Park Ohio Holdings Corp (PKOH) 2010 Q2 法說會逐字稿

Good morning, and welcome to the Second Quarter 2010 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 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 those projected. A list of relevant factors may be found in the earnings press release as well as the Company's 2009 10-K filed with the SEC on March 15, 2010.

The Company undertakes no obligation to update any forward-looking statement 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 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 or service debt and because EBITDA is a measure and under their credit facility to determine whether they may incur additional debt under such facility. For reconciliations for income before the income taxes to EBITDA, please refer to the Company's current report on Form 8-K, furnished in the SEC on July 27, 2010.

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

Good morning, ladies and gentlemen. Thank you for joining us today as we review the second quarter 2010 Park-Ohio results. I would like to turn the presentation over to Matt Crawford, President and COO of the company. Matt?

Thank you and good morning. The second quarter 2010 performance continued to show not only substantial improvement over the same period during 2009, but also improving trends compared to the first quarter. Versus a year ago, revenue was up 21% to $198 million. The improved revenue environment was especially notable in our Supply Technologies and General Aluminum businesses, although business conditions are improving at our Manufactured Products as well.

Earnings improved just over 4% to $3.4 million or $0.29 a share, but this improvement is somewhat understated, giving the effect of the $3.1 million of earnings associated with the company's repurchase of sub debt during the second quarter of 2009. Cash performance has also been strong, allowing for net debt to be reduced by over $20 million so far this year.

Looking at Supply Technologies, our Supply Tech revenue improved 25% year-over-year due to increasing build rates in most end markets. Notable improvements included heavy-duty truck, consumer electronics, semiconductor, auto and the industrial equipment end markets.

Second quarter revenue trend in the supply chain business also improved with average daily sales reaching 1,317 versus average daily sales in the first quarter in the supply chain business of 1,295.

Supply Technology earnings increased 84% at $5.3 million, a margin of 5.5%. Recovering volumes were primarily responsible for this increase. Although we are operating the business with some cautious optimism, we also recognize the precarious foundation upon which this nation's economic recovery is being built.

General Aluminum. Revenue continued to benefit from the resurging auto industry, growing 74% versus last year. Included in this improvement was an additional new block of business that was kicked off in the second quarter.

EBIT improved to a positive $2.3 million from a loss last year and also improved 20-plus percent from the first quarter. Although we are still not achieving target margins, the increased utilization in product mix is benefitting our results meaningfully.

In our Manufactured Products group, revenue trailed last year's performance just slightly, with revenue of $63.5 million. More instructive, though, is the improvement from the first quarter of 4.4%. This increase in revenue was due largely to an improving capital equipment environment. In fact, June was the largest equipment bookings month in almost a year. Offsetting some of this good news was the continuing softness in locomotive sales, a key end market for our forging business.

Earnings in the Manufactured Products group were down to $7.6 million, reflecting the relative softness versus last year's second quarter in the equipment business, but this number reflects a significant uptick from the first quarter earnings of $4.9 million. We are optimistic that this segment will continue to build momentum as global industrial companies increase productions.

Turning to our balance sheet, perhaps our most outstanding achievement year-to-date is generating over $21 million in cash to reduce net debt to $289.7 million. I want to compliment all of our operating team on excellent working capital management and CapEx discipline. Our availability on our senior credit facility now stands at over $45 million.

In closing, we are happy to report we are slightly ahead of where we expected to be in this tepid economic recovery and are cautiously optimistic going into the second half. Based on this, we are increasing our sales guidance to $780 million and earnings per share guidance to $0.85 to $0.95 per share. Thank you very much.

Thanks Matt. Just a couple of comments. We have talked in the most recent gatherings on preparing the company for the future, making all the tough changes when the economy really hit the floor in the first quarter of '09. We thought we had the company prepared. We do. You can see the tremendous amount of increase in income and, when the sales only went up from $344 million year-over-year to $390 million, that bodes well for the leverage that's built into the company as revenues increase.

