Middleby Corp (MIDD) 2006 Q2 法說會逐字稿

Good morning. My name is Tashana, and I will be your conference operator today. At this time I would like to welcome everyone to the Middleby Corp. second-quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS).

Thank you. Mr. FitzGerald, you may begin your conference.

Good morning. Thank you for attending today's conference call. I'm Tim FitzGerald, CFO of the Middleby Corp, and joining me today is Selim Bassoul, our Chairman and CEO. I have some initial comments about the Company's second-quarter results, and then we will open up the conference call for questions and answers.

We were very pleased with the results of our second quarter, which represented our 18th consecutive quarter -- quarter-over-quarter record net earnings. The quarter results included the impact from the Alkar Holdings acquisition, which was completed in December of 2005.

Net sales in the first quarter increased 25% to 104.8 million. That's compared to 83.9 million in the second quarter of 2005. Sales from the Alcor acquisition completed during the fourth quarter of last year amounted to 14.8 million and accounted for 17.7% of the sales growth in the quarter. Excluding the impact of the Alkar acquisition, we were pleased with our organic sales growth, which amounted to 7.3% for the quarter. The organic sales growth in the quarter reflected strong demand from restaurant chain customers and growth resulting from new product sales.

The Company realized sales increases at most divisions during the quarter. Sales at our Blodgett division increased 13%, reflecting strong convection oven sales and continued momentum of the Blodgett steam line of cooking products. Sales at our Southbend division increased by 3% as compared to a strong first-half in 2005 as we continued to realize growth in the Platinum Rangeline.

Net sales at Pitco increased 7% during the quarter, reflecting a fryer rollout with a restaurant chain customer and continued success of the high-efficiency Solstice fryer platform. Sales at our Middleby Marshall oven division increased 3% with initial sales of our new high-speed and energy savings WOW oven, which began late in the quarter.

Sales at our Nu-Vu division declined 3% as a result of the discontinuance of certain low margin product sales as part of our acquisition integration initiatives. And sales at Middleby Worldwide, our international sales and distribution division, increased 4% from the prior year quarter, including a 20% increase in Latin America, a 12% increase in Asia, offset in part by a 6% decline in Europe, which had benefited from a rollout with a major restaurant chain customer in the prior year quarter.

The gross profit increased from 32.6 million to 41.7 million on higher sales volumes, and the gross margin rate improved from 38.8% to 39.8%. The increase in the gross margin rate reflected significant improvement in the profitability at Nu-Vu Food Service Systems, which was acquired in January of 2005 and resulted from completed integrated initiatives at this operation.

The second quarter also benefited from a very favorable mix of product sales with greater sales at some of our higher margin divisions and increased sales of higher margin new products. This compared to the first quarter this year, we also recognized improvement in the gross margin at our newly acquired Alkar RapidPak business unit as a result of cost reduction initiatives that were implemented prior to the end of the first quarter -- benefited the quarter results. Further improvement in the margin rate at Alkar RapidPak will be more gradual as the impact of the initial restructuring efforts has been completed.

As we move into the latter part of this year, we will incur increases in the cost of steel and also expect to be impacted by higher fuel costs. And as in the prior year, we will make efforts to mitigate the gross margin impact through cost containment initiatives.

Selling and expenses increased 2 million to 10.8 million, reflecting increased expense associated with the newly acquired Alkar operations, which accounted for slightly more than half the increase. The remaining increase in cost reflects higher variable selling costs on the increase in sales volume and increased marketing and promotion costs.

General and administrative expenses increased 3.2 million to 10.7 million, reflecting the incremental costs associated with the Alkar business operations, as well as increased incentive-related compensation and increased professional fees due in part to the Alkar acquisition. Also included in the increase during the quarter was 300,000 of intangible amortization associated with the Alkar business operations. The Company did not record any intangible amortization expense in the prior year.

During the first quarter of 2006, the Company also began to expense stock options in accordance with statement of Financial Accounting Standard 123(R). As a result of this adoption, the Company recorded a pretax expense of 365,000 in the second quarter of 2006 associated with the outstanding stock options. On an after-tax basis, the impact of the stock option expensing reduced net earnings by 250,000 or $0.03 per share, and no such expenses was recorded in the prior year.

Interest and deferred financing costs in the second quarter increased 300,000 from 1.7 million to 2 million, reflecting the impact of higher interest rates, which more than offset the benefit of lower debt balances, and we anticipate interest expense will continue to remain higher than 2005 for the remainder of the year due to higher interest rates, which have risen approximately 2% from one year ago.

