Enviri Corp (NVRI) 2006 Q2 法說會逐字稿

Good afternoon. My name is Crystal and I will be your conference facilitator. At this time I would like to welcome everyone to the Harsco Corporation second-quarter earnings release conference call. All lines have been placed on mute to avoid any background noise. After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS) Also this telephone conference presentation and accompanying webcast made on behalf of Harsco Corporation are subject to copyright by Harsco Corporation and all rights are reserved. Harsco Corporation will be recording this teleconference. No other recording or redistributions of this teleconference by any other party are permitted without the express written consent of Harsco Corporation. Your participation indicates your agreement.

I would now like to introduce Mr. Derek Hathaway, Chairman and CEO of Harsco Corporation. Mr. Hathaway, you may begin your call.

Thank you very much, Crystal. Good afternoon ladies and gentlemen. It's a pleasure to welcome you to the second-quarter conference call. I have with me today Ken Julian, who is the Director of Corporate Communications; Gene Truett, who heads our Investor Relations Department; Mark Kimmel, our General Counsel; and Sal Fazzolari, the President and Chief Financial Officer of the Corporation.

Before we go any further, Mark, would you please read for us the traditional Safe Harbor statement?

Thank you, Derek. Good afternoon. As we always do at the beginning of our calls, I'd like to remind you that our responses to you today, including our responses to your questions, may contain forward-looking information. This information could relate to future operations, results, expectations or other aspects of our business. Our statements are based on current information, expectations and beliefs. While our statements are based on the best available information currently, future results could differ materially from the statements made to you today.

Possible reasons for the difference between our statements today and actual results could be the result of certain factors and uncertainties which we have listed and discussed in our periodic filings made with the Securities and Exchange Commission. We invite you to review this information at your convenience. I'd also like to remind you that replays of and other information related to this call are available at Harsco's web site, www.harsco.com. You can also access telephone replays of this call by dialing the numbers provided in this morning's press release. Derek?

Thank you, Mark. As reported this morning, Harsco achieved another record quarterly performance. Access Services posted a very strong quarter eclipsing all prior quarterly performances. Sales, operating income and margins were all records and we are particularly pleased with the outstanding performance of that sector of our business. And also pleased with the better-than-expected performance of the Huennebeck acquisition. We also received a positive contribution from the Brambles Northern Hemisphere Mill Services acquisition. So both of these late 2005 investments continue to perform well and be accretive to earnings.

Also noteworthy for the quarter is the 60 basis point improvement in overall Harsco operating margins to 11.3% from the 10.7% last year. Those are the highlights for me and I'll now hand the meeting over to Sal Fazzolari who will give more details on our performance and then after that as is customary, we would be very pleased to entertain any questions that you may have. Thank you, Sal.

Thank you, Derek. Good afternoon everyone. It's a pleasure to be here with you again today. There were some notable achievements in the second quarter and first half performance of the Company that I would like to comment on. As stated in the press release, overall sales of the Company grew a very healthy 24% in the second quarter. Particularly pleasing is that about 10% of this 24% growth was organic. And for the first half of the year, about the same balance, that is 10% of the 22% growth was organic.

For the second quarter and the first half of the year, services accounted for approximately 74% of total revenues, a new record. Also for the first half of the year, international sales accounted for approximately 62% of total sales, also a record.

We achieved record cash flow from operations of $114 million in the second quarter, an increase of 33% over last year. Through the first half, we generated $184 million in cash flow from operations, an increase of 37% over last year. The $184 million in cash that we generated so far this we believe is a very good start to achieving our 2006 cash flow goal as we've been telling you about throughout the year of $400 million. As many of you on today's call will know, our confidence in achieving our 2006 cash flow target is underpinned by history. During the second half of the year, we have historically generated substantially more cash than in the first half of the year.

We also realized $6 million in asset sales for the first six months. This is as a good start we believe to achieving our 2006 target of $15 million. Expected cash flow for the year will provide the necessary capital to properly sustain the current base of business and just as importantly fund additional growth initiatives that we have targeted throughout the world. And that is primarily in our Mill Services and Access Services businesses.

