Quanex Building Products Corp (NX) 2004 Q4 法說會逐字稿

Good after ladies and gentlemen and welcome to your Quanex fiscal 2004 fiscal year end and fourth quarter earnings conference call. At this time, all participants have been placed in a listen-only mode and the floor will be open for questions following the presentation. It is now my pleasure to turn the floor over to your host, Mr. Raymond Jean.

Good afternoon and welcome to the Quanex Corporation fourth-quarter conference call. Thank you for joining us. With me today are Ric Arredondo, our Corporate Controller and Jeff 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 an overview of the year and fourth quarter results, a discussion of the current scrap market, the present state of our key market drivers and a general outlook for fiscal 2005.

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 29, 2003 for our complete forward-looking disclosure statement. Our fourth quarter earnings release dated December 2 (technical difficulty) website at Quanex.com.

During the fourth quarter and the year, order entry rates in both our vehicular products and (technical difficulty) segments remained every high levels and strained our ability to meet demand at times. This strong demand in turn helped produce outstanding results. Return on net assets for the vehicular products and building products groups were 22 percent and 25 percent, respectively.

At the vehicular products segment, our engineered steel bar products business reported an 8 percent increase in annual shipments over 2003, excluding results from our acquisition of the Monroe facility. The 8 percent increase occurred even in the light vehicle builds, while at healthy levels, were essentially flat for the year, demonstrating the ability of this core business to outperform its served markets. These higher shipments in part were the direct benefit of market share gains with both big three automakers and the automotive transplants. New customer programs played a key role in the division's 2004 success. For instance, our steel crankshaft projects, General Motors' cam shaft and Honda's constant velocity joint programs contributed over 30,000 tons of new business and (technical difficulty) grow.

Demand from our heavy-duty truck customers was incredibly strong all year and the industry expects builds for calendar 2004 at some 250,000 units, up more than 40 percent from 2003 levels.

At our building products segment, housing starts and remodeling activity remained at very high levels for both the quarter and the year. New housing starts for calendar 2004 could set a record at 1.9 million starts and when combined with growing modeling activity, will continue to benefit us in 2005. The outlook for these two key market drivers remains encouraging, the results of favorable interest rates, (technical difficulty) demographics and a recovering economy.

Our engineered products and components business hit its stride early in 2004 and they had outstanding results in the fourth quarter. Our aluminum sheet business experienced excellent demand as well, not only from their traditional building and construction customers, but also from capital equipment and transportation accounts. Ongoing strong customer demand, together with gains from lean initiatives and industry supply constraints, allowed our aluminum sheet business to improve its operating margin significantly over the third quarter.

Turning to the current scrap environment, the significant price (technical difficulty) scrap continues to impair our ability to forecast them. Scrap prices in the fourth quarter were up 32 percent over the third quarter and for the year, were up 82 percent. Spreads at the steel bar business in the fourth quarter were off about 10 percent from the third quarter. However, thanks to a large increase in our steel scrap surcharge effective October 1st, the spread for the month of October was up some 8 percent over the third quarter, demonstrating the recovery (technical difficulty) of our surcharge formula. Admittedly, in a period of escalating costs, we are always in a catch-up mode.

Aluminum scrap costs in the fourth quarter were down about 4 percent from the third quarter, while our average selling price was up about 4 percent over the same period. These positives bolstered the spread at our aluminum sheet business, which were up 23 percent over the third quarter and 29 percent over the fourth quarter last year. At this point, the scrap price outlook, just as it was for all of last year, is difficult to predict. I am reminded of Yogi Berra's quip -- it's difficult to make predictions, especially about the future.

Currently, we look for steel scrap prices to be up compared to the fourth quarter, but not significantly. For 2005, our sense is that we will not see a repeat of runaway scrap prices like we experienced in 2004, although market forces will keep scrap pricing at relatively high levels. On the aluminum side, scrap costs there are expected to drift up during the quarter, generally in line with the movement in LME ingot prices, but our spread is expected to remain healthy.

As we have been discussing all year, rising raw material costs obscures our true earnings power because of the negative effect those higher (technical difficulty) our LIFO based inventories. For the fourth quarter, we recorded a pretax non-cash LIFO charge of 12.7 million, or 47 cents per diluted share. For the year, (technical difficulty) totaled 20.4 million, or 75 cents on a per-share basis. We remain hopeful that such adjustments won't be necessary in fiscal 2005.

