Enpro Inc (NPO) 2009 Q3 法說會逐字稿

Good morning. My name is Geri and I will be your conference operator today. At this time, I would like to welcome everyone to the EnPro Industries third-quarter earnings 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). Thank you.

I would now like to turn the call over to the Director of Investor Relations, Mr. Don Washington. Sir, you may begin your conference.

Well, good morning, everyone, and welcome to EnPro Industries quarterly earnings conference call. In just a moment Steve Macadam, our President and CEO, and Bill Dries, Senior Vice President and CFO, will review the third quarter of 2009 for you and then we will open the line for a question-and-answer session.

But before they begin their remarks, I would 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 facts. 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 risks and uncertainties are referenced in the Safe Harbor statement included in our press release and they are described in more detail along with other risks and uncertainties in our filings with the SEC, which includes the Form 10-K for the year ended December 31, 2008 and the 10-Q for the second quarter of 2009.

We do not undertake to update any forward-looking statements made on this call to reflect any change in management's expectations or any change in assumptions or circumstances on which such statements are based.

This call is also being webcast on enproindustries.com and our replay of the call will be available later today on the website. If your questions are not answered on the call or if you have any follow-up questions, please feel free to contact me after the call at 704-731-1527.

And with that, I will turn the call over to Steve.

Thank you, Don. Good morning, everyone, and thanks for joining us today. Although we continue to deal with worldwide markets that are far weaker than they were a year ago, the third quarter turned out better than we expected when we discussed our outlook on our last earnings call. Activity picked up late in the quarter, partly due to replenishment of supply chains in nearly all of our markets, but our results primarily reflect the benefit of cost reductions and other improvements we've put in place over the past year, along with another strong quarter at Fairbanks Morse Engine.

Compared to the second quarter, profits and margins in the Sealing Products segment were slightly better and excluding the restructuring expense, the Engineered Products segment moved to roughly breakeven from a loss. The sequential improvement in the Engineered Products segment is mostly a reflection of the smaller loss at GGB, where we have taken out a significant amount of costs this year.

The Engine Products and Services segment shipped no engines and sales were down from the second quarter, but margins remained strong on the aftermarket parts and service business. Our adjusted earnings excluding asbestos-related expenses and other selected items were $0.52 a share in the quarter or about $0.05 more than our adjusted earnings in the second quarter. So even though our sales were lower than the second quarter on an adjusted basis, our performance improved.

However, our performance remains far below levels of last year. Sales were down 21% including a 2% decline from foreign exchange compared to last year's third quarter. Although the Engine Products and Services segment reported a 52% increase in sales, the combined sales of the Sealing Products and Engineered Products segments were down by 27%. Our adjusted earnings were nearly 50% lower than last year when they were $0.99 a share in the third quarter. So even though we have seen some recent improvement on balance, it's clear our markets remain very weak.

On a GAAP basis, we reported a pretax loss of $1 million in the third quarter but an income tax benefit more than offset the loss, which led to a net income of $0.09 a share. That compares to $0.59 a share in the third quarter of last year. Bill will review our financials in more detail in a few minutes.

We believe the worst of the downturn is behind us. In most areas demand is low but stable and we are seeing signs of modest improvements in some markets. In our chemical processing and refining markets, seasonal demand has picked up as our customers prepare for their fall outages. Our upstream oil markets have made small gains as commodity prices have improved. In our power generation markets, demand is steady for Sealing Products used in the nuclear power industry and in land-based turbines. Our industrial markets are still weak, but showing small signs of improvement in both the US and in Europe.

On the other hand, the direction of our North American natural gas markets remains uncertain and we see no sign of recovery in our heavy-duty truck market. In our Engine business, the backlog of new engine orders remains strong and the outlook for the next several quarters is good. Because of the timing of engine orders and shipments, Fairbanks Morse is always subject lumpy sales from quarter to quarter and even from year to year, but for the long term, the business has a number of prospects both from the perspective of the Navy's shipbuilding plans and from the opportunity for engine orders related to nuclear power plant construction in the United States.