Consistent with our growth initiatives, we invested a record $167 million in CapEx during the first six months of 2006. This is an increase of 23% over last year's first half. Approximately 46% of this CapEx or $77 million has been allocated to growth projects. Again, principally in our two primary businesses, Mill Services and Access Services.

In addition to the substantial allocation of capital to growth prospects, we also achieved an improvement in the second quarter in the debt-to-capital ratio. Our debt-to-cap ratio improved to 47.8% from 50.4% at December 31, 2005. This is, we believe, a very notable decrease of 260 basis points.

In summary then as Derek stated in the press release this morning, we are quite pleased with this excellent first-half performance. The following first-half statistics underpin this sentiment. Sales were up 22%; income from continuing operations up 36%; earnings per share up 36%; cash flow from operations up 37%; operating margins improved 100 basis points. All this was achieved with a good balance between organic growth and bolt-on acquisitions.

This performance validates our strategy of constructing a global, balanced portfolio of mainly industrial services businesses. The portfolio's careful construction has positioned the Company well for favorable long-term performance we believe. Furthermore, the balance gives us both the capacity and the flexibility to concurrently invest in growth projects while maintaining a strong financial position.

Now let's turn briefly to specifically the second-quarter performance of each business unit starting with the Mill Services segment. The Mill Services segment as we point out in the press release was very solid for the second quarter. We were also able to offset the continuing unfavorable net effect of higher energy costs of a little over $3 million in the quarter compared to last year's second quarter.

Also I'd like to point out for the second quarter on a comparative basis with last year; Mill Services' operating margins were essentially flat at 11.2%. As you may recall last year's second-quarter reported margins for Mill Services were at 12.3%. However, last year's second-quarter included a net positive $2.8 million pretax gain on the disposal of assets. Without this net $2.8 million benefit, margins were 11.3% in 2005, essentially equal to this year's second-quarter margins of 11.2%.

The industry outlook for global steel production continues to be favorable and we continue to be positive on the long-term strategic growth prospects of this business.

The second-quarter record performance of Access Services as Derek just indicated, was broad-based and unprecedented. All three divisions, SGB, Patent and Huennebeck, continued to make a strong contribution to the significant improvement in the overall operating income and margin expansion of the business. Second-quarter margins improved by 330 basis points; that's 13.6% from 10.3% last year. This was the ninth consecutive quarter, in fact, that margins have improved in the Access Services business. And it's certainly the best quarterly performance for the segment. Industry outlook globally for nonresidential construction and industrial maintenance in many of our key end markets continues to be very favorable.

This strong market coupled with investments that we have targeted throughout the globe should continue to provide the momentum to move our Access Services business forward.

The Engineered Products and Services group posted another record performance in the quarter with most business units achieving improved results. Strong demand from energy markets contributed to the growth in revenues and operating income of the group. Energy markets are served directly by both Air-X-Changers and the IKG businesses.

Second-quarter margins improved by 20 basis points to 14.5% from 14.3% last year. This is the best ever second-quarter performance for this group. Again, the outlook for this group continues to be positive due to the strong end markets and supported by increasing backlogs.

Finally the Gas Technologies segment’s performance declined over last year's second quarter due principally to higher-than-expected commodity costs and higher insurance costs. Operating margins declined to 1.2% from the second quarter from 4% last year. The Gas Technologies business accounted for only 2% of the total Harsco six months operating income. This group's performance however should show greater improvement in the second half of the year. The improvement in the second half will come from strong backlogs with better pricing across many of the product lines, expected strong performance from the two largest business units in this segment, that is cryogenics and propane and due to the seasonality of some of the businesses.

That completes my comments on the quarter and the six months. Thank you, Derek.

Thank you. Well, now we would be very pleased to take any questions that you may have. I do understand there are some questions holding at this time.

(OPERATOR INSTRUCTIONS) James Gentile with BB&T Capital Markets.

