Park Ohio Holdings Corp (PKOH) 2004 Q4 法說會逐字稿

Good day and welcome to the Park Ohio Holdings Corp. 2004 year end results conference call. At this time, all participants are in a listen only mode. After the presentation, the Company will conduct a question-and-answer session. Today's conference is also being recorded. If you have any objections, you may disconnect at this time.

Before the conference call begins, remember that the Company will be discussing some issues that are historical and some issues that are forward-looking. Under the Company speaks about future results or events, there are a variety of factors that may materially change their actual results from those projected. A list of relevant factors may be found in the earnings press release as well as in the Company's 2004 10-K to be filed in the SEC. The Company undertakes no obligation to update any forward-looking statements whether as a result of new information, future events or otherwise.

Additionally the Company may discuss EBITDA. EBITDA is not a measure of performance under generally accepted accounting principles as it is considered a non GAAP financial measure as defined by the SEC. The Company may present EBITDA because management believes that EBITDA could be useful to investors as an indication of their ability to incur and service debt and because cost EBITDA is a measure used under their credit facility to determine whether they may incur additional debt under such facilities.

For a reconciliation from income before income passes to EBITDA, please refer to the Company's current report on Form 8-K, furnished to the SEC on March 11th, 2005.

Now, the meeting will be turned over to Mr. Matthew V. Crawford, President and Chief Operating Officer. Gentlemen, you may begin.

Thank you very much and thank you for joining us this afternoon to talk about our 2004 year. First I want to start by saying that we are pleased with the revenue growth overall in the business of approximately 30 percent. We were -- luckily with our ability to see the traction of that revenue at the EBIT and the EPS line but we want to make it clear during this call that, although we hit the low end of our forecast of $1.80 per share, we think our numbers reflect a more optimistic view than the casual look might give.

So we would look to clear some of the issues up. I want to first point out that on a consolidated basis for the year, sales were up from 624 million to 809 million or the 30 percent I mentioned.

EBIT was up from 15.2 million to 49 million, an increase of over 200 percent. And EPS was up from a negative $1.13 to a positive $1.20 -- or $1.27 or on an adjusted basis from 70 cents to $1.80.

Fourth quarter 2003 vs. fourth quarter 2004. Sales were up 32 percent from 163 million to 215. EBIT was up from negative 11 million to positive 11.1 million. EPS was up from negative $1.62 to a negative $1.21 on an adjusted basis. That was from 22 cents to 33 cents.

I'll spend most of my time talking about the segment info. I suspect that most of you have seen the press release from Friday. So we want to talk, mostly, about these segments and give a little commentary as to what we saw during the quarter.

I will address in the segment information both the year-over-year information and also the sequential information, being fourth quarter versus the third quarter of 2004, since we find that to be some of the most insightful comments regarding our business.

ILS. First, during the year-over-year revenue increase was approximately 20 percent from 378 million to 453 million. Sequentially, from the third and the fourth quarter, revenue was basically flat. All markets have stayed strong, certainly, and most notably the Class A truck market, recreational vehicle markets were also strong. There's continued optimism or there is cause for optimism as we look out particularly in the truck market and the new customer trends.

At the EBIT line, year over year, there was a 17 percent increase from 24.9 to 29.1 million. Sequentially the EBIT was down 11.6 percent from 6.2 to 5.5 million. This might look somewhat concerning at first glance. But it represents what we would consider to be a few items which we understand hit during the fourth quarter. Notably, steel increases continue to be a problem although as we've mentioned in past calls, we are mitigating those very quickly with a price increase strategy.

Secondarily, there was a -- there was the full -- we have not received the full impact of some of those price increase strategies, which were fully implemented at least the first stage on January 1, 2005 instead of during the course of the fourth quarter as we had anticipated, particularly with several large customers.