Operating results from our acquisitions of Monroe and True Seal play a key role in 2004's success. Their combined earnings per share, after interest expense, contributed 44 cents for the quarter and $1.02 for the year. We are delighted with their results, their integration into Quanex and we look forward for even better performance in 2005. Taken together, Quanex reported diluted earnings per share from continuing operations of $1.17 for the quarter and $3.45 for the year. While there have been pluses and minuses from our initial assumptions, it is interesting to note that the $3.45 falls pretty much in the middle of the range from our initial 2004 guidance.

We previously announced a plan for restructuring Piper Impact, which included operating the business under one roof. The consolidation is complete (technical difficulty) efficiency, further reduced overhead and gives us our best chance to sell the business to a strategic buyer. We continue to press ahead with an interested party and we remain consciously optimistic we can put a deal together.

Turning to working capital, our management team did an excellent job of reducing their working capital needs during this year. We track our progress by calculating our conversion cycle days, which is the sun of inventory days, plus trade receivables, less payable days, all based on average daily sales. For 2004, our conversion cycle improved 10 percent over a year ago as our days declined from 40 to 36. While this may not sound like a significant improvement, it is when you consider the changes the scrap prices in 2004.

From an operating cash flow standpoint, we significantly improved our 2004 performance over 2003 by some 20 percent, in fact, to 124 million, compared to the 104 million generated in 2003. Capital expenditures for the year came in at about 20 million versus 25 million last year. We expect CapEx for 2005 to be in the order of 50 million. Depreciation expense for 2004 was 50 million and our estimate for 2005 is 55 million.

Moving onto a discussion of our target markets -- light vehicle, heavy-duty truck, new home construction and remodeling activity -- we (technical difficulty) the near-term outlook, as well as the longer-term prospects of these markets are excellent. We are experiencing our normal seasonal pattern and are not expecting any meaningful changes in the marketplace outlook for the first quarter. North American light vehicle builds for the calendar year 2005 are estimated to be about 16 million units, essentially in line with 2004. We do expect to see some (technical difficulty) production cuts in our first quarter compared to a year ago as the big three continue to pay our inventories. However, at this point in the first quarter, we have not experienced any significant slowdown as our large customers are attempting to rebuild some inventory after running all the year with very little cushion.

Adding to our bullish outlook for 2005 are very strong heavy-duty truck builds, which are expected to be up 15 percent to 20 percent compared to 2004. This strength, when added to forecast light vehicle and other commercial vehicle builds, explains why we expect to be operating our engineered steel bar business at very high utilization rates in 2005.

On top of this solid vehicular build outlook, we also expect to see continuing robust demand in our secondary markets -- construction, agricultural and off-road equipment, capital goods, defense and oil patch.

Switching to our building products segment and their markets, we expect both housing starts and remodeling activity to remain at very high levels. For calendar year 2005, housing starts are estimated to be about 1.8 million, slightly below 2004's expected record starts of 1.9 million. Taken together, we believe the sales and earnings outlook for our two business segments for the first quarter and year is excellent. Our guidance for the first quarter is to earn in the range of $1.00 to $1.15 per diluted share for continuing operations. We will review this estimate in our January mid-quarter update.

Giving guidance for the year is a much tougher call for us, because we can neither accurately predict the rush in the scrap prices, nor the magnitude of change beyond a month or so, we will defer giving 2005 guidance at this time.

Let me end my discussion with a few words financing activity, our strong balance sheet and the Board's actions. In May, we closed on a 2.5 percent coupon, 125 million contingent convertible debenture (technical difficulty). The financial accounting standards for (technical difficulty) requiring all companies to show the dilutive effect of their convertible issues in their earnings per share, beginning December 15. For Quanex, this could mean an additional 2.2 million shares of earnings dilution and an annual EPS impact of approximately 30 to 35 cents per share. However, our convertible indenture gives us the option of using either (technical difficulty) cash or some combination thereof to settle with bondholders. So if we make the decision to settle our entire convertible obligation with cash, then we would not be required to show the dilutive impact of the higher share count than our earnings per share. While we have not made a final decision, I can tell you, we're leaning to elect the use of cash to settle with bondholders. A final decision will be made in January and we will inform you of that decision in our mid-quarter update.

Reviewing the progress made to the balance sheet, our year-end total debt to capitalization stood at 21 percent, down from 29 percent we reported just last quarter. Our revolving credit facility stands at zero and we have 42 million of cash. The Company generated 124 million of operating cash flow during the year, a record for us and when combined with our low debt to cap position, affords as great flexibility, should the right acquisition candidate come along.

