MSC Industrial Direct Co Inc (MSM) 2006 Q4 法說會逐字稿

Good afternoon.

My name is Toni, and I will be your conference operator today.

At this time I would like to welcome everyone to the MSC Industrial Direct 4Q '06 earnings conference call. (OPERATOR INSTRUCTIONS).

Thank you.

Mr. Joyce, you may begin your conference.

Thank you and good morning, everyone.

This is Bob Joyce of Financial Dynamics, and I would like to welcome you to the MSC Industrial Direct fiscal 2006 fourth-quarter and year-end results conference call.

You should have received a copy of this morning's earnings announcement.

If you have not received a release, please call our offices at 212-850-5752, and a copy will be sent to you.

An online archive of this broadcast will be available within one hour of the completion of this call.

It will be available for one week at www.mscdirect.com.

Certain information pertaining to non-GAAP financial measures that may arise during this broadcast can be found on the same website in the Investor Relations section.

Let me take a minute to reference the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995.

This conference call may contain certain forward-looking statements that are subject to certain risks and uncertainties, including the future operating and financial performance of the Company.

Though the Company believes that the expectations reflected in its forward-looking statements are reasonable, they can give no assurance that such expectations or any of the forward-looking statements will prove to be correct.

Important risk factors that can cause actual results to differ materially from those reflected in the Company's forward-looking statements are included in today's earnings release and the Company's filings with the Securities and Exchange Commission.

In addition, the information contained in this conference call is accurate only to the dates discussed.

Investors should not assume that statements made on this conference remain cooperative at a later time.

The Company takes no obligation to update any information discussed on this call.

With that said, I would like to introduce MSC Industrial Direct President and Chief Executive Officer, David Sandler.

Please go ahead, sir.

Thank you, Bob.

Good morning, everyone, and thanks for joining us today.

With me are Chuck Boehlke, Executive Vice President and CFO, and Shelley Boxer, Vice President Finance.

I will be providing some details on the quarter, market conditions and the status of the integration of J&L.

Chuck will provide details of the financial results, and then we will open the phones for Q&A.

Fourth-quarter results were excellent.

We continue to take share and grow as we execute our strategy.

We exceeded our guidance for earnings as operating margins, excluding the effects of the non-recurring charges, were better-than-expected.

I'm thrilled with MSC's performance in this quarter and for the entire year of fiscal 2006.

Market conditions continue to be solid.

Our customers are generally confident, and they are telling us that order flows and backlogs remain steady.

However, the recent ISM Report shows a lower number than the previous month as part of a declining trend, which may be indicative of a deceleration in the growth of the overall economy.

The current index reading of 52.9 is consistent with an economy generating real GDP growth, and it continues to show production and order flows increasing.

MSC has historically grown revenue at rates well in excess of industrial growth, and we believe that we are well-positioned to continue to do so.

As you know, we don't forecast the direction of the economy; we leave that for the economic experts and stay focused on executing our business plan and taking share in our segment.

For the first seven weeks of Q1, we have seen slightly slower growth than in Q4, and that has been included in our guidance for Q1.

Success stories like the one from my recent travels in the Midwest region are representative of the strength that we generally continue to hear from our customers, reflect our share gains in the marketplace and demonstrate the value that we bring to the customer.

We visited a plant that represents one small location out of many of a large manufacturer of specialty medical instruments.

This plant happens to be a J&L customer and is serviced by a J&L field sales associate.

Sales to this customer grew by over $200,000 in fiscal '06, up 130% over the prior year.

During my visit we spoke with the plant operations manager and asked him why he is giving so much of his business to J&L.

He said that the field sales associate was excellent at solving their problems and managing their account.

J&L's value-added solution saved us over $200,000 in reduced costs and plant inventory reductions he added.

And the combination with MSC increases that value through the large selection of MRO supplies available to help us further consolidate our purchases.

We see this as the best practice in the distribution industry.

MSC's national presence now provides us the opportunity to address many more of our plant locations across the country he concluded.

This visit represents a great example of the synergies that exists from the J&L acquisition and adds another leg to MSC's growth initiative.

In addition to the opportunities provided by J&L, we continue to execute on our West Coast growth plan, and we are opening a new branch in Fresno, bringing our total to four branches in California.

We are extremely pleased with our results to date.

The sales growth from customers in the West whose accounts are being managed by a sales associate continues to be greater than the Company's overall growth rate.