Individually, each unit, the Supply Technology continues to perform as expected as revenue is still -- clearly that company will enjoy considerable increase in profits. Manufactured Products, -- a little bit off its peak gain, but we are optimistic there as parts and service continue to increase in that backlog. And toward Aluminum, we all know the Aluminum story. We talked about it for many quarters. As expected -- at least some of us as expected -- are seeing the results of a continued investment in a very tough industry. We are excited about what's happening in Detroit with the big three. We see a better run auto industry, fewer suppliers and that means we are in the right position at the right time. We are still running less than 50% capacity in that particular division. So, there is lot to be done there. We have made the investment and we are looking forward to now the results.

We are again pleased to be able to change our guidance. We are on solid footing here and we are hoping to have a very, very solid balance of 2010 and look forward into 2011 and 2012 as things improve, revenues increase. We are ready to take advantage in all sectors of the company.

Now I will be glad to take questions from our supporters and stakeholders.

Thank you. (Operator Instructions). Our first question is from the line of Richard Paget with Morgan Joseph.

Good morning guys.

Good morning, Richard.

If I look at the second quarter compared to the first quarter, it seems like the incremental margins in every division are up significantly, where -- on a sequentially basis, there was some improvement on revenues, but in profitability margins went way up. I wondered if maybe you could kind of address that, whether it's mix issues or anything else on each of the segments?

Hi Richard, it's Matt. You are referring just the first versus second quarter?

Right, yes.

Well, I guess I would start with a global comment of saying that, unquestionably, most of our business have a significant amount of operating leverage. I guess, to prove the point, it was a little painful on the way down, so I guess you shouldn't be overly surprised to see incremental flow-through of substantial margin on the way back up. So, no, I think that's an important point to make, and I think, more specifically, what I would say is the capital equipment business, the industrial equipment business is one of our highest margin businesses and if that gets on more sound footing, the incremental margins there are expected to impact the overall business meaningfully. So I think that's an important point. And then I would also mention as it relates to Supply Technology, although we talk about incremental revenue and flow-through being important there, I think that we are still benefiting from better discipline with the management team down there is doing a great job relative to pricing disciplines and things that are -- our efforts that we put in place during the downturn to really address the "new normal" of volumes.

Okay. And then getting back to some of your prepared remarks, you talked about June being a great month for bookings. Can you talk about maybe geographically where that's coming from and -- end markets for Manufactured Products?

Yes, once again in the industrial equipment group, which on the new equipment side of the business, just to kind to remind you, the businesses is relatively evenly split between the OEM part of the business, the new equipment part of the business and then the after-market business. Both have been somewhat weak, really beginning in the third quarter of last year. I think that we've continued to see some anecdotal evidence that I've mentioned on prior calls, that the after-market business is coming back a little bit. We've been seeing some evidence of it in the new equipment markets. And to answer your question directly about where, we've seen some fairly positive signs out of the US. So, really North America has been pretty strong for us and I would say, interestingly enough, we've continued to see some strength in the oil and gas end markets. So, although we are seeing some resurgence in the induction market as well. So, we are seeing -- it's got some good breadth, but I would say what's notable is the oil and gas end market and what's notable is North America.

Okay. And then you guys sound like you are somewhat cautiously optimistic and everyone has been reading the headlines -- are you being a little bit more guarded about this recovery due to those headlines or you're actually seeing some customers get a little bit more cautious over the last month or so?

Well, I think we're being cautious here at Park-Ohio. The plan here has been to increase the margins and follow the revenue up, again concentrating particularly on operations and margins and cash flow and paying down bank debt and (inaudible) cash has been the plan. And we're just going to respond. Well, we don't see anybody -- I love this what I call this orderly or controlled descent here. We'd like the volume to go up a little bit at the time. That's the way it seems to be happening. Our Supply Technology business, all of our wonderful customers there are starting to pick up. But I don't see anybody charging out and building lots of inventories. So, we like the atmosphere we are in. It's cautious. We can achieve our goals, but we are anxiously looking forward to up-moving revenue and if it comes in the latter part of this year, or it comes in 2011 we're ready. But I haven't seen anything and I don't feel, other than the auto business it's really exciting what's happened in Detroit. These companies up there are just better run today. So, we're pretty excited about that and that looks strong for the balance of the year.

