Enpro Inc (NPO) 2004 Q4 法說會逐字稿

Good day everyone, welcome, and to this EnPro Industries fourth-quarter and year-end 2004 financial results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Don Washington. Please go ahead, Sir.

Thank you, Abe. And good morning, everyone. Welcome to EnPro Industries' earnings conference call. This morning Ernie Schaub, our President and CEO, will discuss our earnings for the fourth quarter of 2004 and for the full year. Also in the room this morning are Bill Dries, our CFO, and Rick Magee, our General Counsel, who are prepared to participate in the Q&A.

In just a moment Ernie will make his remarks and (technical difficulty) the lines for your questions when he has completed those remarks, but first I'd like to remind you that you may hear statements during the course of this call that express a believe, expectation or intention, as well as those that are not historical facts. These statements are forward-looking and involve a number of risks and uncertainties that may cause actual events and results to differ materially from such forward-looking statements. These risks and uncertainties are referenced in the Safe Harbor Statement included in our press release, and are described in more detail, along with other risks and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2003, and the 10-Q for the quarter ended September 30, 2004. We do not undertake to update any forward-looking statement made on this conference call to reflect any change in management's expectations or any changes in assumptions or circumstances on which such statements are based.

This call is being webcast on our website enproindustries.com and a replay will be available on the site, as well as by telephone. The telephone replay information is available on the earnings release.

I also want to remind you that next Tuesday, February 22nd, we will hold an investor conference in New York. If you're interested in attending the conference, you can contact me by email at the address on the press release. The event will also be webcast from our website, enproindustries.com.

If your questions aren't answered on the call, if you have follow-up questions, or if you have follow-up questions you can contact me after the call at 704-731-1527.

With that, I will turn the call over to Ernie.

Thank you, Don, and hello, everyone. Thanks for joining us today.

This is our third year-end report since we became an independent public company. At that time we set out to make EnPro a stronger, more valuable group of businesses, and we believe we have progressed steadily toward that goal. Over the past three years, sales and segments profits have improved, we generated substantial amounts of cash, we have reduced prospective net asbestos payments, and we have made substantial investments in our businesses that will allow us to continue to improve our performance over the long run. We appreciate the confidence investors have shown in us during that time. I want to let you know that we intend to maintain our focus and continue to grow.

Before I go over our results for 2004 and the fourth quarter, I want to point out the change in our segment reporting. Previously, as you know, we reported in two segments, Sealing Products and Engineered Product. We now have separated Fairbanks Morse Engine from the Engineered Product segment and are reporting it in a new segment which we call Engine Products and Services.

The nature of Fairbanks Morse's products and markets is really distinctive from other businesses. Its margins are generally lower, and its customer base is much smaller. Its leadtimes are measured in months compared to days or weeks in most of our other businesses. Separating it should provide a better picture of Fairbanks Morse's performance, as well as the performance of the remaining operations in the Engineered Product segments.

Our earnings release contains segment tables in the new format for the fourth quarter and the full year. You can find tables for prior periods in the Investor Relations section on our website.

Now let's turn to our results, beginning with a review of 2004.

Our market strength grew substantially during 2004. Sales were $826 million, up almost $100 million or about 13 percent over 2003. 3 percentage points of the growth a result of the stronger euro. If we remove the Haber Tool and Sterling Die, which we sold in the middle of 2004, the year-over-year increase was actually about 15 percent.

By segment, Sealing Products sales were up 13 percent. About 4 percentage points of that came from a stronger euro, with the rest coming from increased activity in Stemco's heavy-duty truck markets and Garlock's North America power generation and steel markets.

In the Engineered Product segment sales of about 10 percent, with about 4 percentage points coming from foreign exchange. Eliminating Haber and Sterling, the results would show a year-over-year increase of about 14 percent. The increase was driven by stronger automotive and industrial markets for the bearing products of GGB, and stronger industrial markets also benefit Quincy Compressor.

In the Engine Products and Services segment Fairbanks Morse Engine reported increased engine shipments associated with U.S. Navy shipbuilding programs and a 24 percent increase in sales. Looking at 2004 segment income, we reported $92.1 million, an increase of $4.5 million or 5 percent over 2003. I want to point out, however, that the increase was after spending $6.8 million more on restructuring and recognizing a $7.5 million loss at Fairbanks Morse in the third quarter.

