimistic about our prospects in this growing market in 2004, especially given the continued addition of papermaking capacity there in our leading market position.

Now, let's turn to our other reporting segment, composite and fiber-based products. Revenues in this segment reached a quarterly high of $6.2 million in the first quarter of '04, a 6% increase over the previous high of $5.8 million in the first quarter of 2003. This increase was entirely due to higher sales in our fiber-based granular products business. Revenues of $1.9 million in this product line increased 31% compared to last year, largely due to stronger sales of Biodac our patented product family of biodegradable granules that we produce from papermaking byproducts. Revenues in our composites building products business were $4.2 million, only slightly below last year's record of $4.3 million, and slightly over the high end of our guidance which was $3.5 to $4 million.

Our revenue performance in this product line reflects strong market demand for composite decking products, as well as our ongoing efforts to expand our distribution network.

Turning to product gross margins, consolidated product gross margins were 38.2% in the first quarter of 2004, up 90 basis points from last year. This increase is entirely due to strong product gross margins in our papermaking equipment segment. Product gross margins in this segment were 41.3%, up 310 basis points over last year, largely due to higher margins from sales of capital equipment, most notably China. We also had very strong aftermarket revenues in China as well as a favorable product mix, both of which had positive affects on margins in the first quarter of 2004 as compared to last year.

Looking at the composite fiber-based product segment, product gross margins were down significantly from 32.0% last year to 15.6% in the first quarter of 2004. Most of this decline was due to lower product gross margins in our composite building products business, which in turn was largely due to higher warranty provisions than last year, as well as unfavorable cost absorption as we curtailed production in the first quarter to reduce inventory.

Let me add that we did reduce our composites inventory by $1.0 million or approximately 19% from the end of the fourth quarter of 2003, in-line with our expectations. With regard to warranties, the amount charged to our P&L was approximately $500,000 in the first quarter of '04, up from last year's first quarter, but lower than fourth quarter '03's provision of $770,000. As expected, warranty payments were sequentially lower in the first quarter of 2004, and we anticipate further reductions throughout the year.

Now, let's look at our SG&A expenses for a moment. SG&A expenses were $14.9 million in the first quarter of 2004, an increase of $1.4 million over the fourth quarter, last year. A little over half, or approximately 800,000 of this increase, was due to the unfavorable impact of foreign currency translations compared to the first quarter of '03. The remaining $600,000 of the increase includes two gains, which were largely offset by several expenses that we incurred in proportionately higher amount in the first quarter of 2004. You may recall that I noted all these items during my guidance discussion in our last earnings call, and I'll very briefly review them here again. First, included in the first quarter of '04, this SG&A is a gain of approximately $1.0 million, which resulted from renegotiating a series of agreements with one of our licensees.

Also included is a small gain of approximately $100,000 from the sale of a building in one of our foreign subsidiaries. Nearly offsetting these gains were expenses associated with implementation of the internal control requirements of Sarbanes-Oxley, several projects, which are under way to further streamline our international organization and reduce our effective tax rate, and the initial expenses to establish our new, wholly-owned subsidiary in China along with a few other smaller items.

Now let’s turn to our Operating Income and EPS results. Consolidated operating income was $3.9 million in the first quarter of 2004, down from $4.6 million last year. On the positive side, operating income in our core papermaking equipment segment was quite encouraging, aided in part by the two gains I just discussed. Operating income in this segment was $6.3 million in the 2004 quarter, up 21% over last year. As a percentage of revenues, operating income in the papermaking equipment segment was 13.9%, an improvement of over 240 basis points over last year's first quarter. Offsetting these results, however, was an operating loss in our composite-building products business of $0.9 million, which was within our guidance versus a profit of $100,000 last year.

Also, our corporate expenses were approximately $800,000 higher than last year, largely due to the items I referred to in my discussion of SG&A. EPS -- we reported diluted EPS of 19 cents in the first quarter of 2004, compared to 22 cents, last year.

Now let's look at the 3-cent decline in EPS compared to last year. First, EPS was lower by 4 cents, due to after-tax losses in our composite building products business. In addition, EPS was reduced by 1 cent, due to the higher number of diluted shares outstanding in the first quarter of '04 versus last year. These combined reductions of 5 cents were partially offset by increases of 1 cent due to foreign currency translation gains in the 2004 period and by an additional favorable affect of one cent, due to a lower effective tax rate. Note that I am ignoring the gains and expenses I detailed in my discussion of SG&A since their net effect on EPS was immaterial.