I am sure you noted the Board raised the cash dividend nearly 7 percent today. This follows last quarter's 12 percent (technical difficulty) cash dividend. With the stock trading at an all-time high, they also thought it was a good time to authorize a 50 percent stock dividend. These actions are a direct response to what they see as outstanding prospects for Quanex going forward.

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

(Operator Instructions). Mike Harris, Robert W. Baird.

Good afternoon, gentlemen. I just wanted to talk about the use of capital situation going forward. Obviously, you had a significant debt paydown in fiscal Q4. As you said, very little bank debt is left here. You gave the guidance of 50 million CapEx for fiscal '05. Can you just talk about capital expansion programs going forward, in addition to the recently announced expansion in (technical difficulty)?

Well I think generally, we have articulated that our priorities are to fund organic growth, certainly look at acquisition opportunities and dividend increases, buy back stock at (technical difficulty) time. And those remain our choices, of course. And with the capital program that we noted today of some 50 million, you know we -- some of that is earmarked of course for Fort Smith, Arkansas, which we have previously announced; that's some 20 million. We're looking at doing some more (technical difficulty) activities, or equipping ourselves so that we can do more value-added work at Monroe. And we have some organic growth opportunities at our building products businesses that will require some capital. So right now, we know where we're going to be putting some of our money.

Ray, does that, in your building products businesses, does that include building CapEx in nickels (ph)?

Only what is required to maintain the franchise.

So you would define that as maintenance CapEx?

Correct. And we do have, just to add a little bit to that, we do have some needs for meeting environmental regulations.

Normal environmental regulations that are incurred in the ordinary course of business?

Yes. I mean, that can be viewed as maintenance of franchise, of course.

Question on acquisitions (technical difficulty) the two that you did this year had proven to be pretty successful, I think that's fair to say. I just want to talk about the pipeline -- how does it look, what is your sense for fiscal '05, as far as the likelihood of making another acquisition announcement?

I like the looks of our pipeline. We have a number of opportunities that we've been working on. But as we all know, (technical difficulty) deals typically are a roller coaster ride. And we're certainly not prepared to announce anything at this point, but there are some opportunities out there.

You gave an update on the status of Piper. And it does not sound obviously like it's a done deal yet at this point. Has something happened recently to -- it was my understanding you were targeting to divest by the end of November. Is there anything that happened recently that makes you -- that discourages you, that this is going to happen?

It has just been a very arduous process, but we continue to press ahead.

Okay. I'm over my two questions, so I'll hop back into queue here.

Bob Fetch (ph), Lord Abbott.

Good afternoon. Did you purchase any stock in the period?

We did not.

And you have some authorized still, correct?

Correct. You will recall, the Board reloaded the authorization to a million shares, I think it's six months ago -- last quarter, I'm sorry. Yes, it was in August.

Can you comment on pricing in the market, first of all, on the steel side? I know a lot of your contracted business comes up around the beginning of the year, I think (technical difficulty) and what some of your competitors might be doing in the spot market that might gave us some feel on the direction and magnitude of things?

(technical difficulty) read what I read in American Metal Market. They're talking about increases of 4 to 10 percent. There's quite a range to it. I can tell you that our contracts, most of our contracts are up at the end of this calendar year, and our guys are working (technical difficulty) renegotiating contracts and seeing about getting some price release for the increases that we have incurred for (technical difficulty), for example. But at this time, I don't want to go any further than that. But we are hard at work to see what we can do.

Did Temkin (ph) raise spot prices for similar products?

They have announced a number of price increases. I know I saw something on tool steel, for one. I'm not sure -- and they recently announced something on tubing, I believe.

Let me just add to that. There have been some public releases from competitors where they're attempting to raise spot prices. And basically, the last (technical difficulty) calendar month of this year, and that may be in part what you're referring to. But I could not tell you how successful they have been with those attempts.

And then on the building side, you are principally serving customers in the window and door markets. Can you talk about penetration opportunities that still exist?

We're very optimistic that we have (technical difficulty) moving forward. True Seal has introduced -- the acquisition of True Seal -- has certainly introduced some new accounts for us to sell existing products. And we continue to get new programs with the larger window companies (technical difficulty) that seem to be doing particularly well in the marketplace. So we like (technical difficulty) customers are. They're doing particularly well.

And they still represent in total (technical difficulty) small part of a fragmented market?

That is correct. It remains a fragmented market, absolutely.

Lastly, congratulations on raising the dividend. I think that maybe works out to an annual expense of around 13.5 million, versus the 11.5 you paid out this year?

