Kadant Inc (KAI) 2004 Q3 法說會逐字稿

Good morning and welcome to the Kadant Incorporated Third Quarter Earnings Conference Call. (OPERATOR INSTRUCTIONS) It is now my pleasure to introduce your host for today's call Mr. Thomas O'Brien, sir please go ahead.

Good morning everyone and welcome to Kadant's third 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's, and the head of our Composite and fiber-based product 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 provision 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 quarterly report on Form 10-Q for the fiscal quarter ended July 3, 2004, which is filed with the SEC, and is also available in the investor section of our Website at www.kadant.com under the heading SEC filing.

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 Principle. The reconciliation of the non-GAAP financial measures to the most directly comparable GAAP measures is contained in our third quarter earnings release issued yesterday, which is available in the investors section of our website at www.kadant.com under the heading news releases. And with that I'll turn the call over to Bill Rainville, who will give you an update on Kadant's business and future prospects. Following Bill's remarks, I'll give an overview of our financial results for the quarter, and we'll then have a Q&A session. Bill?

Thanks Tom. Good morning everyone. Thanks for joining us on the call today. As you can see in our press release after reporting solid performance in the first half of the year, our third quarter results were very disappointing. Although revenues increased by 16 percent to 53.3 million with better than expected sales of both Papermaking Equipment and composite building products, our bottom line results were affected by $5.7 million, operating loss in a composite business. This loss lowered our EPS performance by 26 cents. Without it we would have come in ahead of our guidance of 17 to 20 cents. Most of the 4.6 million warranty charge of composites is tied to a new problem, concerning extensive oxidation that affects the integrity of the plastic used in our composite mix. In the third quarter, we experienced a substantial increase in the number of claims related to this issue. So we decided exchange products our bio distributors to new material. A large portion of the charge is related to the cost to bring in material in from the field, and replacing it with material that is not susceptible to this problem. While the claims we have received because of this issue amounted to just over $300,000 in the third quarter, we believe that additional claims will surface over time for some other products in the field. As a result we decided a large warranty reserve is appropriate. I can also tell you that we're confident that the product we're shipping now does not have this problem.

Our decking products continue to be well received by the marketplace. Sales for the third quarter increased 72 percent over the last year. Bookings more than doubled from the third quarter of 2003. At this point, however, we believe the composites business will fair better in a Company that is dedicated to serving the building products or plastics industries. Therefore, we've decided to sell the business, and we've received authorization from our Board to do so. Over the years, we've created business that we believe offers great potential in a growing market, and we're confident that composites will thrive in a Company focused on more similar end markets. In fact we're already in discussions with an interested buyer. Although we're in the early stages, we can't be assured that this will result in us completing the transaction. I want to add that we don't intend to provide updates as these discussions progress. In our core Papermaking Equipment business, we continue to position Kadant to benefit from an upturn of mature markets that have been weak, such as North America and Europe, and to take advantage of growth markets such as China.

Let me summarize for you what's happening in each. In North America, we are definitely seeing positive signs, as the major paper producers continue to report better operating results, increased backlogs, and higher pricing on a number of paper grades. An article in yesterday's Wall Street Journal reinforces this, reporting that sharp drops in capacity and increasing demand are helping to restore the health of the paper industry although it's recovered, yes, like other US industries. The question is when this improvement will be translated into increased capital spending. I firmly believe that most of these producers have gone about as far as they can to extend the life of the existing equipment without significantly affecting the quality of their end product. They may hesitate to replace large capital systems that will need the parts, rebuilds, and accessories necessary to improve production and remain competitive. This is why we continue to place heavy emphasis on sales of our after-market parts, accessories, and rebuild services. In Europe the paper industry recovery is somewhat behind North America, but showing signs of improvement.

Our largest subsidiary there, which represents more than one quarter of our paper making equipment business, reported a loss in the third quarter and likely in the fourth. I recently named a new President to lead this operation and make the necessary changes, including a possible restructuring to return this business to profitability. I want to note that the problem here is internal and not related to market share as we continue to be recognized there for our leading technologies. Regardless of market conditions in Europe, we have a real opportunity here to enhance the overall value of our business by bringing this operation performance to a level that's in line with the rest of Kadant. In China, we again saw strong demand for stock preparation systems, with revenues up 64 percent over the last year the challenge here continues to be predicting the timing of these orders, which are typically for large capital systems.