On the acquisition front, we closed a couple of small deals for CPI during the quarter, one in the United States and one in Great Britain. The company we acquired in the US operates in the Rocky Mountain region and gives CPI an opportunity to accelerate its service center expansion into that part of the country. In the UK, we acquired a company that provides parts for compressors used by the PET bottle blowing industry.

We continue to seek opportunities that complement the aftermarket businesses of CPI, Garlock, and STEMCO. In fact, we closed a small transaction for Garlock in the UK a few days ago bringing our total acquisitions for the year to four. Valuations are attractive and we are looking at a number of prospects that we fully expect that in the coming months, we will make more of the bolt-on acquisitions that have been so successful for us.

With that, I'll turn the call over to Bill.

Thanks, Steve. As Steve indicated, the year-over-year comparisons of the third quarter of 2009 to the third quarter of 2008 continued the trend we experienced in the first two quarters of this year. Sales declined by 21% from the third quarter of 2008 and are down 24% from the first nine months of last year. Our segment earnings were 48% lower than last year's third quarter and were down 61% in the first nine months of the year. Margins in the third quarter and first nine months fell well below those we reported last year.

Profitability this year was significantly impacted by operating losses at GGB, which depressed margins by almost 5 points in the first nine months of the year. However, compared to earlier in the year, our segment margins improved to 9.3% from 7.5% in each of the first two quarters. Compared to the second quarter this year, we experienced 7% declines in sales and segment profits excluding restructuring costs. On that basis, our operating margins were basically flat. The decline from the second quarter follows our normal seasonal pattern and also reflects lower sales and profits at Fairbanks Morse Engine, which benefited from strong engine shipments in the second quarter.

Third-quarter sales amounted to $220 million compared to $279 million last year. The 21% decline included 2 points attributable to foreign exchange. Acquisitions had a negligible impact on the year-over-year comparison. As was the case the first half, sales decreased compared to last year at every business except Fairbanks Morse.

Gross margins were 33.3% for the quarter, lower than the third quarter of last year when they were 35.5%, but better than the second quarter of this year when they were 31.7%. The third-quarter year-over-year decline was 2.2 percentage points, but only half of the year-over-year decline we experienced in the second quarter. Gross margins actually improved in the Sealing Products and Engine Products and Services segments, so the year-over-year decline in the third quarter was attributable to weaker performance at all three units in the Engineered Products segment, but in particular to the operating losses at GDP.

With significantly lower volume, we have negative leverage on our fixed overhead, which drove the decline in gross margins. But from a price cost perspective, we were actually positive in the third quarter compared to last year. The combination of our cost reductions and improvements in our selling prices more than negated inflationary cost increases.

Our SG&A spending declined to $57 million in the third quarter of 2009, down $8 million or 13% versus last year. Compared to the second quarter, SG&A spending was down about 5% and was down 10% from the first quarter of 2009. We have clearly seen the benefits from the various cost reductions that we implemented earlier in the year.

Operating income amounted up to $1.7 million for the quarter, down from $20 million in 2008. The decline in operating earnings pretty much mirrored the $19 million decline in our segment earnings. At the net interest expense, we had a pretax loss for the quarter of $1 million against which we recorded a $2.8 million tax benefit. About $1.7 million of the benefit came from a one-time return to accrual adjustment. Given the very small numbers involved here, we ended up with an unusually high tax rate.

The tax rate this year has been very abnormal and very volatile, driven largely by the impact of the goodwill impairment charge we recorded in the second quarter. Looking forward to next year and beyond, we expect the effective rate to stabilize in a more normal range. Our tax benefit resulted in reported net income for the quarter of $1.8 million, which translates to $0.09 per share. That compares to $12.4 million or $0.59 per share last year.

Our adjusted net income, which is before asbestos-related expenses and other significant items, was $0.52 per share. As Steve mentioned, this was a little better than the $0.47 we reported in the second quarter, but just over half of the $0.99 per share we reported last year.

Looking at the nine-month numbers, sales were down 24%, with FX contributing about 5 points to the decline. Our GAAP loss was $101 million or $5.05 per share after the goodwill impairment charge we recorded in the second quarter. Before asbestos-related expenses and other significant items, we earned $1.29, which was down 62% from the $3.37 we earned in 2008.