Order of magnitude is right.

So you could probably still go another 50 percent pretty easy, give yourself a 2 percent yield without any kind of -- hampering any of the other activities or (technical difficulty) underway. So is that something you're just going to continue to move in the direction of?

It's something that the Board reviews on a quarterly basis.

Barry Vogel, Barry Vogel & Assoc.

Congratulations. As far as capacity, steel-making capacity, can you tell us currently what the capacity or the rate of capacity of Macsteel is, and separately, what Monroe is?

Total Mac, round numbers, is about 1.3 million.

I'm just talking about Mac alone and Monroe alone?

Monroe alone would be, order of magnitude, 500,000 tons.

So, you're talking about 800,000 tons from Mac?

(MULTIPLE SPEAKERS) for old Mac.

Alright, old Mac. So 1.3? Could you tell us in the current quarter, what your average operating rate was for each of them separately?

We were going -- it was close to what we call 100 percent. We were operating 18 turns, so we were operating close to capacity.

Okay, because when you made the acquisition of Monroe, you had talked about working with them to upgrade their output, looking at the combined facilities. Can you tell us how successful you would have been and what needs to be done to get that to be more successful, in terms of synergy?

Well, the big opportunity at Monroe, as we have pointed out, was to enrich the mix of their output. And to that end, we have been quite successful. Opportunities remain and we are determined to get them. But it does take time because of the feedback process, as we've discussed before. But we are on that road to doing just that, enriching the mix.

So as far as the output for the combined company this past fiscal year, because you did not have Monroe for the whole year, could you tell us how many tons you shipped for the combined company, the combined steel operation?

Barry, I don't have that at my fingertips.

As far as Temroc is concerned, it seems to be out there as a non-core business, it seems. So do you have any plans for Temroc? Looking at the way you have been getting out of non-core businesses, I would think Temroc could be another non-core business that may not be there long-term. Can you make a comment on that?

There's a number of businesses that we continue to review in our portfolio, and certainly Temroc is one of them.

Did they make money last year.

Yes.

Thank you very much. Keep up the good work.

Joel Hirsch, KeyBanc Capital.

Hi, guys, congratulations on a great quarter. I just wanted to ask -- I know this is a building product segment, that your revenues decreased (technical difficulty) percent, but your EBIT for the segment grew 35 percent sequentially. Could you just shed some light on that?

Sequentially -- third quarter to fourth-quarter?

Yes.

Joel, I don't have anything at my fingertips that would answer that question, but I will get some information for you and we'll have a look at it.

Okay, thank you very much.

(Operator Instructions) Mike Harris, Robert W. Baird.

Thank you. Ray, you talked about the strength at the Nichols (ph) Aluminum division during the quarter, improvement in spreads. And I just want to get your impression or your thoughts regarding how sustainable this is into 2005?

Right now, with their primary markets remaining quite strong, and that is related to housing starts, construction or commercial construction is starting to come back. I think that industry sector is really in an accelerating mode. And when you look at the secondary markets served by Nichols, which includes trailers where there is considerable buoyancy in that particular marketplace, capital equipment, what we move through distribution, capital equipment and so forth, right now, I think there's going to be strength for quite a spell, assuming the economy keeps purring along the way it's doing. So the outlook right now is pretty good.

Okay switching gears here, I noticed just doing the pure math, the tax rate for the quarter on continuing numbers, I'm getting 41 percent roughly. And that was higher than what I was expecting. If there some anomaly, some true-up here at the end of the year? And what is the thought process for '05 regarding tax rate?

That is a tax-up adjustment. After taking a closer look at our provision, we treat it up to (technical difficulty) for the year. And next year, we're expecting around 38.5 percent.

Okay, so 38.5 for '05, okay. That is helpful. And then, Ray, the guidance for fiscal Q1 quarter, $1, $1.15; I realize that like it has been in recent quarters is the direction of where steel scrap goes. But you know, I'm assuming that that range of $1 to $1.15 assumes much less of a head wind from steel scrap inflation relative to fiscal Q4 when considering the benefit of the additional surcharge that you put in place on October 1st. And I don't know if you can answer this, but I would be interested in knowing your range of assumptions for steel scrap costs for fiscal Q1, how you assume it does increase relative to Q4, if you can give that?