Chinese government authorities have instituted delays in project financing in an effort to control their robust economic growth. Even so, after the quarter ended, we received an order for a $3.5 million from a leading producer of recycle linerboard, who's been our long-time customer. We also have approximately $9 million worth of contracts in the pipeline, but are waiting for letters of credit or deposits before they can be booked as orders. As long as the financing slow-down doesn't get any worse, we should be off to a good start in China in the first quarter of 2005, where some of these contracts become orders. We continue to maintain our leadership in China's stock prep market and are working to leverage our position to increase after market sales as well as sales of other product lines in Asia. A significant portion of the increased stock prep revenues in China in the third quarter was due largely to sales of spare parts as well as stand-alone capital orders.

Let me review our guidance, which has been revised because of the composite situation as well as that is affecting our core business. Now that we have decided to sell the composites business, we need to reclassify it as a discontinued operation for accounting purposes going forward. As a result, our guidance includes only continuing operations that is without composites. For the fourth quarter, we expect to report GAPP diluted EPS of 6 to 8 cents, on revenues of $40 million to $42 million. The fourth quarter estimate factors in the expected loss in our European operation and order delays in China. For the full year, this meets the GAAP diluted EPS of continuing operations of 79 to 81 cents on revenues of $189 million to $191 million.

We are disappointed with our outlook for the rest of this year, and there is no question, we have a lot of difficult work ahead in order to get KAI back on track of earnings growth. However, we are fortunate to have a base business that is highly respected throughout the paper industry for its technological and global strength, and we have the management team in place to get this done. We also continue to maintain a strong balance sheet with cash of $77 million at quarter end even after spending more than 4 million to repurchase our stock. This gives us several options for creating shareholder value including continued internal investment to develop new technologies and extend our market coverage, stock buybacks and strategic acquisitions. Let me remind you that our cash position translates to approximately $5.50 per diluted share. That's based on the number of weighted average diluted shares outstanding at quarter end.

Now, I will turn the call over to Tom for his financial overview. Tom?

Thank you Bill. I will start with the third quarter revenue results. Consolidated revenues were 53.3 million in the third quarter of 2004, up 16 percent from last year. The consolidated revenues include a favorable foreign currencies translation effect of 1.3 million or 3 percent in the quarter. Third quarter revenues exceeded our guidance which was 46 to 48 million, entirely due to stronger than expected revenues in our stock product line which is part of our Papermaking Equipment segment and let's turn to that segment now in more detail.

Revenues in the Papermaking Equipment segment were 47.7 million up 13 percent over last year, including a 3 percent favorable effect from foreign exchange, this increase was entirely due to a 38 percent increase in our stock-prep revenues compared to last year. Stock-prep revenues were up 64 percent in China, 58 percent in North America and 8 percent in Europe including 7 percent from foreign currency. The increase in China was largely due to higher sales, spares and individual capital shipments and the North American increase was a result of several large capital shipments and strong sales of spare parts. This revenue performance in stock-prep, which was better than we anticipated followed a very strong bookings performance in the second quarter of 2004. As we have noted before, this business contains a larger proportion of capital business than our other product lines in this segment and is therefore more difficult to forecast. As I said, bookings were 34 percent lower in third quarter of '04 then in the second quarter of 2004, and as a result we do not anticipate a stronger performance in this product line in the fourth quarter of 2004.

Turning to our other 2 product lines in the Papermaking Equipment segment, revenues in our accessories product line were up 2 percent over last year including a 5 percent favorable impact in foreign exchange. Revenues here were much stronger in North America up 8 percent than in Europe where we saw decline of 6 percent including a favorable exchange impact of 11 percent. And finally our water-management product line revenues were quite weak both in North America and in Europe in the third quarter down 24 percent from last year. Revenues in this product line continue to suffer from sluggish capital orders. Now let us turn to our other reporting segment, Composite and Fiber-based products. Revenues in this segment were 5.6 million in the third quarter of '04, 44 percent increase over the last year's 3.9 million, this increase was entirely due to higher sales in our composite building products business, where revenues of 4.4 million were up 72 percent over last year due to strong demand in the marketplace and a broader distribution network.

Revenues in our fiber-based granular product business were 1.2 million slightly down from last year's 1.3 million. Turning to our product gross margins, consolidated product gross margins were 27.4 percent in the third quarter of 2004, down significantly from last year's 39.5 percent, this decline was primarily caused by 4.6 million of warranty provisions in the composite building products business compared to 600,000 last year. Product gross margins in the Papermaking Equipment segment were 38.9 percent, 320 basis points lower than last year. This decrease was entirely due to lower margins from sales of capital products.

