Quaker Chemical Corp (KWR) 2005 Q4 法說會逐字稿

Greetings, ladies and gentlemen, and welcome to the Quaker Chemical Corporation's fourth quarter and full year 2005 earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. Ronald J. Naples, Chairman and Chief Executive Officer of Quaker Chemical Corporation.

Welcome everybody. Good afternoon. Thanks for being here. Here with me today is Neal Murphy, our Chief Financial Officer. And as in the past I'm going to make some opening comments, and then Neal will provide some more detail, and then of course we will be able to take some questions at the end.

Suffice it to say that 2005 was a very eventful year. The results are colored strongly by the cost base action we took, a small step in the first quarter and a much bigger step in the fourth quarter, which as you noted in the press release, for the full year resulted in a charge of $10.3 million.

The idea behind this was to lower our cost base so that any needed future spending for business and growth initiatives for strengthening our organization would have the effect of being largely offset by this reduction in the cost base. And we wanted to help set in place an action that would help us bring the bulk of our gross margin improvement that we may be able to achieve going ahead at the top of the income statement down to our operating, and indeed, our bottom line results. But Neal will give you more detail on this later.

It is important to note a reality about the cuts. We always keep in mind that Quaker is (technical difficulty) business. We have made our mark with customers, not only with our products and the technology that they embody, but as important with our process expertise and application know-how, all delivered through our virtually unmatched global presence in a globally integrated way for our global customers. That is all built around our worldwide knowledge, which is in the and is truly our product and our business.

In the face of making these needed cuts we kept this strategic comparative front and center so that we could make these cuts but continue to execute on a global basis.

Of this total $10.3 million charge, $9.1 million came in the fourth quarter, following our announced intention to do this in our third quarter press release. Also in the fourth quarter you doubtlessly noted that we took a $1 million tax charge for the repatriation of foreign earnings. So the quarter had two sizable hits.

It is worth noting I think that absent these two onetime type charges, our fourth quarter earnings would have been in the ballpark of 2004's fourth quarter results, understanding of course that there were vagaries around applicable tax rates and the like.

This result is in the face of extraordinary refined product cost jumps in the quarter. Indeed, mineral oil, a key product component for us, was tremendously affected during '05, not only by the price of crude, from which it is derived, but also later in the year by much constrained refining capacity. I noted in the press release that this mineral oil price was up about 70% from the first quarter to the fourth quarter. Indeed it was up 30% in the fourth quarter alone. And I think Neal will have some more to say about this later.

As you might guess, raw material costs were a challenge all year long. The fourth quarter average crude price was over 20% higher than the first quarter average. And this fourth quarter average crude price was over 50% ahead of where we were in 2004.

One of the realities that springs from this is our continuing effort all year to work with our customers on price and strengthen our relationships. We were able to find formulations with many of our customers that recognized the realities of what was happening in raw materials, and also recognized our long commitment to delivering tangible value for our customers. In these days price is a necessary discussion, but we are also always keenly aware of how we can serve our customer's interest, not only ours.

Our gross margin experience during the year is instructive on this point. Our gross margin percent for '05 is behind '04's numbers to be sure. The quarterly gross margin percent though got better quarter to quarter through the third quarter. Indeed, in the third quarter the '05 gross margin percent even exceeded the '04 percent a bit. Through the third quarter, while our gross margin percent for the nine months was down, our gross margin dollars were actually $1 million ahead. So we're holding our own in this volatile raw material commodity world.

The extraordinary fourth quarter mineral oil experience got ahead of us, no question, as both the GM percent and the gross margin dollars fell behind prior year. But we're in a better place as we start '06 than we were to start '05.

As we look back on '05 there were many positive signs. Sales grew solidly for the year about 6%, even though there were definitely pockets of demand weakness around the world. This was led by our Asia-Pacific region, particularly China and steel, where we have a leading market share. We strengthened that share this year by acquiring the business in all the new rolling mills that went online in '05. There were six of them.

