Park Ohio Holdings Corp (PKOH) 2005 Q2 法說會逐字稿

Good morning, and welcome to the Park-Ohio Second Quarter 2005 Results Conference Call. [Operator Instructions]. Before the conference call begins, please remember that the company will be discussing some issues that are historical and some issues that are forward-looking. When the company speaks about future results or events, there are a variety of factors that may materially change their actual results from these projected.

A list of relevant factors may be found in the earnings press release as well as in the company's 2004 10-K, filed with the SEC, on March 16, 2005. The company undertakes no obligation to update any forward-looking statements, whether 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 principals and 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 EBITDA is a measure used under their credit facility to determine whether they may incur additional debt under such facility. For reconciliation from income, before income taxes, to EBITDA, please refer to the company's current report on Form 8-K, furnished to the SEC, on July 27, 2005.

Now, the meeting will be turned over to Mr. Edward F. Crawford, Chairman and Chief Executive Officer. Gentlemen, you may begin.

Good morning, ladies and gentlemen. We're here to review the second quarter results at Park-Ohio. And at this time, I'd like to take the opportunity to turn the presentation over to Matt Crawford, President and COO.

Thanks, Ed. Welcome to our conference call. We're excited to be here. We set some records for Park-Ohio Industries in the second quarter. So we're pleased to say that we had a solid quarter, as expected, and we're on our way to, I think, a solid year. The quarter was highlighted by ongoing double-digit increases in both sales and earnings.

I think growth has been extremely solid, as expected, but to get another quarter of the double-digit increases is great. Sales were up 13.9%, to $229 million, approximately. The net income number was up $12.7 million, to $7.5 million, approximately. And EPS was up from $0.60 to $0.66, as I'm sure, you're all well aware. And our EBITDA was up almost 10%, from 19 -- excuse me -- up to about $19.5 million.

So, as usual, I'll give a little bit of color by segment. In the ILS segment, sales were up 12.8% year-over-year to $129.5 million. This increase was highlighted by ongoing strength in the heavy-duty and truck and bus industry, but also lawn and garden, some government work. We were offset with some softening in the semiconductor industry. But by and large, virtually, every major area that ILS is currently working in was quite strong.

At the EBIT line, the EBIT amount was more or less flat year-over-year, at about $8.3 million. As you all know, we've been monitoring the margin enhancement on a quarter-over-quarter look as opposed to a year-over-year look, as we try to rebound from the incremental margin damage last year. There, we also saw a flat margin, Q1 versus Q2, at 6.5%.

I think likely, not because we're not continuing to see the effectiveness of our price increase strategy, we are seeing that. But I think we had a little bit of a product mix issue in the second quarter, which I think ended up costing us a little bit at the margin line. We do expect, based on our cost efforts and our pricing strategy, for margin to continue to expand throughout the rest of the year, after this brief rest in the second quarter.

In the Casting Group, our sales were up significantly, 52.4%, to $43 million, largely on the revenue from the Amcast acquisition, offset by some modest give backs in volume during late in the second quarter. I think we talked extensively on the first-quarter call that we expected to see, roughly, a 5% volume dip in the second quarter. That's about what we saw. We had to shut down, I would say, at least one large plant for a couple of weeks in June because of the slower volumes, especially to Ford as well as GM.

I should also note that as we look out into the third quarter and into the fourth, as much as we can see, it s a little fizzy into the fourth, the information we are getting and the schedules we are getting at this point are reasonably strong. Not as strong as they were at this time last year, but surprisingly strong given the environment in the auto industry. Certainly we are curious, as I am sure, many people are about how the change in the GM marketing strategy over the past weekend is going to cause us or how it will impact our business. But at this point, we're optimistic.

