Nordson Corp (NDSN) 2007 Q2 法說會逐字稿

Good morning. My name is [NaShanta] and I will be your conference operator today. At this time, I would like to welcome everyone to the Nordson Corp. second-quarter fiscal 2007 results 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).

Ms. Price, you may begin your conference.

Thank you. Good morning, everyone. This is Barb Price, Manager of Shareholder Relations, along with Ed Campbell, Chairman and Chief Executive Officer, Peter Hellman, President, Chief Financial and Administrative Officer, and Greg Thaxton, Vice President and Controller.

We would like to welcome you to our conference call today, Friday, May 25, 2007 on Nordson's second-quarter fiscal 2007 results. Our conference call is being broadcast live on our Web page at www.Nordson.com and will be available for 14 days. There will be a telephone replay of our conference call available until midnight Monday, June 4 by calling 1-800-642-1687, and you'll need to reference ID number 9110337.

Our attorneys have requested we open this call with a cautionary statement under the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. During this conference call, forward-looking statements may be made regarding our future performance based on Nordson's current expectations. These statements may involve a number of risks, uncertainties and other factors, as discussed in the Company's filings with the Securities and Exchange Commission, that could cause actual results to differ.

I would now like to turn the call over to Ed for an overview of our second-quarter fiscal 2007 results and Nordson's future outlook. Ed?

Thanks, Barb, and good morning. Thank you all for attending Nordson's conference call discussing our second-quarter 2007 results.

For the quarter, we saw record sales. In addition, the positive trend that we've seen in order growth continues to give us the confidence we feel about the upcoming quarter.

Sales for the quarter were $241 million, up 5.9% from the prior year, a record for any second quarter. Acquisitions added 6.8% to sales, while currency had a positive impact in the quarter on a year-to-year basis of 3.3%. The quarter reflected a volume decline in our core business of 4.2%.

On a business-segment basis, advanced technology reported a sales volume gain of 17.4%, reflecting the impact of acquisitions. Adhesives was down 3.5%, while Finishing was down 1%.

From a geographic standpoint, our sales volume in the second quarter reflects Japan rising 23.2%, Asia-Pacific being up 5.4%, and Europe up 2.2%, in each case with acquisitions adding to growth. Volume would be down in Asia-Pacific and Europe if acquisitions are excluded. In other regions, the Americas volume decreased 5.2%, while the United States reflected a decline in volume of 2.4%.

As we indicated in the teleconference on May 9, we saw orders continue to strengthen during the quarter but with a large portion of the orders being for engineered systems, resulting in an increase in backlog rather than an increase in sales volume. We ended the quarter with $108 million in backlog; that is up more than 14 million from both last year's second quarter as well as from the end of the 2007 first quarter, in each case measured in constant currency and excluding acquisitions.

Demand, as measured by orders, has continued to strengthen from a rather slow start in the first half of the first fiscal quarter. Orders for the last 12 weeks ending May 11, measured in constant currency, were up 12% compared to the same period a year ago. Excluding the effect of acquisitions this year, core orders grew by 6% over last year. Recent core orders, by segment, reflect that the past 12-week order rate, versus a year ago, were up 12% in adhesives, were up 8% in finishing, while declining 8% in advanced technologies.

On a geographic basis, core orders over the past 12 weeks in the Americas were up 24%, Japan was up 10%, while Europe and the U.S. showed order increases of 7% and 6%, respectively. Asia-Pacific, reflecting a soft advanced technology order pace, was down 9%. We have updated the Investor Relations presentation with the -- on the Investor portion of the Nordson Web site to include detail on the order growth I've just described.

Turning to the income statement, the overall gross margin rate in the quarter was 54.7% compared to last year's 57.4%. Current-year margins were impacted significantly by the purchase price accounting effects of recent acquisitions. To a lesser degree, this year's margins were also affected by mix, which was offset by favorable foreign exchange, which added 0.3 percentage points. The margin compression caused by acquisitions is largely short-term in nature and will lessen in the third quarter and be gone by the fourth quarter.

