Quanex Building Products Corp (NX) 2003 Q4 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Quanex Corporation fourth quarter and fiscal 2003 earnings conference call. At this time, all participants have been placed on a listen-only mode. Following the presentation, the call will be open for questions. It is now my pleasure to turn the floor over to your host, Mr. Raymond Jean, Quanex's chairman and chief executive officer. Sir, the floor is yours.

Good morning, and welcome to the Quanex fourth quarter conference call. Thank you for joining us. With me this morning are Terry Murphy, our chief financial officer, and Geoff Galow, our vice president of Investor Relations. We will be available after my remarks to take any of your questions.

Today's call will include a review of our fourth quarter results, some highlights for the year, the current state of our key market drivers, and some expectations for 2004. The comments I'm making today include forward-looking statements about the future prospects of Quanex. Please refer to the company's latest 10-K report filed December 20th, 2002, for our complete forward-looking disclosure statement. The company's fourth quarter earnings release dated December '04, 2003, is available on our website.

During the fourth quarter, overall demand for our products remained at healthy levels. Total North American light vehicle builds were up about 4% from a year ago while builds of the big three were down about 10%. MACSTEEL weathered the significant decrease and again outperformed with a volume increase of 6%. Housing starts and remodeling expenditures also remained at lofty levels during the quarter, Both sales and operating income at our engineered products division were best ever results for the quarter and operating income for the year was a record as well. Record income for the year is especially noteworthy given the results in the second quarter lagged last year due to inclement weather. At Nichols Aluminum, building product sheet demand was strong, but unfortunately sales to their other markets remained lackluster.

Taken together, Quanex's consolidated diluted earnings per share for the quarter were 80 cents, down from 97 cents we reported in the quarter a year ago. However, the news is better than it first appears. We've all been following what's happened to steel and aluminum scrap costs this year, and you know that MACSTEEL and Nichols Aluminum have experienced margin compression due to these rising costs. However, higher scrap costs not only impact the operating results at our business segments, but they also impact us at the corporate level as well. Quanex uses the LIFO method of accounting which requires us to revalue our inventories at the end of each year. As we have reported for much of the year, both steel and aluminum scrap costs have been rising. When this situation occurs, the LIFO calculation produces a non-cash charge to earnings which in the fourth quarter amounted to $4.6 million.

Turning to the year's results, the company experienced record sales at $1.03 billion and diluted earnings per share were $2.62. It's important to note that diluted earnings for the year included both a tax-free $2.2 million executive life insurance benefit and a non-cash LIFO charge of $6.1 million, pre-tax.

We made further improvements to our balance sheet during the year. Our debt to total cap ratio at year end was under 5%. We improved our working capital by more than 8% and generated $61 million of cash from operations versus $16 million for the quarter a year ago. Free cash flow was about $55 million for the quarter, versus $9 million a year ago. For the year, cash from operations and free cash flow were $103 million and $74 million respectively compared to 2002's $81 million and $49 million respectively. Again, we demonstrated our excellent cash generation capability. Free cash flow is a non-GAAP financial measure, so please refer to our fourth quarter earnings release for a reconciliation of the amounts.

During the quarter, we announced the definitive agreement to purchase the assets of the North Star Steel Monroe facility. This acquisition directly supports our ongoing effort at MACSTEEL, which is to supply our tier one and tier two automotive customers with a broad range of high-quality engineered carbon and alloy steel bar products. We expect to close the acquisition around the end of the calendar year.

We also announced a definitive agreement to purchase the stock of TruSeal Technologies, headquartered in Beachwood, Ohio. TruSeal, with an estimated $80 million in revenue this year, is a leader in manufacturing of flexible spacer technologies and is one of the largest insulating glass sealant and space system suppliers in North America. Housing starts remain at very healthy levels, and with some 90% of all windows manufactured today requiring some sort of insulated glass spacer, we think the future is bright for this business.

