Powell Industries Inc (POWL) 2006 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Powell Industries first quarter conference call. At this time all participants are in a listen-only mode. Following today's presentation, instructions will be given for the question-and-answer session. [OPERATOR INSTRUCTIONS] As a reminder, this conference is being recorded today, Wednesday, March the 8th, of 2006. I would now like to turn the conference over to Karen Roan with DRG&E. Please go ahead.

Thank you, Mary, and good morning, everyone. We appreciate you joining us for Powell Industries' conference call today to review first quarter fiscal 2006 results. We would also like to welcome our Internet participants listening to the call, simulcast live over the Internet. Before I turn the call over to management, I have the normal details to cover. You could have received a fax or e-mail of the earnings release this morning. Occasionally, there are technical difficulties experienced during these broadcasts. So if you didn't get your release, please call our offices at DRG&E, at 713-529-6600, and we will get one to you. Also if you want to be on the permanent e-mail distribution list or fax list, please relay that information to us. There will be a replay of today's call, and it will be available by webcast by going to the Company's website, or a recorded replay will be available until March 15th, by dialing 303-205-0066 and using passcode 11055349.

Please note that information reported on this call speaks only as of today, March 8th, 2006. And therefore, you are advised that time-sensitive information may no longer be accurate as of the time of any replay. As you know, this conference call contains certain statements, including statements relating to the Company's expectations of its future operating results, it may deem to be forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. These risks and uncertainties include, but are not limited to, competition and competitive pressures, sensitivity to general economic and industry conditions, international political and economic risks, availability and price of raw materials, and execution of business strategy. For further information, please refer to the Company's filings with the Securities and Exchange Commission.

Now, with me this morning are Tom Powell, the Company's President and Chief Executive Officer; Mark Reid, Executive Vice President; and Don Madison, Vice President and Chief Financial Officer. I will now turn the call over to Tom.

Thank you, Karen. Good morning, folks. Thanks to all of you for joining us this morning to review our first quarter of '06 results. We are pleased to report first quarter results were much improved over the first quarter of the previous year. Our bookings were $111 million versus $60 million for the first quarter of '05. Our revenues were $84 million versus $48 million in the first quarter of '05. Our earnings were $1.1 million versus a loss of $1.4 million a year ago. And our backlog increased to $287 million, which is a record backlog, and that compares to $147 million at this time last year. That's $140 million added to the backlog in this quarter.

We are also very pleased that orders and backlog have demonstrated strong sequential improvement. New orders are up 21%, and our backlog is up 11% over the fourth quarter of '05. We are seeing revenue growth in all of our major market sectors, industrial, utility, and the public sector, and our inquiry levels remain at an all-time high.

Overall, the Electrical Power Products segment is improving as expected. Our business is robust, and it is right in our sweet spot of integrated, large, complex projects with utility, petrochemical and offshore production work. The public sector growth is fueled partly by our success with the WMATA contract. And we continue to be successful with other transit and ITS projects, that's Intelligent Transportation System projects. We are ramping up from a year or so ago, when lower volumes were coming through our Electrical Power Products facilities here in Houston. Compared to a year ago, we are pressed to get this added business through the system, and to serve our customers in the way we've always done. With an increase in opportunities, bookings and backlog, our main challenge this year is to increase our factory output by recruiting and training new personnel, and improving our execution.

We have strengthened our management depth at our largest division to increase our focus on execution and improve the velocity of our throughput. We have added, and continue to add, additional personnel, primarily in the factory. But we are going to have to increase our engineering staff and some support staff, as well. Our staffing is up by about 60 people since year end, and we need to add at least another 100 more on the manufacturing side of the business.

We continue to be very pleased with our acquisition of S&I. Interest in IEC products from our U.S.-based customers continues to grow. We are working with several U.S. customers, helping them during the planning phase of upcoming projects that will need IEC products. And most importantly, after seven months of ownership, S&I continues to perform well, contributing to the overall results of Powell.

Raw material cost, which troubled us last year, has somewhat stabilized, with the exception of copper, where we are still seeing some cost creep. However, last year's increase in basic commodity costs is now migrating into other purchase components. And transportation costs are continuing to increase. Overall, we continue to see excellent business opportunities, and pricing remains reasonable.

At this point, I will turn the call over to Don Madison to give you a detailed review of our financial results, and then I will come back with a few final comments. Thank you. Don?