So, I would expect to continue to see, as we look into this third quarter possibly year-over-year volume dip on an ongoing basis of, call it, 5 or 6, may be 5 to 8 in terms of the -- excuse me -- the percentage of sales dip. At the EBIT line, EBIT was up 26.9% to $3.5 million. Margin was down year-over-year from 9.7 to 8.1, but also we've been looking at that issue more on a sequential basis. Margin was up nicely to 8.1% from the first quarter when it was at 5.6%, really caused by the early benefits of the Amcast effort. We have had a very successful -- we have been executing our plan and our efforts in terms of making sure that we pick off low-hanging fruit and the consolidation of the Amcast and GAMCO has gone quite well.

In the manufactured products group, sales softened ever so slightly principally due to the shift of some timing for capital goods that we expected to ship at the end of the second quarter. It looks like they won't go until the beginning of the third or have gone. And that slight shift caused us to dip slightly in sales year-over-year. But in general, we're still seeing extremely strong business activity whether it will be at locomotive, aerospace, steel, certainly oil and gas. So that continues to be a very strong segment of the sales line. EBIT advanced 13.8% to $5.9 million principally due to great product mix where perhaps we got beat up a little bit at ILS with a poor product mix or a less than perfect product mix. In this area, the higher margin capital goods were responsible for an increase in margin.

Turning to our leverage picture and our debt picture, we are able to decrease total debt in the second quarter by approximately $2 million. We we're able to do this while funding approximately $4.1 million of CapEx. We also funded approximately $5 million in -- really inventory specifically related to some of the capital good shipments that went out early in the third quarter. So, in general, I think those were very -- a specific effort that will flow through by the end of the third quarter.

With the acquisition of PPG, it is unlikely that we'll be able to hit our target of being able to pay down total debt by year-end. At this point, we're reorienting our expectations to be more in the ballpark of cash or -- excuse me -- of debt neutral for the 2005 period, which we think is an excellent goal for our company in light of the substantial growth and the acquisition of a solid company. With that, I will turn it over to our CEO, Ed Crawford.

Thanks Matt. Records are made to be broken. The $0.66 in the second quarter here at Park-Ohio is a record EPS for quarter. We look forward to breaking that number as soon as possible in the future.

I want to comment on, a little bit, about General Aluminum and then talk about PPG. General Aluminum has received in the last 10 days what I consider a very, very important new block of business, annualized some $20 million plus. But what is exciting about this particular block is there's very little CapEx connected to this -- less than $1 million.

We are continually -- I pointed out we have had considerable capacity within the acquisition of the Amcast facilities. Although we've reduced it from three to two, we have a large, embedded capacity, particularly in one location that's going to be absorbed -- not totally, but absorbed with this new roll out, this is a '06, '07 event, but it's a terrific block of business and part that we know that they're new customers and, again, with very little CapEx.

These are the type of -- blocks of business we are quite interested in aluminum business. We intended to add some capacity through the Amcast acquisition. We're clearly going in the right direction and hope to be able to fill all our plants up sometime in the latter part of this year and go into the future with the capacity completely dedicated and utilized, which will ultimately affect the profitability of the company in the future, as we strive to continue to be the-and I've said this over and over again--the low cost we do to serve a high quality product.

The aluminum business is very solid. I know this is a segment that's auto related, but continually we feel that there'll be a place for component manufacturers -- competitive component manufacturers in aluminum and other products for the foreseeable future. And again, through our relationship with Amcast, we continue to diversify not only the types of aluminum we make, the machining and the customers. So the strategy is starting to payoff and we're pretty excited about it.

A quick comment on PPG. Let me point out that we have been in and out of negotiations with this company for over four years. I can't think of a transaction I spent more time on. But it finally was completed. This is what we call affectionately here a "bolt-on." What I mean by "bolt-on" is taking a business that is added to a core business lines like ILS. We're able to get the synergies consolidating on inventories, people, personnel, pick up a lot of new accounts. In this particular transaction, we picked up nine new major accounts, new business segments. It will be modestly accretive to this year.

In '06 we expect these margins, on that block of business, which will be absorbed by the company, by ILS, to reflect the margins historically presented by that particular unit.