Okay. And then finally on interest expense. I know you guys have been paying down some debt and you have a new facility. What are your expectations for 2010 interest expense?

Richard, this is Jeff Rutherford. As you know, in '09 we reported $23.2 million interest expense and because of the refinanced bank facility, we're paying a higher interest rate.

Right.

On average 250 basis points. We are now forecasting at approximately $24 million.

Okay. Great, that's all I got.

Thank you very much.

Thank you. Our next question is from the line of Douglas Ruth with Lenox Financial Services.

Good report Eddie. Could you talk some more about the Aluminum business and specifically what's happening?

Well, what we hoped to happen, I have talked and described the Aluminum business as kind of an intersection where you have demand in cars going up and the number in the supply base is going down and we are there. There is a lot of activities, a lot of new business and we are expecting to be a benefactor of that. I mean again we have bought the facilities. We have made the investment. It's nice to be able to step in the way of some new business and possibly even some takeover business. We really don't have to go out and spend all our CapEx. We have already spent the CapEx by buying a couple of distressed companies. So it looks very solid and there seems to be -- quite frankly, I'm just impressed the way those companies are being run. Chrysler, particularly, is doing an outstanding job and there is some stability to the marketplace and it's just a good place to be right now and we hope that it will continue. But, you can see the dramatic swing just year-over-year between -- if you take '09 to '08 and just look at the earnings, I mean from a negative $4 million or $5 million to a positive $4 million or $5 million. It's dramatic, but we were prepared for it and it looks very solid, better run companies up there. The auto industry is -- we are very comfortable at 12 million cars, we can be there. It goes above 12 million and I think we really can have some fun for the first in this business in three years. But it has been painful as you know.

Yeah. And you feel that the run rate is about 12 million for the year in the auto?

When I am talking about run rate, I talk about selling things and what's interesting is, I don't think these companies have these big inventories they used to have before, build the cars and stick them in the lots. They build them, stick them in the lots and sell them. So it's pretty good. There is a tighter feeling about this industry and so you're not getting sales now that are going to be taken away from you into third and fourth and the first quarter of next year.

The build and the sell rate are fairly close then at this point?

That appears to be the circumstances and that's good...

Yeah.

For someone that gets a truck load of aluminum in and today and turns it into receivable in less than 24 hours.

Yeah. And what about -- can you give us any further color? Do you think -- could we as investors expect some news on some takeover business in the second half of this year?

Yes. In fact, in the revenues in the second quarter, was some takeover business. We don't like to talk about that very much. The revenue -- what's exciting about what's happening here is there is some takeover business that's in the second quarter that's going to continue for at least another 18 months.

Congratulations, that sounds terrific.

We don't like to step in. We will -- step in and take some takeover business if it's got a two year life in it. We won't do if it's a six month life. But this is the way. But I'll tell you quite frankly, I think in the future, it won't be too far in the future, I'll be talking about, hopefully in the next call, I'll be talking about business that is new business that's scheduled for the 2012 season which means it starts in September of 2011. Maybe that's a little optimistic but it's out there.

Okay. Well, so it's a great improvement and thank you for what you've done for the investors Ed.

Thank you for your support.

Okay.

Thank you. Our next question is from the line of David Marsh with McMahan Securities.

Good morning guys, very nice quarter.

How are you doing?

Doing very well, thanks. Matt, I am sorry I was writing some things down quickly, I didn't quite catch. Can you just recap the guidance for the year that you expressed there?