Spending was up 6.5% with volume increases of 3.6% in currency adding to cost by 2.9%. This volume increase in spending is all attributable to acquisitions, as core business spending declined from prior-year levels.

Our interest expense was up by $2 million, reflecting the use of debt to finance the acquisitions accomplished this year, while Other Income reflects a $2.7 million pretax gain on the sale of some EFD real estate. As we discussed in Nordson's first-quarter 2007 teleconference in February, we have used up foreign net operating losses and favorable R&D tax credits, leaving a tax rate for 2007 at 34.75% versus 33.5% last year.

Nordson's net income for the quarter was $21 million versus $24 million from continuing operations last year and $21.9 million overall. Fully diluted EPS was $0.61 per share versus $0.70 last year from continuing operations and $0.64 overall.

Our operating cash flow for the quarter continued to be relatively strong. Specific cash flow items, in addition to net income, were non-cash charges that generated cash flow of $4.3 million and a decline in working capital that generated $5.4 million. Capital expenditures were about $10.6 million, while dividends were $5.9 million. In addition, we saw an outflow of $2 million from other items. Net cash flow was a positive $12.3 million before acquisition costs of $55 million. Our debt leverage, measured as debt-to-total capital, ended the quarter at 43%. Cash-related measures reflect relatively good performance in this environment.

The quarter's EBITDA was $43.8 million or $1.28 per share, compared to $44.9 million or $1.31 per share last year.

Let me make some additional comments about capital expenditures. As I just said, capital expenditures were $10.6 million this quarter and in the first six months were $19.2 million. These amounts relate only to additions; they are not net of proceeds from the sale of property, plant and equipment. We are more aggressively managing our real estate footprint and will, over time, generate a series of transactions which will make our footprint more in line with our current, leaner needs.

Indeed, in the first quarter, we acquired a consolidated site for EFD, and in the second quarter, a new Chinese headquarters containing sales and demonstration labs. The sale of EFD's previous facilities occurred in the second quarter, generating a $2.7 million pretax gain. However, the proceeds from the sale will not be received until the third quarter. The repositioning of our real estate should, over the next year or so, generate net cash flow but more importantly, better align our properties to our current need. Core capital expenditures -- that is, without these real estate-related transactions -- should continue at roughly the same percentage of sales.

In summary, while core sales volume was disappointing in the quarter, we are comforted by the steady increase in orders, which has led to an increase in backlog. We expect this to allow us to finish the fiscal year on a strong note. We also saw a significant improvement in the financial performance of our Finishing segment. While it is not yet operating at the level we want, the past year has demonstrated the turnaround that we have planned.

Let me turn to some brief comments about our outlook for the third quarter. As we said in our earlier discussion of orders, we are encouraged by their continued strength. This, coupled with the level of our backlog, allows us to have an outlook for an increase in sales of 12% to 16% in the third quarter. At the midpoint of this range, core volume is up 2% and acquisitions should add 10% to year-to-year sales, while favorable currency will add approximately 2%.

Given the mix of standard products versus engineered systems in our forecast, better absorption, and reduced purchase accounting effects related to the Dage acquisition, we should see gross margins expand correspondingly. This outlook results in earnings per share for the third quarter in the $0.61 to $0.71 range, compared with $0.77 per share last year from continuing operations and $0.72 overall. This outlook is net of estimated acquisition purchase-price charges of $0.06 per share and acquisition-related interest expense of $0.07 per share.

We indicated, during our conference call on May 9, that we are expected to have a relatively strong fourth quarter. Looking at current backlog and recent order trends leads us to believe that revenue for the fourth quarter of fiscal 2007 will be between 17% and 21% over last year. At the midpoint of this range, growth will be 7% from core business growth, 9% from acquisitions, and 3% from currency.

In summary, we are pleased to project a relatively strong second half of the fiscal year, as the positive trends in order rates and (inaudible) backlog turns into sales. We expect that the momentum we are seeing should carry into next year as well.

Let us now turn to your questions.

(OPERATOR INSTRUCTIONS). Charles Brady, BMO Capital Markets.