Turning to cash flows, we generated about $35 million from operating activities during the first nine months, down substantially from $69 million in 2008. The difference from last year is primarily due to the decline in our earnings. We spent $10 million more on asbestos through the first nine months of this year, partly due to the timing of settlement payments and partly because of increases in legal and administrative costs.

On the other hand, we spent $20 million less on taxes due to the decline in earnings and working capital levels were unchanged compared to the $25 million increase in 2008. The reduction in working capital is significant because it not only reflects lower activity levels this year but also is a result of our increased focus on working capital management in connection with the initiative we launched earlier in 2009.

Our capital expenditures were about $19 million through the first nine months of the year or about half of what we spent in the first nine months of last year. Our spending on acquisitions was about $6 million in the first nine months and included three small transactions. This compares to $37 million in the first nine months of last year when we completed several more deals including two that were relatively large.

After factoring in these changes and the $10 million we spent to retire debt, our cash balances increased to $84 million at the end of September. That is an $8 million increase from $76 million of cash we had at the end of 2008, but it's a $26 million increase over our $58 million balance at the end of June.

With the increase in cash, our balance sheet remains very strong and it gives us a good deal of flexibility as we consider acquisitions and other opportunities for growth.

In regard to our balance sheet, I would like to mention that we and Bates White, the independent consultant who assists us with our estimate of Garlock's asbestos liability will complete our normal annual review of the liability in the fourth quarter. We, Bates White, and our outside counsel will conduct an in-depth analysis of all available data in order to reassess the adequacy of the estimated liability. This includes changes in litigation trends, recent information suggesting that the incidence of serious asbestos-related disease may not be declining at the rate projected by epidemiologists and many other factors.

We have work to do before we can determine what this could mean to our estimate of the liability; however, we wanted to apprise you of the possibility that our review could result in a non-cash charge to earnings in the fourth quarter and a charge might be larger than the amounts we have recorded in recent quarterly updates of our 10-year estimate. However, until our review is complete, we won't know if a more significant charge will be necessary or how much it might be.

Before I turn the call back to Steve, I will review the performance of our operating segments. In our Sealing Products segment, sales were down 21% compared to last year with declines at all businesses in the segment. Garlic has experienced weak conditions and reduced demand in most of its markets throughout 2009. This includes energy, steel, power generation, mining, and industrial. However, most markets have stabilized and as Steve mentioned, we are seeing signs of small improvement in some sectors.

STEMCO sales declined from last year, tracks the decline in its overall markets. According to industry statistics, heavy-duty truck revenue models are down 10% from 2008, which is in line with the decline in STEMCO's aftermarket sales. STEMCO's OEM sales also mirror industry reports and indicate new tractor and trailer builds are down about 50% from last year. However, STEMCO's markets appear to have stabilized at these low levels.

Sealing Products segment EBITDA margins improved by 20 basis points to 19.3% as gross margins at both STEMCO and Garlock improved. Sales in the Engineered Products segment were down 33% compared to last year, with the sharpest decline occurring at GGB. GGB's primary industrial markets, which include construction, agricultural, and other machinery have been particularly hard hit in the recession and are down about 30% to 40%. Industrial markets account for about two-thirds of GGB sales. The other one-third of its sales come from automotive markets, which have also been down significantly both in the US and Europe.

At Quincy Compressor, our volume declines have pretty much tracked declines in the overall markets for compressors, which are down around 35%. At Compressor Products International, activity is impacted by depressed and somewhat volatile natural gas prices in the United States. But overall activity in CPI's markets recently has been flat. Third-quarter activity levels in all three of these businesses were about the same as in the second quarter, providing additional signs of stability.

GGB lost money in the quarter although the loss was smaller than the losses the unit experienced in the first two quarters this year. Both Quincy and CPI were profitable in the quarter, although at significantly lower levels then last year. With the smaller loss at GGB, segment reported EBITDA of $5.7 million, well below last year's $22.4 million but better than the small loss reported in the second quarter.