We surprise you, so much of the upside here, you're a little spun there, is that what's happening here this morning?

Yes.

Sure, David. We revise -- we don't typically do sales guidance. But, we did release some sales guidance earlier this year. So, we figured we wanted to update that to $780 million and then also increased our earnings per share guidance a dime on both ends. So, we went from $0.75 to $.085 and we improved it to $0.85 to $0.95.

Great. Okay. And then just a few housekeeping items. What was your capital spending in the quarter?

Well, for the first half, it's less than $1 million.

Really? Wow! It's great. And, I just wanted to talk a little about the debt pay down. It looks like you chose to pay down the revolver, I guess the question would be is there any early prepayment penalty on the term loans and is there any particular reason why maybe you wouldn't want to take out this Term B since it's at a higher rate and you're going to have to pay it down here in the next couple of years anyway?

And you are not calling on behalf of the banks, right?

No, no, not at all. No, I'm sure the banks actually don't like to hear that question.

The Term B has a two-year amortization, so it's pretty quick anyway.

Right.

And there is excess cash flow, accelerated payment requirement. So, regardless of what we do, that's going to amortize close to somewhere between $8 million to $9 million through the end of the year.

Right.

So, in all intents and purposes, it's really an 18-month amortization and we will evaluate that before the first quarter '11 amortization to determine if we want to pay it down earlier or not.

Okay.

So, our plan is, and now that everyone knows, is we're going to evaluate as we go through it. And that's on the B. On the A, I think we're pretty comfortable with where we are at on the A and based up on what the collateral is behind the term A.

Right. Yes, I was targeting specifically the B because of the fact that it's at the higher rate. What was your stock-based comp in the quarter? Was that the 551 of other that gets into the EBITDA calculation?

That's amortization on restricted shares.

Okay. And then I guess the other question is despite the nice year-over-year increase in revenues, you guys have done a really tremendous job on working cap. When you look at your working capital, is it sustainable at this level or is it something that is going to be a use of cash going forward?

Well, it's obviously not sustainable without management and what's happened in the first half is, obviously, we're spending on receivable increase. Where the operating companies have done a really nice job is holding down inventory and it's across the board on inventory management. All of the segments have done a very nice job. And then we, at the same time, we've been able to leverage up on payables because the inventory turn in Supply Technology in particular has done a really nice job on that. So, it is sustainable. I think it's going to become more difficult as sales increase, but it gets a lot of attention and our operating controllers and CFOs have done a fabulous job of maintaining it. And so I think the level is maintainable as a percentage of sales, but as sales increase we're going to see an increase spend in working capital.

Right. I think you did an excellent job in the quarter and in the first half. I guess the last question that I had. Can you guys discuss a book-to-bill or a bookings direction in general in the Manufactured Products business and could you just give us a sense of how bookings are trending there?

Yeah, this is Matt. We don't typically talk about that and I'll tell you why. You can get a little burned by that number and when things got tough last year, some of the ship dates got pushed out. So, that number can be, for some of the equipment that's in the backlog, a little more fickle. When times are good obviously it's a solid number. When times are not as good, the number is not as good. So, that's not a number that we tend to want to talk about. But I think it's very instructive that the equipment bookings trends are improving and so, as I mentioned in the discussion, we saw the best bookings month in almost a year just recently. So, we are feeling relatively bullish about that business at this point. But it's got a long way to go. I mean it obviously had some significant revenue shortfalls in the third and fourth quarter of last year. So it's a solid pace in building back and the business improves, certainly around some individual large orders, but it also builds with a lot of couple of thousand dollar orders. So, I think we're headed in the right direction.

