Enpro Inc (NPO) 2008 Q2 法說會逐字稿

Good day and welcome to this EnPro Industries second-quarter 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.

Good morning, everyone, and welcome to EnPro Industries' quarterly earnings conference call. This morning Steve Macadam, our President and CEO and Bill Dries, our Senior Vice President and CFO will review events of the second quarter, our financial results for the quarter and our outlook for the balance of the year. In addition, Rick Magee, our general counsel, is also present and prepared to participate in the Q&A. But before Steve and Bill make their remarks and we open the lines for your questions, I'd like to remind you that you may hear statements during the course of this call that express a belief, expectation or intention as well as those that are not historical fact. These statements are forward-looking and involve a number of risk and uncertainties that may cause actual events and results to differ materially from such forward-looking statements.

These risk and uncertainties are referenced in the safe Harbor statement included in our press release and are described in more detail, along with other risk and uncertainties in our filings with the SEC, including the Form 10-K for the year ended December 31, 2007, and the form 10-Q for the second quarter of 2008 which we expect to file today. We do not undertake to update any forward-looking statements made on this conference call to reflect any change in management's expectation or any changes in assumptions or circumstances under which such statements are made.

The call is being webcast on our website, EnProIndustries.com. A replay of the call will be available there. If your questions are not answered on the call this morning, or if you have any follow-up questions, you can contact me later today at 704-731-1527. And with that, I will turn the call over to Steve.

Thank you, Don, and good morning, everyone. Thanks for joining us today. As you can see from our earnings release our second quarter was very strong. Sales grew by 20%, 25% from the second quarter of last year and were the highest the Company has reported in any quarter. Following the record we set in the first quarter of this year. Activity in oil and gas, power generation, metals and other key markets all contributed to the increase over last year. Segment profits improved by 31% over the second quarter of 2007 as all three of our segments reported strong double-digit growth.

Segment profits were all for the best we've ever reported, and segment margins reached a new high of 18.2%. GAAP earnings were $0.99 a share in the second quarter compared to $0.61 a share in the second quarter last year. Before asbestos and other selected items, earnings were $1.38 a share compared to $1.01 last year in the second quarter and $1.07 in the first quarter of 2008. Bill will go into more detail on our financial results shortly, but first I will review some important developments in the quarter.

We completed two acquisitions, the largest of which was Air Perfection, a Quincy Compressor distributor based in Northern California. The acquisition gives Quincy better access to customers and opportunities for growth and an important regional markets. We also bought out a 20% minority partner at Garlock subsidiary in Australia and now own 100% of that business. After the end of the quarter our Compressor Products International business acquired a small productline that monitors valve conditions and reciprocating compressors. This product is very attractive to CPI customers and a nice addition to CPI's portfolio.

Looking at capital projects we completed construction on a new building at Garlock's facility in Palmyra, New York, and began installing equipment that produces the Gylon productline. We are already making product there and expect to be in full production by the end of the third quarter. This is the second new building we've added as part of the Palmyra modernization project, and it completes the major construction phase. We are now past the halfway point in this five-year project. Demolition activity will increase over the next few months as we remove the old Gylon facility, and then we will move on to the refurbishment of older buildings that will remain in use.

To update you on our accelerated share repurchase, we expect the program to be completed by the end of August and to owe a settlement of approximately $11 million as an adjustment to the initial $50 million purchase price. The settlement is based on the volume weighted average price of our shares over the period since March 3 when the ASR was executed. After the settlement payment we expect to have about $39 million of our $100 million authorization remaining for use for additional share purchases. Subject to market conditions, our financial performance and other factors, we expect to make additional share purchases over the next six to 12 months.

Before I turn the call over to Bill for his financial review I would like to fill you in on what I have been up to in my first 100 days or so at EnPro. First, I've done a lot of traveling. I visited every major EnPro operation in the United States and Europe, and I've spent a significant amount of time getting to know our managers, both in the corporate office and in the businesses and I've learned a lot about our operations. Overall I am pleased with what I found. We've got talented people in key positions throughout the Company. I believe core strategies EnPro has followed are fundamentally sound and give us a solid platform for the future. We are making progress in all areas that support growth including market share gains, geographic expansion, new product development and acquisitions.

I am pleased with what I've seen so far, and I am also convinced there are plenty of opportunities for continued improvement and accelerated growth. We are working now to identify priorities and to align plans and programs to accelerate our progress. Now I will turn the call over to Bill.