The sales are approximately $70 million. We could have some shrinkage in the sales. There's a couple of blocks of the business, let's say, no more than 15 to 20% that we're looking very, very closely at with an eye towards revisiting the pricing structure and the quality and some of the things that we're unhappy with. But, generally, the lion's share of this $70 million has been confirmed and will be going forward.

A quick note about the purchase price. We paid $9 million for this company in cash and notes. We assumed some $12 million in trade liabilities -- no other liabilities, trade liabilities, and this is a decision we made jointly with the selling party to ensure the ongoing supply of product, to make sure that we were able to have continuous supply to our customers, no disruption. I think the trade group -- particularly, we're very excited that we were able, again, with the support of the selling party to be able to ensure the trade who had a considerable investment in this company dollar-for-dollar. So we feel good about it, and I think all -- everyone in the marketplace should feel good about it.

We were fortunate on the other side to pick up a considerable group of assets. The current assets were $26 million, $27 million, and the lion's share of that, $25 million of it being what we call current assets, good receivables and inventories. So we have a great story here relative to ILS in the future and new customers. I think its something that we've worked hard on. And as we speak now, we're integrating it and it'll take a while, but this is clearly going to have a material impact on ILS in '06 and beyond to new customers, profitability and it's just expanding across many different segments.

Other fortunate aspect of this is, like in all good acquisitions, the heart of it is people, and we are -- the consolidation will affect some, yes, as we close the warehouses. But, at the top end, this is a very good company. There are a lot of good people, good owner, and it's just -- wasn't their core business and that's why it became available to us. And we think it is our core business and we believe this is strategically something that will be very, very positive for everyone, the shareholders and all of our employees. At this juncture, I'd like to open up the line for questions, please.

[Operator Instructions]. Your first question is coming from line of Lauren Holland with Lehman Brothers.

Hi. It's Sarah Thompson, actually. How are you? A couple of question, and I'm sorry if I missed it, but on the PPG, what segment does that have exposure to?

Well, about 50% of it is auto-related, particularly in the Seattle area and the customers that we're supplying in the Detroit area are across multi-platforms and multi-manufacturers. So this is not further concentration or concentration of business with The Big Three. This is the transplants; this is a very diversified group. The other is -- and has one major account there that's particularly significant, but the others are quite diversified in businesses that we're not in. And, for example, we're going to be a major supplier in the trailer industry. So, it fits very well.

Okay. And I think you had said, Matt, that the margins on PPG were going to be -- I couldn't understand the comment. Are they're going to be just similar to what your base ILS business is going to be?

Well, actually I didn't make a comment on that.

I'm sorry. I thought one of you did. I apologize.

No, I think what we've tried to say in our press release about the company is, there is some heavy lifting here relative to making sure we integrate this business and make it the kind of business that we would want to own. It was not a -- or it was a marginal and non-profitable company when we bought it. So we've got some work to do here. Some of it will be very quick. Some of it will take a little bit longer. So we expect it to have a pretty nominal impact in '05 and certainly we would expect sometime in '06 to be able to get it to the type of margin that we expect to see out of ILS.

Okay. Great. And then when you said free cash flow or I guess your net debt position isn't going to really change for the year. That s after the $9 million purchase-price, so your operating cash flow minus CapEx should be around $9 million or $10 million?

Yes. We've been hoping throughout the year to be able to end the year with a lower debt number. At this juncture because of the investment of that $9 million only $7 million of it was in cash, $2 million of it in notes, we expect to have put that goal in jeopardy. So we would expect to be somewhere in the ballpark of neutral for the year in terms of our debt levels maybe with some modest risk on the upside.

Okay. Great. And then just last question, on the manufactured products segment, obviously, fantastic margins in the quarter. Is that mix of business something we're going to see in the second half of the year? Or was there something specific to the second quarter?

No, I mean, I think that we continue to ride an excellent wave and particularly in the capital goods business where we've been hot as a firecracker in terms of not only building new types of melters and heaters for the steel industry and pipe threading equipment offshore which is -- there has been a real need for. We are also seeing a very active US based service business right now, which is very high margin. We would anticipate based on the coating activity that that will not change for the rest of this year. But it is clearly on a historic basis towards the high end of the volume range.