Lastly, a small but notable impact was the bankruptcy of a medium-sized customer, which needed to be fully absorbed, the cost of which had to be fully absorbed during the fourth quarter. So those items, I think, mask what was otherwise a nice rebound in the margin trend at ILS. And although we understand them and it's unfortunate they all hit at the same time, we have reason for optimism relative to the margin trend at ILS particularly in light of some of the long-awaited price increases that occurred on January 1.

Let's move onto the DIAMCO (ph) Division. Revenues year over year, 50 percent growth from 90 million to 135 million, sequentially up 23 percent from 35.7 million to 43.8. Clearly for the year Amcast -- the acquisition of Amcast during August of 2004 represents the lion's share of this growth with approximately $30 million in sales for 2004. We continue to be optimistic about the extra capacity at Amcast and believe there is significant revenue upside in the business but clearly recognize that the quote -- what they're calling the payback effect and the cuts that particularly at the big three, and some of the build rates, clearly will be an impact during March, April, and May.

Perhaps longer but certainly we're seeing those in the releases currently and we anticipate that although those will be modest, based on what we know now, they may offset some of the revenue gains as we start to feel some of the extra capacity at Amcast.

At the EBIT line, year over year, on an adjusted basis EBIT was down from 10.4 to 9. When I say that I am actually taking out the adjustments from the restructuring charges of 2004 so there are more meaningful to our conversation today. Excuse me -- the 2003 restructuring charges.

On a sequential basis, we were up 10 percent at the EBIT line at Ganco (ph) from 2.2 million to 2.5 million. The margin loss in that business, sequentially, from 6.2 to 5.6 represents some of the lower margin business that we absorbed to be bargained by at Amcast of that business. But I think it also represents some of the restructuring costs that were fully absorbed during the fourth quarter.

We talked about them on the last conference call. They included the closure of two plants and the restructuring of some of the employees of the business. We have absorbed the significant amount of those costs during the fourth quarter and think we'll begin to see traction at the margin line during 0 5.

Manufacturer products year over year, up 41 percent from 157 million to 220 million. Sequentially the fourth quarter versus the third quarter of '04 was up 14.8 percent from 53 million in revenue to 61 million in revenue. This reflects the continuing strength not only in the capital equipment sales but also in the forging market, as well. Neither of which of those markets give any cause for us to think that they are softening at all.

At the EBIT line year over year, as adjusted, was a 242 percent increase from 5.5 million to 18.9 million. On a sequential basis pretty much flat at about 5.2 million for each the third and fourth quarter.

Most notable, also, during the fourth quarter outside of the operations of the business was the refinancing of our sub debt as indicated in the press release during the end of 2004 and subsequently during 2005. We completed the refinancing of two $200 million worth of 9 1/4 sub notes due in 2007 with a $210 million of 8 3/8 sub notes due in 2014.

We did it for three reasons. One is to reduce risks in our capital structure as 2007 was quickly approaching. To be able to reduce our rates and to increase the flexibility.

I also think on a personal note that it paralleled some of the long-term strategies and the long-term growth opportunities we had in our current -- in our core current segments. As noted in the press release as well, we took a charge of approximately $6 million to offset the unabsorbed costs associated with prior financing.

Lastly, we also refinanced our bank deal at year-end from $185 million to $200 million. We did this for some similar reasons. First, to increase flexibility to support the current growth particularly in ILS. We also were able to decrease pricing immediately by 25 basis points with a near-term opportunity to go down by an additional 25 basis points.

There was approximately $54 million unused on that line as of the end of the year.

With that I'll turn over to our Chairman and Chief Executive Officer, Mr. Edward Crawford.

Good afternoon. I share Matt's thoughts, relative to our success in adding a 30 percent increase in revenues. On the other hand we are somewhat disappointed in the final EPS. I want to address in a little more depth before I go into the operations going forward, the impact of -- for example -- the Sarbanes effort.