Now, let's look at SG&A expense for a moment. SG&A expenses were 15.3 million in the third quarter of 2004 or 28.6 percent of revenues, up from last year's 12.8 million or 27.8 percent of revenues. Approximately 400,000 of the expense increase is due the unfavorable impact of foreign currency translation compared to the third quarter of '03. The remainder includes the pricing of 300,000 of severance costs in our European operations and 400,000 of Sarbanes-Oxley implementation costs. With respect to the latter, we have incurred approximately 700,000 in Sarbanes-Oxley costs year to date through the third quarter and we expect an additional 400,000 in the fourth quarter. The total of 1.1 million for the year is approximately 300,000 higher than our last estimate.

Now, let's turn to our operating income and EPS results. The consolidated operating loss was 1.4 million in third quarter of 2004, compared to operating income of 4.1 million last year. Operating income in our Papermaking Equipment segment was 5.6 million down slightly from last year's 5.7 million. The operating loss in our Composite and Fiber-Based Products segment was $5.6 million and this was entirely attributable to the composite building products business, which includes the $4.6 million in warranty expense. And finally our corporate expenses were approximately $400,000 higher than last year partly due to the higher orders expenses the Sarbanes-Oxley expenses, I noted earlier.

Total EPS and EPS result in the tax rate. We reported a GAAP loss per diluted share of 4 cents in the third quarter of 2004 compared to income of 19 cents last year. Included in 2004, is income of 1 cent, which is due to a reduction in our tax reserves associated with our foreign tax credits and a gain of 1 cent resulting from a sale of a small subsidiary in Latin America. The 2003 period includes restructuring expenses of 1 cent. If I exclude all these items from both periods, we can then compare the adjusted diluted loss of 6 cents in 2004 to income of 20 cents in 2003, or decline of 26 cents, 23 cents of this decline is due to higher after-tax losses in our composite building products business in the third quarter of '04 versus the third quarter of '03.

Now, let me make a few comments on our effective tax rate for the quarter. The effective tax rate for the third quarter constitutes a tax benefit of 53 percent, which is made up of 2 components. First, our recurring effective tax rate of 35 percent, which was a benefit this quarter on our net loss. And secondly, an additionally tax benefit associated with reducing our tax reserves due to a more favorable foreign tax credit position. We expect to provide the recurring 35 percent tax rate in the fourth quarter. I would also add that, although we are still evaluating the effects of the American Jobs Creation Act, which was signed by President Bush last week, we expect that this legislation along with other actions we have initiated will serve to further reduce our recurring effective tax rate in 2005.

I'll conclude with a few remarks on our operating cash flows and the balance sheet. Cash flow from operating activities were $0.4 million in the third quarter of 2004, down significantly from last year's record setting $17 million. Contributing to this decline were cash collections from China, which were $14.2 million in the third quarter of 2003 and only $3.3 million in the third quarter of 2004. Again, this business consists primarily of large system orders and the resulting cash flows can vary widely from quarter to quarter. Looking forward, we do expect better cash flow in the fourth quarter of 2004, particularly from China. I should also mention that the composites business had only a small negative cash flow from operations in the quarter in par because the warranty provision claims, which will be paid in the future.

We ended the second quarter with $77.1million in cash, a decrease of approximately $4.5 million from the second quarter of 2004. This decrease was largely due to our stock repurchases in the third quarter. During the quarter, we repurchased 211,900 shares at a total repurchase amount of $4.1 million. Year to date, we have repurchased 509,000 shares for approximately $10.3 million. Our cash balance at the end of the third quarter represents approximately $5.50 per share based on the weighted average diluted shares outstanding at the end of the quarter.

And finally on the working capital side, excluding both cash and debt and like to remind you that we currently have no debt. We ended the third quarter of 2004 with working capital as a percentage of the last 12-month revenues of 14.9 percent down 80 basis points from the second quarter of 2004. That concludes our review of the financials, and I will now turn the conference back to the operator for our Q&A session. Operator?

(OPERATOR INSTRUCTIONS) Brent Miley, Rutabaga Capital.