And , Sarah, we've combined from the marketing viewpoint, the effort of Ajax Magnethermic and the Pipe Group, Pipe Machinery, Column A(ph) and in Cleveland and that's been very well received in the marketplace. This is now a capital goods company that's viewed strategically from the steel industry, some oil and gas exploration. We're having a much stronger, much more flavor to our international efforts. So the combined companies look and act in the marketplace with a lot of presence and I think that that is bringing some very positive new inquiries and new areas that we're being drawn into.

So we're pretty excited about some of the businesses that -- the opportunities that are being talked to us -- not even in our core business, one, in particular, that's been shown us that is highly engineered product, but it's not -- hasn't been something we've made today but it would be great to get into it because it would be kind of countercyclical to these other industries.

Great. Terrific. And then just one last question -- I apologize. On a sequential basis your revenues are relatively flat but I think your SG&A is down about 1 million in quarter? Is there any onetime benefit in the second quarter? Is that kind of a good run rate to use?

No I think the second quarter's representative of the future.

Okay. Was there something you guys actively did between the first and second quarter to bring that down or --

If you remember in the first quarter we talked particularly at corporate that the numbers were up a bit, Q1 versus Q1 of the prior year, which was a combination of Sarbanes and some one time hits. I think what you're seeing in Q2 is what you'd expect to see on a go-forward basis.

Terrific. Thank you. That's all I had.

Thank you, Sarah.

Thank you. Your next question is coming from Richard Rossi with Morgan Joseph.

Good afternoon, everybody.

Hi. How are you, Richard?

Okay. Very nice quarter, I'd have to say. Just a couple of things. You mentioned that in the castings group, the coming quarter, you're anticipating volumes could be down 5, 6, 7, 8%. Is that versus the previous -- this last quarter or is that versus last year?

No, that's versus last year, Richard. We're -- as we'd indicated at the last conference call, we had thought there might be a 5% slippage in the volume during the second quarter.

Right.

Frankly, toward the end of this second quarter, we got worried that that might continue and even be greater through the end of summer. It appears at this point that volumes and schedules are strong and we're hopefully optimistic that that will stay that way. But I think a fair estimate of a volume dip year-over-year would be to still use that 5%.

Okay. And in terms of margin pressure, would we be wise to expect margin pressure to be greater in this quarter than last quarter related to that volume decline?

We -- it's a good question. We've made, as I've pointed out, some traction on the margins front, particularly, in that group because of the -- kind of the benefits we're seeing as we're able to tackle the low-hanging fruit of getting Amcast sort of fully done in terms of full company. I would have to say that our gut here is to the extent that we see greater than that 5% volume dip that there could be some extra margin pressure. I don't know if we're going to get the kind of benefit in the third quarter that we saw in the second quarter.

And related -- I might have missed this, related to ILS, you talked about a less than great product mix in the second quarter. As you see things shaping up in the third quarter, is that continuing in terms of the mix or is that shifting?

No, I think they we're -- as I mentioned, I think we're going to continue to see the sequential margin improvement. We didn't see it -- we saw it basically flat in the second quarter. So, no, I would expect that whether it be a slightly improved product mix and also the benefit of the ongoing effort for the increased pricing strategy and the cost. No, I would expect to see a ongoing increase and ongoing margin expansion.

Actually that was what my question was related to. You did say that you're being -- with margin issue but is that -- again, is that a function of the mix or is that a function of the benefit you're getting on the cost?

Well, it's both. Yes it's both. I mean we've got --

Okay. And you're expecting it to be both.

Our product mix was a little skewed towards lower margin accounts in the second quarter.

And you're expecting that to improve --

We're expecting that to improve in the - be more normalized in the third, allowing it to get more benefit.

Got you.

Now I will point out from a margin perspective, a lot depends on how quickly we can integrate the PPG deal, because as we pointed out, we expect that to be modestly profitable for the year, pretty weak out of the gate. So the jury's out relative to how PPG will impact our margin at ILS in the third quarter.