As late as early June of this year. We felt that we would not have to be in compliance because of the valuation of the equity. As it turned out, as equity moved up, we were forced into compliance which we have been able to reach. But, clearly, we spent in excess of $3 million, meeting that criteria. We are satisfied that we have. But that was $3 million that I wouldn't say is unexpected, but surely it became a real serious issue beginning June of this year.

So through June of '04, we did not anticipate in fact that we had to meet that criteria. Even in the fourth quarter of the $3 million spent, $1 million of that total amount was in the really scary in the last quarter to meet the compliance. So that is $1 million.

I want to point out when we talk about $1 million in the fourth quarter for Sarbanes, we only have 11.2 million shares out in the count. So when I talk about $1 million I am really talking about EPS of 9 cents per share. There is not a lot of shares in this Company. I was asked by someone this morning, as this information started to go out. That person thought we had 20 million shares. So $1 million swing.

If we get surprised by $1 million or $3 million Sarbanes it affects the EPS of this Company. Particularly when you get 1 million in the fourth quarter. Another issue is the steel. Matt (indiscernible) the steel. Now we do not use steel in great consumption within the Manufacturing Products of our Company but through ILS we buy a lot of steel because we buy steel-related items. And the steel as we all knew moved rather dramatically worldwide. We were part of that.

But in our model at ILS, we were committed this year and when you have a ramp up in ILS of the degree that we're talking about, we are pleased to be able to say today that we met 100 percent. I do not know of one single account that we shut down or failed to provide as agreed the material.

As you all know that follow ILS, we are single source in thousands and thousands of customers. World-class customers. So we are a little disappointed that that steel prices come up rather quickly. We passed on some, but were not able to pass them all on in the '04 year.

Now we have made strides and I think you'll begin to see that we have and we intend to pass on increases that come to us. We fight to reduce cost in the other side but this steel event is really meaningful. There is a $3 million total number but at least half of that really hit in the fourth quarter. Because really the big price increases started to hit us. We fought them off until June/July but with the cycle of time in which we purchase worldwide and by the time they get to the marketplace, by the time they get to our customer and we want 100 percent supply and we can't go to a major customer in the fourth quarter. They say we've already sold the trucks. So you can't raise the price.

Well, we are going to raise the price, we did raise the price and we will get some of that in the first quarter. But that's another 2 million. So in those two categories alone, in the fourth quarter, you're talking about $3 million. Surprised? Yes. Managed? Yes.

We've done very well here with our credit and, unfortunately, we got caught by one company it's $1 million but that was a fourth quarter event. I don't want to go into the gas that was overbudget by a million.

So I don't want anyone to feel because we don't feel over here that we -- we don't like the number. Sure we're disappointed. But I just rolled off $4 million worth of real solid nonmanagement noncustomer related events. $4 million dollars is 35 cents a share. We started this year off with a projection in the marketplace for $1, $1.10.

Now here we are with $1.80. Sure we are disappointed. But at least we understand what happened. And I will assure you. Sarbanes, I think, will continue. We are all concerned about that, but it is not going to be $3 million. Going to be half that or $1 million.

The steel has started back down in a worldwide market. I think that will get that. And we have been able to pass on to our customers these increases. This is a lot of hard work but it can't be done at a quarter out of quarter.

When I put my fingers on the disappointment that surely we share here, this is not reflective of the future of this Company and our ability to turn in some rather significant EPSes. But, again, the fourth quarter was real lumpy but generally speaking, if you take these issues out -- the Sarbanes out -- at $3 million we have a great year. Take the steel out, it's a better year. You think the bankruptcy out and I'm not -- let's take half of that.

So I will assure you that all these issues are pointing out and I now want to talk about the future a little bit and the companies and how they're operating and some of the great things. But keep in mind that we're not pleased with it.

On the other hand, we do not see any of these as fatal blows or something that is going to carry forward. These have all been corrected or on the way to be corrected or largely out of our control.