The opportunity to increase our market share in this region is enormous, and we expect to continue to grow our sales in the West during the first quarter of fiscal '07.

The combined sales force was 715 at the end of Q4, and we expect that it will grow to about 725 associates by the end of Q1.

The combined field sales forces of the two companies are now operating as one and doing well.

We have begun the process of rolling out the MSC catalog for J&L customers, and given our desire to deliver an outstanding service experience to our customers, that process is being executed in a measured way and is expected to be completed by the end of this fiscal year.

Our 2007 Big Book, which was released in September, has a new section featuring Kennametal products.

We think that the addition of these Kennametal products, combined with our existing product lines, gives us the most comprehensive metalworking offering available in the market today.

The J&L integration plan is proceeding on schedule and on budget.

While there is still much to be done, we are leveraging the experience we gain when we successfully integrated the computer systems of our [Anko] business several years ago.

As part of that process, we developed a robust set of systems that can service many different operating companies from the same fulfillment and call centers.

We plan to complete the systems integration in the spring, allowing us to then integrate the balance of J&L's functions into MSC.

This includes leveraging MSC's infrastructure by folding J&L's two US distribution centers into MSC's existing logistics network and servicing the existing pickup businesses in both Chicago and Detroit from showrooms, basically branches with inventory.

All shipping will come out of the MSC's fulfillment centers.

The result of our plan should be a real win-win.

It is a win for the customer in that they will continue to get the same great service and value-add they had always received from J&L, and it is a win for MSC as we get to leverage our infrastructure further.

We also plan to establish a regional accounting staff in J&L's current headquarters, taking advantage of the excellent workforce that is in place at J&L.

Based on our solid progress to date, we expect that we will attain the forecasted $20 million in margin improvements and cost savings that we had originally anticipated.

Overall J&L is meeting or exceeding the expectations that we had when we bought this business.

As expected, J&L was neutral to earnings in Q4 when (technical difficulty)-- non-recurring charges, and Chuck will provide you with the details later on the call.

Our core execution metrics remain solid.

The MSC team has continued to deliver rock solid execution, and I would like to thank all of our associates for stepping up their game and for all their hard work in generating these excellent results.

I would like to provide some guidance for Q1.

At this point we think that sales will be in the range of between 398 and $404 million, and diluted earnings per share will be in the range of $0.56 to $0.58 after a charge of $0.01 per share for J&L integration costs.

Included in this guidance is a modest change in the effective tax rate, which Chuck will expand upon.

Thank you and I will now turn the mike over to Chuck.

Thank you, David.

The fourth quarter of fiscal 2006 was an excellent one financially.

We grew sales by 39% over the same quarter last year.

Excluding the contribution from J&L, MSC sales growth was 14.9%.

J&L contributed 68 million in sales and grew about 13% on an average daily sales basis when compared to the comparable period the previous year.

Consolidated gross margin came in at 44.9% after a nonrecurring $3.6 million charge.

This charge is related to the appraisal of our acquired J&L inventory and is required to conform with GAAP.

Excluding this charge, gross margin in Q4 would have been 45.8%.

We expect consolidated gross margins to be approximately 46% in Q1 and to increase over the balance of the fiscal year by 30 to 50 basis points, reflecting the gross margin improvement from the harmonization of the pricing from suppliers' comments to both MSC and J&L, as well as other buying initiatives.

MSC's gross margin on a stand-alone basis was 47.5% in Q4.

MSC's consolidated operating margin was 14.6% of sales.

Operating margin in Q4, excluding the $6.8 million in non-recurring charges was 16.3%, somewhat higher than expected due to lower fringe benefit costs and less depreciation and amortization than anticipated.

MSC's operating margin on a stand-alone basis, excluding J&L and the non-recurring charges, was 18.1% in Q4.

We characterize the J&L integration costs as the incremental costs relating to the integration plan and are, therefore, nonrecurring in nature.

Included in these costs in Q4 is $2.5 million relating to the departure of certain J&L executives and approximately $700,000 of other integration costs.

The J&L integration costs do not include any of the ongoing costs from either company such as the salaries of the integration team members.

The appraisal of J&L assets is essentially complete, and tangible assets that will be amortized include the value of the J&L customer list, the Kennametal distribution agreement, and the J&L website totaling $72 million.

The amortization of these intangibles in Q4 was $1.8 million and will be approximately $7.7 million in all of fiscal 2007.