Thanks, Steve. As Steve said, our results in the second quarter were very strong. Sales amounted to $317 million, a 25% improvement over last year. Organic growth was the largest contributor and accounted for 11 points of the increase. Favorable foreign exchange and acquisitions each contributing seven points.

Gross margins were 36.3% this quarter versus 35.9% in the second quarter of 2007, an increase of 40 basis points. This is the second consecutive quarter in which gross margins exceeded 36% reflecting the benefit of increased volume, favorable mix and a culture focused on improvement.

SG&A spending was 31% higher than 2007 with much of the increase attributable to acquisitions, the effects of the stronger euro, higher incentive compensation expenses and to a lesser degree, one-time costs associated with the CEO transition.

Net asbestos expenses were down 7%. The difference is primarily a reduction in the non-cash portion of the quarterly expense to maintain a rolling 10-year estimate of the liability. Legal fees were about the same in both years.

Other income of $3.9 million includes the favorable resolution of a long-standing warranty dispute by Garlock, which resulted in the receipt of a $2.5 million cash settlement and a gain on the sale of a building following the consolidation of the operations of one of our units into a single plant.

Operating income amounted to over $34 million, more than 50% higher than the second quarter of 2007. Interest expense was flat while interest income declined on lower cash balances, primarily due to our share buyback and acquisitions. Our effective tax rate was 34.4% in the second quarter, down from 37% from the second quarter of 2007. Our expected annual effective tax rate in 2008 is 35.5% as we benefited from lower foreign tax rates and a favorable tax ruling.

Our net earnings were $21.1 million, an increase of 53% over 2007. That translates to $0.99 per share, a 62% increase over the second quarter of last year. Before asbestos related expenses and other items our income was $1.38 per share, up 37% from last year. As you know, we retired 1.7 million shares on March 3rd through our accelerated share repurchase, which reduced the average shares outstanding compared to last year. The lower share count contributed about $0.05 to our GAAP earnings of $0.07 to our adjusted earnings.

Looking briefly at the first half of 2008, we generated sales of $600 million, 20% higher than the same period in 2007. Organic growth, acquisitions and foreign exchange each contributed about equally. On a per-share basis, net income was $1.60, more than 30% higher than 2007 first half. Before asbestos expenses and other selected items earnings of $2.45 per share were 24% higher than the first half of last year.

Looking at our second quarter segment results, sales in the Sealing Products segment were up 16% with Garlock and Stemco the two largest operations in the segment both reporting double-digit increases. Segment profits were up 41% compared to last year's second quarter while margins were 22.8% for the quarter, 4 points higher than last year. As I mentioned earlier, Garlock benefited from a warranty settlement. Even if you exclude that from 2008's results, segment margins were still almost two points higher than last year.

Strong demand from Garlock's oil and gas, steel, mining and nuclear power markets produced a significant improvement in its operating results. At Stemco results benefited from the Kaiser acquisition earlier in the year as well as improvements in Stemco's legacy business. Kaiser is performing well and benefiting from having its products brought to market by the Stemco salesforce one of the key synergies we identified when we evaluated the acquisition. In its legacy business after market activity is up modestly although conditions overall remain soft.

Unit sales volumes have been flat to down over the past few months, and commercial trucking industry data shows that new truck and trailer builds are significantly below the levels of a year ago.

In the Engineered Products segment sales were up 34% with organic growth and acquisitions accounting for most of the improvement. Profits were 19% higher with increases at all three businesses. However, margins dropped 15.1% from 17% a year ago. Several factors contributed to the decline, including material costs, which increased more rapidly than they could be passed along to customers. All of our businesses have implemented or announced price increases in order to recoup these higher input costs.

GGB experienced strong sales growth in Europe and the Americas with foreign exchange contributing close to half of the increase. Operations in both regions benefited from increases in industrial demand, but profitability was impacted by the higher material costs and various other factors. Quincy's results were higher due to increased activity in their oil and gas markets, a more favorable sales mix and a contribution from the Air Perfection acquisition.

At Compressor Products International, or CPI, sales doubled over 2007, and profits also grew significantly mostly due to acquisitions completed in the second half of last year, but also from increased demand in its legacy businesses. Margins were down, however, because the acquired businesses carry somewhat lower margins than our legacy business partly due to acquisition related costs. Having said that, I should point out that margins at CPI improved significantly over the first quarter of this year, and we expect further improvement going forward.