But certainly, one would expect that to be integrated in the second half.

Well, considering we didn't start until last couple of weeks, I would say that --

Okay.

-- our ability to fully integrate this business, as we saw at Amcast, we'll see some low-hanging fruit in the first 90 days, but the business was fundamentally a breakeven business when we bought it. So it will provide negative margin pressure, there is no question, in the first six months of ownership.

And just one final thing, working capital requirements in the second half?

Yes. Rich, this is Rich Elliott. We would expect working capital reductions in the third quarter. Again, we're generating cash by a combination of operating earnings and working capital management in the second half.

All right. That's about it. Thanks very much.

Thank you.

Thank you. Your next question is coming from Phillip Volpicelli with CIBC World Market.

Thank you. With regard to PPG, are you going to keep those facilities or are you just going to roll the contracts out of your existing facilities? How that's going to work -- the integration?

Well, a number of their warehouses will be consolidated into ours. And in two situations, our warehouse will be consolidated into theirs. But there will be a major reduction of total overall units. But we are picking units that best suit us for the combined companies.

Right.

So it'll be a reduction of a number of warehouses. Yes, ultimately.

Okay. Can you us a sense of how many they had just to start with?

They had approximately 12 locations, initially.

Okay. Great. And then you mentioned the new aluminum business, the $20 million, there. Can you give us a sense of what the margins will be on that? Are they at or above what you're currently getting?

Well, let's just put it this way. We don't want to get too far into the future, but I think that these margins will be comparable or slightly better than historically, as we absorb this business.

Okay. And then, when we look at the aluminum margins, it was up nicely, from 5.6% to 8.1% in the quarter. What are the expectations there? Should we continue to see that rise or have we, kind of, reached the -- a plateau there?

Well, no. Our expectations long-term is to be well more than that, as we have historically at points and, I guess, as recent as last year. But having said that, I think, we just answered the question about concern over some volume dips in the third quarter. So I would expect that any incremental volume dips will be somewhat offset by the continued cost savings we're doing, relative to the Amcast acquisition. But having said that, there could be some margins pressure in the third quarter.

Right. Okay. And then, we'd spoken in the past about potential asset sales that you guys had out of the Manufactured Products Group. Anything you'd want to share with us in terms of what you're looking at there, anything you are feeling, and anything that's close?

No. I mean, other than to say that we continue to -- we recognize that the market is very good relative to the sale of assets, right now. And we're cognizant of that, but we don't have anything to say at this point.

Okay. And then, just finally, the secondary equity offering that has been on people's minds. I know it's been a little bit delayed. Is that still something you guys would consider sometime around the fourth quarter, first quarter of next year?

I would want to put a timetable on it, but, certainly, it's -- we have an interest in being able to de-leverage the company by using some -- the ability to use equity. But having said that, I think that there's a timing issue and a market issue that we have to be smart about.

Okay. Great. Thanks a lot.

Thank you. Your next question is coming from Greg Hyde with Wachovia Securities.

Good afternoon, gentlemen.

Hi, Greg.

Just a quick question and clarification. And that is with respect to aluminum products. I think you guys said that volume in the third quarter of this year will be down - call it 5 to 8%. Now that 5 to 8% on the same business last year or does that include the Amcast that you get the full benefit of from this year?

This is a pretty interesting question. We -- the numbers we were referring to as we mentioned to the earlier question are year-over-year volume demands. S, we would expect that on a fully integrated basis, both Amcast and General Aluminum are at risk for year-over-year volume to be down 5% plus. Does that make -- does that answer your question, Greg?

I guess on an apple-to-apple basis, I guess if you were to give yourselves pro forma credit for last year for the entire quarter, I think you just had maybe three weeks of it last year as I recall...

Well, I guess I'm trying to say is -- you're right, we can't do that. You'll have to extract way through yourself what you know about the Amcast business.

Right.

We view it as a fully integrated company during the third quarter of '04 and go from there.

Perfect. That was the clarification I was looking for. Thanks.

Okay.