Thank you, Tom. Revenues for the first quarter were $83.8 million compared to last year's first quarter results of $47.7 million. Revenues increased primarily due to a strengthening in our key markets, concerted sales efforts in 2005 aimed at strengthening our backlog, and the acquisition in July of 2005 of S&I. The acquisition of S&I added revenues of $12.6 million in the first quarter of fiscal 2006. Gross margin for the quarter was 17.6%, compared to 14.6% in last year's first quarter. This increase in gross margin is the result of improved pricing and operating efficiencies derived from increased volume. Higher raw material costs had a nominal impact on the quarter. However, last year's commodity cost increases are now resulting in higher [electrical] component purchase cost.

Selling, general, and administrative expenses for the quarter decreased to 15.5% of revenues, compared to 20% of revenues in the same period last year. SG&A expenses totaled $13 million, an increase of $3.5 million over the first quarter of 2005, of which operating expenses of the S&I acquisition accounted for $2.1 million of the increase. In the first quarter of 2006, we adopted SFAS 123(R), share-based payments, which requires us to expense the estimated compensation related to stock options. The adoption of this new accounting standard increased our SG&A expenses approximately $400,000. The remainder of this increase is primarily attributable to increased sales commissions, special fees and salaries, which are consistent with the increase in revenues.

Interest expense increased by $258,000, to $335,000 in the first quarter of 2006 compared to a year ago, primarily due to increased debt related to our acquisition. Interest income was relatively unchanged. Interest income was $302,000 compared to $277,000 a year ago. Our income tax provision was an expense of $649,000 in the first quarter of fiscal '06, compared to a benefit of $924,000 in the first quarter of 2005. Net income in the first quarter was $1.1 million. This compares to a loss of $1.4 million in the first quarter of 2005. Earnings per diluted share were $0.10 compared to a loss of $0.13 per share a year ago. As of January 31st, 2006, our backlog totaled $287 million compared to $147 million a year ago. New orders continue to strengthen. Orders in the first quarter totaled $111 million, compared to $60 million in the first quarter of 2005.

Now looking at our business segments. The Electrical Power Products segment reported revenues of $76.6 million compared to $39.8 million for the same period last year. First quarter of 2006 included revenues of $12.6 million related to the business operations of our acquisition. Revenues in all of our major markets strengthened, compared to same period a year ago. Revenues from industrial customers, including the operations of our recent acquisition, totaled $47 million compared to $20 million a year ago. Revenues from utility customers totaled nearly $23 million, an increase of approximately $7 million. Municipal and transit projects generated revenues of around $7 million in the first quarter compared to $4 million a year ago. Income before income taxes for Electrical Power Products was $1.4 million compared to a loss of $2.6 million last year.

The Process Control Systems segment reported revenues of $7.1 million compared to $7.9 million in last year's first quarter. Income before income taxes for Process Control Systems was $361,000, compared to $255,000 a year ago. This segment continues to perform well, and with the passage of the Transportation Act, new business opportunities are improving.

We ended the first quarter with $27 million in cash and marketable securities, compared to $33 million at the end of fiscal 2005. During the quarter, cash used in operating activities was approximately $4.8 million. This reduction in cash was principally used to fund growth in inventory, and costs related to uncompleted contracts which were not billed. As we increase the business activity in our manufacturing operations, additional working capital has been required to support the higher levels of business volume. Additionally, we invested $1.3 million in capital improvements during the quarter.

Looking ahead to the balance of the year, as we have previously announced, we will change our fiscal year end to September 30th from October 31st this year, which will result in an 11-month year. Accordingly, our outlook for fiscal 2006 consists of 11 months’ results compared to 12 months, as you would normally expect. For fiscal 2006, we expect full-year revenues to range between $300 million and $325 million. Full-year earnings are expected to be between $0.45 and $0.55 per diluted share, which includes the impact for the new requirement to begin expensing stock options, amortization of intangibles related to our acquisition of S&I, and incremental costs that we will incur with the implementation of a new ERP System. We expect second quarter earnings to range between $0.08 and $0.12 per diluted share, and expect other improvements in quarterly results as the year progresses.

At this point, I will turn it back to Tom.