We continued to invest in the infrastructure out there to build our capability in this growing market, and to give us a platform to further stretch our legs going ahead. We made real progress in new market efforts such as mining and tube and pipe. They are still relatively small, but bring -- in tube and pipe for instance our sales are growing in the neighborhood of 20% a year.

Our CMS initiative increased its financial contribution through the year, and was at the heart of our considerable improved customer penetration for metalworking products. As part of the fourth quarter action I talked about, we rebalanced our organization between global strategy and local execution. We established regional management with regional units to be closer to our customers and to put accountability for results closer to home.

We still kept global functions that must operate across borders to deliver our global promise to customers. We didn't want the rebalanced organization to have a negative effect on that, particularly concerning the application of our worldwide knowledge. These functions such as global R&D, knowledge management, customer and product management and the like are going to be managed on a global basis. And during the year we put in place a $100 million line of committed financing that assures us the resources we need.

So we go into '06 from a '05 that certainly was disappointing from a financial standpoint. But in many other ways there were important aspects that we can build on for the future. And make no mistake, we are totally focused on regaining the financial performance track record we had established before the raw material whirlwind of the last 18 months or so.

Looking forward to '06, as you know, it has not been our practice to forecast an earnings figure, and we won't do so for '06. There are still many external moving parts, from volatile raw materials to customer shifts, that make clear visibility into the future hard. These mean some uncertainty, of course, but we have put a lot of things in place in '05 to position ourselves for progress.

We're looking for in '06 gross margin dollar increases in the middle single digits percentwise, assuming reasonably stable raw material markets. Given the cost base reduction of '05 that I talked about will largely mitigate the effect of new '06 spending, we expect to be able to drop most of the gross margin improvement, as I said earlier, down to operating income, and ultimately to the bottom line.

I hope my comments have provided a good general overview of the year, and how it takes us into the new year. At this point I will turn to Neal, who will give you a little more detail on the fourth quarter and the year.

Good afternoon everyone. Yesterday we announced quarterly sales of 107.1 million, and a diluted loss per share of $0.56 for the fourth quarter of 2005, as compared to sales of 104.2 million and earnings per share of $0.17 in the fourth quarter of last year.

There were a couple of unusual events that impacted fourth quarter results, and I am going to try to provide some clarity around those items. Let me first address the fourth quarter loss per share. Certainly it is highly unusual for Quaker to report an EPS loss per share for any quarter. In fact, as I look back over the last 20 years this is only the second quarter that we reported losses. And in both cases the losses were the result of a significant restructuring charge.

During the fourth quarter we implemented a major restructuring program with the goal of significantly reducing our operating costs in the U.S. and Europe, which are more mature markets for us. These actions resulted in a net pretax charge of $9.1 million. Given the challenges in our key markets, this significant adjustment to our cost structure was essential to regain upward earnings momentum, while continuing to invest in strategic initiatives to drive future growth.

This restructuring plan was multifaceted. It included involuntary terminations, a freeze of the U.S. pension plan, and a voluntary early retirement program to certain U.S. employees, wherein we provided enhanced pension and other post-retirement benefits. In combination with the previously reported reduction in force in the first quarter of 2005, we have reduced our combined workforce in Europe and the U.S. by approximately 8% during 2005.

This reduction in force spans virtually all functions and levels within the Company. And we expect a reduction in our cost base as we move into 2006 in an amount similar to the 2005 earnings charge of $9.1 million. As Ron mentioned, this cost base reduction will enable the Company to maintain SG&A at levels similar to 2005, while funding operating expense investments in higher growth regions and businesses.

In the third quarter press release and investor conference call the Company had informed that it had enhanced capital structure by refinancing its third-party debt into a longer-term $100 million credit facility. Additional capital structure measures were taken in the fourth quarter in the form of substantial repatriation of accumulated foreign earnings. This repatriation enabled us to achieve an improved balance between foreign and domestic debt levels, to improve cash management, to optimize our global tax position, and to lower our consolidated borrowing costs.