Now I want to go -- what I always enjoying talk about is the operations side of the business. I'd like to start with the Capital Equipment Group and talk about, obviously, the great successes there. Our Ajax Tocco Magnethermic unit, which we continue to talk about that is a primary supplier to steel industry worldwide.

We all know what's happening in China. We all understand what is happening in Russia. Everywhere where they're building steel mills, we have a tremendous foothold. A footprint around the steel production. As we do in the pipe equipment business with our PMC and colonnade (ph). We just recently were awarded a new order -- approximately $18 million from Pakistan. Where they are drilling for gas and oil.

And if you are drilling for gas and oil worldwide, you need our equipment. What's important about our strategy around capital equipment is not only do you sell capital equipment but every single business we are in -- the pipe business, the induction business, the forging business -- every single business we are in where there are capital goods involved, there is a service and a parts trail.

So when you're turning out capital equipment like pipe machinery, you are talking about Ajax and magnethermic and the steel and the gas and industries -- we're there. And if you going to be in the forging business where we are, we have less of a footprint than we had before but we are making these locomotive crankshafts. With our all-time production high we see no abatement in that in '05. In our forged plant, (indiscernible) forge in Chicago which is basically the military platforms for all of the military planes and it is very very strong. So at Ajax Tocco Magnethermic's steel related gas and oil related forging where we are positioned and locomotives, those companies are samples of the capital equipment and forged machine products that are strong last year and will be as strong if not stronger this year.

We want to talk about the aluminum business. Everyone understands that we made an investment in a company called Amcast. This indicated in the last call was going to be a very important part of the future of the Company, relative to earnings and position. This is the aluminum components industries and you can say disarray with people chaptering (ph) all around this Company. But I promised the board here that we will have this totally integrated by July.

We have closed one plant. We closed another plant. We are consolidating all of that business into one facility. We have renegotiated what contracts we had with the unions and our union free plants and we are driving towards and will accomplish by July 1st of this year to be the low-cost producer in this particular space. There will be cars and trucks manufactured in America for a long time and we believe we have the right strategy here.

Amcast is everything we anticipated and more. Yes, we are absorbing the expenses, relative to the shutdowns and what is necessary to do something, which would normally take two years to do it in nine months.

So we are in a rush to get it completed. It will be completed by July 1st but this, clearly, will have a serious impact on this Company in '05. And into the future. So I'm very optimistic about our decision to do that.

I am going to move over a little bit to ILS where we continue to have a substantial investment. I pointed out earlier in my presentation about our ability to make sure that we supply all of our customers this year, 100 percent. We have a tremendous responsibility to major companies in our business. In every segment -- trucking, snowmobile, lawn and garden. We started the share we were committed at all costs to continue to give them the type of service no matter how it ramped up.

And there were some industries that exploded and we had to incur a lot of cost to bring things faster to them but I do not know of one company that ILS, in that world-class group of customers that we shut down one production line. So when you grow this quickly and you respond this quickly and could have this type of growth in ILS -- and it is substantial and will continue to grow -- the reaction time, the steel time. That's important. And it is important to make earnings per share. But it's also important to live up to your customers and we have this footprint with ILS worldwide.

We accomplished the goal for our customers and we look back at that as something that will service well in the future. We've been invited back to China in May as Matt and I have been there several times. As you are aware, we have what I call the Park-Ohio Mall -- the little Mall in Shanghai -- where we started making rubber products and now we're starting to make little service products for Ajax Tocco. Some rubber products.

And we are right where we want to be. We are established in that country. We are now a manufacturer, but the most exciting thing we have in going there is, I was there a year ago and made a presentation on logistics supply chain management. Our view of logistics in China. This presentation was featured in a major logistics magazine. We have been asked back in May. We are going to be doing a symposium there bringing three of our world-class customers there. We have a number of their professors, studying our logistics supply chain management concept and we are very optimistic that we are going to have a very large crowd. We are anticipating a group of some 4 to 500 that will be there to talk about logistics supply chain management.