Net earnings for the quarter increased 23.6% to 11.1 million or $1.34 per diluted share as compared to net earnings of 9 million or $0.79 per diluted share in the prior year's second quarter. The Alkar acquisition was accretive to net earnings in the 2006 second quarter, adding approximately $0.10 per diluted share.

Now turning to our balance sheet and first quarter (technical difficulty -- audio skip) cash flows, net working capital increased during the first-half due to increased sales volumes and increases in working capital requirements as production levels have moved into the peak period of the seasonally strong second and third quarters. Accordingly, in the first six months, Accounts Receivable increased 9.4 million to 47.9 million, inventories increased 2.8 million to 43.8 million and Accounts Payable increased 2.2 million to 19.8 million.

Accrued expenses decreased 3.7 million to 59 million, primarily due to payments in the first half of 2006 for 2005 annual customer rebate programs and incentive compensation plans that are typically paid after the year-end.

Cash flows provided by operating activities amounted to approximately 12.7 million for the second quarter and 13.8 million for the full six months of -- the first six months of 2006. Historically, the Company generates stronger cash flows in the second half of the year due to the payment of the annual rebate and incentive payment obligations that occur in the first half of the year and increased working capital requirements that occur moving into the middle part of the year.

Operating cash flows were utilized to fund capital expenditures and reduce debt. Capital expenditures amounted to approximately 400,000 during the quarter, associated with replacement upgrade of manufacturing equipment and facilities improvements. Depreciation expense amounted to approximately 800,000 during quarter. And, as I mentioned, intangible amortization amounted to approximately 300,000, and deferred financing amortization, which is included in interest expense, amounted to 60,000. Total debt was reduced during the quarter by 11.2 million to 109.3 million as compared to 120.5 million at the end of the 2006 first quarter and 121.6 million at the beginning of the year.

Now, as it pertains to our recent Alkar acquisition, we were pleased with the progress made at Alkar during the second quarter. We have reorganized the business and completed actions to realize initial cost reduction opportunities. As previously mentioned, over the past few years, the gross margin rate of Alkar has ranged from approximately 18 to 20%, and its EBITDA margins have ranged from approximately 5 to 7%.

During the second quarter, we reported gross margins of approximately 28% and an EBITDA margin in excess of 10%, which is an improvement from first-quarter margins of 22% and EBITDA margins of 8%.

We expect further profit improvements will be more gradual as the initial impact of the cost reductions implemented in the first quarter have been realized. And as I mentioned earlier, this acquisition added $0.10 per share to earnings for the second quarter, and we expect that it will continue to be accretive to earnings for the remainder of the year.

That's all for our prepared comments. We will now open the call to questions. However, I would like to first mention that we will not be commenting on any of the Company's acquisition activity, including any development associated with a notice.

Tashana, can you please now open the call to questions?

(OPERATOR INSTRUCTIONS). Peter Lisnic.

If I could ask a question on the steel and fuel price outlook, it looks like you are saying it's going to pressure profitability in the second half. Any sense as to how much or whether or not or how comfortable you feel in your ability to be able to offset that in the second half?

Well, we are implementing initiatives to offset it, and we have faced this headwind in the past, particularly in the first-half of last year. With steel pricing, we expect that steel prices for us are going to increase roughly 15% in the second half of this year. The fuel surcharges are more difficult to tell, but it will put some pressure on gross margins in the second half.

Can you remind us what steel is as a percentage of cost structure or give us a ballpark?

It is roughly 15% of our cost of sales.

I assume that you are going to try to put through price increases or material substitutions? How are you going to handle the --

We will have price increases in the second half of this year, and we continue to focus on supply chain initiatives, including increased sourcing from China. We also continue to make progress with new product platforms, which typically are more efficient in terms of their manufacturing as we reduce SKUs and commonalize -- go to more common parts.

Fair enough. And if I could switch topics and move to Alkar, very nice gross margin improvement there. Can you maybe give us a little bit more insight I guess as to how you generated that margin improvement? Was it just some restructuring, or was it restructuring and maybe favorable product mix? Did you pare some product out of the portfolio? Just kind of how you got there.