These foreign earnings repatriation actions resulted in a $1 million largely non-cash tax charge in the fourth quarter. So it was these two unusual items that were the key drivers of our loss in the fourth quarter. Next I will focus on the drivers of fourth quarter operational performance, and then we will open the floor to questions.

Revenues for the fourth quarter compared with the same period last year were up 3% to 107.1 million. Foreign exchange negatively impacted sales by 1%, primarily due to the weaker euro average rate of 1.19 this quarter compared to 1.30 during the fourth quarter of 2004. The stronger Brazilian real partially offset the euro decline, as the average real rate was 0.44 this quarter and 0.36 during the fourth quarter of 2004.

The remaining growth of 4% was primarily due to higher selling prices. These are a real reflection of the Company's pricing actions throughout 2005 to mitigate raw material price escalations.

From a volume perspective, strong volume growth in the Asia-Pacific region was offset by softer demand in the U.S. and Europe. As mentioned in prior conference calls, excess inventory levels existed throughout the steel supply chain going into 2005 in both Europe and the United States. This excess appears to have been substantially eliminated during the course of 2005, including the fourth quarter, and we're now at more normalized levels as we enter 2006.

Major steel mills in the U.S. and Europe continue to experience production cutbacks, however in the fourth quarter as a result of this excess inventory situation. As discussed in previous quarters, our Asia volumes grew at double-digit rates. And we won the bulk of the new steel mills that have started up production in 2006.

Moving to gross margin. Gross margin as a percentage of sales was the 30.2% compared to 32.8% for the fourth quarter of 2004. As Ron mentioned, continued raw material price escalations, particularly crude oil and crude oil derivatives, outpaced the Company's price increases. We have been generating positive consecutive quarter gains in gross margin percentage in 2005 leading up to the fourth quarter, as our prices were catching up, with raw material cost increases. However, refinery shutdowns in the fourth quarter due to hurricanes and other outages disrupted the supply demand balance for mineral oils, and resulted in a 30% increase in the fourth quarter alone.

This dramatic increase outpaced our ability to implement price increases. As we have discussed in the past, we have historically been able to recover the vast majority of raw material price increases through pricing actions, but with a lag effect of a number of months. We have implemented pricing actions in early 2006 to offset the fourth quarter increase in mineral oil costs and other raw materials.

We also continue to experience higher third-party purchase cost in our chemical management services business. However, during the fourth quarter we were successful in renegotiating a number of CMS contracts to provide some relief from these higher costs as we move into 2006. In addition, a number of CMS contracts are up for renewal in 2006, and we expect to achieve some further relief for third-party product purchases as these contracts renew.

Moving down the P&L I will discuss SG&A and other expenses. We made very strong progress in the area of cost control in the quarter, as SG&A as a percentage of sales decreased to 27.1% versus 29.3% in the fourth quarter of 2004, and 28.3% in the third quarter of 2005. In absolute dollar terms, SG&A this quarter is down 1.4 million compared to the 30.5 million reported in the fourth quarter of 2004. Foreign exchange translation accounted for approximately one-third of the decrease, with the remaining decrease due primarily to cost reduction efforts, partially offset by inflation and growth initiatives.

Other income was lower in the fourth quarter of 2004, which included distributions from the Company's real estate venture, as well as a gain on the sale of real estate by our Australian joint venture last year.

Higher net interest expense compared to the fourth quarter of 2004 was attributable to higher interest rates on the Company's debts. And we expect the runrate in the fourth quarter will increase as we move into 2006 as we experienced an interest rate jump in the latter 2004, and most analysts are expecting another small jump in interest rates as we move into 2006.

The effective tax rate was 14% on a pre-tax loss of 6.4 million compared to a 31.5% effective tax rate on pre-tax income of 3.6 million for the fourth quarter of 2004. This unusual effective tax rate for the quarter was due to the aforementioned foreign earnings repatriation actions.