Let's point out one thing about the capital equipment. That's very important part of that segment, but the parts and service that we don't really talk enough about; we have a very large commitment internationally in North America. The service and parts for the equipment that''s already in the field. And, quite frankly, the parts and service business and particularly the parts and replacement parts are at a very, very, very increased velocity. I mean the [supply] and the service, as expected, pulled us through the breakdown in the volume and as the parts business really builds up this quarter and into the future, the cap equipment will follow. Hopefully, we'll get an opportunity sometime in the future here for the first time to get all three silos in the business; Supply Technology, Aluminum and Capital Equipment all going at the same time. So we are looking forward to that event. That's why parts and the equipment in the field and servicing that equipment is a very important component of the profit of that particular unit.

Thank you. Our next question is from the line of John Baum, a private investor.

Hey, John.

Good morning guys, great quarter.

Thank you very much.

I know you've been working hard. Especially I'd like to reiterate the working capital management, that's been outstanding. Quick questions, some corporate housekeeping questions and then I will toss at you a softball here. First, on the cash taxes, the pay rate, I see it was -- you got 29%, 30%. Jeff, are you looking for cash tax pay rate to be less than that for the full year?

Cash taxes for the first half are going to be less than $1 million.

How about full year? You got any guidance for that?

Yeah, we are still looking at something around $4 million.

$4 million? Okay. Full year CapEx guidance, you've done a great job so far. But at some point are you starving operations and you're going to have to start spending on CapEx, so little bit second half and any forecast, maybe initial forecast for all '11?

I don't think we are -- I think you'll see a little bit from the maintenance point of view, again the lid is on the CapEx here. And again as you know John, we spent a lot of money in CapEx for a lot of years in a row. So, we're not depleting and not showing the future of the company by not maintaining the equipment. But it should be really tight still for the balance of the year.

Okay, excellent. Year-end inventory goal, you are $169 million right now. Is there going to be any build going into the next year, especially in Aluminum Products, are you comfortable with inventories right now?

Well, in Aluminum it's all velocity, it's aluminum in and aluminum out. I think Jeff could comment on the Supply Tech business although we talked about making some changes in the crisis or what I call the cliff. So we think, quite frankly, we have a better company operationally in Supply Tech than we've ever had before. We think we can return to -- if we return to the levels we reached one time of $600 million plus in this business, you're going to be very pleased with the amount of inventory we run that business on, I could tell you that.

But we are ahead of our plan on inventory and we do expect a little bit of inventory build through the end of the year and also on receivables. So, we are ahead of plan on working capital. We would expect that, if the sales momentum continues as we expect, we're going to see some increase in that inventory level through the end of the year.

That's significant.

But it's going to increase 5% to 10%.

Okay. Corporate other increased quarter-over-quarter from about $3 million to $4.2 about 42%. Any unusual numbers in there?

In corporate expenses? No.

Yeah.

There is nothing unusual. If you look at it on a -- we'll get some timing items sometimes in there, but overall there is nothing unusual in there.

Okay. You had a public filing that showed $60 million in EBITDA, is that still baked into the forecast right now?

On the guidance relative to EBITDA, we are still in that range, yes.

Okay. And let's see, Eddie, let me close out with the final question here. What do you see, I know Ford looks strong, are you doing any coating for GM and are you still tight with Chrysler and what does it look like for the big three for the next couple of years?

Well, as you know we have a wonderful relationship with Ford and with Chrysler and it's interesting you would bring up GM. That's our penetrating and increasing with them is the goal for -- in the auto business although we do very well with them in some of the Manufactured Products. But we'll be talking more about that company and that relationship as we go forward, but it's very active again, interesting enough that even with a company of that size the doors are open. They are looking for long-term relationships here and qualified suppliers as they look into the supply base in all the different companies that have invested. And getting prepared to partner with these companies, the supply base has been reduced considerably and good companies -- good customers are -- we are looking for them and they are starting to look for good companies that are going to be in business. Keep in mind, how many companies in the aluminum casting business went out of business in the last five, six years. So, we are excited about the big three. They are being run better. The doors are open and I am excited about that and we should be because we got a big investment in them.

Okay. One final segue. How about the European markets, are those looking soft going forward right now, are you still comfortable with your position there?