In Q4 we adjusted the consolidated tax rate to reflect the closing of certain tax years.

This reduced the tax provision by $1.4 million or about $0.02 per diluted share.

There was a similar adjustment in Q4 of last year.

There will be no such tax effect in Q1 of fiscal 2007.

We currently expect our consolidated tax rate to be 39% for all of FY '07.

There will not be an inventory adjustment in Q1 similar to the Q4 adjustment, although there will be the integration charge of about $0.01 share as previously noted by David.

Q4 earnings per share when you add back the $0.06 per share for non-recurring charges and the $0.02 per share charge for stock options would have been $0.58 per share computed on the same basis as fiscal year 2005's fourth-quarter earnings of $0.42 per share or an increase of approximately 38%.

Balance sheet metrics remain solid.

MSC, excluding J&L, generated 2.6 annualized inventory terms, and our Accounts Receivable days outstanding were 41 days.

Consolidated free cash flow, which we define as cash provided from operations less capital expenditures, was $35.8 million in Q4 and $111 million in all of fiscal year 2006.

Capital expenditures increased to $22.8 million in 2006, in line with our forecast.

In Q4 we paid down $5 million of our term loan, reducing the balance to $200 million.

From late July through early September, we also purchased approximately 818,000 shares of our stock for roughly $32 million.

We currently have about $40 million invested in cash equivalents, in addition to our existing $75 million line of credit.

When you review the metrics pages on our website, you will see that J&L is excluded from many metrics.

J&L's methods for calculating metrics do not perform exactly to ours.

Once J&L is integrated completely, our metrics will include J&L.

As a reminder, we will not be reporting separately on J&L information in the future.

Thank you, everyone, and now we would like to open it up for Q&A.

(OPERATOR INSTRUCTIONS).

Adam Uhlman, Cleveland Research Company.

Great quarter.

The first question I had for you folks it sounds like you've made a decision on the J&L distribution centers to close that down.

If I'm not mistaken, that is not included in accretion guidance related to the transaction.

First, I was wondering if you could comment on the potential savings of that action?

This is Chuck.

Actually we had talked last time that although our decisions were not finalized, we anticipated $20 million worth of synergistic savings.

In fact, in that number although the plan was not finalized, there was some level of savings associated with the DCs.

We certainly had not finalized the plan back then much like we have right now, but given that the plan is finished now, we know what the cost associated with that will be.

It really gives us confidence to kind of reinforce that the $20 million in savings and synergies are going to come about, but it certainly was not incremental to the original 20.

Okay, got it.

My second question here is regarding to the top line, the comment here that sales growth has slowed a little bit in September and October so far.

I guess, first of all, could you give us a little bit more color on what you're seeing by industries, what is causing the slower sales?

It is David.

I will characterize it a bit, certainly not getting into a breakdown by industry which is something we stay away from in this call.

But September was a bit slower than the strong growth that we saw through the fourth quarter.

It was still a strong month but clearly a bit slower.

Very tough to characterize for the first couple of weeks of October.

October began a bit weaker than we would have expected, and in the last several days, we have begun to see much more strength.

So it has been kind of a mixed bag, and when you boil that in, that is actually how we get to our guidance range.

To the extent that what we saw early in October were to come back and continue through the quarter or come back to close the quarter out that way, we would be on the lower end of the revenue range.

To the extent that we continue to see the recent strength that we have seen in our numbers, then that would push us to the higher end of the revenue guidance range.

Okay.

And then do you have comparable daily sales growth figures for the last couple of months, excluding the J&L operation?

I would be happy to give it to you for the fourth quarter.

But, as we have said, we're not going to be breaking it out beyond what we have shown on the website for September and moving forward.

Would it be helpful to get it for the quarter?

Sure.

Okay.

So MSC -- this is for June, July and August -- June was at 15%, July was at 12.5% and August was at 16.9%.

And for J&L, which is computed based on average daily sales and, of course, pro forma numbers, in June was 10.7%, July 12.9, and August 15.3.

Dan Leben, Robert W. Baird.

Could you talk a little bit about the West region?

Obviously the growth there ticked up this quarter, had a little bit easier comparison, but you guys obviously have been doing a great job out there.

Could you talk about some of the things you are doing in the ramp-up of the new sales associates you have added?

Sure.

Yes, the West continues to chug along.