Fairbanks Morse and our Engine Products and Services segment continues to be a bright spot. Sales were 52% higher than last year. Segment EBITDA was nearly double 2008 levels. No engines were shipped in the third quarter of either year. In the current year, margins were helped by parts and service sales, which were very strong. However, as we pointed out in the past, Fairbanks Morse's performance is best looked at on a yearly basis rather than quarter to quarter.

That completes my review and now I will turn the call back to Steve.

Thanks, Bill. I'll wrap up with a few remarks on our outlook then we'll open the line for your questions. We've now reported stable markets for our Sealing Products and Engineered Products segments in two consecutive quarters. Although activity in those markets remains well below the peaks of last year, we've seen no further deterioration. Our look into the future is limited by the short cycles of these two segments, but we feel comfortable that the current level of activity in their markets is likely to be sustained in the near-term.

In our Engine business, where we have better visibility, we expect that increased engine shipments in the fourth quarter will benefit FME sales, although the product mix is not likely to be as profitable as it was in the first three quarters of this year. These conditions and the effects of our cost reductions and other improvements should enable us to produce fourth-quarter results before asbestos expenses and other significant items roughly consistent with those we reported in the second and third quarters of the year.

Looking at cash flows, we expect capital expenditures to be less than $30 million for the full year and we expect our net outflows for asbestos to be around $40 million for the full year, slightly higher than last year.

Looking a little further ahead into the early months of next year, we expect a continuation of current market conditions. We will maintain a conservative posture as we finalize our plans for 2010 to ensure that we have sufficient flexibility to react to changing conditions.

In closing, we are encouraged by the stability of our markets. The steps we have taken to deal with the downturn have proven to be very effective and we are confident they will continue to benefit us. Our balance sheet is strong. We have excellent liquidity between our cash balances and our undrawn credit facility and we're looking forward to taking advantage of the many promising opportunities we see ahead.

With that, we can open the lines to your questions.

(Operator Instructions) Joe Mondillo, Sidoti & Co.

Good morning, guys. First off, I just want to focus on the Engine segment. Going into the quarter, we were sort of under the impression that margins were going to sort of decline. You sort of touched on that a little bit. I was just hoping to get a little more detail on I guess you expect that to be in the fourth quarter rather than the third. Just comparing the third quarter to the first quarter, they are pretty much comparable sales, but you actually increased the margins. So I was just hoping to get a little more color on that.

Joe, two things. One, we slid two of our less profitable, still profitable and not huge margins, two of our engine shipments we slipped from Q3 to Q4 since that call. And second, aftermarket parts sales and service were both very robust in the third quarter. So the combination those two things led to that good margin performance for the quarter.

May I add, the slippage to the engine, those where customer requested delays. That wasn't something that we consciously did. They requested that we delay, so the combination of the two things, as Steve said, resulted in a (inaudible) improvement in the margins than we had been anticipating.

Okay.

As we said before, guys, the shipment of the engine, obviously it is a big deal, it is a big unit and it's not unusual for those to be fine-tuned of the delivery of those right up until they are shipped. Because obviously everything else has to be ready for them, ready for the customer to receive them, and whatnot. So that is not an unusual occurrence.

Could you also talk about maybe the long-term picture in that business? The administration just passed their new defense bill, what you are seeing in terms of that, how your backlog is looking? Just the long-term picture in that business.

Yes, I think the backlog looks fine and as we've said before, the actual shipbuilding portion of the defense budget remains relatively stable over time. These are long, long-term programs. To build these ships sometimes requires a decade, frankly. So it's extremely long cycle, so we feel that the shipbuilding budget will be fairly consistent to what it has been and very lumpy quarter-to-quarter, but over time pretty good.

And second, we are working hard to get ourselves positioned to be the supplier of choice with hopefully new wave of land-based nuclear power plants that are going to be constructed in the United States. But again, that won't happen anytime in the next couple of years but we are certainly working hard with the engineering companies that are going to be building those facilities.

Okay. Then just in terms of the other two segments, it seems like your sales have been somewhat flat over the last two quarters, however modestly trending upwards. Could you just give us a little more color on what you are seeing through -- with the orders through the quarter and into October if you are expecting this trend to continue and possibly accelerate?