Good afternoon gentlemen. I just wanted to go over GasServ, which was pretty much the largest variance versus I suppose the expectations in terms of trending them. What exactly caused the Q2 margin to sink under 2%? We haven't seen that level in some time. And what kind of half over half improvement are we to model looking at the variabilities that are going on in that area?

In the press release we indicated that there were two reasons and Sal has just reiterated that. One is that the commodity price increase rose, particularly brass and other material rose faster than we were able to recover it from our customers. And the other was an insurance retrospective adjustment related to prior years based upon our claims record and on our workers' comp record which is trued up every six months. And that was a charge placed against the Company which one might reasonably say a non-recurring item. And that occurred in the month of June.

If you extract those two, then the margin decline -- there was no margin decline in actual fact. And as we've indicated, backlogs are full. As you are aware, management is being reorganized. And we are expecting a much better second half based upon the order book, based upon the pricing that now we are going to be benefiting from, management changes, reduced costs and those seem to us to be a formula in prospect for a much better second half.

How much was the insurance adjustment in the quarter?

I don't want to discuss that but it was material.

Material, okay. And then secondly with regard to the other segment, the Engineered Products and Services segment, incremental demand seen from both IKG and Air-X-Changers, at the end of 2005, IKG generated upwards of nearly $100 million in revenue. What growth rate are we to expect given the strong powerplant construction trends and maintenance trends that we are seeing in that area, to look at the IKG end market? And where could the Company go? Where could that segment go?

Well, we have the capacity and clearly we are being successful in the marketplace. We have long-term relationships established and where can it go? I'd rather put it this way, it will go as far and as hard as we want it to go in my opinion. We're clearly the market leaders. We have the broadest range of products in both of those areas. We have well-managed companies with highly productive and efficient production facilities and a strong customer base.

So I guess then if we were to operate at optimum capacity in IKG, call it 80, 85%, what level of revenue would that contribute to the total engineered [platform]?

We are in fact operating in our factories at sort of 80% -- plus efficiency. We've just recently opened a new plant in Indiana which gives us extra capacity and that one is presently in the mode of getting up to speed. And that will deal with the Midwest and the Northeast. And more particularly, the Canadian markets where there are opportunities. But we're pleased with the organic growth rates in this market. We would expect the organic growth rates to be in the high single digits on a consistent basis for the foreseeable future there.

That was helpful. Thank you, Derek.

Jeff Hammond with KeyBanc.

Hi, good afternoon, gentlemen. The biggest variance in my model was Access Services. Now, I just want to understand -- I mean that business is growing kind of right around the 10% range and I just want to understand the sustainability. And then on the topline in Access, given your visibility looking out and then too, the margins there I think well above record levels and I just want to understand was there anything onetime hitting the margins or is this just a function of process improvement in leveraging topline?

It was the latter, Jeff. There weren't any specials. We would have reported those to you in the press release as we customarily do. There were no specials there. It is a function of topline growth and a fixed cost base which has been prepared to stand at this kind of organic growth. We don't put the organization structure in afterwards as you are aware; we get the organization structure ready, lean and ready. We invest in equipment and we're doing that considerably with new products throughout the United States and the rest of Europe and Eastern Europe, particularly, and the Middle East.

And what is happening is those new products are certainly being more than accepted and are giving us enormous benefits on the topline. Of course you have variable costs, but frankly it's on a much more refined fixed cost base. We brought in those acquisitions also and are dealing with those on a fixed cost base. We've obviously reduced expenses where we thought it was necessary in those new acquisitions. And we've integrated them. And we're confident that because of the geographic spread now, which we talked about this morning, dealing in many economies around the world with the finest equipment and good management teams in place, we are well-prepared to take advantage of this and we think it's going to be a continuing exciting story in that particular business.