We have a number of outstanding Chinese companies that want to deploy our logistics supply chain management system. So this is real. This has got tremendous potential and I think that we are going to follow the customers to China. And we are on the way there. We are there. We are setting up with a couple of customers. People that already have plants that are asking -- Matt just came back from spending eight days there.

So this logistics supply chain management company or concept is real. I want to look at what we're trying to accomplish in the future. Last year, we put out guidance of $1, $1.10 and we did pretty well. We got some modest guidance out there now and we expect to do very well this year.

I don't want to feel if I come back and maybe Sarbanes will come back or some other equivalent of it and that will be another $3 or $4 million or maybe the steel will happen. But I'm very -- very bullish about what we are. I think we've got our businesses positioned correctly, the economy is behind us. And I hope that our bondholders, our shareholders are as pleased with our results this year as our employees are and, more important, our customers.

I think we did a great job for our customers this year and at some expense for ourselves. But I want to be reminded, $1 million in any of these categories is 9 cents a share. This is not a big company when you talk about the number of shares in the marketplace.

So I would like now to open the floor to questions.

(OPERATOR INSTRUCTIONS) Sarah Thompson with Lehman Brothers.

I want to go through a couple of the one-time items again. In the fourth quarter, you had $1 million of Sarbanes-Oxley cost, 1.5 million of steel cost, and $1 million from the (inaudible). Are those numbers right?

That is correct.

So if I translate -- maybe I'm not doing the numbers right but I think I'm translating your EPS guidance and EBITDA guidance into 65 1/2 to 67 in change. Is that done right?

I can run through it. I think it's a hair higher than that.

I can check up with you off-line because that may answer my question. I guess what I'm trying to figure out is let's just say it's a little higher than that. Your EBITDA was 64 1/2 for 2004 and you've just listed all of days one-time items or items that you don't expect to repeat in 2005. So I'm trying to figure out, is it just in the automotive side? Is that what the conservativeness is around it or -- ?

I'll jump in. I think that there is, clearly, some uncertainty relative to the automotive markets. I think that although we continue to see a lot of great quoting activity at Amcast and particularly on that extra capacity (indiscernible) as well. I think that we quite frankly have learned our lesson. During the fourth, the end of the third quarter and the fourth quarter of this year, relative to what we have been hearing on the auto market as far as revenue and what we have seen in terms of increased pricing pressure from our vendor base at ILS and although we have mitigated both nicely, it is very difficult for us to have the type of clear vision into particularly the third and fourth quarter of this year to put anything that would be considered more than ultrasafe on the boards at this juncture.

I recognize that might be a little frustrating to you and other investors on the phone; but since we are only doing an annual guidance number, and we will update it at every call going forward, we feel that it is most comfortable to start with the e numbers that we put out.

Rich, what's your EPS actually translate into for EBITDA?

I don't know that we've ever announced that. But it is in the high 60s.

Keep in mind the only unit that really is impacted dramatically by sales of the automobile -- let's say, the big three. It is just general aluminum. It's the aluminum division. Capital goods and (MULTIPLE SPEAKERS) and I think, because the acquisition of Amcast, remember, brought us in seven new customers and a lot of new product line.

So we will be able to grow particularly year-over-year and '05 and '06 should be good years for us even if the automobile industry comes down relatively speaking to going back.

Are you at a point where you are willing to talk about what this cost savings are from Amcast or --?

When we get the July -- I think we've talked a little bit. In July when we're -- it's complete we will be glad to issue that. We realize that we have a combination of indirect and direct labor savings. Plus consolidation of the plants and reduction of better buying of the aluminum.

But we would like to wait. I guess everyone in the industry would like to know why we think we can continue to be profitable. But our goal is to be the lowest cost producer of those products. So I don't give out the necessary -- the secret syrup today -- recipe. But clearly at some point I think we can identify for everyone what we have been to accomplish in a 9 month shakedown cruise.