Yes. (indiscernible) was in the order of $15 to $20 for shredded scrap. That is an increase. The other wild-card here a little bit is that the gap between number one bundles, and we do use some number one bundles, and shredded scrap has widened a little bit in the last 45 days. And I'm not sure if that is that is going to continue. And that certainly influences to some extent our overall melt costs. So we are assuming that we're going to see some (technical difficulty) whether we're going to have some spread compression in the near-term, and that in January, the spread may return for us a little bit after we make another price adjustment on January 1st. So we're not expecting huge changes, I guess is what I'm admitting to you, as we experienced in last year's first quarter. But there's going to be some movement, there's no question about that.

You don't need to convince me on that last comment. I'm sorry, Ray, you threw out a number. I thought you said $15 to $20 per ton? (technical difficulty) you're expecting the change to the regarding input costs for Q1 versus Q4?

I guess I was addressing more the near-term outlook, meaning the next 30 days is kind of what I'm expecting.

I agree with you there, because that's kind of what we're seeing right now. Okay. And then your (technical difficulty) number one bundles versus shredded scrap, and there is still like a disconnect between the two. You're talking about that, the factory bundles number has, the inflation there has been a little bit more than the shredded scrap.

It went both ways during the year. Most recently, bundles accelerated at a faster pace than shredded scrap, so there was a widening of that gap or of that spread between the two.

But that's a benefit for Macsteel when that happens.

That is a true statement.

Last thing here is -- you talked about the -- you're leaning towards a cash settlement on your contingent convertible notes. Remind me again of -- if you do elect that, the actual cash payment would not happen for quite some time. And remind me of when that would be?

(technical difficulty) because of the contingent feature of the bond, the strike price on the bonds is -- I want say 59 --

57.50.

57.50, and there is a 20 percent contingency factor on there. So it's really 50 -- $69, is the point at which the bonds could be -- they be offered for settlement, I guess is what I'm saying, so.

I guess the question is that you elected sometime in January, you elect this cash settlement option, but you're not going to have to pay that in January, are you?

No, no. That's right.

The actual payout does not happen for sometime now, and those are twenty-year notes, correct?

It's (multiple speakers) seven-year no put, no call, is probably the feature you're looking for.

That's really like the time frame after that -- seven years is really -- you're not going to have to settle on these for about six years or around that, because they were issued last year?

Correct.

We're talking quite some time, the actual cash requirement for this election that you may take.

That's why we're taking a long time to make the decision.

Okay. I think I got it. Thanks.

Mark Parr, Key McDonald.

Ray, I was wondering if you could provide any color on your sense of the competitive landscape, given the success that the old Qualitech mill that is now owned by Steel Dynamics has had ramping up SBQ large bars. And also, if you have any comments at all about the S1 -- recent S1 followed by Republic and just their stated plans to put any castor (ph) in in Canton. What is your view of how these two significant events change the pricing environment for Macsteel and the demand environment going forward?

I will start with the last portion of your question, that is, Republic. I read the same news release. Hats off to them for going forward with an IPO. They certainly have gone through some troubling times. I'm happy for them.

Related to them adding a caster at the Canton facility, I believe, I'm a little confused with the release because it makes reference to not increasing their output, that it's going to replace an existing melt facility, is the way I understand it. So I don't know if their melt constraint now or melt constraint and they'll just be able to feed more through the rolling mill, or what. It just isn't clear and we'll get clarification on that in the near future, I'm sure. But right now, based on the announcement, I'm not expecting a huge output increase because of that capital expenditure.

As to Qualitech, yes, they continue to produce some lower end SBQ, perhaps into the midrange, but the supply-demand equation out there is such that we -- there is very, very high demand for our products.

You don't see this in any way as constraining your ability to effectively price your product to maintain an acceptable spread over raw material costs?

Not in the near-term.

I just wanted to ask that. I appreciate your comments, and congratulations on continued progress with Quanex.

Thank you, Mark.

Greg Macosko, Lord Abbott.

Thank you, nice quarter. Could you talk -- you mentioned that your vehicular customers are building inventory after running so lean. Is this the heavy-duty customers or light vehicle or both?

The heavy-duty guys cannot get enough steel right now. I'm talking about the light vehicle guys, and I'm not talking necessarily about the OEMs building more inventory. I'm talking just there may be some pipeline filling going on, which accounts for the fact that we have not seen many scheduling adjustments. But I would expect to see some moving forward in the first quarter, particularly in light of GM and Ford's announcement that we all read this morning.

Yes, of course. And I'm assuming these are like through the suppliers pipelines. That is where would start, I'm assuming.

Sure.