John, I'll comment. We actually were recently in Europe visiting a couple of the operations and also visiting with some European banks and the news there is not about growth. We are not -- our numbers and our improvements are not built on the back of a strong European content. But, having said that, those businesses that we have there do export to Asia, so those businesses are benefiting. But, no, I would say that the news there was less dollar than we expected. So we are optimistic that we will see some strength there, but it is certainly not leading us as it relates to our improved numbers I can tell you that.

John, we'd like to be able in the future to talk about we are already there with the manufacturing. Aluminum is not a business that, although Fiat is doing a lot of incredible things and Chrysler having great influence. So that's an opportunity for us may be to go there with the aluminum. But really it will be interesting to follow the development of Supply Tech business in Europe at the right time. We've never been there, but we could very well try to follow some of our customers to Europe in a big way other than the (inaudible) since '04. But it's not been a targeted effort at Supply Tech or Park-Ohio to bring Supply Technology or that really for the continent there when I am talking about Germany particularly and Italy and Spain and so forth. But, we will be cautious about it. But there is a time and a place for that activity.

Great quarter, great year guys. Keep up the good work. Thank you.

Thank you.

Thank you. Our next question is from the line of Yung Kwan with Barclays Capital.

Good morning guys. If I could just repeat everybody else's sentiments about very good quarter on your part.

Thank you.

Most of my questions have been answered. Just one, if I could just follow up on the operating margins here on the Manufactured Products side. Obviously, very good performance on a sequential basis. Going forward here, how should we think about the margins? Do you think that there is some additional margin you can gain assuming kind of a flattish year on the revenue side or do you really need to see some additional growth on the top line to get higher than like a 12% type margin?

Hi, this is Matt. No, I think this business I think will be driven principally by additional revenue. I think that it is a company that has a global footprint. They operate out of a dozen different countries. As we discussed a few moments ago, the strength of the operation is the after-market business. In that business I think that we need production to improve to support that business. So, that's a healthy margin business. But you need your customers to be operating full steam ahead. So, and then obviously the new equipment orders and the absorption that gives to our global manufacturing footprint is important as well. So, I think there is, perhaps of all of our businesses, that business has the most operating leverage in it. So I think the management team has done a great job in managing the business through a tough cycle and I would expect that their improvements would be driven mostly through extra revenue and not so much in terms of additional efficiencies or productivity, although I think there is opportunity there as well. But it won't be the principal driver.

Sure. And if I can just ask a more general question on the back of that? What do you think it is that we really need to see in order for that top-line to start growing?

I think we need to see more of what we saw in the last couple of months, significant capital goods orders. Most notably in companies that are related to oil and gas end markets and are related to principally steel, not only steel, but I think steel certainly helps, so I think that a global resurgence in those markets is going to be helpful. But I will also say that we are benefiting a little bit from, and will continue to, the absolute lack of investment by a lot of our customers during the latter half of last year. So, I think sequentially we are seeing a return to normal. Some of the more interesting and maybe careless choices that were made to try and not expend cash last year I think are coming home to roost. So, I think that's going to benefit. But, we need it. I mean I guess the bottom line is we need more bookings months like the last couple of months and we need increased global production in some of those base metals.

Let me point out something else about the atmosphere in which this equipment goes into. When you are in the gas and oil business, and the steel business and you look at the fourth quarter of '08 and our equipment is in, again very robust tough pounding 24 hour a day atmosphere, it's running the mills 24 hours, running the pipes 24 hours and in '08 for example, when everyone decided there was going to be a problem in '09, everyone just stopped buying new equipment. They stopped repairing their equipment and they seem to be running into the ground. It's there. There will be capital equipment. It's on its way. The day it's going to get here, we are not sure, but it's coming because they keep running this equipment and it wears out. This is one thing great about this. The areas we are in the capital equipment business are not where you put up a machine and it's there for a 100 years. I mean this is the stuff that runs 24/7 in the steel mill and wears out in a very, very short period of time and unless it's maintained or is replaced. So it's on its way and we will see it shortly.