I'll conclude my remarks with a few notes on the balance sheet and our operating cash flows. Cash flows from operating activities were $1.1 million in the first quarter of 2004, up from last year's negative $1.0 million. Historically, the first quarter is usually our weakest quarter for operating cash flows and we do expect stronger results going forward in 2004. We ended the first quarter with $80.9 million in cash and $0.4 million in total debt giving us a net cash position of $80.5 million. This net cash position represents over $5.50 per share, as Bill noted, based on the diluted shares outstanding, at the end of the quarter.

Our net cash position has increased by $36.5 million in the past 12 months. On the working capital side, where the lower the percentage the better, we ended the first quarter of 2004, with working capital as a percentage of the last 12 months revenues of 17%, down from 19% in the fist quarter of last year. The definition of working capital here excludes our net cash position. And that concludes my review of the financials. I will now turn the conference back to the Operator for your Q & A session. Operator?

Thank you. The floor is now open for questions. If you have a question, please press * then 1 on your touch-tone phone at this time. If at any point your question has been answered, you may remove yourself from the queue by pressing the pound key.

We do ask that while you pose your question that you pick up your handset to provide optimum sound quality. Once again, to ask a question, please press * then 1 on your touch-tone phone at this time. Our first question is coming from Michael Hutchinson of Barrington Research. Please go ahead with your question.

Good morning.

Good morning, Mike.

I was wondering in the core business, how much revenue as a percentage is related to replacing old equipment, and how much is coming from additional capacity due to increasing demand?

Let me answer it this way, Mike. This is Bill. The new capacity right now as we see is being really put on in China. So you can take all of the Chinese orders that we achieve. That's totally pure and new capacity. And if we take a look at Europe, North America, and so forth, it's primarily -- anything that we sell in their is probably upgrading equipment. If we sell capital orders, it's normally upgrading the equipment that we have in-place, or maybe modifying systems. Now, we also get some capital -- or there’s expansion that takes place from time to time in Latin America, South America and other regions of the world. Like, we recently received orders from India, for example. And those are pure capacity additions. So we see capacity additions primarily in the emerging economies.

How do you expect that to change next year? I mean do you expect to see a lot more in the way of replacing old equipment?

Yes, I do, especially in North America. Hopefully we'll see some of that by the end of this year because, normally, as we're getting -- the paper companies are announcing better results in North America, and as well as in Europe, we're starting to see improvement in their financial results.

And normally we lag a little bit by a quarter or two, when we start getting the benefit from that. They have been operating with some equipment that has been pretty much outdated and fairly well-worn out that they need to replace. So we look forward to taking opportunity of that when that takes place.

Okay, thanks.

Thank you, Mike.

Once again, to ask a question, please press * then 1 on your touch-tone phone at this time. Our next question is coming from Claudia Shank of JP Morgan. Please go ahead with your question.

Hi, guys.

Hi, Good morning, Claudia.

How are you? I just had a question about the corporate expense line which did go up in the quarter. Is that trend sort of likely to stay throughout the year or should we expect to see some of that come down?

I'm going to let Tom address that, Claudia.

It should come down somewhat, Claudia. You know, as I mentioned, some of those SG&A expense items I mentioned, did go into that corporate line. I would expect the second quarter would be $100 to $200,000 lower than the first, and we should see, you know, it level off even further in the third and the fourth quarters.

Okay.

So I would say when we get to the third and the fourth quarters maybe $1.3 million to $1.4 million a quarter.

Okay. And then just on -- in terms of the composite and fiber-based business, the sales in fiber-based were stronger than expected, but the profit was a little bit lower in terms of the fiber-based side of the business. I was wondering if there was anything in particular driving that, or if that was sort of a mix issue?

John, why don't you answer that?

Sure. I mean, it largely came from -- we kept our warranty accruals relatively high, and we also produced, you know, we kept production down to -- you know, to reduce our warranty.

Okay.

Anything else, Claudia?

I think that's it. Thank you.

Thank you.

Thank you. Our next question is coming from David Tellegle (ph) of Tenet Capital Management. Please go ahead with your questions.

Actually it's Alan Fornier. Good morning.

Good morning.