It is really being executed exactly as we originally had planned when we first set out a couple of years ago.

We have been significantly investing in that area.

You know, we continue to invest.

We built several branches and really a very formidable team that is in place and that we continue to add to.

So we are really excited about the progress that we have made.

We have been fortunate to begin to see, frankly, the fruits of the team's labor and our results, and we expect that to continue moving forward.

Okay.

And then in terms of the [read-through] margins, since there are a lot of moving pieces with options and J&L and the integration expense and so forth, what were the core historical (indiscernible) or MSC what were the contribution margins in the core business or excuse read-through?

This is Chuck.

I will give you in the fourth quarter MSC was pretty close to what it had been run in the 32, 33% range as a stand-alone.

I think the read-through metric going forward though, since we're not going to be breaking this out, becomes a little less useful moving forward.

Incrementally all the J&L sales, if you understand how the read-through is calculated, would be in the base in calculating read-through moving forward until we get on comparable quarters, which does not happen until Q4 of next year.

So I think the read-through metric moving forward will lose a little bit of its value, but I can tell you in Q4, if you strip all the noise away and look at MSC on a stand-alone, it was pretty comparable to where it had been running in the 32, 33% range.

Okay.

So, as you roll J&L into the main part of the business, how are you internally trying to keep track of and monitor what that kind of core incremental leverage that you are getting is?

Or is it how are you going to approach that metric or looking at it internally?

Well, I think the bottom line for this year you know we're looking at the EPS growth metric.

We have got an integration plan that is on the table.

We have, as you have heard, over time $20 million worth of synergies that we anticipate.

So we clearly are keeping track of both the integration expense and the synergies that we have laid out on the table and have the ability to go ahead and track that.

As we said before in our modeling and our accretion analysis, we have not assumed any sales up opportunity, which we also believe is a very positive thing from the acquisition.

So we are kind of tracking those metrics individually, and we know if we achieve those and put the thing together as we stated previously, we will be to the kind of MSC stand-alone margins out in the end of fiscal 2008 into '09.

And that is kind of how we are going to go about doing it.

Great.

One more quick question and I will let somebody else jump on.

We talked about margins in the core MSC business.

What did gross and EBIT margins look like for J&L, absent the integration expense?

(multiple speakers).

We will have to get back to you.

I apologize.

I don't have that at my fingertips.

Great.

Well, then I will throw another one in there.

Big Book pricing for the new book in September, what is the year-over-year increase in pricing?

The increase this year is just a bit north of 1%, which is a smaller increase than we took in last year's September Big Book.

Holden Lewis, BB&T Capital Markets.

Talk about the, if you would, the pricing metric that you have up there.

It looks like it has been a pretty steady upswing from throughout the year, and I guess you put a 290 average order size out there.

Can you talk about is that a function of price?

Is that a function of getting the -- maybe seeing some cross-selling benefits coming through Kennametal or just provide a little bit of color in terms of that number and where exactly it comes from?

Good morning.

It is David.

Yes, you have seen the uptick.

I think it is largely driven by mix.

Certainly there is a small component of pricing.

Very much too early on any of the Kennametal initiatives to have moved the needle on that number.

Largely it is impacted by mix for our larger customer segment, the combination of both government and national accounts which produces a significantly larger order average size than our overall average order.

So that is primarily what the driver is.

Does that mean national accounts are probably relatively stronger in the quarter contributing to that?

We don't actually characterize what the revenue growth was on either one of those, but certainly the weighting and the mix change does contribute to that transaction size.

Okay.

And then I just want to understand how you are characterizing sort of this slowing, if you will.

On your site, you have June sales up 38.3, July sales up 37.6, August up 42.5 and then September up 37.8.

I mean September looks a lot like July and June, quite frankly.

The outlier looks like August.

Can you give some description as to why August might be relatively strong, and then when you're talking about seeing some slowing, you're just talking about the difference between August and September numbers?

I cannot, frankly, point to anything significant in August, other than it was a really strong month for us as you know evidenced by the amount of growth.

In general, Q4 growth was very strong, and we think that September was solid as well, albeit a tick down from where we had been running.

I cannot tell you that there is any significant change that we have seen from August to September.

In general, what we are hearing from our customers is largely the same as what we have heard over the last few months.

And I guess the only one exception to that is there's just a bit of energy out there, mostly around the media's commentary on a slowing economy, rather than anything that is real that is currently in our customers' businesses.