TruSeal will serve as a great adjacency to our fenestration division where our concentration of business is with the major door and wood window OEMs. TruSeal will not only allow us to further diversify our product offerings but will also extend our customer reach to the vinyl and aluminum window OEMs. We made our hard start [INAUDIBLE] filing with the Justice Department and we look to close on this acquisition on or about January 2nd, 2004. We will finance the deal using our new revolving credit facility. The available balance on the revolver will be increased from $200 million to $310 million at the time of closing.

Let me move on to our two operating segments, where I'll talk first about the results of vehicular products, which includes MACSTEEL, Piper Impact, and Temroc. The primary drivers for the segment on North American light vehicle builds, and to a lesser extent, heavy-duty truck production. MACSTEEL, by far our largest business within vehicular products, reported higher shipments and lower operating income compared to last year's fourth quarter. For the year, shipments exceeded 700,000 tons, a record for us, while operating income was off about 6% from last year.

MAC had some noteworthy accomplishments this year. They had record production in shipments and they reduced conversion costs year-over-year through the judicious use of capital along with productivity gain spurred by lean initiatives. We keep saying that MAC outperforms its market, and this year was no exception. In total, MAC's vehicular participation was off about 3%, yet we were up about 3% in volume.

Despite all these achievements, their earnings were down for the year and we all know why. Higher scrap costs, and to a lesser extent, higher energy costs. For the year, material costs were up close to $30 per ton. In the fourth quarter, these costs were up about $35 per ton from a year ago, and up $20 per ton over the third quarter alone, an indication of the surge we've recently experienced.

MACSTEEL's automotive bar sales remain closely tied to big three automotive production. As we've mentioned before, we must continue to grow our market share with the automotive transplants which we refer to as the NAMs. MAC has increased their sales to the NAMs about 10% a year for several years, although this is from a rather low base. Going forward, we expect that level of growth to continue. If MAC is to consistently outperform its particular vehicular served market they have to reach for greater NAM penetration. They have numerous applications under test, excellent marketing programs to develop others, and are focusing the resources to execute them.

As we outlined in the earnings release, Piper Impact continues to struggle against the ongoing loss of its traditional product line, aluminum airbag components. Piper also continues to post unacceptable results. Simply put, their traditional business lines are not profitable, and we're trying to work through that with major customers. Having said that, Piper did post a smaller loss versus a year ago and last quarter, and to their credit, they continue to have success with their high-pressure cylinder business and other new opportunities. However, we continue to review our strategic options for the business.

Let me comment on the building product segment, which includes engineered products and Nichols Aluminum. The primary drivers for the segment are housing starts and remodeling expenditures. Engineered products, which serves our major door and window customers, posted record operating results in the quarter. A very robust housing market, coupled with new products and market share gains by our customers, allowed for a great finish to a record-setting year. Sales of the big box stores like Lowes and Home Depot remain strong, which is an indication that the remodeling side of our business is very active. You may recall that engineered products set new sales and income records in the third quarter as well.

Nichols Aluminum, which produces mill-finished and painted aluminum sheets primarily for the residential housing market, experienced a good quarter in terms of sales and operating income. Shipments to our traditional building and construction customers remained at strong levels and we were sold out on our higher margin painted sheet. Shipments from our Golden facility in Fort Lupton, Colorado, were also very strong. Again in the quarter customer activity in our other markets continued to be disappointing. Frankly, we don't expect much of an improvement in these markets until the economy exhibits more strength in the capital equipment, commercial construction, and truck-trailer market, and encouragingly in recent weeks there have been some signs of life.

We continue to review alternatives for our Nichols business. We believe Nichols is a low-cost, efficient producer of aluminum sheet that simply finds itself in an oversupplied market. Management is challenging the way it approaches the market in order to find additional ways to differentiate itself from competitors. Our goal remains the same for the business. Either fix it to the point where it earns acceptable returns or we'll have to consider our strategic option.