At this point it is primarily -- it is cost reduction initiatives. So we went in and very shortly after the acquisition we reorganized that business. So we took some costs out of the overhead and SG&A structure, and that has resulted in the improvement. I think longer-term there's opportunity with new products adding more value in terms of product innovation to customers that we think will help us expand margins beyond the 25 to 30% range that we're at now.

And then I don't know if Selim is there or not, but --

Selim is here.

Okay. I'm just wondering what you're take is on the consumer. We have seen all kinds of headlines that gas prices are up, Middle East worries have certainly gotten worse. Just kind of what you're hearing from your customers in terms of their willingness to go out and buy additional capital or additional equipment, I guess.

That is a very good question. I think our customers are under pressure from fuel prices from some commodity price increases and some may be slower traffic. However, over a 20-year study that Technomic, which is one of the leading foodservice consultants in set fact data, has seen is that people not going back and cooking at their house. So they are trading in from one category to another. And the biggest beneficiary of those would be the chains. The chains continue to outperform the market in terms of growth. Specifically if you take the top 500 chains, which account nearly for 60% of total restaurant industry, you have seen that the top 100 are growing most probably grew around 5 to 6%. However, the smaller chains, the other 400 chains, which are the fast casual and the merging concept, grew around 8%, and they are almost expected to grow at double-digit rates according to Technomic in the next two years.

How does it relate to us? How does it relate to Middleby? I think Middleby is very chain-driven. We see our penetration of the chains continue. While mostly bigger, our biggest marketshare is coming from catering to those smaller fast casual emerging chains, and I see those chains consistently out investing the market. In fact, if you look from June of '05 to May of 2006, there has been significant capital investment made by the chains versus the general market -- the general restaurant market, and we believe that the smaller chain will continue to outinvest for the next three years.

Now also, one of the things we see our customer asking us is about energy. How do they try to continue gaining profits? So our energy equipment is starting to get even more traction. We're not seeing only the Papa John's in the pizza chain looking at them. We're starting to see companies coming to our fryer business, which now we introduced a fryer that has 70% energy efficiency, and we are seeing a lot of companies flocking to that fryer system that has significant savings from the previous fryer that could have maybe 40% or 50% energy efficiency. So we're seeing a lot of the energy savings. In fact, in the last month and a half, natural gas prices have risen for the restaurant business by 14%. So if you remember when we started making our claims that our savings would be significant savings per restaurant per month, that continues to have a significant tailwind for us.

I don't know, Peter, if I have answered your question of what I see --

(technical difficulty) -- and to really get at was how much traction we are getting on the WOW oven and the other energy efficiency products that you have in your portfolio? It sounds like they are gaining traction, and you're relatively excited that they will continue to do so.

Yes. For our message has always been that the industry will grow between 3 to 4% a year, and it will most probably grow double the industry growth. So you can expect that to be driven by all our product innovations. This has been somewhat of a guidance they we have given, and we are lot better positioned than everybody else in that segment to grow versus our competition.

We still are the leader on energy efficiency. We continue to penetrate the fast casual better than anybody else. We continue to get a lot newer accounts from the top 500 chains. The new chain accounts that we got in the last year -- (indiscernible), Ruby Tuesday's, Long John Silver's, Five Guys, TGI Friday's, Outback, just to name a few -- and we continue to win in in what I call the top 500 chains category. And we're taking market share away from our competitors given our product innovation, our responsiveness, our quality of the product.

Yes, that answers the question. Thank you.

Mark Grzymski.

Nice quarter. Tim, I was just wondering, the 7% that you got from growth in the business excluding Alkar, could you kind of break that down for us on a unit basis and on a price basis?

Mark, I don't have that information available.

Okay. But then generally speaking, do you think it was more volume driven, or was pricing, given the raw material environment somewhat significant to?

I think there was a favorable impact of both those components. So there was some price increase. It might have accounted for up to half of the sales increase.

Great. Selim, you mentioned at the very end there to Peter's question, regarding competition just wondering if you could talk about that environment? Obviously there's some stuff going on in the M&A world, and that might be affecting the competitive landscape. But could you just talk about more generally about what you're seeing, and obviously a lot of the new products you have are allowing you to grow much faster than the overall market?