In the Sealing Product segment profits improved about 20 percent. Profit margins improved to 15.6 percent from 14.6 percent, primarily because of stronger steel, power generation, oil and gas, and heavy-duty truck markets.

Profits also improved in the Engineered Product segment, even though this segment accounted for nearly all of the 2004 restructuring costs. The Engineered Product segment benefited from stronger industrial and automotive markets as higher restructuring costs contributed to decline margins in the segment, which fell 0.5 percent to 9.7 percent from 10.2 percent. Before restructuring and foreign exchange, profitability actually increased by 22 percent and margins increased to 12.2 percent.

At Fairbanks Morse profits were just under $100 million for the year and margins fell from 8.5 percent to under 1 percent. The principal reason for the change in profits and margins was the third-quarter loss that we recorded on several engine contracts. But margins also reflect the increase in low-margin engine sales.

Net income for the full year was $33.8 million, or $1.60 a share. This compares with net income of $33.2 million in 2003, or $1.61 a share. All the references to per-share amounts are based on diluted shares.

Several significant items affected net income in 2004. In total they reduced net income by about 3.6 million, or 17 cents a share. In 2003, significant items increased net income by 3.1 million, or 15 cents a share. A table on the last page of the release explains the items. I won't go into the details about them since we've discussed them in previous calls. However, you should note we include the effect of restructuring costs in these items.

We view restructuring as part of our normal operating expenses, but we call these costs to your attention in order to help you understand their effect on our earnings. Restructuring costs represent an investment in our future, and they are made with the idea that they will significantly improve the on-time competitive position of our businesses.

Now let's take a look at the fourth quarter. The market conditions that we experienced throughout 2004 were sustained and benefited fourth quarter, and sales improved at every operation. Fourth-quarter sales were $204.1 million, a 14 percent increase over 2003. Foreign exchange added about 3 percentage points. Segment income improved by 5 percent, or $1 million, after $4.7 million in restructuring expense. Before restructuring and a slight benefit from foreign exchange, segment income was up about 16 percent.

Moving to the bottom line, we reported net income of $3.9 million, or 18 cents a share. This compares to net income of $8.4 million or 40 cents a share in the fourth quarter of 2003. Net income reflects an increase of $1.1 million in corporate expenses, primarily associated with stock-based compensation, and an increase of $2.1 million in asbestos-related expenses as 2003's results benefited from recoveries from insolvent insurance carriers.

We noted in the press release significant items that affected net income in the fourth quarter. They were principally restructuring charges, and in total these items decreased earnings by about $3.1 million or 15 cents a share in 2004's fourth quarter. I refer you again to the table on the last page of the release for a detailed explanation of these items.

As I noted, the principal item related to a $4.7 million in restructuring costs, which reduced net income by $2.9 million or 14 cents a share. The costs were primarily associated with the transition of production from GGB's facility in Annecy, France to a new facility in Slovakia and the early retirement of several employees in Annecy, France. They also included costs associated with completion of France Compressors Products' move to Houston from Newtown, Pennsylvania.

In the fourth quarter 2003, significant items created a net increase in earnings of about 8 cents a share. A number of items are included in the total, including gains on the value of the call options, gains on asset sales, and tax accrual adjustments, partially offset by about 5 cents in restructuring costs.

Turning to the performance of our segments, fourth-quarter sales in Sealing Products were $91.1 million, an increase of $6.8 million or 8 percent from a year ago. 3 percentage points of this year's increase are attributed to foreign exchange. A stronger euro and increased activity in oil and natural gas markets benefited Garlock Sealing Technologies, but the benefit was offset by declines in industrial markets, both in Europe and North America, although sales at Garlock were up slightly compared to a year ago. For the fifth quarter in a row, Stemco sales to the heavy-duty trucking industry grew by double digits. New truck and trailer builds strengthened and the original equipment market, and aftermarket activity was very strong as well.

Profits in the Sealing Products segment were up by 13 percent to $12.8 million, and profit margins improved to 14.1 percent from 13.4 percent. The increase reflected improved performance at all operations in the segment, except for Garlock Sealing Technologies. Garlock reported a slight decline in profits and a drop in margins as a result of weaknesses in the industrial markets and an increase in severance costs. The increase in segment profit also reflects an asset write-down at Garlock Rubber Technologies in the fourth quarter of 2003.