We continue to believe the series of acquisitions we've made over the past two years which have more than doubled the size of this business, provide us with a great deal of potential for increased growth and profitability. Finally, the engine products and services segment again reported improved sales, earnings and margins. Sales were up 27% on higher engine shipments and improved parts sales while earnings were 32% higher; margins improved to 12.6% versus 12.1% in the same period a year ago.

We are pleased with Fairbanks Morse's performance in recent quarters, and we believe the business is in a position to sustain profitability at this improved level. However, it is important to remember that engine shipments are dependent on customer schedules and as a result sales are subject to swings that can be quite dramatic from quarter to quarter.

Turning to cash flows, we generated $55 million from operating activities in the first half of 2008, up from $44 million in the first half of 2007. The increase reflects higher earnings which more than offset higher working capital requirements this year. Working capital increase comes on a much higher revenue base, so our various balance sheet metrics have shown solid improvement over that time frame.

I will remind you that our normal seasonal pattern is to see working capital buildups in the first half of the year, which reverse in the second half. Net asbestos outflows decreased slightly in the first half of 2008 in comparison to the first half of 2007. For the full year we anticipate total asbestos outflows will decrease but will collect about $20 million less from insurance. As a result, net outflows for the full year should be higher than in 2007.

Capital spending was about $26 million in the first half of the year as we stepped up spending on facility improvements. That compares to about $19 million in the first half of last year. We have spent almost $37 million on acquisitions so far this year compared to $12.5 million in the first half of last year. After factoring in the $50 million we spent on the share repurchase in the first quarter our cash balances declined to $77 million, down from $178 million this time last year and $129 million at the beginning of the year.

That covers my review of our financial results for the second quarter and the first half. In summary, we are pleased with these results and our Company's improved year-over-year performance. Now I will turn the call back to Steve.

Thanks, Bill. Before we open the lines for your questions, I will wrap up our comments with some thoughts on our outlook for the rest of the year. We are obviously off to a good start in 2008 with a strong first half behind us. In general we expect the year over year improvements in our performance to continue for the balance of 2008, although we are seeing some softening in markets in North America and Europe we are encouraged by the strength of our demand in products from key markets such as oil and gas, power generation, metals and mining.

The diversity of markets we serve and the significant portion of our sales derived from aftermarket activities offer advantages that should help temper general economic weakness. We expect to generate improved cash flows in the second half and have sufficient liquidity to support our capital spending programs, to fund additional share repurchases and also take advantage of any opportunities for additional attractive acquisitions. We anticipate that sales in both the Sealing Products and Engineered Products segments will show improvement over the second half of 2007 as they benefit from higher volumes, the contribution from acquisitions and foreign exchange.

However, we expect the pace of this growth in these segments will slow compared to the first half of 2008, reflecting the seasonal declines in activity we typically experience in the second half and softer conditions in some of our markets. In the engine products and services segment we expected second-half sales to be approximately equal to sales in last year's second half. Like last year, we expect significant sales in the fourth quarter when this year's remaining engine shipments are likely to occur.

Growth in our overall sales should result in increases in our segment profits, net income and earnings per share compared to the second half of last year and in improved results for the full year. In summary, we recognize there is significant uncertainty about what the future holds for the economy, both in the United States and elsewhere, but our operations continue to execute very well and most of our key markets remain healthy. Thanks for your attention for these past few minutes. Now we will open the lines for your questions.

(OPERATOR INSTRUCTIONS) Todd Vencil, Davenport & Co.

Looking at your comments on the materials costs in Engineered Products outpacing the increase in selling prices and the fact that you guys have put in price increases already, first of all, what materials are really dinging you there?

First of all, materials in total were about 50% of our cost of goods. We don't have intense exposure to any one raw material. Our biggest raw material is steel, but it is in various forms and that is about 20% of our cost of goods sold. So we are obviously seeing increases in commodity-based products, in our petroleum-based derivatives like PTFE and really all forms of energy. We generally try to offset these increases through pricing, but in the second quarter some of our businesses in Engineered Products were not able to stay ahead of the curve, but we implemented price increases in July and early August in many of these businesses. So our goal is to try to recover raw material price increased costs to us in pricing; and in general we are fairly successful with doing that.

Do you think that the increases you have implemented, assuming they are completely successful, will accomplish that, get you back to where you were before?

We do.

Okay, and in your other segments you did not mention that you were having any problems keeping up, so can we assume that you are not having those?