Now I'll comment on the current state of our market drivers, namely North American light vehicle builds, heavy-duty truck builds, housing starts, and remodeling expenditures. Light vehicle builds for calendar 2004 are currently estimated at about 16 million units, up slight from calendar 2003's estimate of 15.8 million units. These are healthy build numbers for the industry. Heavy-duty truck builds have been relatively disappointing for the last couple of years. However, there is reason for optimism here, with the heavy-duty truck builders estimating about 175,000 builds this calendar year and pushing past 200,000 units in 2004. In good years, MAC's sales to the heavy-duty truck market can reach 20%.

As we've previously discussed, MAC's success is closely tied to the build rates of the automotive big three. We know they continue to lose market share to the NAMs and this is a concern to us. However, I don't believe all is lost, in part because the big three will be bringing on a barrage of fresh new products to market in an attempt to arrest the share erosion. I like their chances.

For our first quarter, the sales outlook for MAC looks good, as overall builds are expected to be up 1 to 2% over this time last year. They had an excellent sales month in November and so far December is holding up well, the result of customer inventory rebuilding. However, operating income will be lower when compared to this time last year. Margins are being squeezed because MAC has to absorb, at least temporarily, the surge in steel scrap prices that occurred in October, November, and continues in December.

Housing starts are expected to remain strong through the remainder of this calendar year or until winter weather shuts down new home construction in our largest market regions. For calendar 2003, starts are expected to top 1.8 million units, seasonally adjusted, up from 1.7 million reported in 2002. Housing starts were closer to the 2 million mark, seasonally adjusted, in the month of October. For calendar 2004, housing starts are expected to remain at high levels, although down some 5% or so from 2003's lofty levels. Remodeling expenditures, which we believe drives about half the sales of our building products segment, are strong and are expected to remain so, powered by a reviving economy and hopefully employment and income growth.

There are, of course, a couple of uncertainties to consider in the building product segment in 2004. One of these is our business activity outside the building and construction markets which represents some 35 to 40% of the Nichols business. The slow economic turnaround we've seen needs to continue to gain strength if we're to see the common alloy sheet supply and demand equation in better balance. One market that now appears to be on a sustainable up-tick is the truck-trailer body sheet market.

The other question mark is aluminum scrap pricing. Until recently, scrap had been on a steady upward climb all year, and now we're watching the LME price of aluminum move up again, which normally is followed by an increase in scrap prices. Because Nichols has not been able to raise its prices since mid-summer they are feeling the squeeze. Engineered products is expected to have a good first quarter, so long as robust housing starts and remodeling activities continue. We anticipate comparable operating results to a year ago's excellent results.

Taking all these factors into account, we expect the company's diluted earnings per share for the first quarter to be down from a year ago. Just how much we're down will depend primarily on the cost of steel scrap, which for the first quarter looked to be up some 35% from the year-ago period. We'll provide a more definitive earnings outlook at mid quarter. This outlook is based on same-store sales, and excludes the earnings benefits that will result from our acquisitions of Monroe and TruSeal. At this point, we don't anticipate much of an earnings contribution from the pending acquisitions in our first quarter results, but we do expect a considerable contribution for the full year and look to report improved results year-over-year.

That concludes my formal remarks this morning. We will now answer your questions.

Thank you. The call is open for questions. If you have a question, please press the number 1 followed by 4 on your touch-tone phone. Management requests that you limit yourself to one initial question, and one follow-up question before returning to the queue. Questions will be taken in the order they are received, and we do ask that while posing your question to please pick up your handset to provide optimum sound quality. Please hold while we poll for questions. Your first question is coming from John from Prudential. Sir, your line is live. Mr. Tamazos, your line is live.

Can you hear me?

Now we can, sir.

Thank you. Could you describe what fraction of your steel bar contracts are fixed price versus the fraction that are escalators that permit month to month, quarter to quarter, scrap recovery?