And minority interest was lower for the fourth quarter of 2005, driven by the acquisition of the remaining 40% interest in our Brazilian joint venture in March of 2005, as well as the prior year gain on our Australian JV sale of real estate.

I also want to make a few remarks on the balance sheet. The Company's net debt has increased from December 2004 due to a reduced income level and the funding of the Brazilian acquisition noted above. The Company's net debt to capital ratio was 35% at December 2005 compared to 28% at the end of 2004.

In September 2005 the Company repaid its senior unsecured notes due in 2007. On October 14, the Company entered into a $100 million five-year unsecured syndicated multi-currency revolving credit facility. This facility enabled the consolidation of short-term debt into a larger longer-term facility, and assures liquidity to support growth. The facility can be increased to 125 million should additional financing be required in the future.

That concludes my prepared remarks.

Now we will turn it to any questions you all may have.

(OPERATOR INSTRUCTIONS). [Robert Felice] of Gabelli & Co.

Just a couple of quick questions. If I remember correctly, you have some contracts coming up for renegotiation sometime around May. Again, that is if I remember correctly. Just curious to know in terms of the pricing what do you expect to get on the pricing as a percentage gain? Are these energy surcharges, or is it direct price increases? And then let's assume that heading into '06 the cost of raw materials let's just say comes down a bit. Do you hold these price increases? Do you give them back, etc., etc.?

I presume you're talking about the CMS business, because that is the business in which we have these contractual relationships. The first series -- the first three years is over in May. I will make some general comments and maybe Neal can provide a little more detail. But the general notion is at this time is that GM, which is really the primary customer for the ones that are to be renewed in May, is reassessing how it wants to deal with these contracts and whether it wants to put them out to bid or or whether it wants to just to renew the contracts on a minimum basis. So we will be talking to GM about that. I guess we're talking to them right now as a matter-of-fact, but that really is yet to be determined.

In looking at these contracts, really as Neal mentioned, we didn't wait just for the renewal period coming up in May, we have looked at these contracts, and over the last quarter or so in particular, and have been able to work with GM and others to find ways to mitigate the effect of some of these cost issues today.

One of the ways of doing that is to take it out of the realm of what is our price from our suppliers, and how do we have to pass that along to GM by moving it from the model of CMS in which we take possession of the product and sell it to GM essentially, or whether we just pass it through to GM. That will take away -- is going to what we call a pass through kind of process. We will take away some of the risk -- we will take away considerable risk in terms of what the impact may be from raw materials.

Also, going forward as we renegotiate these contracts, the contracts will have in them provisions which deal with price increases from Tier 2s and raw materials and that kind of thing, which would give us considerably more protection going forward. At this stage it is hard to note -- it is hard to draw any general premise about increases or fees or anything of that sort, because we're really in the early days of beginning the process with GM. As I said, they may not even really go down the track of renegotiating all these contracts.

We feel we have a great relationship with GM. The fact that we have had -- and Ford and others with whom we have had CMS contracts. We were hurt early on by the fact that raw materials affected Tier 2 prices and we weren't able to pass along. But I think we're digging our way out of that and establishing the kind relationships that will allow us to avoid that kind of problem going forward. In some cases that has to do with passing along price, in some cases it has to do with moving to a pass through kind of contract.

CMS has improved its financial contribution, as I mentioned, throughout the year consistently. We expect that this will be a good year from CMS. '06 will be a good year in CMS. In fact, CMS is contributing considerably as we discussed in the past to the penetration of these accounts in our metalworking materials. Our sales in metalworking are up dramatically and it is largely because of the customer access we have developed through CMS.

I don't really wish to dodge your question, but it is hard to be specific about that kind of thing since it is contract specific, it is site specific, and it is timing specific. And we're just beginning those discussions with GM.

Just as a follow-up, what percentage of your sales do these contracts represent?

Neal, do you want to --?

In the range of about 10% of sales. Just a rough range for you.