Thank you, Don. Let me make a few more comments, and then we will be happy to take your questions. We certainly find ourselves enthused about the future of the Company. In addition to a strong industrial economy and encouraging legislation supporting investments in energy, the environment and transportation, we find our traditional markets are expanding at an accelerating rate, and the long-term nature of many of these projects points to a sustained cycle of significant activity.

We've had a continued expansion of products and services that we offer. We continue to lead the industry with the broadest range of arc-resistant products, which now includes some newly introduced low voltage products, which is an industry first. We've enhanced safety of our power control rooms to meet the NFPA70E recommendations. This standard, issued by the National Fire Protection Agency, addresses the requirements necessary to safeguard employees involved in the installation, commissioning and operation and maintenance of electrical equipment. We've also had to hire power switch gear designs, which includes a 5,000 amp 15kV breaker. And we have introduced our new Linux-based SCADA and Intelligent Transportation System at Transdyn. Linux provides the necessary reliability, scalability and security for our clients’ mission-critical applications. And as a result, our next generation systems will provide increased flexibility and more powerful functionality.

We have also completed a multiyear program of factory capital investment that includes the nation's largest integrated fabrication facility for offshore electrical power modules. We have world-class steel fabrication and paint finishing system here at our Houston facility, and we have a new manufacturing facility in Northlake, Illinois which has allowed us to consolidate our bus duct operations. We have moved aggressively to staff our facilities with additional production workers to support increased business volumes, as well as an infusion of added management depth to our business. All these factors come together to give us a greatly improved business outlook.

We are focused on the critical issues facing Powell, realizing there are a few hurdles that still need to be managed. That's the adding and training of personnel to handle this -- the increased volume, accelerating our cost containment and cost-out programs, the implementation of a new ERP System, and expanding our cash flow initiatives. We're meeting these challenges, and anticipate more momentum as this year progresses. And certainly, we're excited about the outlook. At this point, we'll be happy to take any questions.

Thank you. Ladies and gentlemen, at this time we will begin the question-and-answer session. [OPERATOR INSTRUCTIONS] John Franzreb, Sidoti & Co.

I was wondering about the S&I acquisition. Point one, is the gross margins in that business similar to your pre-existing business? Because if it is not, it would -- it would kind of assume that the business wasn't profitable this quarter. And if that's the case, what are your expectations now, concerning your initial guidance about the accretion that business can offer?

Let me just answer the big questions on that. Basically, when we acquired the business, we had an expectation, and conveyed that to you, of $40 to $50 million in revenues over the first 12 months. And that we expected that earnings per share to have a positive impact of $0.14 to $0.19. At this point in time, we have completed seven months of operation, in each month and each period that we have had a positive contribution to the business. And the overall expectation for the 12-month period, as previously discussed, is still very realistic.

Okay. So that would suggest a significant ramp in the profitability in the business in the coming months?

Basically - and again go back to what I said - is that we have been profitable in the past seven months, and we anticipate to continue profitability, consistent with our original guidance for the balance of the year -- the balance of the first 12 months.

Okay. Because -- I mean, if it was a $2.1 million in SG&A costs from the business, like you said, Don, and if the business is running at a below gross margin capacity existing business, it couldn't have been contributive this quarter, if I did my back-of-the-envelope math right.

It did contribute in this quarter, is what I am trying to tell you.

Okay. Okay. Great. I will queue back in, then. Because I want a follow-up. Thanks.

Richard Leader, Burnham.

Tom, I can certainly see why you are excited about the future with this kind of backlog.

Thank you, sir.

It seems to me, though, that with apples-to-apples revenues up about 50% this quarter, that -- and with a strong backlog, that you may be unduly conservative in this $300 to $325 million for the year. And that there's a good bit more operating leverage in this business than just incremental quarters of $0.10 to $0.20 earnings expectation over the balance of the year. Can you justify that conservative stance, and explain to me why there's not going to be more operating leverage than this?

We still have a number of -- Richard, we still have a number of projects down at our offshore operation. We went through the bottom of this cycle to keep the doors open at that place, and at the bottom of the cycle, we took some -- very aggressively stepped in and took some very large products. And those projects are basically at break-even, and they were still pushing some of those through. And the backlog, we should be through with that in another -- within another quarter. Some of the new work coming in certainly is more profitable.

But all of our work appears be more profitable. We are still just conservative, knowing that we need to do some more cost-out programs and the implementation of a new ERP System. It is always stressful.