Yes, again we're very short cycle, so it's hard for us to see. So I don't know that I would call for an acceleration of the trend, but clearly the second half of the third quarter was little bit better than the first half of the third quarter. So we have seen a modest uptick in volume in both Engineered Products and Sealing Products.

And normally the third quarter is weak for the Sealing Products segment just on a seasonal basis and we didn't see as much of that either. I think what we have seen is in the fourth quarter of last year and the first quarter this year, the inventories in the supply chain -- and I know we spoke about that in the call -- was taken down so far that part of what we are seeing in the third quarter I think in the Sealing Products segment has just been the replenishment of that supply chain to some extent. So we think that from what we see, we think that things will continue to slowly get better.

Okay, and you just mentioned the restocking. Do you think the large part of this is restocking and not maybe necessarily end-user demand? In that case, how long do you --?

I wouldn't characterize it that way, Joe. I would just say we have seen that orders lead to -- orders that are -- that the supply chain gets in some cases as you know we go through distributors, orders that we see our distributors get lead to orders from us, leads to orders to us, whereas in the first quarter this year, even what little demand was out there at the end-user wasn't necessarily leading to an order that flowed through to us.

Okay, and then just a last question, I was just hoping you could give us a little color on what kind of benefit from the currency that you'll see in the next few quarters maybe on the sales and earnings?

Are you asking us to forecast FX?

Well, just how significant in terms of where currencies are trading at right now, how significant is that going to be to you guys?

Joe, I don't see it being very significant. I mean, it will have some benefit if it stays where it is now. We will pick up something in the fourth quarter, but it generally has more of an impact on the sales line than it does on the income line. But I don't anticipate it being very -- it will be positive if it stays where it is, but I don't anticipate it being very significant.

Okay, great. Thanks very much, guys.

(Operator Instructions) Todd Vencil, Davenport & Co.

Thanks. Good morning, guys. Steve, did I hear you right that you guys have done basically three deals in the third quarter and then the early days, fourth?

No, we did three -- well, we have done three year-to-date. I think two of them fell -- three before the end of the third quarter, two of which fell in the quarter and we have done one since the close of the third quarter. So we've done four year-to-date.

On it, two in the third, one in the fourth.

Right.

Got it. Can you talk about whether you want to talk about any aggregate or deal by deal? What is the sort of -- what is the outlay on these? What's the impact potentially look like? I assume if they were smaller, you would have announced them.

These four have been very small. In fact, I think I said -- didn't I say in my remarks that the three we have already done was about $6 million of investment. So that's the relative size. So they are the classic kind of bolt-on deals that we have done in the past on their own basis fantastic returns to us, but they're not that -- obviously they are not that big. So -- but we are still active.

As we said before, our strategy was to keep our acquisition program going, but to moderate it a little bit until we got through the worst of the downturn just so we could we could protect our liquidity and make sure we knew where we were and that the bottom wasn't going to fall out anymore of this market.

As well as to make sure that the sellers were fully reflecting current cycle economics in their expectations, and so we've seen that and our liquidity is in good shape. So I would characterize this as reasonably active again. We are looking at a number of things and pretty excited about the prospects that we see.

So just out of curiosity, is it a question that seller expectations have come down or seller financial situations have gotten to the point where they don't really have much of a choice?

No, no, I think it's the former. I think it is their expectation. Once you get the LTM numbers built in that we have all seen and experienced, it's more reality. The folks that we buy from again are -- since they are small bolt-ons like this are typically owner operated typically by fairly seasoned folks who have been through cycles in the past. So they are not the kind of situations that are highly leveraged and have credit renewal coming up and they can't finance and whatnot. So they are not -- I would call them desperate sellers, but I would call them reasonable sellers about the current performance of their business.

Do you intend to keep these people on?

I would say that varies. I would say our history says half the time we do and half the time they retire and move on, roughly.

Got it. Steve, when you think about the trucking business, you mentioned that -- I don't that you were seeing any signs of an uptick there in the heavy-duty trucking business. What are you hearing there? What is the -- what are your customers telling you?