Okay, 10%.

And that includes Quaker product sales into these businesses, as well as products that we purchase on behalf of GM under fixed fee contracts.

And then one last question, and then I will hop back in queue. What was the dollar impact year-over-year of raw materials? And then how much of that has been recovered in pricing?

We have a cut at the dollar impact of course. It is a little hard to know precisely, but we do keep as careful a record as we can. We estimate the dollar impact of just pricing now, not mix or not increased volume, but just pricing alone is in the ballpark of I would say 14 to $17 million. We think we have recovered most of that, although not all of it. We are always, of course, behind in terms of the passing the cost along. We are always about a quarter behind. And of course it is the size of the increases that we received from the raw material folks that are considerably larger than the size of the increases that we can pass along.

But just the fact that we have managed to pretty much stay even in gross margin dollars in the face of this -- overall '05 we managed to stay pretty even in gross margin dollars in the face of this kind of increased costs, I think is indicative that we have been able to establish the kind relationships with our customers through many discussions with them that recognizes the realities of these increases, and both serve their interest and serves ours. I think we have been able to push that along pretty well.

(OPERATOR INSTRUCTIONS). Patrick Flavin of Flavin, Blake & Company.

Can you give us a feel, Ron, for the dynamic that is going on in steel? Steel is a big market for you, obviously. And the Western world, both North America and Europe, is suffering ostensibly at the increase in supply that is occurring in Asia. Can you give us a feel for how big your representation is, use market share, use whatever you want, in each of those geographic pods? And when you talk about getting the bulk of new facilities in China, can you put some metrics to that?

Yes, Neal said the bulk. I said all. I will have to correct Neal when we finish with this call, because in fact all the rolling mills that opened up in China this year, of which I said there were 6, we have gotten business in all of them. Our market share in China is by far the leading share. We've done very well there. And of course part of our plan is to continue to do well. There are I think five or six planned openings -- new mills coming online in '06, and of course we're going to competing for all of that business.

The dynamics in the steel business are really interesting in a sense that steel used to be a local business. It became a national business. Then it became an original business, and now today it is truly becoming a global business, as you've got all these cross-border combinations being bandied about. The latest one of which of course is the Mittal hostile offer for Arcelor, which I guess depending on what you read in any particular day is being fended off dramatically or is being pushed forward. I know the French government and the Belgium government has different views on it -- or I guess Luxembourg government has different views on that.

What we see happening though is that China, as you noted, is becoming much more of a factor. China used to be a net importer of steel. Its own demand last year started to slow down domestically, and through the year it became a net exporter of steel. Although it is not really a net exporter of the kind of rolled steel that we do, I don't believe. I think overall it is a net exporter.

But our business in China is growing dramatically. Neal said that we had double-digit percentage increases there. And we did last year and we hope that we can do that again this year. That is becoming to be honest -- the fact of it is it is becoming more competitive as more of our competitors want leap into that marketplace. But we are still by far the leading share.

If you look at the steel business as a whole, we have a leading share around the world in virtually every market, whether it is South America -- well, I guess in every market. Europe, our share is by far -- probably our share in Europe is three times the share -- or equal to the share of all our competitors combined. Our share in the United States is not quite as high as high as our share in Europe, but it is still probably three times the next closest person.

Our share in Brazil -- or South America, but Brazil specifically, since sense that is the most industrialized of those countries down there, again is leading share. It is very high. I don't want to hazard a number on it, but it is in excess of 50%. In Asia -- in China specifically we have very high share. And in Asia as a whole our share is not quite as high as it is in China, but still it is a leading share in China.

Now if you step back and look at our share of rolling oil specifically, which is typically the highest valued product sold into a rolling mill, our shares are even higher. And the shares I gave you before really relate to our share of business, if you count all the stuff that is sold into a rolling mill.