You can assume that the pricing has kept pace. We are still seeing -- the numbers I gave you, the percentages were companywide, not segment specific. And in other segments the exposure changes, it is not as much steel; it is more other products. But as you guys know, we are certainly seeing raw material price increases in most categories to some degree. It is just more extreme in commodities and petroleum-based derivatives and all forms of energy.

One other question on that subject, the fact that the prices didn't keep up in Engineered Products, is that an issue of pricing power or maybe an issue that -- prices ran up on you more quickly than could be put through, or how would you --

I would say it is the latter, and it is really a timing issue of when the quarter end fell.

Okay, and then jumping to one other thing, you mentioned I guess in the press release significant increases in net outflows and bill for asbestos. Bill mentioned that you are going to have less in terms of insurance collections in the back half of the year. Is there anything going on there? Can you give us any color on what might be happening there?

Well, let me let Rick address that. Rick Magee, our general counsel, manages asbestos. So go ahead, Rick.

Good morning, Todd. As we have said for the past several quarters, because the way our insurance arrangements work we're going to collect less insurance this year than we have the past several years. We're going to collect about $20 million less this year, and that is the reason that our net outflows will be higher. We expect our total cash outflows to be less, but not nearly enough to offset that $20 million decline in the insurance.

We are going to -- in our 10-Q this time we are going to set out our expectations of our approximate insurance collections for the balance of the insurance that we've got remaining. But just to preview that a little bit, we expect our collections to be about in the $70 million range for this year and for the next two years.

Thanks a lot for that, guys.

Joe Mondillo, Sidoti & Co.

I was wondering if you could quantify or at least give some color on how the CPI acquisition, as well as the other acquisitions that you made this year, are benefiting your bottom line.

Do you want to take that, Bill?

Sure. If you look at the terms of our overall segment earnings, we increased from quarter to quarter by 31%; acquisitions probably accounted for probably about seven or eight points of that, so most of that was real growth.

Secondly, I guess just to clarify for me for the material costs, you expanded your gross margins the first two quarters. You expressed concerns in the back half. Do you continue to expect expansion in gross margins going forward?

A couple things. One, the gross margin was favorably impacted the first half a little bit with mix. So that is part of it. And I think we continue to anticipate healthy margins going forward. I don't want to indicate that we feel any differently than that. I don't think the pace that we've seen, the pace and improvement we've seen on a year-over-year basis will be quite as dramatic because we always see second half slowing a little bit, and we are seeing a little bit of growing weakness in Engineered Product segment that particularly in Europe from what we've seen in the past.

But as we've talked about before, part of the Stemco business which is heavily dependent on the US heavy-duty commercial truck business, that has been in the tank for a long time, so sequentially that is not going to continue to decline. We think it is going to just bump along at the bottom until we see a recovery in trucking.

Okay, and then speaking of heavy-duty trucking and markets, could you just comment on one, the oil and gas market what you are seeing currently and maybe what you are possibly going to see going forward in the second half of this year? And two, with the heavy-duty trucking market I seem to see maybe some sort of stabilization. Are you seeing that, and what do you expect going forward?

Yes, well, let me take the trucking piece first and we will come back to oil and gas. I agree with you. We definitely see stabilization in trucking. It has been the trailer OEM build that has been down most significantly year-over-year, 36%, 38%, something in that ballpark. And that is really -- that has been a pretty big hit in the truck OEM decline. It has been dramatic as well, about half that.

But obviously the ton miles that are being shipped are fairly stable. Most of our business or our business is more than half of it is aftermarket. So we continue to do well in the aftermarket. We feel like we are doing well with market share gains in the aftermarket. So I think the kind of -- I think we are either at or very close to a bottom on commercial trucking in the US.

And Stemco has actually held up real well in that time period. It has been hit. We've made some adjustments in the cost position. But all in all the business has performed quite well.

In oil and gas, as you know we participate in many, many regions around the world for oil and gas and that really is one of our biggest geographic growth opportunities that we are really focused on trying to capture. And of course we see just extreme growth in all forms of exploration and transportation of both oil and natural gas in major gas fields and oil fields in the world. It is obviously with petroleum prices and gas prices where they've been, exploration activity and transportation activity for those products goes up significantly. And that is right in the sweet spot of where we participate in many of our Garlock sealing businesses, as well as CPI's core business is natural gas compressors. So those businesses have been doing quite well in those markets.

And we anticipate that that activity will continue even if oil drops to $80 a barrel again. That is still well above the numbers required to continue with that kind of exploration and development of new energy supply.