This is actually [Tony Hickel McCurria] sitting in for Charlie. I had a couple of quick questions. First, can you comment on what caused your drop-off, sequential drop-off in margins in the advanced tech segment? Was it acquisition integration? Also, if you could make comments on I guess what a normalized margin would be going forward, just to give us an idea.

Sure. Well, the operating margins in advanced tech obviously are down from the 28% range last year to 10% this year. A little less than half of that is associated with the purchase-price accounting charges that relate to the stepped-up value of inventory that has to get processed through one inventory turn.

Then, if you look at the remainder, it is driven by two items. One is associated with the fact that volume in that segment in the second quarter, compared to a year ago, is down about 6%. That lower volume, stripped of currency effects, is causing absorption issues. Then the final factor that's influencing is mix, and it's mix both across businesses as well as mix within businesses in terms of products and customer classes.

Okay. Staying within the Advanced Tech segment, can you comment I guess on how the businesses are going within the segment? Has anything changed from the last time you commented?

Yes, well, you know, as we indicated, volume, both in shipments stripped of the acquisitions as well as in order growth as well, is down. The source of the weakness is concentrated within the businesses that are selling into the semiconductor businesses and the electronic assembly businesses. In particular, what we see is that the demand for equipment in 2007 associated with semiconductor packaging and assembly are down, and then to a lesser degree, we see weakness in the demand for assembly systems associated with handheld devices such as cell phones.

A point of reference that we look at, just to corroborate what we see from our own organization, are press releases that come from organizations like Gartner Group. Back in April, they issued their outlook for the whole semiconductor capital equipment spending forecast for '07 and '08, and their numbers say global demand for packaging assembly equipment, after growing 18% in 2006, they are now forecasting it to decline 12% for 2007 and 20% growth in 2008. The kind of declines that we've seen in the demand for our products are not inconsistent with the same pattern. We are optimistic about having a good rebound to 2008, but the weakness is evident in the shipments and order rates that we've quoted here today.

Okay, perfect. I just have one more and I will jump back in queue. Can you comment on what caused the margin improvement within your Coating and Finishing segment, and also if this level of robust margin is sustainable going forward?

Well, we've, over the last 18 months, been hard at taking an aggressive series of steps within that business to rationalize organizational structure, product lines, using lean operating techniques to improve efficiencies both from the customer point of view as well as from the financial statement point of view. After a weak first half of 2006, that business had a nice performance, and in terms of operating margin growth at the end of 2006. Even with a little bit of revenue weakness, they were still able to expand operating margins in the first quarter. This improvement to the 10% operating margin in the 2007 second quarter is on track with what we've seen as a trend.

I think the operational improvements that we've made are permanent and kind of are sustainable. There is of course a volume-related component to it as well. We've had good order growth for finishing products here over the last several quarters, and we enter the second half with good backlog in this business. So, we feel optimistic about a very good second half for the Finishing and Coating segment.

Bob Schenosky, Jefferies.

I just have two. In terms of the fourth quarter, could you offer a little bit more color in terms of your expectations, such as is it fair to assume that purchase accounting drops to 0 in the fourth quarter? Then what about your expected mix in 4Q versus, say, 2Q and 3Q?

As to the purchase accounting effects, the original Dage forecast was it drops to a 1% charge, but that's really a long-term amortization of intangible assets and really comes out of gross margins. So there's, order of magnitude, a $0.01 charge per quarter on a continuing basis with Dage.

With respect to the other acquisitions, they will have really, for the most part, completed the working capital turns in the fourth quarter. They are of a size that the continuing I think is diminimus. So I think that's a yes.

Perhaps, Bob, you could repeat that second part of your question.

Sure. What about, with some of a longer-term order hitting in the fourth quarter, how do you think mix would look, say, relative to 2Q or 3Q?

I'm going to ask Greg to give me a little assistance there, but while he is grabbing a number or two, I will say, generally, we have a strong engineered systems component to our fourth quarters. I don't have fourth quarter 2006 was margin or operating margins in front of me, but I suspect that, most fourth quarters, we have a slightly lower gross margin effect.