In the Engineered Products segment sales increased to $79.6 million, up 4 percent from a year ago. The entire increase is attributable to the benefits of foreign exchange. However, if we exclude the Haber Tool and Sterling Die, which contributed nothing in the fourth quarter of 2004, sales actually improved by over 8 percent. Within the segment, GGB sales increased by 12 percent over last year, as they benefited from higher demand by industrial and automotive markets both here in the Americas and in Europe, and from favorable foreign exchange. Quincy Compressor continued to take advantage of improving US industrial markets in the quarter, as sales were up about 12 percent. The stronger euro and active European markets helped France Compressor Products increase sales about 6 percent as its North American markets continue to be sluggish.

Profits in the Engineered Products segment declined about $1.6 million after an increase in restructuring costs of over $3 million. These costs drove margins down to 6.8 percent. However, before restructuring and the beneficial impact of foreign exchange, profits increased about 22 percent and margins were about 12 percent. At Quincy Compressor, profits were up slightly, reflecting stronger industrial markets, but margins declined because of increased material costs and expenses associated with the startup of (indiscernible). With the end of the fourth quarter we recognize the major restructuring expenses at GGB and France Compressor. Without the burden of these restructuring costs, these operations should contribute higher levels of profits to the Engineered Products segment in the future and with the added benefits of savings from these projects.

In the Engine Products and Service segment fourth-quarter sales improved by 85 percent to $33.6 million as Fairbanks Morse shipped engines associated with U.S. Navy shipbuilding programs. No engines were shipped in the fourth quarter of 2003 when sales were $18.2 million.

Profits in the Engineered Products and Service segment improved, reflecting a stronger mix of higher-margin service work. A small charge associated with the reduction in force offset some of this improvement. As we have noted before, new engines sales carry slim or no margins, and the increase in engines sales made no significant contribution to profits. Margins declined slightly to 7.4 percent.

Turning to cash flows, we saw a slight decrease in cash from operating activities in 2004, primarily because of higher net cash outflows for asbestos. Operating activities provided about $41 million of cash compared to $44 million in 2003. Net cash outflows for asbestos in 2004, including expenses, were $40.3 million compared to $35.5 million in 2003.

Net outflows for last year did not include about $22 million in past-due reimbursements that we received early in 2005 as part of our settlement last November with a group of London-based insurers. If we had collected this amount in 2004, net outflows would have been substantially less than they were in 2003. In 2005, we anticipate significant improvements in net cash outflows as we remain on track toward our goal of aligning net cash outflows for asbestos with our annual insurance reimbursements.

Turning to capital, we spent $37 million on capital equipment in 2004 as we invested in our operations. That's about a 60 percent increase over 2003 when we spent $23 million. We received cash of about $10 million in asset sales in 2004, or an amount roughly equal to what we spent on restructuring during the year. The proceeds came from the sale of the France Compressor facility that we vacated in Pennsylvania and the sale of the Haber and Sterling businesses.

Now let's look for a moment at new asbestos claims. We've now had six consecutive quarters in which new claims have been filed at a comparatively low rate. About 2000 claims were filed in the fourth quarter, bringing total new claims for the year to about 17,400. That's a 61 percent reduction from 2003, and the lowest yearly total in over 10 years. State reforms in Mississippi and Texas continue to contribute to the decline, but it may also indicate a continuing reduction in the number of potential claimants.

We are happy to see that federal reform has regained momentum with the new Congress. Senator Specter has proposed a new version of the Trust Fund Bill, which we support. We are cautiously optimistic about the chances for reform, but we recognize there is a distinct possibility that reform will not succeed.

Although new claims have decreased, trial activities are on the rise for us. We are disciplined in our settlement strategy despite ever-increasing demands from plaintiffs' lawyers, and so more cases are going to trial. In 2004, Garlock began 17 trials involving 20 plaintiffs. This compares to only 7 trials in all of 2003. Of the 17 trials, 6 resulted in verdicts against Garlock. In all other cases, the verdict went for Garlock, the cases were settled during trial, or there was a mistrial or a hung jury. Of the 6 verdicts against Garlock, only 3 resulted in the awards of significant damages, and each of those is being appealed.

As a result of the 2 adverse verdicts, Garlock will be required to post surety bonds in connection with its appeal. The bond could total as much as $41 million for the 2 cases and would require 100 percent cash collateral if were are restricting the use of that amount of cash for the duration of the appeal. The appeals could last as long as three years. Garlock has prevailed in a majority of its previous appeals, and we're confident that our success at the appellate level will continue, especially on the issue of punitive damages.