Well, you saw the press release. Not only have we been growing at a faster rate than anybody else in the industry, not only that, I would like to mention that what makes Middleby unique versus any of our competitors is we have the highest margin in the industry. Bar none. We are double the margin of our closest competitor. We are a lot more efficient in how we deliver our product. We deliver value to our customer. We are very -- we work with our customers to provide to them profitability to their system, whether it's through energy savings, whether it's through convenience or self-cleaning equipment or automation. We've been a huge driver of four things I've always mentioned before anybody else. We've always been talking about speed. We've been the first to innovate on speed. We've taken a long time before anybody talks about speed, we've taken speed of the pizza from originally 20 years ago from 20 minutes to 12 minutes. Now we took it from 12 to 8 minutes, then now from 8 to 5 minutes. We talked about our ability to get our convection oven to go from -- originally at the Blodgett level, the market was 40 minutes on a full mode of a full-size convection oven. We are now into less than 38 -- 30 minutes, right around 28, 30 minutes. And we're looking to accelerate that speed.

If you look at energy, we've been working on energy since year 2000. I always mention that. I talk about when we introduced energy, energy was not even a buzzword here in this country. And we continue driving energy savings, not only on our oven on our fryers, and we are doing a lot on energy across the board.

So we are a lot more innovative on where it hits the pocket of our customer. When we give them value, we give them money, and they come back and reward us with orders and with margins, because we save the money immediately, and it is realizable and it is substantial. They have come back and given us a lot of business.

My feeling is we've seen one, our ability to not only innovate, our ability to go back and integrate acquisitions; our ability to run companies better than anybody else. Plus we always have had issues -- I have to tell you, steel is not the first issue. We've had mad cow disease, because we are very global. We've had SARS in one of our largest international markets, which is Asia, where we are a dominant player there. We had SARS, bird flu. I think, if you look back, it is not a great quarter. It's 18 quarters -- consecutive quarters of earnings growth and sales growth quarter after quarter. And I think that is what has made more difference than any one of our competitors. We are consistently outperforming the market, and I am proud to say it's 18 quarters. And you can go back and check. And I think that as you see those challenges coming out of us, you have to basically be comfortable with a company like Middleby that it will have the resources and the ability to overcome those challenges.

So is it -- I mean are you comfortable saying that your competitors most likely lack a lot of your product line -- not lack, but are significantly -- their timeframe to bringing out these new products, or you have a pretty good gap between you and those major competitors?

I don't want to sit here and talk about my competitor. I talk about ourselves. I think that our competitors, some of them are publicly traded companies. You can go and check them out very quickly. You can get that information. I should not be here bashing the competition at all. That's not the intent of -- (multiple speakers)

I wouldn't mind (multiple speakers)

-- what makes us different. We always say that we're going to introduce 24 new products in a period of over three years, which means on an average of seven to eight products, and those products are going to be relevant. They are going to be based on speed, on energy, on automation and on safety.

In the last three years, we've introduced 24 new products. I'm saying that the next three years, including this year, will have another 24 new products. I think we will outperform anybody else. When you look over a six-year period, we have introduced -- and just on the hot side, around 50 products in five to six-year period. I look at this year, the first half of the year, we introduced five new products, and they are all products that are very much welcome by the customers. They love them, and we feel very, very good. We work with our customers on those. We design those products around our customer needs, and we have been successful. We seem to be listening a lot to our customers, and we seem to be winning a lot of their business.

Great. And just lastly, could you kind of elaborate more on the international markets and how they are performing, any growth rates that you have and specifically in Asia as well? And thanks for taking my question.

We continue to invest heavily in Asia. So our infrastructure in Asia continues to expand. We continue to hire people in Asia. We are in the process of increasing our infrastructure in India. So we tend to reinvest. So some of the numbers you have seen includes some of the investments. I would say that for you who are looking for the future, we continue to spend on infrastructure investment in Asia, India, and we continue to see that growing -- fast-growing for us. It's going to continue growing at double-digit growth. We also expect many of the products that we have designed on energy to have significant impact in China.

China is having also energy costs that are escalating significantly. In China, and in Asia specifically, they are using electric. It's 99% of the cooking equipment is electric, while the United States, 99% is natural gas. In electric -- operating an electric piece of equipment costs a lot more. And for whatever reason, there's not enough infrastructure to deliver natural gas to those restaurants, so they buy electric equipment. So they are under a significant pressure to reduce their utility bills on a monthly basis. And that is something that our customers, especially the U.S. chains who are managing their China expansion, are looking for energy savings. So I see those continuing to be significant for us on the energy front.

Joel Tiss.

Just two quick questions. I think we've beaten all the other ones to death here. Could you talk a little bit about the size of the steam table opportunity for you?