Naturally coming up with specific share numbers is not the kind of thing we like to bandy about too much because it is useful competitive information. And most of it is based in our own information as opposed to arm's length information you can truly verify. I don't wish to go out to far on a limb with specific numbers. But I think it is clear from our market activities that we have a leading share of everywhere in the world.

As there is more consolidation in the steel business, a la Mittal and Arcelor, that will be both a challenge and an opportunity. These are two companies -- for instance Arcelor and Mittal have very different cultures and very, very different ways of dealing with their vendors, and very different ways of looking at how they want to develop their businesses.

So the fact that they would be put together might provide a challenge for us. But the fact that they would be put together also provides an opportunity, because of all the companies serving the steel business we're probably the one that is -- I say probably -- I believe certainly is the one that is best positioned to deserve global needs. And to the extent that these companies really want to look at their business as a global business and get served globally, I don't have any question in my mind that we're best positioned to do that.

I hope that gives you at least some feel for the dynamics of the business, at least as they look to us from the vantage point of being a supplier to the business.

The only thing I would like to add to that is the -- this inventory situation I alluded to. Our best information says that both in Europe and the U.S. as we came into 2005 inventory levels through the supply chain were running 3.5 to 4 months of sales, because there was a lot of prebuying in 2004. That was expectation that prices would keep going up, that there might these shortages. 2005 was a year in which that excess inventory really had to get worked off. That certainly impacted production levels in a lot of the mills and had a cascading effect on us. And as we look at the situation going into 2006, the inventory levels are at much more normalized levels. More in the 2 to 2.5 times among sales.

I guess the good news is that you're so dominant that Asia helps, but it just offsets the difficulties that occur in Europe and elsewhere?

That is really it. We really have a portfolio in the steel business, and like portfolios tend to work sometimes when things are bad one place, they are better in another. And where the steel business is concerned, as you observed, we're so global in that business that it goes too far to say that we don't care where it is done. But in some sense you could almost make that conclusion that we will serve it wherever it happens to be.

Is your intent with the CMS contracts to become a corollary, a dominant player in the auto related businesses worldwide as well?

From your lips to God's ears. But the reality is that the automotive business, the metalworking business generally is a much bigger market than steel -- than steel chemicals. It is a much more disaggregated market, both in terms of the users of the products and the suppliers of the products. There are many more suppliers, some of whom are local in the metalworking business.

And the shares in metalworking are very different. There's probably only one player out there among those who has a share that is above 10 or 12 or 14% or that is at that range. There may be another one in the kind of 8 -- 6 to 8 to 9% range. And then there are three or four of us in the 4 to 5% range where we are. We think that we have a good opportunity to grow in that business. But I think it would not be likely to reach the kind of dominant positions that -- I'm sure it won't reach the kind of dominant positions that we have in steel. I shouldn't say dominant, because we have real strong competitors out there. But it is a kind of share -- strong share positions that we have in steel.

Gentlemen, we show no further questions in the queue at this time.

Folks, at the last meeting I remember that we got a reaction that we cut off some people with question, so I'm hesitant just a kind of say let's stop here. So I'm going to allow ten seconds or so, and if anybody wants to leap in or somebody is not getting served, and then we will let you go. So we will observe a moment of silence.

[Robert Felice] of Gabelli & Co.

Just essentially two follow-up questions. You said earlier, Neal, that you plan to maintain SG&A at current levels. Did you mean as a percent sales or --?

No, more on absolute dollar terms. And it is substantially the same levels. Obviously, there is a lot of puts and takes and foreign exchange issues as you move through the year. But just to give you a general sense, they should be -- we expect them to be at substantially the same absolute dollar level as 2005.

And then just a housekeeping item. I'm curious to know if I can get the breakdown of sales and EBIT, exclusive of the restructuring charges across the segments?

The segments that we -- our segments -- it is 92% of our segments are metalworking. The other two segments are fairly insignificant the way we define our business. Really it is essentially metalworking. We don't drive down below metalworking in terms of our presentations.

[Bob McDormand] of [Investment Counselors of Maryland].