I was talking yesterday, to give you some idea, previously we've reported that this thing wasn't getting much traction in the USA in the last two or three months. We're seeing the new product introductions that we've invested in have started to get traction. And one of the pleasing areas is that the USA now has really picked up in terms of its margins and the significant contributor to that increase was our ability to get more kit out at slightly higher rental rates. And to enjoy perhaps for the first time for a year, real good news from our U.S.-based business. We just learned in fact yesterday that we do have at replacement value, a record level of something like $450 million worth of kit out on sites at the moment, which has never been even seen in the history of that business. We get that sort of quarterly.

We're gaining traction in all of our markets because of the quality of the products that we offer and the services that we offer. And reaching new customers throughout the world. So this does have legs.

Jeff, it was one of those rare quarters where all geographies did very well. There really wasn't one major section of our main geographic footprint that was down. Also utilization rates were up, rental rates were up; we continue to work on our cost efficiencies and so forth and so on. So all those factors came to bear on the quarter and that is why we had such an outstanding quarter.

To sustain that obviously, we need the markets to continue to be as robust as they are and we need to continue to invest at the levels we are investing.

And then Sal, real quick, was there -- are you getting any kind pension tailwind at this point in Access?

No, there is no -- the pension thing is pretty much muted. There has been no significant change for the last two, three years. So that is really a non-factor when you're looking at the comparatives now. But particularly when you're looking at '05 and '06.

Great. And then back to -- and I don't know if I missed this in you discussion on the CapEx. I think you were looking initially at total CapEx of 280 split kind of 50-50 between maintenance and growth CapEx. It looks like you're running in front of that run rate. Any update there?

Yes, it's going to be in excess of $300 million for sure, because you are right, we are running -- through the six months, we were at $167 million. And certainly it will probably have a 3 in front of it when it is done.

And where are you seeing the incremental opportunities?

Well I think as we just pointed out earlier, Jeff, half of that growth CapEx for the first half of the year was in Access Services. Then about the other half was split between all the other businesses, with again, primarily Mill Services first of course, and then on down. But a good half of that went to Access Services. So we are investing quite a bit of -- as Derek said, we’re putting a lot of modern equipment out there. There's a lot of desirability in the marketplace for it across the globe, and also we're investing in new projects, new territories and so forth.

And then given that we are in a better demand environment, as you look at these new projects that come across the table, are you seeing just as good EVA metrics, better EVA metrics? I mean how is that trending in terms of the quality of the new projects coming in?

Well they are solid, they are solid, Jeff. They are certainly EVA positive and I think the Huennebeck acquisition is really a good example of that. They are very EVA positive already and we've only owned them for seven plus months. So they are off to a very, very good start. Again the geography, the technology, the management, all the things Derek talked about earlier, are really making a difference.

And then I guess a final question, I know with Track Technologies with some big equipment it can be lumpy. Is there anything around seasonality or I guess timing of shipments where it was very front end loaded and maybe the growth slows there? Because the growth has been exceptional within engineered products as well. And I don't know how much of that is just broad strength or timing of track shipments?

It seems pretty even throughout the year. They don't have that lumpiness like they had in the past. So you are not going to see one quarter that significantly overshadows all the other quarters. It is more even. A lot of the growth in the engineered products group this year is coming from Air-X-Changers. The energy markets are very strong and a lot of the sales growth, that is, I'm talking about is coming the Air-X group. And then all the businesses are doing well saleswise. But certainly being lead by Air-X-Changers.

Okay, great. Thanks, guys.

Bill Fisher with Raymond James.

Good afternoon. This is a follow-up on some of the last questions. It sounds like a lot of your growth CapEx at least in the first half was Access. Along with Huennebeck, do some of those new products carry higher margins if you get them utilized?

They do because they produce better benefits for the customer. The efficiencies and labor saving aspects of these make them desirable. So it's a win-win situation. We get higher margin because our specialty projects. The customer makes more money and that -- it's a dollar valued deal. And people are beginning to understand that very, very clearly.

And just actually following up on that a bit. On utilization, is that running like in the high 80s now? Can you give some color on that?