Greg, any (multiple speakers) that?

Yes, this is Greg. To confirm what Ed just said, we will see some impact with these large system business margins in Quarter 4.

To be more specific, Finishing will have a very strong fourth quarter. The systems businesses within adhesives will have a very good finish to the year; that would be the automotive segment, nonwoven segment and to a certain extent, the coating segment. We will see with a mix less robust from the Advanced Technology segment.

Thanks, Peter, and one final one -- Ed, what gives you confidence? Have you talked to the customers relative to '08? We're talking about some pretty big swings, plus 18 in '06 and then a big swing down. It sounds almost like an inventory issue, but if you can add color to that and what kind of confidence level you have in such a big swing back up in '08.

Well, first of all, the 20% number that I'd quoted is Gartner Group.

Yes, I know; I understand.

I have to suspect that those are somewhat crude forecasts. But directionally, you know, we see -- we have visibility. Well, there's two factors, backing up even a little bit more. There is of course technology roadmaps that we see from customers and as they look to generate capability to produce next-generation products and the like. We have a sense of patterns of their investments.

The other component to it is of course aggregate demand for consumer-based components that come out of these factories of our customers. We have less visibility surrounding that. But as we look at the roadmaps of the platforms our customers are looking to do, coupled with our own roadmaps of our own products and the interest of customers in converting from, if you will, older technology of Nordson's to the next generation of technology, those kinds of intersections of their roadmaps and our roadmaps give us some basis to say that 2007 is a weak year and 2008 is going to be better.

Any sense, early indications -- I mean, is the 20% just absolutely too bullish, or could you say, okay, from early indications, you could see strength somewhere between 10% and 20% next year?

Yes, unfortunately, Bob, I don't have that capability. The visibility of -- once we get, frankly, beyond, say, one quarter, we're starting to use things that are directional and indicative. In many cases, we see -- and using past examples, we see customers that occasionally will significantly increase orders or correspondingly postpone or defer orders as they see ebbs and flows in things they are doing, whether it be customer-driven or programmatically within their organization.

So what we see is relative strength. My own sense, it's going to be a double-digit rate of growth. We saw, in 2004, 2005, 2006 in Advanced Tech, several businesses within that sector had solid 20% growth rates, year-on-year. But our ability to accurately project that kind of growth back then was not precise.

Okay, fair enough. Thanks, Ed.

Matt Summerville, KeyBanc.

A couple of questions. First, I think, Ed, on your fiscal first-quarter conference call, you mentioned that one of your large semiconductor customers was looking to do a major equipment recapitalization. Could you update us on that?

I think probably, Matt, I would just leave it at the comments I made then and then the comments I just made to Bob in that we do, working with customers, get a sense of their roadmaps and where they are going to intercept with our product roadmaps as well. So, we have that sense; we have that belief, to just strength the opinion a bit. So that both has an impact on the lack of investment in 2007, and believe that we will have investment in 2008.

Okay. Then can you give a little more granularity into the performance of your Advanced Tech businesses during the quarter? Then, maybe -- I know we could probably back into this figure -- how orders are looking on a pro forma basis for the three acquisitions, on a year compared to last year?

Let me talk to the first. Within the Advanced Tech businesses, we have, including the recent acquisitions we have seven businesses. They are Asymtek in March, which each sell into similar semiconductor equipment and electronic assembly markets. These businesses, with respect to the semiconductor and electronic assembly, have seen some softness in demand. It has been concentrated in Asia; it's been concentrated in a few customers in the processor area and to a lesser degree, handheld devices. The March Plasma business also has an important piece that sells into life science markets that are completely independent from the cycles of semiconductor, and in fact performing very nicely.

We have the EFD business, which is a component-based business, primarily. It tends to have slower upswings and milder downswings. It is, to a degree, influenced by these same electronic assembly markets, less with respect to capital expenditures and more with respect to run rates because of the consumable portion of the products that they cell. After a very strong 2006, it has had a soft first half to 2007, but we have good optimism with some new products that they are introducing, that they are going to have a good 2007 second half.