You're talking -- yes. I would say the steamer is an interesting business for us because it is a niche business for us at this moment. We are a distant player in it. It's a $150 million market in the U.S., growing at double-digit growth, and we have penetrated that market effectively I would say three, four years ago, and we have decided to come into that steam business in a different way. We have been innovating. We introduced an electric steamer two years ago that was very well-received and has been growing very nicely for us. And then -- and it has no boilers. So it has no boilers versus the regular steamer has a boiler base, which requires deliming a lot of maintenance.

We also focused on water consumption. A steamer uses a lot of water. Especially if you are on an application where the steamer is a main application, whether it's in a vegetable restaurant or if you are in a seafood restaurant and you use a lot of water. So we focused on no boiler and less water consumption. So our new steamer that we just introduced, which is a gas steamer, uses 30% less water and has no boiler and is gas. As I mentioned, 90% of the cooking equipment in the United States is gas. So we're taking the same application we had in electric where we took no boiler and now we are putting in a gas application, and we just introduced that in the second quarter of this year.

So the market again, to summarize, the market is $150 million. We are a distant player with this. We are a new player in it. We see significant opportunity for us in the next five years in that specific segment, and there is only three players outside of us that are in that market -- in that business. So we are a number four player right now in that steamer market. However, with our unique patented innovation, just to give you an example on that gas steamer, there is over 20 patents on that specific steamer. So we expect to be able to be highly innovative and be able to capture some market share as we create the brand image that we have and the recognition on the steam table or the steamer.

Lastly, can you talk a little bit about the impact of the move? If you sell more energy-efficient equipment, is that good for your product mix, for your margin mix, or can you just talk about that a little bit, please?

We expect our -- well, it's two -- I am going to answer two ways. One, of course, energy. We charge more for our energy saving products because they have a lot more technology in them. They have more patent. It's not just about adding a little bit more insulation here and here. It's quite a lot of work. It requires changing burners, more state-of-the-art technology. It requires a different type of insulation. It requires different types of valves. A different type of air circulation. So definitely.

However, we tend to say, and this is what tell our customers, we expect that our energy savings on an average, if you take all our products that have energy saving in them, we expect them to pay for themselves in less than five years. So in case of the pizza oven, it's a lot less. Remember, that data is relevant. We put that data out in early '06, and since then natural gas prices have gone up, and I don't know what it has done to our data. But less than five years, it's paid back.

And if you look at some of those equipments, that basically depreciates in seven years or -- they depreciate in seven years. Basically they have significant gains that they were able to take in energy savings equipment, and just from the energy savings alone, forget the fact that they might have speed, they might have automation for them, they might have more safety features, more ergonomics, it will pay for itself. The equipment will be fully paid in less than five years.

James Clement.

A couple of specific questions. Regarding the WOW oven rollout, I think that your customer has said publicly that I think they have about 100 units currently installed. I think, Tim, you said the deliveries were started toward the end of the second quarter. How should we think about the ramp in delivery to that product as the year progresses or even into beginning of '07?

The product is going to ramp up in the second half of this year. So I would say that we've got not even a full month of production in that oven.

Okay. So very, very little in the second quarters is what it sounds like, right?

Yes, yes. It's really just kind of the start of the process.

Okay. Tim, and maybe this question is better Selim, Selim, I think if my sense of history is right, I think it has been about five years you completed the Blodgett acquisition. I know generally you don't talk about specific margins of divisions or anything like that, but can you give us a sense of maybe not even the specific number, but roughly the gross or EBITDA margin improvement that you have been able to bring to that operation over the last five years?

I would say (multiple speakers) -- when we booked Blodgett, I think we can give you some perspective to that. I think that we took that company from less -- I think they were around 6 to 8% EBITDA to sales number, and I think now we are in the 20% EBITDA to sales in a five-year period. So we more than doubled that EBITDA to sales number. I don't know if that is correct, Tim?

No, that's about right. It was actually when we bought the Company, it was underperforming, so it was actually about 3% EBITDA, and we are in excess of 20% on that business now.

So it sounds fair to say that it's been more than 1000 basis points over the time, perhaps even a lot more than that, right?

Yes. Your calculation -- you might be right. I think your financial analysis covers talking basis points. I wouldn't say you are right. I don't know about basis points, but it's -- if that's correct, then we will go along with your calculation.

Tony Brenner.