Great, thank you guys.

Thank you. Our next question is from the line of Alan Weber with Ribotti & Company.

Good morning.

Alan, how are you?

Good. Two quick questions. One is, on the Supply Technologies, I forgot currently or for next year what percent of that is Class A or heavy duty trucks?

Well, that's a great question and while they figure it out, let me tell you it's a lot less than it ever was by design. Our retreat from our large international account by design impacted obviously by the percentage. But it's always nice to have someone answer the question and with all these smart people I have sitting at the table, they are stumbling around to give you the correct --

I was just curious--

Do you have another question and we will come back to that one?

Sure. I was just curious if it's still significant and then you would get the benefit of everybody's expectation of higher truck builds next year, I was kind of curious?

We are going to -- I can answer on this view point and looking at it in the big picture. We are very interested in that segment. Volvo is one of our top accounts, okay. So as Volvo goes, we will go relative to our trucking business. We have positions in other manufacturers, but quite frankly, especially in Supply Technology, that was a disproportionate amount of business and we have felt and I still feel that it should be a smaller part of the big pie. So the customers we have we enjoy, but we haven't deemphasized it, but it just cannot be 30% or 40% of the total. So do you have the answer gentlemen?

We do, it's about 8%.

8%? Okay, great. The other question was on the aluminum side. I think you mentioned that you are at 50% capacity?

Yes.

Is there like a number that you think is optimal and if there is such a number, besides more car builds, can you win enough market share to kind of close that gap?

Well, if we are running at 50% capacity and you look at the sales, I mean it's clear that when you annualize the first six months, it's $150 million business -- annualized basis. We've said continually that this company has over $300 million worth of business. So is there another $100 million business there for us? We hope so. But it will be at reasonable margins. We are not in that business just to run up the revenue and not get the return. So there is -- in my opinion it's clear. Boy, I'll tell you and again I am -- maybe I'm more optimistic than most, but you look at these auto companies and look at the way they are being run now and look at the cars, the American auto industry is going to -- there are going to be more than 12 million cars sold in America on an annualized basis over the next five years. Let's just pick a number of 15 million, 14 million. We will be a benefactor of that and again it's embedded capacity paid for, CapExed out. So is there another $100 million of business available to us? I hope so.

Okay. I was just curious like if you look out two, three years in terms of how much new business you are bidding on or is that the bulk of it to kind of get that capacity gap narrowed or is it going to be higher car sales?

Well, it's a combination of new business, it's higher car sales, takeover business is something that we do very well. But I would say that I, quite frankly of the -- if I were to look ahead and say we are going to add $100 million of sales, it could be equally in new business from the cars and from existing business that we take over because the people are not there or have lost their way in the aluminum business. And we are also making a point to grow. There is one segment we've been -- there is many, there is seven different ways you can make aluminum products. There is one called die-casting, which we have never been really that active in, that's changing. So we could be in a partly aluminum business and grow in die-cast segment, which is the largest segment of total aluminum dollars, the die-casting aspect of it is probably 50% of it and we have very little position in the die-casting business at this point.

Okay, great.

So, I think this increase our percentage or increase in and move into the die-cast business which is something we would love to do, then we would even grow faster than we all could really expect.

Great. Thank you very much.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Mr. Crawford.

Well, thank you very much. We always enjoy reporting especially the good results. But, again I want to point out that what's happening here today was put in place a year ago. So everyone is working hard, but we are prepared for this and again any wind at our back, any revenue enhancement here will drive the company. But we can, as you know, play in the rain or play in the sunshine. But I think we are on the right track. We've positioned the company and revenue is what we are anticipating and that will change and increase the profitability of the company over the next two or three years. But thank you for your support, and we look forward to seeing you at the end of the third quarter.

Thank you for your participation in today's conference call. You may now disconnect.