Okay, great. Thanks a lot. Actually one more question. The ten-year liability for asbestos, do you know what that is as of second quarter?

It is a little over $500 million.

A little over $500 million? Okay, all right. Thanks a lot, guys. Congratulations.

Rob Young, William Smith & Co.

Good morning, guys. I just had a question relative to the top line. Is it roughly in the same proportion as far as organic growth that you talked about with operating?

I'm sorry, I didn't hear the first part of the question.

Relative to the top line as far as organic growth, is that relatively the same proportion that you just mentioned with growth from an operating perspective?

You mean our operating income?

Correct.

Yes. I mentioned that I think we said our top line benefited by about six or seven points from FX. That is about the same; our operating income, most of the increase in operating income has come from organic growth.

Okay, great. And then relative to CapEx expense and the second half of the year, how do you feel that is going to play out relative to the Garlock expansion?

Most of the capital portion of the Garlock expansion has been spent in the first half, Steve had mentioned in his remarks you will see more kind of demolition in the second half. Overall our capital spending, we are still anticipating an increase above last year. I think for all of last year we were in the high 40s, 46, 47 and we are still anticipating a slight increase over last year.

And then a couple on the engine segment. Is that something that is still as lumpy as it has tended to be in the past, or are you kind of developing some sort of sustainable growth rates? I guess what I am trying to get at is where a lot of the revenue that came in in this quarter at the expense of future quarters?

It is very lumpy, and we don't really control it because it has to do with customer needs and shipments. Sometimes we will work to pull engines forward if we have other engines get delayed and that kind of stuff, but you should expect to see most -- you can model this very, very easily by comparing with the guidance we gave of modeling the sales versus the second half of last year is going to be very similar. And including the quarterly pattern because most of the engine shipments that we have for the rest of the year will show up in the fourth quarter.

Okay.

And the business is very highly dependent on overall military spend for how many new Navy ships get built or the refurbishment of the engines. Our parts business has been doing pretty well. Our service business has been a little bit soft because so much of the fleet is deployed currently. If that fleet kind of returns home, then we expect our service income -- our service revenue will go up a fair bit.

We generally see more variability quarter to quarter than we do year to year. Year to year they are fairly constant. We are typically going to be in the 15 or 20 range on an annual basis engines, but quarter to quarter you see more variable.

And as far as the breakout in that segment, what is the breakout as far as parts and service? For the allocation?

It is typically -- again in a "typical year" it is roughly 50-50.

Okay, and are you guys still seeing that there is some strategic options for that segment, or is that becoming more of a core business you think for future growth?

Well, first of all we are confident that the changes that we have made in FME are lasting and that the business will continue to generate decent margins in the range of what we've seen over the past couple of quarters. We feel good about the state of the business. We are not currently actively soliciting any buyers, and obviously the business is performed over the past year so it is becoming a more valuable business both to us as well as others. So we will just have to see what the future holds relative to Fairbanks.

That's all I have. Thank you very much, and congratulations.

(OPERATOR INSTRUCTIONS) Randy Laufman, Imperial Capital.

Good morning, guys. Nice quarter. Just a question on the Sealing Products, can you talk a little bit about how Plastomer Technologies is doing? It has been an area of softness in recent quarters. I'm wondering if you could comment on that.

Yes, it is not a huge portion of the business. It is a little over $30 million business annually, and it has been weak. It sells into the semiconductor market, and that is where Bill mentioned in his remarks we did sell the old building that we moved out of in Plastomer and we've moved to two locations into a new facility that we lease in Houston. And in the second quarter we got that move completed. So we are now 100% fully up and operating.

We've exited and sold one of the buildings, as Bill mentioned, and the other building we've exited and we are leasing that so we are out of that lease that has expired. So we are now focused on the plant we have. It is the operational metrics are all going in the right direction. The business continues to improve. The market is not extremely robust, but it is also doing okay, so we expect that the biggest problems for Plastomer are behind us and that we will continue to see improvement going forward. Now that we are in the building and up and running and things are beginning to stabilize.

Okay, great. And then to follow-up on some of the questions on the price increases, just wondering if you can talk a little bit about the structure of those price increases, whether they are contractually set for some of your products? And if we do see a reversal in raw material costs, if the prices would then trend down to meet up with the raw materials or will you be able to capture some additional margin as raw materials come off?