Can you -- and a follow-up. Can you embellish a little bit on these new low-voltage products, or any other additional product development that you all have done, that you think can be a significant contributor to the Company going forward? And I will queue up again. Thanks.

Yes. Arc-resistant products are relatively new in the industry, say in the last five years. We have arc-resistant products in 5,000 volts classification, 15,000 volts and 38,000 volts, which to my knowledge, we're the only one in the industry with 38,000 volt arc-resistant product. We recently - and for a first - have developed a low-voltage line of arc-resistant switch gear. And we are going to continue working in some of those areas. The market is adopting more and more of these arc-resistant products, pushed by the National Fire Protection Agency to protect personnel. And I look forward to further developments in that area. We are very excited about it. We find our customers are excited about it. And I can tell you that we are seeing some increase -- we are seeing a fair amount of increase in backlog, due to these new product developments. It is a very expensive process. We just completed a test on a product the other day. It was like $200,000 for one test.

So we continue to work at it. It is expensive, but we think it is the future of the industry, and the future of the Company. And excuse me, Don wants to say something.

Richard, before we go to the next call, I just wanted to remind you, as well as everyone else, that when you're looking at the revenue outlook for the year, remember this is an 11-month forecast, not a 12-month forecast. So if you annualize that back to a 12-month number, the 300 to 325 comes back to more like a 325 to 350, maybe even 355. So, I just want you to keep in mind, as I said when we are doing year-to-year comparisons, we do have a short year in fiscal 2006.

Okay. Thanks.

George Gaspar, Robert W. Baird.

Good morning, nice quarter. Can you elaborate a little bit more on this backlog breakout? The backlog was down in Process Control, and one question would be there, what is the make-up of that? And secondly, on the $245 million of Electrical Power Products backlog, which was up about $33 million or so, can you break out domestic versus foreign? And how much of that back log is represented by the UK operation at this point?

Don, have you got all those numbers in front of you?

Let me, just to give a macro picture here first. To remind everyone, that when we acquired the S&I operation, is that we acquired roughly a $20 million backlog. The orders, relative to the revenues in the past seven months, have been roughly the same. I believe that revenues might have exceeded orders by maybe $1 million or so. But from a big picture standpoint, we are still carrying high teens, plus or minus $20 million in backlog for the IEC products out of the UK operation. When you're looking at our domestic business here, we are seeing more activity in international opportunities. Our backlog is increasing nominally in the international area, but it has not dramatically changed from this time last year.

As we go through this year, I would not be surprised though, to see that the concentration of jobs outside of the United States would continue to increase. If you go back and look at our historical business, we have run from plus or minus 10% of our business outside the United States. In most recent years, we have dropped down to 7, 8%. The trend is moving back upward. By the end of this fiscal year, it would not surprise me to see that our historical business, we are also carrying a backlog that would be 10% or greater of content from outside of the United States.

Okay. And just a follow-up on that. Of the backlog in the Electrical Power Products, what is represented by your offshore modular group, and then the light rail? Can you identify any of those numbers?

I don't have the numbers in front of me. Clearly, the offshore work is a -- has been and continues to be a sizable piece of our backlog. And with the improved opportunities, it is growing as well. It is -- I don't even have a good feel for it, but it's probably in excess of $30 million that's in purely the offshore modules. And that does not count the equipment that we manufacture that would go into the modules, which would be incremental to that. When you are looking at the transit business, it is increasing. But clearly the most -- the largest project that we have in the backlog is the $50 million project we have for WMATA. There are other smaller jobs that are in the backlog. I don't have them in front of me, but it is probably -- the overall backlog would be in the $50 to $75 million range.

Okay. Thank you.

Tom Spiro with Spiro Capital.

Things are looking bright. I congratulate you.

Well they're looking better, anyway.

Couple of questions. One, the ERP System. I kind of -- I wondered if you could give us a status report on where we are, and where you think we will be by the end of the fiscal year, in terms of implementation, and what it is going to cost us?

Hello, Tom, this is Mark Reid. The ERP System implementation continues to progress well. We set a schedule, a very aggressive schedule early. We have maintained to that schedule, plus or minus 30 days. And it is our intention to have 80% of our sites up and running by the close of this fiscal year.

And the cost?

The cost is in line with what was budgeted and approved in our capital expenditure review. And we are right on target with that, as well.

Do you want to give us a ballpark number? Or would you rather not?