On the ILS side, I know you said you put through price increases for the -- to offset the higher steel cost. Obviously there has been a huge increase in steel costs over the course of the last year. So when we get into first quarter, do your price increases offset that full amount? Or is it just a portion of it?

That's a tricky question to answer. Principally because the answer is yes, relative to the increases we saw during the fourth quarter but because of the nature of the way we average costs our inventory, we saw what I would consider third quarter announced increases that didn't really hit our financial statements until the fourth quarter. So I think that in order to be able to pin down a specific number -- which I know is what you're trying to do and it's going to be challenging. What I would tell you is I think that the cost increases that we were able to achieve through the fourth quarter and then notably in the beginning of 2005 are very meaningful to the overall margin of this business.

Philip Fucelli (ph) with CIBC World Markets.

This is actually Carue (ph) for Philip. I was wondering if I missed it. Did you give the actual integration costs to date for Amcast?

No, we have not.

In terms of capital expenditures for the fourth quarter and the outlook for 2005 is there any color you can shed there?

I'm sorry? You are asking about that fourth quarter CapEx?

CapEx for the fourth quarter, correct.

CapEx for the fourth quarter was about 3.5 million -- 3.6 million and the total for the year was about 12. That's a bit under our average over the last few years.

When do we expect to see CapEx spending going along that historical average in the upcoming year?

Approximately 15 million.

With the forging business going so strong, has there been any progress on potential sales or are you still looking at eventually divesting that business of that four-time EBITDA range or so that we have been discussing?

We continue to have interest -- this is Matt. We continue to have interest. I think there are some good strategic fires in the business. Quite frankly there's two things that probably make it challenging at this particular moment. One is the upcoming union negotiations at one of our three forging facilities and, secondly, is the business is being extremely successful and becoming more profitable. I think as it does that, obtaining what I would consider a fair multiple and that would be in excess of four times, becomes something that is cause for a second look from our management team. And to the extent that our expectations have done anything, they have gone up. I think that there are some buyers that continue to be interested. We continue to work with them, but the business has improved more quickly than even we had expected.

That's certainly good news. In terms of a secondary equity offering and looking at the capital structure. Have you given any additional thoughts to that or give us about how your target leverage is for the upcoming year. Where you envision yourself and where you would like to be?

Sure. First, relative to the equity picture. Our goal, of course, was to try and nail down the refinancings from the debt portion of our balance sheet last year. We are happy with how that went. It is our expectation that as we begin to roll out our 2005 plan we are extremely optimistic as Ed said about our plan. We believe that the short-term performance of the business should be able to substantiate the current price of our equity and I think that, in this range, we will look more closely at doing a follow-on.

No question that we would like to use equity, if possible, to really deleverage the Company. Having said that, certainly, we believe that our Company is more valuable now than it was six months ago.

Greg Hyde with Wachovia securities.

You talked about the price increases that are getting rolled in here and recall right now, first quarter this year, but I don't have a sense of what the magnitude is. Are those things low single digits, in the teens? Can you give us a little guidance on that?

Our goal is to recapture at least 50 percent of the steel impact on (indiscernible) the previous year. We think we can do better than that but if you take the number of $3 million, we think we can do better than 50 percent of that and recapture it and have a larger recapture in the first part of the year.

Greg what are you -- when you are articulating those numbers, what are you looking for? Percent number or what?

Just trying to get a sense for when if you have a customer at the other end of the telephone call or visit what kind of pricing figures are they going to feel? Are they going to feel something low which is something they're going to the reluctant for or is it something that is going to cause them to say "hey we need to revisit. We will deal with this now. We are going to revisit the sourcing?"