In terms of -- as a percentage of our total business, I'd say that, you know, fixed-price contracts, with a surcharge, are probably at the 75% mark, you know, round numbers, and the balance would be, you know, priced on an ongoing basis, if you will, or adjusted to market conditions on a monthly basis.

So there's no -- you have no business where you eat the scrap?

That's -- except for the lag, John, that would be a true statement.

So if you're squeezed in the first quarter, suddenly scrap doesn't go up every month and you catch up and benefit on the way down?

We will benefit on the way down.

Sir, does that complete your question?

Yes, thank you.

Your next question is coming from Barry Vogel from Barry Vogel & Associates.

Good morning, gentlemen. On the same note, obviously scrap is moving up sharply again.

Right.

I know that last year you put in some price increases in January, and you didn't mention, you know, price increases with -- even though New Core is not really a competitor of yours, New Core has been much more aggressive in not wanting to be squeezed by rising scrap costs and they've been putting in a lot of price increases to close that gap in terms of the lag. Can you tell us what you're doing or what you anticipate doing, considering you're having a very strong squeeze again, for new price increases, you know, beginning this current calendar year that's coming up?

Well, we still have some contract negotiations going on, and I can tell you that price increases are being met with fierce resistance. Not to say that we're not trying to move them up, and there is some attempt at adjusting the surcharge formulas that exist today, but it's not an easy marketplace.

So what you're saying is you're not as confident as you were at this time last year when you talked about raising prices in January of '03 to get back some of the scrap cost increases last year?

That's correct.

You don't sound confident about that.

I don't sound confident about that, that's right.

Who are the competitors that are preventing this, theoretically.

Well, you know the competitors, Barry. You've got Republic out there, you've got Timkin, and there are others.

Okay. Which means you may be squeezed in terms of the scrap problem for a decent amount of time into the new year.

That's correct.

All right. Thank you.

Thank you. Your next question is coming from Mike Harris from Robert W. Baird. Sir, your line is live.

Thank you. Good morning, guys.

Good morning, Mike.

Ray, can you give us an update on the plans for engineered products to open the facility in Oregon? Is this still on track to open in January? Can you just review for us what exactly will be produced at that facility?

Right, we are on target to ship product in January. In fact, I'm aware that they've already had some shipments to customers to get the process going, some of it is undergoing, you know, kind of certification from a new facility and so forth, but that's ongoing as we speak. So we're right on plan. The guys are really meeting the expectation there. As far as what we're going to produce, it's similar product to what we produce in Chatsworth, Illinois. It will be spacer product, various aluminum components for windows.

Okay. That's great. It sounds like everything's going according to plan there.

We have been pleased with performance.

I don't know if you can comment on this, but I'll ask the question anyways. Can we get an appreciation of what type of annualized revenues you are budgeting for this facility?

Yes. We -- you know, right now we're looking at four to five million near-term horizon, so, you know, not a big output, but I think the prospects are bright, though. We do expect to keep growing there.

Well, I mean, just looking at it another way, is the production that will take place at this new Oregon facility, will this be incremental to the company, or is some of the production that's taking place at home shield being transferred over to the west coast?

Most of it will be incremental.

Okay. Well, I've got other questions, but I'll jump back into the queue.

Thank you. Your next question is coming from Greg Mosco from Ward Abbott.

Yes, thank you.

Good morning.

Good morning. Could you talk a little bit about the North Star situation? Is there anything that is, in terms of closing, do you expect any delays in that?

No, right now I do not expect further delays. We expect a closing this calendar year, and right now things are moving rapidly.

And with regard to the operations once they're -- and they'll be integrated, obviously, for a pretty good portion of the fiscal year, and you've mentioned that you expect, you know, improved results next year, particularly in the second half, I guess, could you talk about any of the accretion or opportunities with regard to North Star and consolidating production between that and MAC operations?