Utilization rates vary across the globe and whatever. But they are not in the high 80s but they are -- in the 80s -- where we would like them to be which is about the 80% mark, some going to sites, coming back from sites, some in the yard waiting to be rented. But we are very happy presently with utilization rates.

Great. And then just lastly, on, Sal, on the pension --?

I would add this, that unfortunately some of this stuff is so popular that we are currently trying to invest more to get more out there. So some utilization rates are 100% with people waiting for the product. So that is a broad cross-section of an answer to you on that.

Thanks. And just, Sal, on the pensions, I think you have a September measurement date on some of the portfolios. Is there any chance you can get the discount rate finally going the other way next year?

Well, if you can predict what they are going to be, what the long-term AA rate is going to be. In the U.S. it’s October 31, September 30th for the UK plan. But, yes, we hope.

Great, thanks.

Ted Wheeler with Buckingham Research.

Good afternoon, all. This is kind of on the same theme of sustainable margins on particularly Access. Is there a structural improvement in Access just due to the acquisitions you've made to their product mix? Is that one way to think about it?

Well margins are a function of cost.

Well, yes, on the cyclical --

Selling price and so on. And our costs are under control. And presently because the volume has clearly increased on a very controlled cost base, what we're seeing is a margin increase. Are margins sustainable at this level in perpetuity? I doubt it. But we'll see. And history will be the judge of that. Next quarter we will have another margin to report to you and the quarter after that we will have another margin to report to you. But presently we feel that we have the business model and the formula right.

Well it's certainly working beautifully. Yes, I was just obviously trying grope a little bit for the future. The way I look at your guidance if I kind of run through various estimates, it might -- it would appear you are expecting a little less margin for both Access and for Engineered Products in the second half than we just saw in this quarter. Would that be a fair?

Yes, Sal and I discuss that intensely and certainly quarter four for reasons that we know about but, Sal, would you like to sort of give some help on that?

Are you talking about overall margins or just Access Services, Ted?

Well I was backing up looking at your guidance getting an overall margin and then looking at where the pieces would fall. It would seem to me Access and Engineered Products margins will be a little bit lower in the second half than we just saw in this quarter.

Yes, Engineered Products certainly will be because last year they had what I'd call a monster fourth-quarter driven by Katrina particularly. IKG had just an unbelievable fourth quarter last year that just can't be repeated. Also Air-X-Changers, every business unit had a very strong fourth quarter last year for a lot of reasons. And certainly that is not going to be achieved in the fourth quarter this year, at least based on what we can see.

Mill Services will continue to pretty much perform as it always has historically. As you track the Mill Services margins, we are within -- when you adjust for these oneoffs, we are pretty much within 10 or 20 basis points. So there is very little variability there. And Access Services, we'll see. I mean we will see if we can sustain this level of profitability and so forth.

Well, I guess what I see is, if you sustain the margin that you just had you'll beat your numbers.

And one other thing, Ted, too, as I pointed out earlier in one of the other questions is related to HTT, which is part of the Engineered Products Group, don't forget as I mentioned, these things are being evened out more evenly throughout the year. So you don't have the lumpiness with HTT particularly that may effect say the fourth quarter and so forth.

I got it.

Do you know what I'm saying?

Yes, I do.

So if you really look at that group particularly, that's the one group that is not going to match the year-over-year performance. Because we did have a very lumpy fourth quarter last year with them.

Good, fair enough. That is very helpful. Thanks. Great quarter.

James Gentile.

Gentlemen, Derek, as you referred to the strength in the Access Services segment with regard to demand for certain projects, you used the term stuff to describe these new products. Could you be a little bit more specific in terms of these exciting new products that are coming on? It seems like there could be more of a kind of organic investment catalyst there.

Yes, well we have -- there are three aspects to our business. Part of it which has just been strengthened I guess is the forming side with the Huennebeck acquisition. That is really strengthened our portfolio. Always very strong on scaffolding, very strong on shoring, but somewhat weak on formwork. We have now bolstered the portfolio with a very strong forming company acquisition and we are taking advantage of that throughout the world.