So to review 2004, our industrial businesses responded well to increased market activity. Most reported double-digit percentage sales increases. With the exception of Fairbanks Morse, most of our businesses capitalized on better markets to grow profits and profit margins. These favorable indications have continued into the first quarter of 2005. We expect most of our operations to benefit from higher levels of activity, and 2005 sales should exceed 2004 sales.

The restructuring expenses of 2004 will benefit us in 2005 since they won't affect profits, and because we should begin to reap the benefits of these activities. As a result, we expect our profits this year to improve over 2004.

This outlook does not anticipate any restructuring charges in 2005. However, we are currently evaluating options for a substantial restructuring project at Garlock Sealing Technologies. The project would address the operations at Garlock's facility in Palmyra, New York, Garlock's principal US manufacturing facility. It would likely extend over several years, and the total cost could be substantial. We expect to make a decision on this project sometime during the first half of 2005 and could begin work on the project later this year.

Our outlook also does not anticipate any acquisitions that might be made in 2005. Our acquisition and divestiture strategy is focused on improving the value of our operations, and we will continue to look aggressively for opportunities to add businesses that fit with our core technologies. We will also continue to pursue the divestiture of those businesses that do not fit our strategic long-term focus.

With all that, now we will open the lines for your questions.

(OPERATOR INSTRUCTIONS) Liam Burke, Ferris Baker.

If I'm looking at your capital expenditure, what I read was that out of the total of about $37 million, about 60 percent of it was what I call discretionary enhancements for the growth businesses. If I did the math, it looks like maintenance is about 15 roughly. Is that correct?

I'm not sure where you have gotten those numbers. By and large, we spent 37, up significantly from a year ago.

I'm trying to get at a maintenance level, and then what next year would be off that maintenance base?

I think we ought to be spending on a maintenance and on a gross level, we ought to be spending somewhere between 3 to 3.5 percent of sales on an ongoing basis.

I'm sorry; bear with me. It's 3.5 percent of sales for maintenance and growth, or is it--?

Yes.

But I believe, as we said, we expect next year to be another strong year. So don't take 3.5 percent and just get there. It's going to be more than that.

I would think that we would expect to see spending maybe comparable to what we saw this year.

Thank you.

Justin Marr (ph), Lord Abbett.

First, Bill, on the savings from the charges, I had in my notes 5 million on an annualized basis. Does that sound right, and what do you expect of that in '05?

That sounds right, and we should reap most of that in '05.

And then Ernie, your favorite topic, asbestos. Did you say that fourth quarter there were 17 trials, or was that for the second half?

That was for the full year.

Oh, it's for the full year.

That was full year, 17 trials.

So 7 the year before?

Right.

And just from the third-quarter conference call you had mentioned the one case in California, which I think between the award and the damages was about 22 million. So a similar one went against you in the fourth quarter then?

No. Rick, why don't you give some information on both of those, just so we clear up the California issue as well.

Justin, that's the same case. That's the same case we talked about. It had happened early in the fourth quarter before our conference call, so we talked about it on the conference call. But it actually occurred in the fourth quarter. That was that LA verdict in Cheggit (ph) case. We brought it up this time because we wanted to make sure folks understood the bonding requirement.

So the 41 goes entirely to that case?

No, there was an early verdict in Cleveland early in the year that totaled approximately 6.5 to $7 million. That's the other.

The Los Angeles requirement is that we bond 150 percent of the judgment. So the bonding requirement on that $22 million verdict would be about 34, 35 million. When you add the Cleveland bond amount to that, that's how you get to the 41.

What's your sense, Rick, of, as Ernie said, that more of these things are going to trial? How does that play into the talk of settlement, which who knows if that's ever going to happen? But do you get the sense that people are -- that the plaintiffs are wanting to force the issue a little bit more, not knowing what the outcome of that is going to be, and therefore the likelihood of these type of situations may -- the probability goes up in the next couple of years?

Anytime we go to trial there's a risk. Let's start by saying that. And you're correct; the plaintiffs -- because of the push for reform, because there are fewer cases out there annually, the plaintiffs' demand continue to push and to get higher. Also, we still have the many, many bankruptcies that were filed in 2002, where those funds that will ultimately come back available are not available right now. Once those 524G Trusts are established and those funds are paying, those amounts will be available to the plaintiffs and will reduce some of the pressure on the rest of us defendants to pay higher amounts. So all of that is contributing.