Well, consolidation planning is ongoing, and, you know, we're prepared to step in and do what we have to do to integrate that business into the MAC operation. It's not a turnaround situation. That facility is earning money, so for us it will be accretive right from the get-go. And so we're optimistic about what that will bring to us.

And do you expect -- so you expect significant margin improvements sort of over the next one to two years as the two operations are put together?

We expect accretiveness. I'm going to hesitate before I start talking about, you know, margin enhancement. We need to get in there and, you know, look under the hood with lights on, and we'll be doing that shortly, so I'll have more to say on that as the story unfolds.

But, finally, is it fair to say that the margins for the North Star operation are less than the MAC operation?

They are.

Thank you.

Thank you. Your next question is a follow-up question coming from Barry Vogel of Barry Vogel & Associates.

Yes. You talked about the Anderson business early last year, having a lot of new product with them, then there was a rough ramping up that was disappointing the first half, and that's why you had some -- and the weather last year hurt you. Where are you in terms of those new products that you were so positive about, now that the year has ended, and can you tell us approximately, you know, what percentage of your business at engineered product is Anderson and how important they are in the future?

I'm not going to go into a lot of specifics about the customer base and so forth, but certainly Anderson remains an important customer to us, an excellent customer, and they've had some successes in the marketplace and that's been good to us. Some of the new programs that fell behind plan last year had to do with Colonial Craft and we had some new products on some of their new products that they were introducing, and those introductions just came along at a slower pace than we had expected, but they have come back in the second half of '03 and we are benefiting from that now. So, you know, I look to improve results at Colonial Craft as we move forward.

Can you give us approximately you capital expenditure estimates and your depreciation and amortization estimates for the new year?

The capital spending will be in the $30 million range, and depreciation spending will be about what it was in 2003. About 46, 47 million.

Thank you, Ray. You're doing a great job.

Thank you.

Thank you. Your next question is a follow-up question coming from Mike Harris of Robert W. Baird.

Thank you. Terry, a question for you. Obviously there was a significant decline in inventories during fiscal Q4, inventories declined about $21 million sequentially, or 21% against a notable sequential increase in revenues. I'm thinking about the LIFO adjustment correctly, that contributed to a portion of the reduction in inventories but can you give us an idea how the company was able to work down inventories so significantly during the quarter and where should we expect inventories to trend during the current fiscal Q1?

It was just really an increased emphasis on managing all working capital. If you look at the conversion cycle days we reduced days in all three of the major businesses, Nichols, engineered products, and MACSTEEL. It wasn't just a reduction of inventories that produced that record cash flow. We also ramped up the collection of the receivables and also pushed out our payable days as well. But specifically, the reduction of the inventory actually, in some respects, helped the LIFO adjustment from being even larger. The main driver in the LIFO is the increase in the scrap prices and the pricing of the inventory at the latest purchase price for scrap. So the fact that the inventories were reduced at MACSTEEL actually positively affected the LIFO adjustment so that it wasn't as large as it otherwise would have been.

So, in other words, you were really focused on reducing inventories in fiscal Q4?

That's correct.

I mean, for the year, MAC reduced their inventories about 20%, if you look at it on tons. On a valuation basis, it was only down about 3%.

Okay. Well, can you give us an indication of where you think overall inventories will be for fiscal Q1? You commented, obviously, it's a seasonally soft quarters, so, naturally, you would think that inventories could be worked down further, or do they ramp up a little bit in preparation for subsequent higher quarters?

Normally the latter rather than the former. Although the intention is to continue to manage inventory, it's likely that they may rise a little in the first quarter.

There's a little seasonality to the business, as you know, and we build in anticipation of a strong spring to some extent, but I can tell you that we certainly have active programs to do a better job of managing our working capital, and so I would expect us to continue making, you know, some improvements.