Then the fourth traditional business in our Advanced Tech is our UV curing business. This is a business that sells both into general industrial markets, graphic arts, printing markets and the like, and then to a less degree, the front end of semiconductor with some new products that they've introduced. This is a business that is having a very strong year, associated with some new market share gains that they've had, but it has been for us, in 2007, one of our fastest-growing businesses across all segments.

The three new businesses are Dage, which is selling into the semiconductor and to a lesser extent electronic assembly markets, similar to Asymtek in March. We have YESTech, which was a recently acquired business, really in the last day of the second quarter. It sells into the similar markets, as does Dage, but to a greater extent it's selling into electronic assembly markets in addition to semiconductor.

Then the last piece is PICODOSTEC, which is a -- makes (inaudible) electric dispensers and valves. This is a business that sells across a wide array of markets and is one that we expect to be able to sell products across all of our three segments.

As to the order trends of the new businesses, the first two, Dage and YESTech, they are, to an extent, influenced by the same kind of factors that we've seen in other parts of our Advanced Tech segment. Gartner Group separately forecast what's going on in automated test equipment, and where they had forecasted that assembly equipment would be down 12% this year, automated test equipment they project to be down 11% this year. Then as you look at 2008, the same 20% forecast they have for packaging and assembly is there for automated test equipment as well. We have a lot of excitement and confidence that we're going to be able to realize both the cost synergies as well as the revenue synergies that we talked about in our last conference call. But these are just very newly closed acquisitions, the last two. I think that's about all I can say about them at this point.

No, thanks for that overview; that was very helpful. Can you maybe give a little more color on the pace of order activity you experienced in the most recent 12 weeks in Advanced Tech? Was it pretty similar as you progressed throughout the quarter? Has it gotten better? Has it gotten worse?

I'm going to grab a sheet here and look at it. My sense is, you know, on a week-to-week basis, it is lumpy. But short answer, there's not a trend either way.

Okay. Then I guess you're still up against a pretty tough order comp, as I recall, in your core Advanced Tech business. In the second quarter, comparisons begin to get easier. Do you have a sense, based on sort of all the things that you've been discussing, when your orders start to comp positively here?

Yes. I don't, Matt. You are absolutely right. The second quarter was a dynamite quarter for the Advanced Tech business last year. You know, if I look at some of the texture that we read in the media forecasts and so on of the people that follow this industry and so on, you see words like "order declines seem to have bottomed although the rest of calendar 2007 looks to continue to be tough." I don't think that I have a point of forecasting when those comparisons get positive. You know, I could look back at the trend last year and the fact that we are 8% down in the most recent 12 weeks on a constant currency excluding acquisition basis in Advanced Tech now, and see where those lines might cross. I think what really hungry to see myself is when we're going to see absolute rates pick up. I would have to say, sitting here now, I don't see that turning point yet.

Okay. Then just lastly on -- well, two more questions on Advanced Tech. In terms of dollars or basis points -- and I apologize if you said it and I just missed it -- what was the inventory step-up component in the second quarter?

In the second quarter, hold on a second. (multiple speakers)

This is Greg. In terms of the inventory piece, it was about $0.08.

Okay, thank you. Then, okay, you know what? I will just get back in queue. Thank you.

John Franzreb, Sidoti.

Could you talk a little bit about the costs associated with integrating the three businesses? Now that you've got a chance to look at YESTech and PICO, what are your thoughts now about the expectations going forward, at least for the balance of the year?

You know, I don't think our view with respect to the accretion/dilution are any different than we had shared a couple of weeks ago. Our sense is that, across the second half of the year, these businesses will add about $0.02 a share to earnings. That's all-in. In other words, that's the purchase-price accounting effects, the interest expense, offset by the profits from the businesses. I think that's largely in the fourth quarter. The numbers are small enough that rounding can make a difference, plus or minus, there.