I don't know. That's a tough one because I know Eaton has called. They spoke about a little bit of higher expectations and as you know, they are big in the heavy-duty truck market as well. As you know, most of our business is aftermarket in that segment, which is really driven by revenue miles and ton miles. We just have not seen -- we just have not seen an uptick in demand. It hasn't deteriorated at all and of course, that business went into the cycle earlier than everybody else. Their declines really started in the second half of '07 and then accelerated through '08 and stabilized in '09 at very, very low levels.

As the OEM business continued to decline in trucks, the aftermarket basically stayed at the low levels that it was. So it's been kind of just cooking along at the same pace in the aftermarket for most of this year, wouldn't you say, Bill?

Yes, I think that's right. We have been, again, fairly stable. One thing, Todd, and we've talked about it before that even with the [slight] (inaudible) in the level of the markets right now, one thing that has gotten us excited, we've obviously made a conscious decision to move beyond just the end of the wheel and we are extending our presence on the truck to the suspension and the braking system. So that is going to give us more of an opportunity, greater penetration in that market.

And I think -- so we've done recently despite the fact that markets are at such a low level, I think we are relatively pleased with the performance of that business.

Okay, good, good. Then final point, I guess -- and Steve, I guess you touched on this, but as you think about the way things progressed through the quarter, that sounded in terms of sales picking up toward the end of the quarter in terms of maybe seeing not quite as much seasonal drop-off in some of the businesses as you ordinarily would, has that carried through to Q4 and is there -- I realize that you guys are doing your plans and trying to be conservative and being conservative with us, and we appreciate that. But I mean is there some room for maybe a bit more optimism there because of the way that trend has worked out the past few weeks?

You know, it's really tough to say, Todd. Obviously I would love to be more optimistic, but others have counseled me that that is not a prudent thing to do. But seriously, I'm just an optimistic person by nature. I can tell you it has carried through the beginnings of the fourth quarter. We've not seen any adjustment to that. It has continued on. Now we are always slow in the winter. Once the fall outages get done in the Sealing Products and quite frankly, some of our Engineered Products guys are concerned that we will see the same kind of customer downtime or more customer downtime and outages over the holidays. Part of that they might just be biased by what we experienced last year because it was so devastating with the industrial markets and auto markets basically shutting down for four, sometimes six or more weeks over the holidays. And so I think they are looking -- that is so fresh still in everybody's mind they're thinking well they are going to take more downtime over the holidays, and so that is tempering our expectations.

Quite frankly I don't even know. I don't even know that our customers know for sure yet whether they are going to do that or not. So it really still is -- it feels like things are getting better, but there's still a lot of uncertainty out there. We are still -- even if the quote unquote official recession is done, which we believe it is, and I didn't even see -- I know the third-quarter first GDP look was out this morning. I didn't even see it. What was it?

Plus three.

Plus three, so the economy is growing again, but there's still a lot of uncertainty. There's a lot of unemployment still. The consumers are still holding onto their money. We are just expecting a fairly steady climb out of this thing unfortunately.

Got it.

Todd, I think we probably could be or would be maybe a little more optimistic if we saw a turn in our heavy-duty truck business. If we have one business that is a leading indicator, it's that one. And as Steve said before, we just -- it's been stable. But we really haven't seen an uptick there yet, but I think if we started to see one there, I think we would feel a lot better.

Bill, let us know when you see that, okay? Thanks, guys.

Gary Farber, C.L. King.

Good morning. Just a couple of questions. One, can you talk about how far along you are as far as your restructuring? What's left to do? Can you add some color contrasting? Just sort of broadly the OEM market versus your aftermarket businesses, how divergent is the growth you are seeing?

Then just lastly on the comments you made on the asbestos, can you talk about what the accounting is for that if you take a charge? It sounds like it doesn't run through the asbestos expense. What impact does that have on the balance sheet?

Okay, let's take those in order. I will take the --

I was going to say I'll take the last one because that's the only one I remembered.

Okay, take that one and then I will take the other two. I'll take the first two.