And then, Ray, just on a different subject, regarding your forecast of heavy-duty truck builds to exceed 200,000 units in 2004, you know, I realize you're probably trying to be conservative here but several of the players are talking about a North American heavy-duty truck build in the range of 230 to 250,000 units. What are your thoughts on the attainability of those levels, and if they are achieved, will MAC still contribute proportionately?

I think given the data that has come out in the last few weeks on that, I agree with you, Mike, I think 2000 is light -- 200,000 is light, that the number will actually be higher than that, and MAC will -- that will benefit MAC, no question about it. It will increase our volumes.

Okay. And then, if -- you know, you alluded to in your prepared comments in that good heavy-duty truck markets that market can be up to 20% of MAC's revenues, when that happens, does that create any mix issues at MACSTEEL from a margin perspective, either positive or negative?

Boy, I can't answer the question off the top, as to margin. You know, I think -- the heavy-duty truck volume, though, is good mix for us. I know that it does have a good value-added component to it, and, you know, what happens then is that it gives us an opportunity to enrich our mix is what it does. We tend to, you know, start moving as much through distribution, for example, where margins tend to be less. So, you know, we benefit from it. I just don't have a percentage off the top.

Sure. Unfortunately you still need steel scrap to manufacture products for that market as well.

Yeah, that's true.

Okay. That's all I had for you. Thanks.

Thank you. Your next question is a follow-up question coming from John Tamazos from Prudential.

Two questions. First, are there be goodwill related to either acquisition. Second, could you give us a little bigger, a little better background, I might have been out of touch, about the evolution of Piper and what kinds of high-pressure cylinders you're making and for what applications, whether steel or aluminum or what end markets?

John, I'll answer the first part of the question. Relative to goodwill for North Star, it will be minimal. We have yesterday to do the valuation, the asset valuation, but we expect to write up assets and do not believe there will be much goodwill. On the TruSeal acquisition the goodwill will be fairly substantial. They have fewer assets, it's a much more high technology business, and we expect the goodwill to be fairly large. Again, I can't give you a specific number until we go through the appraisal process. They do have at TruSeal some patents, they do have some other intangibles that we will be able to amortize, other than goodwill, but in kind of a general answer to your question, very little goodwill for North Star, very large goodwill for TruSeal.

Did you disclose the amount of either purchase price?

We have not.

Concerning Piper, I guess -- I'm familiar with Worthington Welding Sheet Steel to make cylinders but I don't know as much about Piper's mix. Could you explain whether you're evolving to steel or aluminum or other materials for high-pressure cylinders and what the markets other than airbags are?

Yes. This would not be in competition with Worthington Steel. I think they're producing bigger cylinders, for one thing, and more steel, if any aluminum, and what we're looking at is the, you know, the evolution of high-pressure cylinders for medical, beverage, and recreational market is really what we're looking at, and that is virtually all aluminum.

What are recreational cylinders?

Recreational could be, you know, the paint-ball guns, for example, that has picked up in popularity, both in North America here and in Europe. It's really amazing the volume that moves through that distribution channel. Wal-Mart, for example, recently picked up the line from a sizable -- or the largest producer, and with whom we have an exclusive arrangement, so that's been a growing market, no question about it. The medical area is, likewise, has been growing rapidly, and in the beverage area, some of this is new applications that we're working on with the airline industry and other large OEMs, and I think there's an exciting -- some exciting prospects there.

Thank you.

Once again, if you do have a question or a comment, please press the number 1 followed by 4 on your touch-tone phone at this time. Next question is coming from John Tamazos from Prudential.

Cargill's been selling different batches of steel assets to Youngstown seamless tube business a year or so ago. They let New Core have Kingman, Arizona, for 35 million and it must have cost over 150 to build. It kind of surprised me when you said there would be a PP&E write-up for the Monroe bar business. Presumably that must been a fairly successful business for North Star if they've got the premium to book.