I had a couple -- few if I could please. I was wondering if you might give us little more detail on what's going on in Europe, you mentioned that's kind of an internal issue. It seems like the results there were obviously quite weak and I wondered due to that you're going to lose share there, obviously you have made a management change, can you just give us a little color on what's going on in the European operation please?

Sure. Good morning Brent. This is Bill. And yes, I can. For one thing, there's a lot a regulations, which guide what we can or cannot say concerning Europe as you can understand. But I can tell you this, that this is the unit that had good profitability in the past and it has got great technology and on the same products that we are selling in North America and rest of the world including China, we are making good margins on it. And it just declined into the loss column. And they did change management there as well as we've identified some nice opportunities for us to bring it back into the same profitable range as the rest of our units which I look at as a great opportunity. Concerning their market share, they maintained market share throughout their markets, they got a high a quality product. We have no warranty issues affecting it, it's strictly one of us optimizing the operations.

Bill, was that management in place for some time , some of the profitable periods as well, I guess I am wondering if though it sounds like there might have been a change in the market? I am just trying to sort of get a grasp on this.

No, I think what has taken place is that throughout the rest of our operations over the past several years, we've really re-sized our operations and gotten it to be much more efficient to maintain profitability and that really was not done there. The manager that -- the person that's in place now has been involved in that business for 22 years. He is a very solid individual and he's taken the right steps and actions for us to return to seeing the profitability plus I can also tell you this one, as I am personally spending a fair amount of time looking at that issue along with two of my very top operating people. And we have -- we are in the process of putting a plan together and we are confident that it will take us back into profitability and that will mean a lot to us at Kadant, to have over a quarter of our business back up at the same level as others.

Absolutely. Do you think that that could be done in the next -- do you think that that should be a 12-month kind of process or any sort of timeframe?

Well, if it was in the US, we could have had it done already and some of that timing is outside of our control, but certainly within the next 12 months, we hope to have that all completed.

Fair enough. I was wondering if you also might just comment on the general state of the Water Management business. Tom, you had mentioned that it was down pretty , there was something going on in that market or whether that was just kind of lumpy orders, I know those are big orders, but could you give me a little color on that too?

Sure Brent. You are right. In that part of business we tend to have some capital orders, which can be fairly, fairly lumpy, especially some of the larger filtration systems. And hopefully what we are looking at right now is, it's nice when our customers, they start to improve in Europe and North America, they run such a large install base. And especially throughout this year they've had financial improvements and hopefully when budgets are being put together now for next year that some of those larger projects that we've been quoting and putting proposals in are converting to orders for us.

The actual kind of RCO proposal or the pipeline ?

Yes, it does. And then ask a question of whether to get release but right now yes it does. And I think there has been a pent-up demand for that but it tends -- hopefully our expectations are that that business would come back on line because certainly we've maintained market shares, if anything, we've increased them in some of the markets. So, that's not the question, it's a question of customers releasing projects.

On the composite side, I know there is not much you are going to -- want to say. Is there -- could you remind us what book value is of the composites business and are there any sort of recent transactions that were kind of in the public view that we could look to get a possible feel for multiple -- ?

Well, I can tell you this book-to-book value is about $10 million and as far as what we would expect to get for that business, right now, we're just in the early stages of the discussion with some one who appears to be very interested in that business and as I commented before, if we got into second half of the year and we didn't see profitability, that that would be it. And we'll have more opportunities I think, really focusing, we see a lot of opportunities within our core business to focus on and that really was outside of our business. So, as far as what kind of multiple we'd expect to get, things go early, that's the comment on that.

One question on the kind of technical side there, obviously, I am sure, whatever prospective buyer wanted to know this well. You mentioned you've got excessive oxidation. I am not exactly sure what that means, but could you talk a little bit about how you know you got the formulation right, to kind of avoid this issue in the future?

I'm going to allow John Painters here.

Sure. The oxidation is the process where by the oxygen is kind of breaking down the long molecules that make plastic. It gives a kind of a, the surface gets kind of a scratchy and it is a chain reaction. There are things that you can do in the manufacturing process and in the formula, to quench that, to ensure that this haven't interrupt that chain. So, we have done that, tested it. We understand what's going on and have put that behind us in terms of what we're making now. But that's essentially what that is.

Have you had any, how's the reception maybe at distributors or any kind of key customers at this point over these issues or is it something what they are working with you?