Two things. First of all, regarding the WOW oven, my impression -- correct me if I am wrong -- is that most of your competitors have been focused to the degree they've made product improvements or focused more on speed and maybe labor saving than energy. So your energy saving WOW oven sort of steers by itself. And that being the case, it's a pretty easy purchase decision, it would seem. The only customer that we know about that has ordered the oven is Papa John's. I wonder if -- to what degree you are penetrating the rest of the industry with this oven.

Well, we have another customer that has started to buy a WOW type oven, which is different than the one that Papa John's has. It has similar savings I would say, but it has most probably different applications because their product is different than the Papa John's product. But we have another customer that is coming online at this moment.

You're not going to name each one as a --?

No. My feeling is we will not name them. We don't want to get into the process, one, for their own sake. They have not -- Papa John's has been wanting to make it public; that other customer has not wanted to make it public. And due to the respect to them, they will respect their confidentiality. But we have another customer coming online for this now.

On the other side, we also have other customers that came in on our energy fryer, which we have been able to pick up. So we picked up a couple of customers who have switched to our Solstice Supreme Series, which is our high energy efficiency fryer, which is a fryer that went from 55% energy efficiency to 70%, and we've had several customers buying that fryer. So this is also the fryer that we introduced in the first quarter of this year.

It's not only the WOW oven that we are talking about. Just to give you a perspective, the fires usually use between -- depending the type of fires out there, they use between 90,000 BTU to 110,000 BTU per hour. And usually in a chain, you're using a minimum of two to up to five fires in a store. So you're talking a lot of BTU per hour. So when you talk about a saving of roughly 20%, that's a lot of saving for a fryer. So it's not only the WOW oven that it has gone in, our Solstice Supreme Series energy efficiency fryer is starting to get out to a lot of customers that have been very interested in the energy savings on that fryer.

I have on other question. One of the opportunities you pointed out with the acquisition of Alkar was that Alkar had done very little in the way of adding the kind of features that Middleby has emphasized that has allowed it to increase its margins and take market share and at that was something you intended to implement as soon as possible. What sort of progress are you making on that front?

First of all, we took in our press release, I specifically mentioned Magdy Albert. Magdy was General Manager and Vice President of Operations of our Middleby Marshall division, which he was behind the -- along with his team, because he was managing engineering -- along with his team, he was behind the development of the WOW oven. So by taking Magdy and making him President of Alkar, not only his expertise in operation and innovative product is the fact that he can take whatever he did on the WOW oven in such a short period of time and do it there. So he is working on it.

Let me make it clear that working on energy, again that's one of the reasons our competitors have not been able to -- it's not an automatic process, Tony. Just let's think about it. Not only is it a matter of getting a better burner system, having less heat leakage out, putting in insulation, it's a matter of making sure that you do not affect -- in the case of the food structuring, you don't want to affect the quality of the bake. You want to make sure that when you play with all those components to affect energy usage, you want to make sure that the bake remained -- the quality of the product remains as good.

In the case of Alkar, it is not a matter of only the quality of the bake. You want to make sure that it doesn't affect the yields, because our customers on the food processing side, their number one issue is yield management. So Magdy has to be sure that as we continue working on energy, he does not -- he improves the yield management at the same time. So he can do it at the expense of something else.

And that was our biggest challenge. That's why it took us so long, and that's why I'm not worried about competitors coming into our energy saving module. When they talk about it, one competitors says, well, we are now managing energy and we are managing this. You know what? What we have done at Middleby is not only managing energy and reducing energy costs, we have maintained. In the case of the pizza oven, our customers so far the feedback comeback is that the pizza, the quality of the pizza and the taste of the pizza has improved. Now I'm challenging Magdy to go back and make sure that he goes back and improves the yield management in those ovens at Alkar.

So my belief is that most probably it will take us 24 months to figure out a true energy savings that is highly realizable, highly manageable, highly measurable at Alkar. I would say we are 24 months away from getting where we are. It is not an overnight process.

(OPERATOR INSTRUCTIONS). [Doug Malette].

It's Doug Malette from Select Equity. I was just wondering if you could give the corresponding balance sheet numbers for last July relative to Alkar, just to make the receivables and inventories match up year over year?

I don't have that information with me at this call. So --

Okay. We may call you off-line. Thank you.

At this time, there are no further questions.

, Okay. Well, thank you, everybody, for attending today's second-quarter conference call, and we look forward to speaking to everybody at the end of next quarter. Thank you.

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