We've introduced some new formwork products in the United States particularly which do enable construction people to pour floors with less people more effectively, and certainly the quality of the floor and the finish is good. And that business and that introduction has taken off extraordinarily well. And that is one example of the new product.

I was at the Burj Tower three weeks ago in the Middle East, in Dubai, and it is the largest, tallest building in the world, 840 meters tall. I was with the project manager and we are privileged to be serving on that project and will be I guess for the next couple of years in helping them construct that building. That is our Huennebeck company which was already established in Dubai when we bought the business. And I feel pleased and privileged that we would be on a record breaking project like that, the eighth wonder of the world. But more importantly, that they see fit to use our forming products.

I was in Western Europe and I saw a lot of Huennebeck all around as well. I see what you mean. So we are mostly focusing on the forming. Just one question you alluded to it also with regard to Access. The consolidation of certain SGB branches into Huennebeck branches, have you completed that following the first seven months of owning it or is there still more kind of cost margin on the horizon?

No. It's done, geographically -- clearly one went to the Huennebeck Company and SGB took the other because in their respective ways both were stronger in those markets and had better locations and better sites. So we consolidated them and that was a very effective move, very effective indeed. I was in Holland again on that trip, looking at that. And that looks very, very good. The Dutch business and the Benelux countries business I'm sure have benefited from that. And supplemented by the recent Cleton acquisition which will add $50 million of sales there into that one now consolidated unit, I think speaks very, very well.

You know, we turned that little operation there from being a $50 million single SGB operation in a couple of moves that will probably become one of our largest single regions at about $150 million running at that rate towards the end of 2006, but certainly in 2007.

That is Benelux, yes?

In the Benelux countries.

Great, thanks.

Yvonne Varano with Jefferies.

Thanks. I was wondering if you could talk a little bit about the progress that you are making in HTT in moving that more toward service and away from direct sales?

We're making very good progress in fact. I guess at the last count the service side of the business was running just in excess of 30% of what we do. But as I've reiterated previously, one needs to look at that in dollar terms and not percentage terms because with the clear intent of turning it into a service business, you will remember that our export business took off. And so we're doing better on the sale of product but you'd be pleased to know that the service business is growing well. And we will continue to do so.

What was -- can we have a comparable metric on the service, what it was maybe a year ago?

It was actually almost -- it was almost the same. That's why I said the actual percentage terms are not relevant when you look at the growth. Because we have been very successful in our -- just to repeat -- our export businesses. So I’m looking there, at revenues in dollar terms not percentage terms of total sales. I think I explained that about two quarters ago. My fear is that it didn't quite stand up. But that's something I'm pleased to have made a mistake on.

Yes. Okay. And then you talked about utilization rates in Access and running somewhere in the low 80s. What is the optimal rate at which you want to run at?

Anything that is running at 80% in industrial and commercial terms isn't all that bad. These kinds of rates in utilization are very pleasing to us, yes.

Yvonne, you've got to remember you're always moving -- you are not on in some these jobs for years, some of them only last months. So you are always moving equipment. Although we do have some long-term contracts, we have some medium-term contracts. But we also have a lot of the business is, two, three months and so forth. So you are always moving equipment. You are not going to get -- you'll never hit 90% utilization because it is physically impossible.

Right. Because the equipment is being moved around.

Then the geographies make a difference, the equipment makes a difference, the type of service you are doing, it's hard to give you generalities when it comes to utilization rates. Just suffice it to say that we are running at a pretty good optimum rate right now based on the numbers you just saw here for the second quarter.

Right. And then you talked about the rental rate increases. Any magnitude that you can put on that? And any color on whether you think there are further potential opportunities to increase rates with what you are seeing in the market?

No, again as you recall -- maybe we need to correct something. When we talked about increased rental rates, again, it's more to the U.S. As you will recall we were digging ourselves out of a big hole in the U.S. Remember rates had dropped 25% and so forth and so on. So we've been surely clawing back a lot of that over the last couple of years. That is what we are referring to with the rental rate improvements.