With respect to integration costs, you know, at this point, Dage -- you know, Dage was the first step in establishing that Test & Measurement platform, and so the integration opportunities and the synergies that we believe come from the add-ons like YESTech. So YESTech is a company that makes two product lines; it makes x-ray inspection equipment, as does Dage. It's components are largely outsourced, and they do some final assembly activities in their California facility, which is just two skips away from the Asymtek facility in Carlsbad, California. So, we see opportunities in integrating some of those operational aspects with respect to the portion of the product line that's not x-ray, that being the automated optical inspection.

With respect to the x-ray product line, we believe that there's opportunities to really work very closely between what Dage is doing in their assembly operations, which are largely based in China, and what YESTech is doing with outsourced assembly activities in the California area. These opportunities to reduce costs really don't come with great one-time investment expenses so much as just the operational exercise to insource activities from vendors into existing activities that we have either in California or in China.

Did that answer your question?

That's fine, Ed. Let me shift gears a couple of times here. The wide range you gave for the second quarter, the 61 to 71, is that reflective of the call it lack of visibility you have in the Advanced Technology business or is there some other reason for that wide range?

Yes, well, we really, frankly, start with the revenue, and then we, from that revenue, drive earnings per share. So the question really pertains to the range that we put around the revenue forecast. To a certain extent, it's uncertainty around -- you know, a lot of our businesses we don't have great visibility around. We came up short a couple of times, frankly, in recent quarters, in terms of our ability to be accurate with the guidance that we give, as compared to the actual shipments that we achieve. That has to do with both the Advanced Technology segment but also some of our other businesses where we have relatively short turnarounds. So the linkages between what we know, as compared to what we forecast, are not as good as we would like. So we've, frankly, widened that range a bit over the last couple of quarters with a desire to convey that there's a certain amount of uncertainty that always exists in these forecasts because we don't have those tight linkages as we might like.

Okay. The order rate in Adhesive Dispensing seems very good, especially given the comps from a year ago. Could you give a little color as to what's going on in that segment?

Yes. We mentioned, in the conference call two weeks ago, that we had particularly seen strength in three big engineered systems areas. One of those is adhesive coating. Adhesive coating is -- has been performing very nicely. These are very long leadtime items. As a result, that's one of the elements that's driving the back-end to the year strength. But we also have seen increasing strength within adhesives across the sequential quarters as we moved away from that soft spot that we saw in the first half of the first quarter.

For example, our packaging business has been improving nicely of late. Correspondingly, what we call our PPC business has been performing well. The coating business, as I mentioned, has been particularly strong. And nonwovens has been good as well. So it's fairly broadly based.

The one area where we have seen softness on a more continuing basis is what we call product assembly, which is a business that is more closely related to some of the products that find their way into homes. These are things that range from kitchen cabinets to wood products, to (inaudible) assembly. Those are markets where we've seen our customers' plants operating on reduced hours and have correspondingly reduced demand for investments.

Okay. The Finishing business has very cyclical characteristics to it; it seems like it's doing well this year. You've touched on your expectations, at least on an Advanced Technology next year. What kind of visibility or outlook do you think Finishing stands in 2008?

Well, the trends that drive the Finishing business -- back up further. Powder is the largest piece of that business, and the growth rates in Finishing are, other than the occasional large order that might come through from one of the other two businesses, the powder business is the principle driver of growth.

The big trends that we see in powder fall into two categories. One has to do with growth rates in factory investment and the conversion in traditional liquid painting to powder painting, which is still occurring; both of those are occurring to a great extent in Asia. The Asian markets have demand for generally more simple systems, generally more lower-priced systems, but nevertheless growth rate occurs there. Our strategic initiatives center around capturing a full share of that business as it continues to become a more important segment of the global demand for equipment used to apply powder paint.

The second major driver of investment in the powder paint business has been the increasing interest of customers to convert from traditional, large batch-based powder systems to smaller, lean systems that enabled very quick color change. We have introduced a series of new products as part of a broad lean painting sell system that has had very good interest. We have gained market share as a result of these new products, particularly in the United States. So, that's another driver that we have seen that is generating interest with customers.