Gary, the asbestos chart, if there is one, and again as I said, we still have a lot of work to do. It is just -- we've seen some early indications based on some of the data that's come in to indicate that we get -- we have to reevaluate and relook at some of our assumptions. So if we end up taking a charge, it would run through that asbestos line.

It would run through the typical asbestos expense, you are saying? customer.

Yes. So we would obviously quantify for you what that number was but it would run through that line.

And would it impact the balance sheet as well or no? Does it change the liability?

The other side of that would be an increase in the liability.

Okay.

So Gary, the other two questions you asked were where we are in our restructuring and what's left in the second -- I guess you wanted a little bit more color on the industrial markets, so let me take those in order.

We are done with our restructuring for this year. Now we will continue to work to manage costs particularly in our European operations as we go forward. But the biggest bottleneck in our getting our cost structure in line as we've said in the past was our French operations within GGB because of the negotiation with the government required and the time lag associated with putting those plans in place, which as you know are pretty formal and pretty costly.

That's what took us longest, but that was put in place in July. The people for the most part left in August, some in September. A few still leave, but the lion's share are gone and it's certainly all agreed to and we've certainly taken all the restructuring costs associated with that or almost all the restructuring costs. I see you nodding your head.

I agree. The one caveat, the Palmyra project obviously, the five-year project, we are not quite complete there, but the big dollars have been spent by and large there. So we may over the next year or two have some more there, but the major dollars have been spent there.

And then in terms of the industrial markets, I would say we've seen a little bit of strength coming out in Europe. As you know, our GGB business is two-thirds Europe and one-third the Americas or the rest of the world. It is also two-thirds industrial and one-third auto globally. So we're very dependent in Europe on a broad-based industrial customer that make everything from concrete pumps to cranes to just all kinds of capital equipment and whatnot. And that business actually the industrial side of that business that is European-centered was hit harder in terms of demand, demand destruction was hit harder even than the auto business -- because capital spending around the world. I mean, Germany is the equipment supplier to the world, a lot going to Asia. That just shut down completely.

So we've started to see some of that come back, which has helped GGB's performance along with the cost reductions that have finally gotten in place within GGB. So that is what we are seeing in our Engineered Products segment.

Than just one other one. I'm not sure if you touched on this, the direction of cash heading into the fourth quarter, it would increase potentially?

Potentially, assuming that we don't do any acquisitions or anything else, it would increase. But again, as Steve had indicated before, we still -- we have a number of fairly active prospects out there that we continue to talk to on the acquisition front and if we end up doing a deal, that number would come down. But absent that, we would continue to generate cash at the operating level in Q4.

And beyond acquisitions, is there any other sort of operating --? Is that really the focus of that cash balance, would you say?

Yes, yes.

Okay, thanks.

A follow-up from Joe Mondello, Sidoti & Co.

Sorry about that, yes, I just had one follow-up. I think you really answered it. I just was wondering if you could touch on the comparison between your geographic performance around the world.

In terms of demand returning --?

Yes, what you are seeing demand in the US comparable to Europe and elsewhere.

Yes, I think that the trends we have seen and have experienced in terms of our year-on-year and the trends that we see developing now have been pretty consistent. I don't think we really see any significant differences between what we have experienced in the US and what we're experiencing in Europe.

Okay, so you are not seeing any favorable demand returning in Europe compared to the US or anything like that?

I would say that what I indicated earlier about the Engineered Products going into capital goods, I think we've seen probably a little bit more robust rebound in that late in the quarter. But again, I don't know -- in Europe, it's not -- there's nothing associated with the clunkers program. They've had their version of the clunkers program going on now for a year and a half so -- or at least a year.

So it's not that relative to automotive and on the capital equipments side, I think it's just too late in the quarter to really call it a long-term trend. So I would say with that one caveat, I would agree with Bill's assessment completely that it has been relatively consistent.

Okay, thanks a lot, guys.

There are no further questions at this time, sir.

Well, thank you got everyone for dialing in this morning. I will repeat that if you have any further questions, please give me a call at 704-731-1527 and we look forward to talking to you again next quarter. Thanks.

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