But there is that, gee, maybe you are talking about a slowdown, maybe around the corner.

Beyond that, we are not seeing it in our customer base.

Okay.

But the statement that things have slowed a little bit is sort of using August as your reference point?

No, I think in absolute terms if you look at the growth rates of certainly August and the full Q4 versus what we are anticipating right now in our guidance for Q1 growth in absolute terms is that while it is still solid growth, it is a deceleration of growth.

Okay.

Some of your peers that have reported probably had more impact from this than you did.

But talk a little bit about the impact of the hurricanes last year?

I mean they had some windfall sales that are obviously not repeating, and that has obviously led to some tougher comps early in September.

Can you talk about what you are seeing there in -- (multiple speakers)?

What we found is that Katrina and all the events of last year was basically a push for us.

So when all is said and done, it really is not a factor in our cost.

Okay.

Thank you.

John Germanotta, William Blair & Company.

Congratulations on a great quarter.

A couple of questions.

First, can you comment on it sounds like you are seeing moderating inflation.

Can you give a little color on that?

Yes, we are.

You know, I think I would characterize it as price stabilization.

Certainly it has been good news with the reduction of energy, and to a large degree the pressure on raw materials has abated quite significantly.

I would say there are some exceptions, for example, in the area of copper, the dull pressure there.

But in general I think I would characterize the environment as one that has stabilized and significantly abated from the levels that we had previously been seeing.

But even with that on a core MSC basis, you are expecting to be able to hold gross margins?

Am I hearing that correctly?

Yes, we have given -- the guidance that we have given I think not only holds, but begins to have that margin continuously and consistently climbing through the year.

And can you comment a little bit at least directionally on private-label national accounts and vendor managed programs?

I mean directionally you have just noted three important parts of our plan.

They continue to be important parts of our plan, but for competitive reasons I would rather not put more color on either one of them actually.

Are they moving in a positive direction?

Very much so, Jeff.

In terms of share repurchase activity, I think you still have some room under your current authorization.

Can you shed a little light on what your intentions might be going forward?

We certainly do.

Under the authorization, we had 5 million share authorization, of which we used 818,000, mostly at the end of the fourth quarter.

A little bit of that trickled over into the beginning of this year.

And we expect to generate much as we did last year a significant amount of cash flow from our operating income projections for this year.

So we had the flexibility to pay down debt or buy stock back, and we obviously will continue our dividend plan or some combination of both the buyback and the paydown on debt.

I think we will take it as incrementally as it comes on and look at it opportunistically.

But we have the flexibility to do any and all of that.

Last question.

You talked about some additional integration quarter charges in the first quarter of fiscal '07.

Can you shed a little light on what those might consist of and if there may be more to come?

Jeff, certainly there is an ongoing -- when I say ongoing, they are non-recurring to the extent once the systems conversion is complete, they would go away.

But we have a cost associated with completion bonuses, for example, that are being accrued on a pro rata basis every month until the integration is done.

Those costs are fairly consistent and would persist until the integration is complete.

What we have towards the tail end of the first quarter and maybe moreso in the second and third quarter since we told you about our plan for a DC -- a CFC, customer fulfillment center consolidation, there's a fair amount of integration cost associated with that event as it takes place close to the integration as well.

And those costs would be more incurred into Q2, Q3 and will be higher than the $0.01 that we have right now in Q1.

Simply because there the cost is associated with moving on with the consolidation of the DCs into ours.

And so said another way -- I just want to make sure I really understand this -- we are likely to see because of IT and DC and other integrations charges -- non-recurring charges quarter by quarter throughout fiscal '07, and some of them could be greater than a $0.01 a quarter?

Correct, Jeff.

And again, the ones that I mentioned, specifically the ones that are in the first quarter would persist until the systems integration is complete at least through the spring of the year.

That is pretty steady.

In addition to that, you would pick up more charges as you get closer to the warehouse conversion, and that would be in our results primarily in Q2 and into Q3.

And we would certainly talk about them when we give guidance for the next quarter.

(OPERATOR INSTRUCTIONS).

Duncan Thomas, Bear Stearns.

I hate to beat a dead horse, but I want to ask the question a little bit differently than I think it has been asked or a little more specifically.

Can you talk about your sales trends in terms of manufacturing versus nonmanufacturing?