Couple of questions regarding your end markets. There's been a bit of a China panic in the metals markets and the steel markets. It sounds like based upon your orders, things continue to look good on the paper side. But could you help us understand some of the dynamics there, in terms of, imports, exports, capacity additions and how you think about the sort of intermediate term outlook?

I think the long-range term for China is good and I'll get to the shorter term. Long-range -- again, in the next ten years they're going to be basically doubling the capacity that they are ready to have on-board, which is another 30 million tons of production. And in the short term, what we see really -- the fact is driving it. And it's been -- they're exporting. As they grow their GDP, and they export product -- linerboard in particular has been a product that they've been starved for. For them, the economics favor taking our waste paper back on ships going back to China then converting it to linerboard or reusable paper grades.

So it's basically a back haul fee for shipping which is very low?

Right, right. And they really don't have the force, at this time, to provide the pulp for their needs. And for them to -- and it’s much -- the economics favor that they make the paper, rather than import the paper because, you know, their currency is still very weak. So, the economics favor that. So we see even in the short term, as we've been seeing so far, even this year, there's been a lot of activity going on in China. We see that continuing in -- certainly in the next year or two. But you're right, they're taking a lot of steel, they're a lot of products out of -- raw materials out of the world market at this point.

Yeah. Well I think the concern on that side is internal consumption. It sounds like the demand for your product is driven by exports and therefore (multiple speakers)

Exactly.

(multiple speakers) we should be thinking about the rest of the world GDP and not necessarily what happens in China.

Well, they're also using -- their personal consumption is also one of them. There's two factors there. One is certainly on the exports, which is primarily on the linerboard side. But also their personal consumption is going up in all grades -- tissue, white paper. As their GDP develops, they are going to be consuming much more paper. And this has been an area that they've been focusing on. Is there's two drivers.

Great. Second question relates to, sort of, the rest of the world. It seems as if there is an improving environment overall, in papers. Yet the industry has been incredibly disciplined, in terms of CapEx. And when -- you said you see a sporadic recovery. Could you give us some sense of what the magnitude of the recovery might be over a longer-term horizon?

Well, I think -- that's a good question. I think right now, what I mean by sporadic, is that it's going to vary from grade to grade as time goes on. Tissue has remained the strongest in this long-term. But now we're starting to see life come into even coated grades of paper and linerboard and so forth.

And I think -- I look at it, and when your inventory rates are as low as they've been in linerboard since 1981, and they’ve taken a lot of production offline permanently, to me that's very encouraging for companies like Kadant, because it doesn't take much of a change in operating rates.

And I think linerboard right now is operating somewhere around 94% of capacity. And it doesn't take much of a change in operating rates for them to benefit. And when they -- after they get the benefit reflected, certainly, in their balance sheet, and they start generating some cash, they have a real need to upgrade equipment. That normally lags maybe a quarter or two.

So hopefully before the end of this year, we'll start getting the benefit of orders from a number of those grades. And I think in the longer term, I think that we're going to see a real opportunity in North America and Europe, because they had the discipline in the last six years or so, where they've really crimped down on CapEx. I don't see them putting in a lot of, you know, additional capacity, but they really need to replace a lot of worn out equipment that they have, because the technology has changed dramatically -- and plus it is a very corrosive environment that they operate in.

Got you. Okay. Last comment is -- last thing is a comment, not a question, I guess. In terms of thinking about acquisitions, I just want to reiterate that in management in this day and age are talking about accretion of acquisitions, relative to cash returns, which, obviously, are very, very low and it's a very low hurdle. I just want to encourage you folks and the Board to think about the return hurdle being versus your own stock, and the future of the Company, as you consider acquisitions. Thank you.

Absolutely. Thank you for that comment. And that's a philosophy that we adhere to. This is why we've taken our time in looking at acquisitions. And we also look at our stock as well as taking competing interest on that. As I commented, you know, there is a probability we may do both this year.

Great

But we don't feel pushed to do an acquisition. We'll do one when we know we can generate some very good long-term returns for the business.

We appreciate your patience.

Thank you, Alan.

Thank you. Our last question is coming from Michael Hutchinson from Barrington research. Please go ahead with your question.

Hi again, Mike.

Hi. In the composite building products business, with the phase out of residential CCA treated lumber, have these manufacturers worked through their inventories and are you starting to see any benefit in demand there?