They are working with us, we haven't lost any distributors and we've been very prompt with them, talked them to and in many cases as we said in the release, we have exchanged inventory, where it said that, well, they can be assured that the inventory that they are selling doesn't have these issues and we're doing that even though we're not entirely sure to what extend we need help based on the problem was and the old inventories that's out there.

One last question if I could and I'll get off. Bill, I was wondering if kind of the internal issues you guys have talked about acquisitions in the past, is that put them all in the back shelf more you deal with kind of internal problems or is that still ongoing?

The acquisition front is still ongoing Brent, and that's good question because we really have, I think topnotch management team in place and the acquisition I'd say that we would focus on will be more within our core business which we are very comfortable and knowing how to deal with that. And, it's unfortunate that the European operation, it just takes so long to get them in line with the rest of our operations. It's question of timing, you know what to do is just going through their process so, I would say that we would not hesitate at all to make an acquisition that would add some real value to us, right now.

Claudia Shank, J.P. Morgan.

So, a couple of questions, I think Brent asked some of them already. So, just curious, sort of on the issue of the cash balance and maybe just talk a little bit about priorities there and if there have been obviously acquisition or still, as you said at the fore front of the company's lines that, but in terms of the other options, is there any prioritization of those?

Well, that's a good question Claudia. When I look at on that is, what we really get I think the priority is, what, where we think, we can get the best shareholder value. And for example looking at it, and if a very acquisition would come up that really if we do that would certainly take our number one priority because specially something that would complement what we do is in the paper industry. Because, I think we run very successfully, globally we got a good market penetration and so that would probably take priority and if we don't find any sub candidate certainly, the other options are available such as buying back our stock which we have been doing, and we did, we also did some in this quarter is commented on. And also, in terms of whether not we would pay a dividend, that's always open, we never say no to that, we don't have any plans to do that and also continuing investing in our business, we also see some great opportunities and some of the technologies we're looking at and again we're focusing on new pieces of equipment that we think are idea for today's market that will give a quick return to the paper producers and help them upgrade some of their age machines base in Europe and North America.

To that end, can you talk a little bit about what you are seeing specifically in -- may be in North America and the different grades and which grades, they are showing that much trends?

Well. Certainly tissue is one that we have been looking at very carefully as you know because we can add a lot of value to tissue producer in a very sensitive to the quality of the grade of paper that they have it is consumer orientated and identified with that. So, that's one that is very attractive. Thus we are also seeing improvements even in the three coated sheets right now and we see some opportunities in there, especially as some of the like the European companies buying assets in North America and they are in a position noted there may be those types of alliance we see some opportunity and as well as packaging grades that started to improve a lot and there, we have a very, very large installed base with our recycling systems. And ones that we continue to see weak however our newsprints and that is a different situation you are well aware of them and that -- we are not really focusing on -- for example on newsprint. We are -- we do a lot of business on newsprints, but as far as where we see the real opportunity to make some improvements on tissue, light weight coated grades as well as the three sheets uncoated that comes up and down, but we see some nice opportunity there as well.

Okay. It makes sense. And just one last question on China. You mentioned last quarter about the slowdown in financing from China, which obviously is an ongoing issue. But what did you see across sequentially third quarter versus second quarter, I mean did you start to see some pick up from what may have been delayed in the second quarter, was it pretty much over the worse or better?

It was pretty much leveled between those two quarters and I am always seeing and our anticipation is that we were just assuming in rightly or wrongly, that those controls is going to stay in place for a while. On the other hand, we can see further down the pipeline and taken those into considerations as we look forward and we expect, speaking of China we expect next year to be a very good year for us in China.

Peter Parker, Parkwest.

I have a few questions. The $54 million of cash has that changed much and I would guess that likely due to that coming over or some of that coming over the entire tax changes. Can you talk about that?

Yes Peter, I am going to have Tom address that.

I missed the first part of that we are talking about the cash in Europe.

Yes. The cash within Europe, it is $54 million I think as of June.

Okay, that is actually -- you are taking that out of queue -- that is actually the undistributed earning, that number. We do have approximately half of our cash overseas and what happened to US -- that's normal situation for us. So, that disclosure you see in the queue simply thing that we have no immediate -- we have no intention to bringing those undistributed earnings back into the US.

But in terms of the cash, there is a change in cash flow make it a little? Does it make it easier for you to now buy back stock or use that cash?