I will say that this Los Angeles verdict continues to be a real outlier; the results of a runaway jury. And we're confident that we will ultimately prevail on the appeal, particularly on the issue punitive damages. And punitive damages were 15 million of the $22 million verdict. As you're aware, we've never paid a punitive damage award, and we're going to pursue that vigorously, and we really expect to have that overturned. In fact, the judge recently heard motions on the punitive damages issue for the appeal, and we're hopeful that he will reduce or even eliminate the punitive damages on his own motion prior to the appeal.

The risk of the future trials is there. We have had a lot of success since that trial, and I think we reported to you that late last year in Philadelphia a jury found against two plaintiffs and in favor of Garlock in a very, very similar case. In January, Garlock shared (ph) a verdict in favor of a lifelong gasket cutter in Texas. It was only $10,000. So this disparity demonstrates dramatically what people have referred to as Jackpot Justice. It underscores the fact that the tort system is ill-equipped to dispense justice in this setting. And as a result of that, we continue to vigorously assist in helping Washington in support of the reform that legislation.

Just to underscore what Ernie said, that legislation would redirect the hundreds of millions of dollars that are being spent on lawyers and experts and administrative costs to payment in the trust fund of the people who are truly sick. So we will continue to support that, and hopefully we will get something done in that area this year.

Lastly, while I've got you, does it change? Given that more of these are going to trial, how does that change your strategy? Are you trying to sit down more proactively with these folks? Or talk about that a little bit I guess.

Our strategy remains the same. We're going to defend where it's appropriate, we will settle where it's reasonable, but we're not going to roll over in this situation. We believe that our products are not culpable here, and we have good, strong defenses. And we have prevailed in most of the cases, so we believe that we should continue to defend ourselves.

Just to add to that, our record is good here. Our new commitments out there and our asbestos payments have declined each year since the spin-off, and we believe they will continue to decline. Verdicts are a part of that, as we take that into consideration. We believe we've more than offset the impact of having more trials and having the few verdicts about what we've been able to do with our settlement payments. And so we think our strategy is working.

Obviously the risk of a runaway award is something that we factor in. And where we're in a jurisdiction where we believe that risk is higher, then obviously that impacts our settlement discussions. And in all of these cases we are in settlement discussions. Often though the plaintiffs’ demands are so high against Garlock that we feel like we have no choice but to proceed to trial.

Basically the strategy is working. The issue is, as Rick said earlier, because there's so much funds tied up in these bankruptcies, we're one of the few games in town. So the lawyers have got to get the money somewhere.

Let me just add one more thing about these appeals and the cash just being tied up. We always have the option to settle those cases while the appeals are pending. We believe we can settle them at amounts far less than those verdicts and thereby extinguishing the bond and freeing up most of that cash. But again, we feel strongly about our positions on those appeals, so we're willing to post those bonds and trudge through the appellate process because we think we will ultimately prevail.

Well, and the whole precedent thing.

Exactly.

That's right, yes.

Thanks. Good luck guys.

Mike Mitchell, Jefferies & Co.

A couple of questions. First, what's going on with the corporate expense? I noticed it's up $1.1 million sequentially. What goes into that, and how should we think about that?

The major shift there was in stock-based compensation. As the price of our shares have gone up and we have Director's fees and other fees that are stock-based, that's what drives it.

The year-on-year change is pretty much entirely (indiscernible) as you saw, our stock ran up 100 percent in '04, and that has obviously an impact on everything, all compensation that involves some element of stock. Going forward, our base -- we spend about 25 million, in the mid-20s on an angle basis to essentially run the corporate office and all the other associated expenses, bank (ph) fees and things like that. That should be a good number.

Second question I have is, I know you talked about as a bit in the discussion, but can you just give me a breakdown of FX benefit by segment to sales?

We went through that item (multiple speakers)

You mean for the full year?

Yes.

Sealing Products, 4 points out of their 13 points was attributable to FX. And similarly, Engineered Products, 4 points out of their 10 points is attributable to FX. And the numbers were very similar in the quarter. Each segment benefited by between 3 to 4 percentage points (indiscernible) it is all a U.S.-based company, so there's no impact there.