Let me see - that question -- that has escaped me. Thank you very much.

Thanks, Greg.

Thank you. Your next question is coming from John Baum, which is a private investor.

Hi guys. Great quarter.

Thanks, John.

Two quick ones. Did I hear that first half CapEx was $4.1 million?

Yes.

Do you know what the full year CapEx budget is exclusive of PPG?

Sorry. John, the second quarter CapEx was about $4.1.

I'm sorry. What's the first half?

First half is about $7.6.

And do you have full-year budget exclusive of PPG?

$15, John.

$15? Okay. I saw the revolver bumped but it looks like your working capital increased a little bit. Was that just some balance sheet issues. And again was that also irrespective of any PPG acquisition?

Yes, it was. The PPG acquisition wasn't done until the third quarter.

Right.

The -- as I mentioned during my comments, there is a couple of areas we could point to, but the one of significance was the Kazakhstan order for pipe threading equipment we talked about in detail in our, I guess, it would be last year -- at the end of last year at this point. That was meant to ship at the end of the second quarter. It didn't go until -- or parts of it have already gone -- in the early part of the third quarter. So, that was a significant number there on the floor of finished goods inventory. So, no, our receivables came in nicely. Our inventory had a modest bump because of what I've just spoken about. So we're going to the right direction on those items.

Very good. Thank you, guys. Great quarter.

Keep up the good work.

Thank you. Your next question is coming from Greg Hyde with Wachovia Securities.

Yes. Thanks. I remembered there was a couple of small things I wanted to see if I could find out about. That was cash taxes in the quarter. Can you help me with that one?

Cash taxes, Greg, we're somewhat less than the $700,000 book taxes, on the order of $400,000 or $500,000.

I guess last summer, as I recall, you guys -- you sort of had the -- the opposite of the problem you're going to have this summer. And that is in the aluminum products. As I recall, you guys sort of had continue to run your factories, but only at sort of half speed, whereas normally, I think you'd take some time off. This year, I gather, given the volume decline that you're expecting, would you think you all will shut your factories completely and therefore not have to absorb those sort of half-filled factory costs? Or how will that sort of play out here in Q3?

Quite frankly -- this is Ed speaking -- that decision hasn't been made. We are trying to read, as everyone is, the tea leaves, all the supply base relative to this -- are these employee discounts going to go away. There is a lot of initiatives to keep this ball rolling. But clearly we are anticipating idling some of it, the capacity in part of this segment, in the auto parts. There are other parts that are not going to be affected. But this is something we are prepared and, as we were last year, to make an immediate decision, if we feel it softens to be able to - we're pretty hands on here. We got away with it last year. Our employees know.

Our employees have been working very hard for the first six months, so now it's a matter of responding. But when it becomes obvious to us it's going to go down, we've got our folks conditioned, so they're prepared. So we're ready to go. But, quite frankly, the sale of cars just has continued. I don't know what the rate is now but it has got to be up at that $17 million rate, whatever it is, it's an enormous number and we'll play with a full deck, as long as we see that the numbers are there. When they're not there, we'll go right back to our mentality of reducing our cost. But this is something that all of our employees and personnel are predisposed to.

I would add one thing, Greg. This summer we also have been able to fully integrate the Amcast acquisition, which I recognize wasn't a big piece of last year. But what it has done is, it has allowed us to have basically 1.5 less plants. So we're more absorbed with the plant we have. We're more organized relative to the way that we are operating those. I would expect that we will be not only in better position to weather those kind of storms but more reactive than ever.

I guess just two last questions. One is, on this vein is, how much of visibility you may give new guys in terms of having a sense for what the pole is going to be? I mean, do you have a couple of weeks of visibility or how does that work?

Well, I think you have -- no, you don't have two weeks. And what you have to be concerned about is them over buying and then it drops off quickly. The issue is, these cars are made, they are put on the lots and all of a sudden, when the lots backup. And when they backup, it's pretty easy for them to cut off the production site. It's something that has to be monitored continually.