Actually there is a new lot really applies more to companies that they do have operations in no or very low tax savings like Ireland or Puerto Rico whatever, they can bring that cash back and take 5 percent on it, they would only pay zero or very small rate in the past. Most of our cash in higher tax countries, though really that is a new provision of the law although overall that law is favorable to assess particular provision is entirely an advantage to us.

I see. How should I conceptually think about operating margins for the fourth quarter and going forward, it seems if I am doing it correctly that the fourth quarter is a bit of a , let me now put words in your mouth, how should I think about it conceptually for '05 and '06 and so on.

Well. I don't think we are ready to '05 or '06 numbers yet. In terms of the fourth quarter numbers, our guidance here has now shifted because we are talking now about guidance for our continuing operations, they which is now going to be shown as a discontinued operations. The operating income in the continuing operations will be in the 8 to -- probably like 4 to 5 percent. That would be consistent with our guidance.

Can we say that the composite business does that include not just the building materials but the other stuff too?

No, that's just the building material, composite business.

So, that stuff stays. And what is the sort of run rate revenues. I'd guess, is that about 5 million business?

It is about a $6 million business.

Is that operating at a positive level?

8 to 10 percentage operating income range that we are in there.

(Jaycee Crashaw, Great Specialised

Just a couple of questions here. The first would be just on the composite business. I guess, you mentioned the book value is about $10 million. Is that correct?

That's correct Jaycee.

Do you anticipate recouping that book value? I know, you haven't given a price but could you think there will be writedown, I guess, where we are now.

Yes, we expect to recoup that.

So, you don't anticipate selling less than $10 million.

That is working capital. So that's almost cash, quite but, almost. There is another component of equipment but most of the equipment is pretty new, but the main point is that the larger component of it is working capital.

As far as you're concerned how long has that operation been losing money?

Basically, just recently.

It was profitable in Q2?

I think if you look at the recurring numbers in Q2, it would have been, yes.

And how much did it lose in Q3?

We really don't give those numbers out for an individual company. But I would say this wasn't a huge substantial loss but we just don't give those numbers out.

So, it is not a case that if I came in at the breakeven we are going to see some material change in the bottom line. It is just a case that you just want to reverse the trend and get it back on track.

We are going to reverse and get it back where it was and up to equipment for other units because again that's big part of our business and when that deteriorated we -- and again the part that is bothersome is that it takes so long to get there. It's just because it's Europe.

As far as bookings being down, I think you mentioned was 34 percent sequentially. Now you mentioned North America is looking pretty good. You mentioned Europe, the problem was not market related, it was company specific related then obviously you had some compare about China. So if you look at that degradation of the bookings. I mean, is that primarily coming out of China, the Chinese business model is strong as it was, or if you had to look at the three regions where is the bookings sort of coming like?

The big hurt, Jaycee has been coming out of China, primarily on a big stock prep systems and that is a question of timing and we look at it more as delays right now. But it's been more difficult for us to call those because of them.

Just lastly, obviously it seems that the share buyback has gained some momentum. How much is left on that authorization and is it fair to assume that once that is fulfilled that you would increase -- another plan?

If that was fulfilled, I'm sure our board would allow us to increase the other plan. I'm going to have Tom give you the number.

We bought back 509,000 shares year to date. Some of that was on our previous authorization. So we have about $21 million left of that initial -- of that $30 million authorization the Board gave us in May. It's about $21 million of that 30, that is left.

And it does sound as if paying the dividend is something at least sounds on the call here may be receptive to now than you have in the past, given that you are not going to have any capital needs for the composite business anymore -- is that a fair assessment?

Well, I guess I mean it depends upon what we maybe looking at, in an acquisition for our core business.

(David Teledor, .

The previous caller has asked my questions.

(OPERATOR INSTRUCTIONS). There appear to be no further questions at this time. I would like to turn the floor back to over to the speakers for any closing comments.

Thank you operator, and I would like to again thank everyone for joining us on this call, and I just would summarize by saying that clearly the second half of 2004 is presenting us challenges but the long-term prospects are from China, as we've talked about, continues to be strong. We are leveraging our leadership there to build our presence in Asia, and in North America and Europe, we see a pickup and we are armed with the products these customers will need the improved productivity and quality. We also have a very strong balance sheet. It gives us a number of options as we talked about for generating shareholder value. Again, thank you for taking the time to join us today.

Thank you for your participation. That does conclude this morning's teleconference. You may disconnect your lines at this time and have a great day. Thank you.