So I take those and look at 2008, my crystal ball for the demand for industrial products like powder is no better than yours. But if I just look at a steady-state view of economy, taking today's level of activity, I would think that we are going to continue to see growth. You know, I don't think that this is a business that is a 15 to 20% grower. We would like to believe that, with market-share gains and new product innovations and our fair share of what goes on in the Asian markets, that we can grow this business at better than GDP rates. Right now, we are having an awful lot of good success because of each of those things that I described.

Great, thank you very much, Ed.

Steve McNeil, Jennison.

Good morning. Just can you review the cash flow data one more time, please?

Sure, just give me a minute. Okay, we had non-cash charges of 4.3 million; we drew cash from working capital of 5.4; we had CapEx of 10.6; we had dividends of 5.9; and we had other outflows of 2.0.

So the OCF then was --?

An outflow of 2. So that should add up to 12.3 million positive before an acquisition cost of 55 million. We had earlier announced 53, but you always have balance-sheet adjustments at closing, so 55 is the number that you'll see in the 10-Q when it's filed.

Okay, I'm sorry. The operating cash flow number was plus 12?

Correct.

Okay. That's a year-to-date figure?

No, second quarter only.

What's the year-to-date operating cash flow?

Give us a moment too and we will pull out the first-quarter press release. It might be the easiest place to find it, Greg.

Okay, or I could just get it from the Q, okay. The CapEx --.

(multiple speakers) on this call. We will bring it out when we get it.

Okay, great. Then the CapEx numbers you talked about, Ed, the 10.5 for the second quarter and I think the 19 year-to-date, those are gross figures, meaning that there's no real estate sales reflected against that?

Exactly, so it's just one of those anomalies. When you buy a building, it's in CapEx. When you sell a building, of course it's a split between the reduction in property, plant and equipment and the different line item on the cash flow statement; and then the gain runs through the P&L.

But we, for example, bought a new building for EFD, and we have sold four buildings that EFD had for a net gain. Correspondingly, we have bought a building in the first quarter in China. We have announced the intended sale of a manufacturing facility in Alabama. We are continuing to look at a variety of other places we have real estate investment. Our expectations is that, across the programs that we are about, we're going to generate cash out of real estate rather than invest it. You'll see the gross investments in the CapEx area, and the other numbers will flow through other parts of the cash flow and income statement.

Okay. Is there any way to size how much, you know, proceeds would be from this real estate footprint realignment? I guess it depends on --

Yes, it depends on exactly what happens. We are probably going to -- this is Peter. We're going to realignment our footprint over a two-year period, and we will probably generate cash flow, but I would bound it by say it's in the single-digit millions. But the point in breaking it out was to -- because it is lumpy and because the timing goes across quarters, it's more to say under this kind of realignment, core capital expenditures are staying about where we have said it will, in that $12 million to $15 million annual. As sales go up, it will go up as a percentage of those sales.

Okay, great. Lastly --

The single-digit number that I talk about is a net number, so in some cases, we will have to, on acquired property, do some buildout and enhancements. But all of that is factored into the number I gave you.

Okay, great. Do you have a sense for when the 10-Q will get filed?

Yes, this is Greg. Our filing date is 40 days after the end of the quarter.

Okay.

So that's, order of magnitude, June 9.

All right, thank you.

Steve, to respond to your question about cash flow, the first quarter was 8.6, so that's 20.9 across the six months.

Year-to-date operating cash flow?

Yes.

Matt Summerville, KeyBanc.

Just a couple of follow-ups, follow-up questions. With respect to your fourth-quarter kind of initial view, the midpoint of your volume forecast I believe is plus 7 for the Company overall.

Yes.

Would you be assuming a positive volume comp in Advanced Tech embedded in that number?

I don't necessarily have the data at my fingertips. You know, obviously excluding acquisitions, I'm guessing that the answer to that question -- I don't want to guess. Hold on a minute.

Okay.

(OPERATOR INSTRUCTIONS). Walt Liptak, Barrington.

Good morning, guys.

I will take your question while we are scratching around the answer to the previous question from Matt.