They no that (sic) do their switch over last year. So really, the way it worked is that the producers all had to convert their plants over by the end of last year. And that's really just for residential. But they have, you know, they can still sell off existing inventories that they have. I think the benefit for us, really isn't so much in CCA versus the ACQ, which is the replacement. It's more just -- I think it did heighten awareness of really all pressure-treated lumber, and the fact that there's chemicals in there, that you know, people are uncomfortable with.

And then Bill, in terms of steel prices with the rise in steel prices over the past year, it doesn't look like, at least to this point, that it's really impacting you -- but do you see that at some point putting some pressure on margins?

That's a good question. What we've been trying to do, Mike, is that in many cases, we try to add a surcharge on it -- the mills. Our customers’ paper mills are also aware of the impact on fuel prices. That gives us an opportunity to do some price adjusting, because we're in the same -- our competitors are in the same boat as well. So, you know, we certainly always see pressure on gross margin. We try to offset that with selective price increases where we're really impacted by material.

Okay. So you just don't think that's going to be an issue going forward?

No, I don't expect that to be an issue.

Okay, thanks.

All right thanks, Mike.

Once again, to ask a question, please press * then one on your Touch-Tone phone at this time. Our next question is coming from Jason Crawshaw (ph) of Breathe (ph) Specialized Funds.

Good morning, guys.

Good morning, Jason.

Hi, how are you doing?

Fine, thanks.

Look I apologize -- I got on late so you may have covered a couple of these issues.

OK.

The first would be the improvement -- the site improvement that you've seen in North America and Europe. Is that on the stock prep side, the water management side? What specifically, as far as product line, are you seeing (multiple speakers)?

Well, we look at, I think, all of the product lines could benefit. We're lagging -- our customers are seeing the benefit of that right now. Their first quarter came in better than they expected and they are starting to get some decent returns. And we normally, really, before we get a benefit out of that, we will probably lag that by a quarter or two. On the other hand, as operating rates pick up, we really should -- as soon as they start picking up any more, we're going to be getting a benefit out that -- out of our accessories and water management business first. And then the stock prep, which is normally more capital intense, will probably benefit from that a little later on, lagging a little bit.

Okay. So the way we should think about it -- it’s sort of in sort of chronological order -- would be accessories and water management, followed by stock prep as far as some sort of cycle --?

Right, exactly.

Okay, great. Next issue, just on the composite side, I guess you, sort of said, profitability by the second half of this year, I guess is the game plan?

Right.

Is that still where you thought you would be, as far as that timetable?

Yeah. Where we thought we would be as of the end of last year. Once we went through a very slow delay in the spring market last year, and as well as we had issues with some of the shrinkage of the large boards, we had to correct and add warranty issues. So we're on track, based on that -- where we had from the end of the year.

Okay, great. The last few questions. Did you buy any stock in the quarter, as far as the buyback?

No, we have not.

Okay, so you didn't. Within, you know, within the earlier part of the call, you mentioned that, you know, this year either and acquisition, a stock buyback or possibly both.

Right.

So, I guess my question is, what do you need to see on the stock buyback side -- on the share price side, to actually make the stock buyback a real possibility?

We really can't comment on that, Jason (ph), as much as we'd like. We really can’t comment on that. We just continue to look at that as a very viable option for us.

Okay. And okay -- last question would be, given the cash on the balance sheet, given the cash flow generative, sort of, nature of the Company, what about a dividend? Clearly, you could pay a dividend and, I think, still achieve the things that you want to do. Why isn't a dividend a real possibility?

Again everything is on the table with that. And dividends would be something we would also consider.

Okay. Great. Thanks, guys.

Thank you, Jason.

At this time, there appear to be no further questions in the queue. I'd like to turn the floor back over to the presenters for any closing remarks.

All right. Thank you. I'd like to, first off, thank everybody for joining us. And I believe we're off to a good start in 2004. We're building on our strong presence in the growing pulp and paper markets, like China, and we're focused on the needs of our customer in mature North American and European markets, by providing technology and services that help them upgrade aging systems. We're also well positioned to benefit from even a slight recovery in these markets, which we're starting to see some signs of improvement. The demand for our composite building products remains strong. And our expanding distribution efforts should soon begin to yield results that would help this business regain profitability.

And again, I just want to remind, our strong balance sheet is one of our greatest assets and also gives us the means to make strategic investments that offer new opportunities for growth. With that, I'd like to thank you again for joining us today and we look forward to reporting on our progress next quarter. Thank you.

Thank you. That does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.