Sure, Duncan. (multiple speakers)

No, I mean in terms of you are talking about seeing potential slowdown.

Is that more in the manufacturing sector, or is that more in the nonmanufacturing sector?

We actually don't break down during the quarter on a guidance call like this that is not something that we (multiple speakers) break down.

And just secondly, sort of a bigger picture question.

You referred to the ISM index.

Can you talk about your sales growth going forward in a let's say 50 to 55 ISM environment?

What does that mean for you guys?

Duncan, 50 to 55 is a pretty broad range for the ISM.

You have seen that we have the ability and have shown in the past we can grow even when the ISM is at lower levels in the 50, 51, 52 range.

I think what is a little bit unique is the opportunities we have for growth such as California, which is incremental opportunity for us, such as the Kennametal line that is in our book this year.

Those are things, and there's others, that sure, they would be impacted somewhat by differences in the ISM, but there are incremental opportunities that we have to increase ourselves this year that are less a function of the pure ISM and more a function of our execution.

But we have not done the modeling in the doomsday 45, 46 ISM range that we had experienced years ago.

We have not gone there and done that yet.

But you can expect an ISM in the 50 to 55 range, to use your range.

But much like historically we have been able to grow significantly faster than the manufacturing industry and economy on its own.

We expect to do that again.

Thanks, guys.

Nice quarter.

Adam Uhlman, Cleveland Research Company.

I was wondering if you could expand a little bit on the success with the new Kennametal carbide products, but also if you could talk about some of the other new SKUs that you added to the book, like the Emerson motors, what kind of success that you are having with that?

You know, for competitive reasons I want to be, frankly, very guarded here.

I will tell you that we are very excited about the launch of these new product lines.

Certainly they are meeting and in many cases really exceeding our expectations.

That is probably as much color as I would want to put on them.

Other than to say, that out of the gate, the team is doing a great job.

They are certainly meeting and in many cases exceeding expectations, and we are fully confident that what these lines and others are going to mean to our future, we are all going to be delighted by it.

Okay.

I guess another follow-up here is, could you give us a little bit more color on the seasonality of earnings this year?

Because if I'm not mistaken, you pick up some extra selling days sometime this year, and then we also have this J&L accretion starting to flow through.

You had mentioned gross margin pickup throughout the year.

So it sounds like earnings (inaudible) throughout the year is going (inaudible) different.

Help us out with that and then also on the selling days issue.

This is Chuck.

Two things.

I think there are two separate issues.

One, you're absolutely right.

In the fourth quarter, we have a 53-week year this year, frankly, with an extra week in the fourth quarter.

So, as you do your modeling and projections out, to the extent that matters, there will be an extra week in our fiscal year this week, and it is in Q4 that was not in the prior year.

So that is one issue.

You mentioned the gross margin.

We did indicate and believe through the harmonization of common suppliers that we do believe the gross margin on a combined basis will be improving throughout the year, but be mindful again of some of the integration expenses I talked about probably accelerating in Q2 and 3, given that is when the bulk of the warehouse integration expense, if you will, will be hitting the P&L.

So we still believe that in the back half of the year post-integration that we will very late in the year probably start to see some accretion from J&L and then certainly would be accretive throughout all of '08.

But the integration expenses will ramp up in Q2 and Q3, much as the margins improving, and that will be pretty much apportioned until the integration is completed, and then we would expect some mild accretion in the back end of the year.

Okay and then last question.

Is there a capital spending target that you have for 2007 (multiple speakers) warehouse project?

Yes.

For planning purposes, I think the CapEx number you've got to use is about $25 million or so.

Just to give you a little color on that, that is not far off from what we have said in the past where maintenance CapEx would be at the top end of the range, you know $15 million or so.

There is roughly $5 to $6 million of additional, I will call it, integration CapEx that we need to spend on facilities, computer systems, etc. to fully execute the integration plan.

And then there's a few million bucks left over from the customer fulfillment center optimization project that we executed for the most part throughout last fiscal year.

There is a couple of million dollars of that CapEx that actually is flowing in the first quarter of this year.

So you put that altogether, you're in the neighborhood of $25 million for fiscal year '07.

There seem to be no further questions at this time.

I would like to turn the call over to management.

Okay.

Thanks, Tony, and thank you, everyone, for joining us today.

We look forward to speaking to you again next quarter.

Thanks, again.

Ladies and gentlemen, this concludes today's conference call.

You may now disconnect.