On the other businesses, it is pretty much the utilization rate that is driving and the new products that Derek talked about, that demand a premium in the marketplace because they are just having a heck of an impact on the productivity of the customer. So you've got -- again, you've got a lot of dynamics in this business. It is hard to give you just one or two silver bullets here. There are a lot of things that drive this business.

But where are we on the rates? Are we back to where we were?

Be sensitive to the fact that we know because of the records that come through on this conference call that we do have competitors listening in even as we speak.

Understand.

Thank you.

Just one more question. The trend in Access --

That is also a message to the competitors that we also know they are on the phone at the moment.

When you look at the trend in Access, it would assume that it was up on a month over month basis throughout the quarter?

Yes, I mean every month was good.

Better than the next -- the previous?

-- your question, yes. Certainly you would expect the month of June for example is probably the best month in that business. It's got to be one of the two best months for the year, the month of June. So you can appreciate the seasonality and so forth.

And have we seen the strength continue through the first part of July here?

There is no reason to believe that it's not going to continue. I mean I think as we stated in the press release that we see the outlook as very strong. Again, it is the global -- it's all the things we talked about, Geography is so important here. And Derek hit on that a couple of times already today. Yes, so right now we think it is going to continue to do well.

Okay, great. Thanks very much.

(OPERATOR INSTRUCTIONS) Leo Larkin with Standard & Poor's.

It's Standard & Poor's Equity Research. Could you -- do have any other preliminary guidance for CapEx for '07 and could you give us what DD&A -- what number you expect for '06?

Well for the '06, D&A should be about $250 million. And I think to give you a number for '07, no, we still are working on our 2007 plan. So it is too early to even attempt to give you an estimate. But certainly as again we've been saying at investor conferences if you listen to them, we expect to continue to generate very strong cash flows this year and next year and significant improving cash flows. Those cash flows will continue to be redeployed in growing the business.

Okay, thank you.

(OPERATOR INSTRUCTIONS) At this time there are no further questions.

Well, thank you very much. In closing, we obviously are very pleased with our second-quarter performance. However, as you know us, we will not be complacent. We will just continue to focus intensely on executing our strategic objectives. And I think that you would agree that we do enunciate what those strategic objectives are. And then we do pursue them and to date, it appears that our strategies have been validated by the success and the reward that we are having at the moment. And that has been over the longer-term. It is somewhat repetitive but if it successful, why not repeat it.

In view of our first-half performance, we've raised our earnings guidance, as you can see for 2006, from the previous range of $4.00 to $4.10 to a new range of $4.32 to $4.42. Taking into account all the conversations that we've had today and I hope that in response to the questions, particularly related to the second half and some of the issues that Sal discussed, we believe that that is presently a realistic outlook to have.

I also believe that the opportunities for investment continue to come to us and related to the last question from our colleague from Standard & Poor's, we do see investment opportunities and that is the exciting bit about the business. So I do believe that this growth story does have legs, the organic growth will continue at about its present rate we believe because of the investments that we have made. And we also believe that there are opportunities which will secure the longer-term future of this business into 2007 and beyond. Our outlook for the third quarter is in the range of $1.20 to $1.25 which would in itself be a 26% to 32% improvement over 2005's third quarter.

So that's the basis of the guidance and you can see it's based upon a certain degree of confidence that we are currently enjoying. And I think it's a just reward that shareholders might be seeing from their patience with us from our investment program, the repeated desire just to keep hitting the objectives that we've set from a strategic standpoint and the validation that these strategies have taken this Company from being a manufacturing organization to being an industrial services company. And from its limitations as a domestic owner, moving into a worldwide global company not dependent upon one central bank or one geographic region. But certainly numerous economies with a diverse range of industrial products.

These are working for us. I think they are working for our stockholders and we'll hopefully come back to you in quarter three, at the end of quarter three and further confirm that.

Thank you very much for your attention today. We do appreciate your support and look forward to further discussions. Thank you.

This concludes today's teleconference. You may now disconnect.