We're going to go through an appraisal process but we believe there's an opportunity to write up assets. We believe that the assets that are recorded on their books today are, from an appraisal standpoint, are worth more than they are as a net book value. So I don't know, we don't know the extent to that write-up, but we do believe that there's an opportunity for some write-up.

LTV got bought for about 5 cents on the dollar, and National Steel, 20 cents on the dollar, PP&E, and U.S. Steel put 60 million down three years ago to buy a business that earns that much every quarter, and 33 million to buy the steel business in Serbia when the wages are a buck an hour. So it's been a long time since I saw a steel furnace command a premium to book value. Could you talk a little bit about the unique attributes of the Monroe operation? Because Cargill was a private company, and most of us in the stock market don't know their strengths and weaknesses and their good plants and their bad plants.

Well, you know, clearly Monroe is the one facility that they had that plays in the engineered bar area, and Monroe is -- has been operating profitably, and so, you know, we're not buying an idle asset, rusted equipment, they recently spent, for example, $15 million in the last couple of years upgrading their rolling equipment. So we're getting a facility that is relatively new, built in the late '70's, and that has been profitable. But, you know, I can tell you that when the numbers come out, that the ratios that we're paying for this business will show that it's a very smart investment on our part.

Ray, do you have an estimate of what the synergy will be between Monroe and your existing business that's purchasing, G&A, et cetera?

Yeah, I'm not going to go into numbers, John, but what it will enable us to do is to better or more effectively load level production. Their sweet spot is different than the sweet spot we have in Jackson in terms of size, for example, in the sweet spot that we have at our fort Smith facility, so it's a nice load leveling, better, more efficient load leveling opportunity that we see. We will be able to provide, you know, our customers with a fuller range, if you will. So I think we're going to, you know, add some benefits, and over time there are some synergies from an operating standpoint on the purchasing side, and, you know, we're taking a business and converting it into a plant, so there's some SG&A savings opportunities. Overhead opportunities where there are certainly are some redundancies, and we are excited about the value that this will bring to our engineered bar business over time.

Thank you.

Thank you. Your next question is coming from Barry Vogel.

My question has been answered. Thank you.

Thank you. Your next question is coming from Greg Mosco from Ward Abbott.

Could you update us on some of the smaller business, like heat treating and the Temroc operations?

Yeah, heat treat continues to do well. They did lose a customer, a major customer, actually that, decided to go in-house, early in 2003, and we've been working hard at backfilling that, but they continue to be solidly profitable and have made some in-roads into recapturing some of that lost business.

About how big would that business be?

Oh, it's a $6 million business.

$6 million in the quarter, or for the whole year?

For the whole year.

Okay, so it's small.

It's the small heat treat business in our facility in Indiana.

Then Temroc?

Temroc had a difficult 2003, and you'll recall that they're dependent on recreational vehicle market, specifically snowmobiles, and that was a difficult year, so their results were not any better than they were the prior year. They continue to make in-roads with the all-terrain vehicles where we're working with the large OEMs to substitute aluminum extrusion for steel product, and in hopes of achieving a better balance, if you will. So we're excited about where this could lead us, but in the meantime it's been tough sledding. Pun intended.

Thank you.

And as your final reminder if you do have a question or comment please press 1 followed by 4 on your touch-tone phone at this time. Mr. Jean, as there appear to be no further questions, I would like to turn the call back over to you.

Well, let's wrap up. Our long-term business strategy directs us to protect, nurture, and grow our core business, MACSTEEL and engineered product, and we'll do just that. North star, Monroe, Truseal, and Colonial Craft are excellent examples of our we can fuel earnings. Both MAC and engineered products earned well in excess of their cost of capital again this quarter, and we see nothing on the horizon to change this. Our long-term strategy also calls for us to fix or sell businesses that are underperforming, and we are hard at work on it. This concludes our fourth quarter conference call. Thank you.

This concludes the Quanex Corporation fourth quarter conference call. Thank you for participating, and have a wonderful day.