And then with regard to the expectations on the heavy truck build, would it be fair to say that you are looking as that as perhaps more front-end loaded, as opposed to evenly throughout the year?

No, I don't expect it to be front-end loaded. If anything, my data would suggest that they will keep increasing the rates as the year wears on. I think they're still in a build-up mode, to some extent.

Okay. And then finally, you gave us a number with regard to shipments in the vehicular area, x the acquisition. Could you give us something similar in the building area, building products?

I'm not sure if I understand your question.

You acquired True Seal, and there were some difference there in the quarter, correct, quarter, a year-over-year basis?

Last year, we had (multiple speakers) we had them for January, and this year, we were going to have them for the whole quarter. Is that what you're asking me?

So you had them all of last year in the fourth quarter. Is that correct?

No.

So what would be adjusted without the acquisition in the quarter?

Greg, you're asking us for our shipments?

Yes, shipments, or adjusted -- some sense of how without the acquisition, just a core growth.

On the shipment side, we don't really track it that way. So we talk about percentage changes at Macsteel, because that is in tons. The shipment change on the building products side really relates to Nichols Aluminum, Davenport.

Thank you.

Bob Fetch, Lord Abbott.

Thanks again. With your current business mix, is there a somewhat normal gross margin around which you would guesstimate a range of volatility from underlying raw material issues that you can help us with?

Not off the top, Bob. You may be struggling with the percent gross margin that we now have versus what we used to have, and that came up at the Board meeting. Actually this morning, we were discussing that, and that with rising raw material prices, let's face it, in many cases, particularly at Mac, all we have been successful in doing is recovering our cost. So if material costs are $100 and sales are up $100, we may be making the same profit, but our margin percentage has been squeezed. And so that is what has been going on, to some extent. So I don't have a precise answer to your question.

And how about, let's say relative to where you were starting the year before some of the building products acquisitions in a flat material market, to what degree has your gross margin been biased up, relative to historic levels?

You're talking about in our components business?

In the aggregate, though. Your mix is becoming somewhat more building products oriented, right?

In total, looking at our total Quanex. Sales last year were higher on the vehicular side. About 55 percent of our output, or sales, was vehicular with 45 percent building products, which is different than the prior year, because the other prior year was 45, 55.

How about one other line item -- the SG&A for the year was about 4.5 leveled down from 5.3. Is that something that can be sustained or improved even further?

You're looking at percentage?

Right.

We certainly have benefited from increased sales, and we effectively leveraged particularly the Monroe acquisition, which gave us over 300 million in sales, and we cut back on SG&A as the year wore on. So I think we have a nice ratio. Certainly, when you're looking at SG&A costs in that range, it's pretty good. I would -- we're going to struggle I guess keeping them right there, especially with (indiscernible) expenses that we're going through right now. But we are going to try to lean our processes.

Lastly, just to have some sense, I know one would not one to forecast a year out, but just in terms of our comparing some things you might be dealing with in the year forward versus the year past. Hopefully, you won't have any more discontinued expenses this year, correct? Or are they most likely ought to be less?

I'm not going to commit to that, Bob.

But they were, as you reported, about 19 cents?

Correct.

And then the acquisition you made, you only got a 10 month benefit there, so if you annualize that, there might be another 20 cents, plus or minus a nickel available to you?

Well, that certainly helps explain our first with outlook versus last year.

And you had a 75 cent LIFO hit in a flat scrap market or even somewhat trending higher. Hopefully, that impact would be less, correct?

(indiscernible) I would certainly hope so.

Interest expense should be lower?

Interest expense should be lower.

I guess you're still assuming some organic growth at a minimum of 5 or 10 percent variety?

I said that we are targeting organic growth at twice GDP numbers. No promises, but we're running hot.

So cumulatively, that ought to give you a good running start then for a year in which as you say should be better than the one you just finished?

We're optimistic we'll have a good year.

Thank you.

(OPERATOR INSTRUCTIONS) Sir, there appears to be no other questions at this time.

Well, in using almost any measure, 2004 was a great year for Quanex and we ended it in excellent financial condition. Importantly, our long-term shareholders enjoyed a total return of 28 percent on their investment for fiscal 2004. We enter 2005 with some optimism that our consumer durable driven markets will remain relatively strong and our secondary capital equipment markets will be near record levels. Remember too that we've demonstrated an ability to outperform our drivers year after year. We have a very strong balance sheet and excellent cash generation capability to support our growth. We like our prospects for 2005. That concludes our fourth-quarter conference call. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time and have a wonderful day.