But, again, with our particular plants, we're -- fortunately we're union-free at most of our facilities and that gives us an ability to be able to act very quickly relative to commitments and so forth. So we'll do the best with it. But if anybody really believes they understand how this is work, when the volume goes up and down, I'd like to meet him. So we just do the best we can here and -- but one thing about this is most people know I'm directly involved in the aluminum business and when it starts to get windy, I will make the necessary changes to reduce the cost.

And the last - thanks for that. And the last question is, everybody talked about this for a while but the team that in the fourth quarter of last year and in the first quarter particularly this year, one of the things we have collectively spend a lot of time talking about was catching up on steel prices and things of that nature. And could you just give us an update as to where that stands? Are you fully sort of caught up -- are you still working on it -- just a little refresher on that subject, if you would?

Well, number one, in our business, the most important -- I think that's a good revisit -- and thank you for asking the question. Obviously, in aluminum we have very little exposure in the products, manufactured products, capital goods, very little exposure relative. On the ILS side, the ability to respond -- and what is interesting -- we started to get a lot of pressure from the standpoint of people hear worldwide the scrap prices are going down, so they expect the steel prices to go down. Well that's not been totally in parallel, yet. So we will, continue to monitor it. I think Rich has a couple of specific comments to address that question.

Yes. As Ed mentioned, on -- the ILS segment is where we see it. The effect in Q2 was almost identical to the effect in Q1. We do expect that to drop off. There will be some effect still in Q3, but diminished substantially. And by Q4, we anticipate that we should be past that issue.

And just as a follow-up on that subject then. Is the -- are your prices -- when you are buying products on behalf of your clients, are your prices -- what degree of variability is there in those prices? Or do they need to be renegotiated if steel goes up and down?

No.

On the purchasing side?

Okay. There are -- the model across ILS, you're talking thousands of the customers.

Yes.

But the visibility -- our customers know, when the steel is still going up. And there is always a lag between when we get our price reductions in hard form, and we're able to get to our customers in hard form. There's always that delayed period there. We've been able to successfully push through all the price increases we could year-to-date. Right now, quite frankly, everyone wants to know why prices aren't going down. So it's a challenge, on the other side, relative to going down. But this is what you pay management for. So that's where we are in that project.

One last question. The sales growth in ILS was terrific, obviously. And I wondered if you can just comment as to what degree that is more or less the core group of customers more or less it's increasing their volumes, and what degree it is new customers that you're all signing up?

Greg, I wouldn't say that only -- I will only answer it because I know that this is your final question. But I would say that it's a combination. What makes it hard to pick that number out exactly is we have new revenue with current customers. As you know, one of our best areas of growth is selling more products to incumbent customers. So that continues to be our biggest single source of growth.

Having said that, I would tell you there is a flurry of activity relative to quoting opportunities and new opportunities for this business, and we continue to land new customers. So it would be very difficult for me, because of the new business component with current customers, to break it out in a way that would be easy to for you to put on paper. But I can tell you each area of the three I've just talked about is strong.

Great. Thanks very much.

Thanks you. Your next question is coming from Phillip Volpicelli with CIBC World Markets.

A couple of easy one, guys. The revolver availability at the end of the quarter and then the cash interest expense at the end of the -- for the quarter.

So the unused borrowing base availability on our bank line was $52 million...

Okay.

... at the end of the second quarter. And I'm sorry I was having trouble hearing. What was your second half?

The cash interest expense paid during the quarter?

Cash interest expense was on the order of $10 million.

Okay. Great. And when does the $20 million of new business begin to ship? Is that a 2006 event or is that late '05?

Really, it just starts up in the late '06.

Late '06, so third or fourth quarter.

Yes.

Great. Thank you.

Thank you.

Thank you. Your next question is coming from Lawrence Cohen with Lehman Brothers.

My questions have been answered. Thank you.

Thank you.

Thank you.

Well, ladies and gentleman --

There appears to be no further questions.

Okay. Ladies and gentlemen, thank you very much. We look forward to speaking to you at the end of the third quarter. Have a good day.

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