Very good question. I would tell you that as Ed pointed out in general, we have not been able to achieve at one point. We have to achieve 100 percent of the recapture of the steel price increases. The increases really depend, customer by customer, on the amount of steel product being used. Greg, as you know we don't oftentimes we don't do a lot of steel products with some customers. Other times the do a ton of steel products. So quite frankly, it's difficult to say. I would say on average, we are looking for increases that are more reflective of the call it 10 percent range than some of the increases you have seen than you have actually seen in the steel marketplace which in some parts of the world they have been 30 and 40 percent or more. Our ability to mitigate our purchasing, relative to resourcing in our own ability to resource in our vendor base and to change the engineering and to do those things that we do well to keep costs down for our customers have been very effective.

So we have not found in any instance yet that our price increases by a significant customer has been received with a need to try and resource the business. Particularly in light of the fact that, now, not only are they talking pricing but these people are trying to run large plants where they need to get this product. And although it is easy to talk about price increases, they are concerned mostly and should be with just getting products.

And these relationships are very important and some of them are very large; but we have really intelligent people on both sides so this is not a challenging atmosphere. Customers that we're talking about really understand what the steel is, long-term. What has happened to us and, generally, it's a great atmosphere. We don't feel that there's any hostility around us, trying to recapture some of this.

Second question. My recollection is is that within the aluminum product business, as it relates to materials cost, that you all have your contracts arranged in such a way that there is a catch-up. And that is, if prices are more or less pegged to an index and if prices move within a period then you have a make whole if you will after the fact. First of all, is my understanding correct? Secondly, is that applicable also to your Amcast business because that is sort of a he different business I think.

No, it's -- you are correct on the first count that we have an absolute pass-through, just a pass-through on the aluminum and that is both General Aluminum, and Amcast completely. That is you know in the other side of the business, they've got (indiscernible) side of the business that was not the case. We don't do that business so we haven't been in it but, no, we're not aluminum speculators.

Okay, I just did know if those contracts were different than (inaudible). I guess the last question is -- don't quite how to get at this but I don't have a sense and I don't know if you're going to give it to me but I don't have a sense as to what degree the Amcast business will be an EBITDA contributor in '05. Can you give us any kind of maybe even a range on that?

We are not inclined to talk about that anymore during 2005. Generally because it would be impossible particularly after the closure of the Wisconsin plants to break apart the two parts of the business and give you EBITDA for each part.

So the integration is largely complete. It is complete during 2005 from an operational perspective; and it would be impossible for us to actually make that happen but I can tell you, if you look at the business week cap on a product by product basis it will be -- it will add to the overall EBITDA of the Company.

I can't give you a range because it is going have a lot to do with how we would account for some of the overhead expenses etc..

Richard Rossi with Morgan Joseph.

I just want to go back to these charges fourth quarter items just to make sure I am clear on a couple of things. Really, actually, it's the Sarbanes was 2 million in the third quarter and 1 million in the fourth?

No. It was $3 million for the year and 1 million of that was in the fourth quarter in the final rush to meet compliance.

What did you have in the other three quarters? Was the rest split evenly?

We spent some Sarbanes-Oxley Section 404 related cost in the first quarter even though we thought there was a pretty high probability we weren't going to be required to conform. And, then, somewhat more in the second quarter building the third quarter with a peak in the fourth quarter.

We didn't bring on, not knowing that we were -- we would need to comply during 2004 until July -- we didn't even bring on what I'll call outside vendors.

Right. So you have to catch-up.

Until September. So all the real outside costs, if you will, which were the big dollar items, were incurred really at the end of the third quarter and the fourth quarter.

And do you believe that your Sarbanes compliance costs in '05 will be lower than '04?

Yes, substantially lower.

Because you wouldn't have these outside vendors? (MULTIPLE SPEAKERS)

Use a certain amount of outside assistance for things like computer system reviews, things of that nature, but it is not going to be of the same magnitude as we saw in 2004.

And from a comparable basis as I am looking at the first and second quarter '05 results, am I going to have a negative comparison in Sarbanes against '04? In other words, your cost in '05 even though their reduced annualized will be higher in the first half of '05 than they were in '04?