Okay, mine is a little bit more general. It's on the geographic segments, and you know, the uptick in the Americas. I got onto the call a little bit late. I wonder if you could review what type of product was picking up in the Americas region and then also in the United States, is it finishing products that are picking up or adhesive or a combination?

Okay, (inaudible). Hold on a second. You know, the Americas obviously is a small segment for us, so a large order or shipments in one area versus another can have a big impact. But adhesives orders are very strong in the Americas. Finishing (multiple speakers).

How about in the U.S.? Is it also adhesives?

Adhesives are looking very good in the U.S. Finishing, in the most recent period in the U.S., is not -- I mean it's not got the same strength as we see in adhesives.

You know, the bottom line to the question is, you know, Advanced Technology is likely skewed to Asia-Pacific. Is the U.S. more skewed towards adhesives? You know, it's been weak for the last year or so, just picking up in '07, which is a little counterintuitive. But is there some sort of a refresh in capital spending with some of the consumer products companies, packaging companies, that we might be at the beginning of?

No, I would not say that is the case. The U.S. businesses are probably skewed more towards finishing. Conversely, the adhesive businesses are skewed more towards Europe, just as the architecture of where various products and systems in our customers sit. The strength in adhesives in the U.S. of late, you know, I don't think is indicative of any broad thing within packaging but rather is programmatic things that we have success with among various customers.

Mixed within the U.S. adhesive business is weakness centered around some of the people selling into the home markets, indirectly cabinets and the like, but offset by good success we've had with some of the people in the other divisions of adhesives that I mentioned earlier.

Okay, great. Thanks.

Back to Matt's earlier question about the fourth-quarter outlook that we shared, no, we have not forecasted, within that 7% midpoint of the range, a rebound in Advanced Tech.

Mr. Summerville, your line is open.

Actually, two more quick questions. Strong margin performance in adhesives in the second quarter, at least relative to where I was at in my model. Was that predominantly related to mix?

Well, obviously, the operating margins are much better this year than last year because of the -- on an as-reported basis because of the absence of the [viber] business.

Well, that's one factor, but volume was down like 4 points, so I guess I'm trying to net all of that together.

Yes, I'm just trying to recall if there's anything in my mind that stands out from that.

Matt, this is Greg. It's some mix, and then, if you recall, we had some spending related to restructuring in the prior-year numbers.

Okay. Then final question, with respect to the consolidation of the real estate portfolio, is there any tangible cost savings to be associated with this over the next two years?

Yes, we will end up with less feet of [plant]. Therefore, when we finally get realigned, we suspect that our run-rate operating will be at a lower expense level.

Are we talking a couple of million dollars or something more substantial?

I think it's probably in that kind of range. You know, obviously, a shift of a manufacturing activity out of the United States to China, for example, comes with all sorts of savings beyond just the physical plant. You know, some of our -- if you sort of said where are the square feet leaving and where are the square feet coming, it tends to be consolidations of the U.S. facilities into more compact facilities, or really discarding of vacant space because we've gotten more effective with lien and then the net additions are in China.

Okay, great. Thank you.

(OPERATOR INSTRUCTIONS). Charles Brady, BMO Capital Markets.

Just a couple of quick follow-ups. Regarding your order growth in the past 12 weeks, can you tell us how that compares sort of on a quarter-to-quarter basis?

Hold on a second. The most recent 12 weeks are 11% better than the sequentially early 12 weeks.

Some of that is seasonality, but I think, as you will recall, we said that we started the first half of our fiscal year relatively weak, and then we've seen an acceleration of order trend.

Okay. Finally, were there any large orders within the past 12 weeks that skewed the orders one way or the other?

No, the order pattern has been not that lumpy, if you will.

Okay, that's all I had. Thank you.

At this time, there are no further questions. Are there any closing remarks?

Well, I appreciate the good interaction we've had this morning. We obviously very much appreciate the interest and support of both investors and analysts and look forward to continuing our dialogue on calls like this in the future. Have a good day. Thank you.

Thank you. This concludes today's conference call. You may now disconnect.