Not many of our products are contracted with customers with escalators or deescalators based on indices because we have such a hugely diverse productline, and a hugely diverse customer base. So there is a lot of different things. So it doesn't work like many industries where if certain plastic goes up or down by a certain amount that is automatically passed through to customers contractually. We have not -- we don't have an industry that works that way. Our competitors don't work that way.

So to the extent we do see, if we were to see a pretty significant commodity price drops we would probably be able to hold margin for a while or lag that a little bit going down. That said there is always the competitive pressure associated with maintaining our market share. So did that answer your question, Randy?

That's great. And then I just want to also touch on cash flows a little bit. Just in looking at the net cash outflows for asbestos the first half of the year it was like $1.8 million. I recall that for the first quarter it was like $7 million, so it seems like in the second quarter you maybe collected more insurance than you made payments. Is that due to a push out of certain settlements into the second half or is that just the normal seasonally, seasonal trend for when you actually receive insurance payments?

I think it is just a function of timing. It just so happened that in the second quarter our receipts did exceed the outflows, but again, we have a fair amount of movement from quarter to quarter. But overall we do expect an increase in our net outflows for the year primarily for the reasons that Rick cited before, which is the drop about $20 million in our anticipated insurance collections.

And is it still your expectation that kind of on average the net cash outflows could be maintained at about $30 million to $35 million?

We continue to be comfortable with that, and we have said that we anticipate the net outflows for this year will be closer to the net outflows from the year before last when they were about $38 million than last year's $25 million number. But we continue to be comfortable that over time our average net outflows should approximate about $35 million.

Okay, great. And then one last thing on this. If you could just tell us what the available insurance was at the end of the quarter.

Sure. At the end of the quarter our remaining solvent coverage is $338 million.

Okay, that does it for me. Thanks a lot, guys.

Todd Vencil, Davenport & Co.

Steve you tossed out or it wasn't tossed out, I'm sure, but you made a comment in your opening comments about strategies for accelerated growth. And I think I may have heard the phrase accelerated growth a couple times. I wanted to just give you an opportunity I think to weigh in on longer term now that you've been there for your 100 days or so, what do you think the sort of long-term growth opportunity for the company is? And what are going to be the components of it; kind of a big pictures question I guess.

I think we have a lot of attractive ways we could grow. Our acquisition pipeline is pretty robust. We've got a lot of -- we've got some great products and great product reputation and great brand names in a bunch of our businesses. We've got significant under representation in many pretty fast-growing geographies around the world that we are working hard to grow in.

So and we generate good cash, so we can invest smartly in that. The team here has done a really terrific job of creating a very, very viable company, has really rebuilt the fiscal plant. We've invested, as Bill mentioned, we've invested a lot in the infrastructure that we've had, that we have the existing assets. And as we've gotten asbestos more under control I think there is just a lot of growth opportunities.

Several years ago the company started investing more in product development, and many of those products have been recently or are currently being introduced to the marketplace or will be in the next few quarters. Momentum in product development is picking up. We are getting better at how we do that. I think there are opportunities for improvement, but I think we are pretty darn good at it and we've got a strong product line and reputation to build on. So I think we can pull all of those growth lovers more aggressively and a combination of all of those is pretty exciting. I anticipate that most of it will be consistent with the businesses that we currently have.

Care to fling out a number there as to what you think organically EnPro can do year in year out, over the long term in terms of topline growth and what you might expect from acquisitions?

I think I will just let you guys model that.

Can't blame a guy for asking. Thanks a lot.

Joe Mondillo.

I was just wondering if you could comment on your China markets; if you are starting to see a slowdown there and if you are expecting to see that in the back half going into '09. If you are expecting any slowdown there.

Actually, Joe, in China as you know our presence in China is relatively new. Quincy has been there for a few years and the other businesses have really just been there for really less than a year, so we are -- we've been working to gain a foothold in China. We've had some presence there shipping in from other markets or other locations, but not a significant presence, which now we are starting to create. So there is really not any exposure to the Company for China slowing. We are not big enough there for that to really matter, and everything we see there is growth from our standpoint.

It might not be growth -- it might not grow as fast if the market is not as robust, but I don't see any risk that it will be -- it will fall off from where we are because it is really all nothing but upside for us.

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

Thank you, again, for tuning in and listening to our call this morning. I will remind you if you have any questions you can call me at 704-731-1527. Otherwise, the replay of the call will be available on our website EnProIndustries.com. Thanks again, and we will talk to you next quarter.

This does conclude today's conference call. We appreciate our participation. You may disconnect at this time.