Do you know if any of the plant closings at Ford and GM have announced or likely to announce involve plants where you have CMS contracts?

Yes. I don't want to get into the specifics, because to be honest with you I'm not 100% sure which ones they have announced and which ones they have told us. But there are a few small facilities in 2006 that might be closing that have limited impact on us. And there are some intended closings in 2007 that would also have some impact on us. By the same token, we see some opportunity in the consolidation of these plants. And we have some other CMS bidding opportunities that we expect will enable us to replace that business.

If I may, just real quickly on CMS, has it been -- part of the rationale -- a couple of years ago there was a great deal of emphasis put on how this was going to be a great growth driver for the Company. Not only might it drive sales of your product through there, but you could demonstrate and perhaps share in cost savings that you generated from the -- for the client because of your expertise in managing the chemicals and the lubricants, etc. Has it been difficult to show people what the results could be because of this huge run-up in raw material costs, and having to try to fight to pass through cost increases?

Well, of course the kind of attention this raw material and cost increase stuff have gotten has cast a pall on a lot of other areas. But the reality is that we continue to work very hard with our customers about -- including process savings, as well as just the savings on the chemicals. Because they are both an important part of what we can deliver as a service provider. And indeed in the long run, it is the ability to make our customers better through the -- through savings in their production activities that is the key to success here.

We find the willingness to do that kind of thing, to have that kind of discussion varies from plant to plant. It is not a universal thing that applies to GM or applies to Ford. It has a lot to do with how much -- how good they feel about the kind of control they have in their own environment, and what they know about their own costs.

That is one of the things that we work hard with the customers about. We have become -- in these CMS efforts -- we have been become part of their management virtually. We are in their management meetings. We are in their cost meetings. And this is a way for us to really become a partner with our customers, which is really the whole impetus around the CMS piece of business.

We don't look at it as a business so much as it is a channel of distribution, which is -- one of the factors in that is related to selling our products more completing and getting more penetration into these customers. But an important part of that is this kind of process savings piece. And it would be disingenuous to say we are there in every plant that we are working in. But it is certainly on our priority list as we are working with the various plants. And in some plants we do have relationships that allow us the advantage of process savings. It is not an unqualified win, but it is certainly moving in the right direction.

It just seems that there has been kind of a de-emphasis, and maybe I'm wrong about this, in the excitement of this potential business for you all.

I wouldn't say there is a de-emphasis around it. We work -- we still see it as an avenue to the penetration that we had hoped to get. And it is helping us in that regard. The emphasis on it was as an initiative to grow our sales and grow our position in the U.S. automotive business. And it has done that for us.

Is it going to just continue to be the -- make the differential in our revenues that it made in the past? Probably not. But will it be a solid piece of our business and growing profitability? Yes, we think it will be. And we have seen that this year. The profitability has increased during '05, and we expect it to be increased during '06. I don't know if it is accurate to say there has been a de-emphasis of it. It is just that it is less new today and it is making less of a strictly incremental difference today.

Just maybe to add to that a bit. When we look at our -- the primary goal was as a channel to market, and as we look at sales into this market in '05 versus '04 they have doubled in terms of Quaker product sales. That goal has been achieved, and we expect to continue that kind of penetration on a longer-term basis. The process savings -- achieving savings for our customer has largely been successful, but certainly tempered by this escalation in raw material prices. The longer-term goal, which we're making progress in, is the sharing of that savings. And progress is occurring, and we would like to see it continue to occur.

But just to add to that, it is not a uniform thing. It is really site readiness by site readiness kind of thing. So it is one of these things we have to fight the good fight.

Good luck.

Gentlemen, we show no further questions in the queue at this time.

Okay, well, I will assume that we don't leave anybody with unrequited questions, as we did last year. And I apologize if one of you is among those to whom it happened last time.

But I certainly appreciate your support and your interest. Thanks for joining us today. And I will look forward to speaking with you again in a couple of months. Thanks a lot. Bye.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.