Yes, I believe that is accurate.

All right I want to make sure of that. On this bankruptcy, I'm sure you run into things like this -- maybe not of this magnitude, pretty much -- probably almost every year. So in terms of looking at the cost related to having to deal with customers who walk away from you in a bankruptcy. Is the 1 million on an annualized basis much different than what you might experience in an average year?

The reason we brought up Murray. You are right it's not unusual in the business to see these small small pockets. This, independently, was a very significant one for us. We don't typically see things of this scale so, yes, it was high. The reason we mentioned it though is not out of the context of things that we deal with in our business. We raise it because we recognize that everyone is focused on the ILS margin and we believe that the underpinnings of the operations of the fundamentals of the operations are allowing for an improvement in margin.

So it was something that not only was significant and outside the box on the high end but one we thought it was important to explain when we might not have usually done it that really -- the fundamentals of the business are improving.

Moving onto the Amcast acquisition. Did I catch you correctly. You have already negotiated with the unions?

Yes. The plan that's been in place since the very beginning is -- we closed the process of closing which Wisconsin and that volume will be transferred into a plant in Richmond, Indiana in which we have negotiated a brand-new, spanking-new, six-year contract. Very favorable terms. Some of that work will be going into our union free facility in (indiscernible) Ohio. So all the volumes from Cedarsburg will be consolidated into two locations. At more favorable wage rates.

One final thing, because you covered most of everything else that I was concerned about. ILS, 20 percent revenue growth in the year. How much of that was new customers or expanded customers? If you have some sense of that, as opposed to just volume -- just plain volume -- but volume in terms of additional assignments by customers to your operations?

I would think that somewhere -- that's a question that we are going to have the boys scramble there and get for me but my sense of it is it's probably somewhere between 65 and 75 percent of that business was internal growth based on growth within our customer base. The balance was the addition of new business.

What we have found with our success and our systems and so forth, relative to ability, we can go down to a -- doesn't have to be a $50 million dollar customer. So we're having some success now and we dialed in on this, taking on 10 and 15 12 million $8 million pieces of pockets of business. They don't make a big splash but not as quiet as exciting as getting the contract from the Volvo Mack.

Sure but they add up at the end of the day.

They add up at the end of the day and quite frankly, it's one way to build up the margin. So that's a good number. We will get you more specifics on that (MULTIPLE SPEAKERS)

Thank you.

Greg Hyde, Wachovia Securities.

I know you said that your revenue contribution for the year from Amcast was about $30 million. Would you expect that -- will that be a reasonable run rate to think about maybe with a little bit of growth as for '05 or does it ramp more than that?

The $30 million, of course, only represented the last week of August and the remaining portion of the year after that. No as we mentioned before, we have rationalized some customers; they are particularly the low margin customers. So to take 30 million and divide it by the weeks we had and multiply it times the entire '05 would not be accurate.

Can you help me a little bit how to think about that as a baseline anyways?

I think we have indicated in the past that we anticipate and this is an '04 cast or one that I think is so reasonable that Amcast would be approximately $70 million in revenue for 2005.

There are no further questions at this time. I will turn the floor back over to management for any further closing remarks.

Sarah, you had previously asked the question relative to EBITDA and I think my answer was a little weak because we haven't typically forecast it; but I don't want to mislead anyone or give answers that aren't available to everyone. The ballpark EBITDA that corresponds to the EPS range that we are forecasting is around $70 million.

Okay, well, ladies and gentlemen, thank you very much we appreciate your continuing support and we are pretty optimistic here about '05 -- sorry about the disappointing breakdown in the EPS in the final quarter but I think we've tried to address it as completely and as straightforward as possible and obviously it's not reoccurring and we're anxious to get (indiscernible) with '05 and thank you for your support and have a nice day.

Thank you. This does conclude today's teleconference.