My final question. I know CapEx for '05. You said it will be similar to '04, which I know is a little bit of a larger number. But I know you haven't actually given a number out. Is mid-30s still a pretty good expectation; a little higher, a little lower?

Sounds good.

That's all I've got. Thanks guys.

(OPERATOR INSTRUCTIONS) Seaver Wang, Sidoti & Co.

Wanted a little bit more detail on the cash flow being tied up. The three-year period, why is it that three-year period? Is that kind of the average time for the appeals? Also, how does that change -- will that change your capital structure or any kind of capital spending strategy of yours?

Let me start with the three year. Three-year period to be three weeks to three years. It just depends on how long it takes to go through the court system out in California. Rick will give you some additional on that.

But we have said all along that we need to have a cash reserve on hand for things such as this. And we've continued to build our cash year-over-year as a Company, and we expect that again to continue in 2005. We've done a good job at that, and we have enough resources today to now cover this kind of an issue, as well as to spend the mid-30s that we expect to spend in capital and do the kinds of things that we expect to continue to do going forward. So I don't think it will dramatically change our strategy and where we're going in that respect.

Rick, do you have any comments on the court --?

I will just add to that. We put it for up to three years because we believe that's the longest possible period it could take. The average in the California court system is probably closer to two years. But as Ernie said, it depends on when the court -- the court has a lot of discretion about when to take up appeals. It's not like you get in line, and it's whenever yours gets there. So we think it could take anywhere from a year and a half to at the very most three years for it to ultimately be determined.

We just didn't want to say the date that would be so early, and then something happens you guys say what happened. So we may be a little conservative here.

Thank you.

Tian Cheu (ph), Goldman Sachs.

Actually, I just want to go back to the asbestos issue. You have got I think 140,000 odd claims outstanding. What is your thoughts as to how you're actually going to finally address that and then kind of whittle that number down, particularly if you're taking a lot of the cases to trial?

We've been gradually reducing that year-over-year as part of our strategy, and we've done a good job of doing so. Some of those, of course -- the majority of those cases are non-malignant cases and is the whole reason behind the Fair Act that's in Congress today, and trying to push those cases out. Several states, as we've shown -- Mississippi and Texas and Ohio, in fact -- have started to say let's push those aside and only address the malignant cases. And that will decrease them.

Rick, what else can you add to that?

Let me add to that. I think Ernie is exactly right. A significant percentage of those we believe will never be tried or resolved and will be dismissed. In fact, you saw in Mississippi just in the earlier this year as a result of reform several thousand cases have been dismissed. In fact, during 2004 we had over 15,000 cases pending against us dismissed for various reasons. Efforts in Ohio in the courts have resulted in dismissals. So a lot of that is going on.

We believe that a big part of what's out there are cases there are just languishing and will never get to trial because they don't involve folks with diseases. So while they've been filed, they may never get court dates. Meanwhile, with declining (technical difficulty) filed, we're still resolving anywhere from 20 to 30,000 of these a year. And as the new cases filed have come down well under that number for this past year, the operation of our strategy is going to reduce those number of claims in the pipeline.

Tian Cheu By the way, how many -- what proportion of claims are asymptomatic or unimpaired versus the impaired claims?

Your question is how many do we believe are really impaired versus how many --?

Tian Cheu In terms of the claims, what proportion would relate to unimpaired versus impaired, non-malignant versus malignant claims? So you have some percentage for the mix?

We do. Last year we told you that approximately 12,000 of the 140,000 pending claims we believe we knew were disease claims, and there was some portion of those that we didn't know about. We've done that same study this year, and the number that we know about that are disease claims is down to little over 6000 claims. So we've cut the number of pending disease cases in half. Of the 140,000, which has come down, I believe, to about 134, of those pending claims, there's still probably a third of them we don't know about. But the serious disease cases has declined as a percentage of the total to where it's well under 10 percent, probably approaching 5 percent.

Tian Cheu Thank you.

That does conclude our question-and-answer session. At this time I would like to turn the call back to Mr. Washington for any closing comments.

Again, we thank you for listening in on the call today. If you have any further questions or were unable to get your question in the queue, please feel free to call me at 704-713-1527. Again, I will remind you that we will have our investor conference on Tuesday in New York. It will be webcast from our website.

Thank you very much for joining us today, and we will talk to you again next quarter.

That does conclude the call. We do appreciate your participation. At this time you may disconnect. Thank you.