The ballpark number, we are looking at a total expenditure, from a capital perspective, of between $5.5 million and $6 million. Now obviously, from an effort standpoint, there is a lot of internal costs that go along with that, as well.

One other question, and then I will get back in queue. As I recall, Tom, on the last couple of conference calls when you were discussing S&I, you either said or implied that the pricing that S&I was facing, the pricing environment, was far more challenging than what we are facing here at home. I wondered if that's still the case?

That is still the case. Although, they are seeing much more activity in the Mideast right now. And we certainly are hoping we can raise prices in that area.

Thank you much, and good luck, gentlemen.

[OPERATOR INSTRUCTIONS] John Franzreb, Sidoti & Co.

I was wondering, how far along -- or how much have we eaten into the WMATA contract so far?

Okay. Hi, John, this is Mark Reid again.

Hi, Mark.

The WMATA contract is a three-year contract, overall. It is for supply of substations. And it's a question of how they are scheduling the upgrades to the line, because, of course, they can't take the subway down while they are making the upgrades. Right now, we are directly on schedule with them according to their needs, and have actually delivered the first eight substations’ worth of equipment. That represents approximately 10% of the overall value of the project that we will be doing.

Okay. That's helpful. Now, a lot of the EPC firms are saying that -- well, let's put words in their mouth, but some of the best order rate environment they have seen in 10 years. That would certainly suggest a fairly strong order outlook for you guys. I was wondering if you think you could actually get the gross margins back up to some of those historical highs that you experienced in early 2000? So what are your thoughts about that, and about the strength of the environment overall?

John, I certainly agree that the VSEs are staffing up -- even inquiring with some of our engineers, trying to pull them away. I went over to visit a customer yesterday, which two years ago, his parking lot was about a quarter full. And now they are all -- the lot is full, and they are parked all over the street. So there is a lot going on. They think this activity is going to be sustained for several more years, like three to four years.

So, we agree with that. And we certainly, every day, work to increase the gross margins and the pricing. And we are certainly having some success with that, which we hope to see coming through the backlog toward the tail end of the year, and certainly next year.

Great. Thanks a lot, Tom. Good luck.

George Gaspar, Robert W. Baird.

Yes, a couple of things. On the SG&A, you may have mentioned some of this. There was a better than a 35% increase in SG&A. And I assume that a fair portion of that came from the acquisition. Can you identify and break down the 3.4 million, or so increase, year-to-year? How much of that -- how much of that was detailed with UK, and what else is in there?

George, yes, let me -- we're obviously working in monitoring the SG&A very closely. There is a lot of activity that is going on in the SG&A. Let me just kind of characterize it, maybe not year-over-year, but from a run rate that we were experiencing back in 2001, 2002 versus the costs that the business is facing today that would be impacting our SG&A. First off, the largest impact -- or not the largest -- but the largest impact this year specifically, is the impact of expensing our stock option, which hits our SG&A line. SG&A was -- will be impacted this year for a noncash expense of approximately $1.5 million, and that started with our first quarter. Our first quarter impact was about $400,000. We will have a little bit reduction in the second half of the year, for a total around 1.5 before tax noncash expense.

When you are going back and looking at it in the 2001, 2002 period, something we don't talk about a lot, but I think everyone understands it, that the cost of complying with Sarbanes Oxley, definitely has had a real impact to the business, and people need to understand that. Our costs in 2006, as well as 2005 over the costs that we were incurring prior to the -- that which is at least a $2 million out-of-pocket cost. If you go back and look at our external audit fees alone, has increased from 2002 of around $225 to $250,000, by $1 million this past year, and I expect them to continue this year. This past year our audit cost fees were approximately $1.25 million, and that is a real cost to the business. On top of that in 2002, we did not have an internal audit department staff. Today we do. This is directly related to the requirements of complying with Sarbanes Oxley.

The other thing that people need to understand when looking at SG&A and looking at the cost of maintaining compliance, is that if you have an audit firm that is spending that many more hours reviewing your records, for every hour that you have an external person coming in looking at your records, you better count on at least one hour of diverted time internally. That is a cost of the business that is hidden, that we are not even documenting in this $2 million.

Looking at the acquisition of a foreign sub, we now have a foreign subsidiary that does have incremental administrative costs to the business. This year, relative to preacquisition, our SG&A expenses are going to go up roughly $1.5 million. Now of that $1.5 million, about half of it is noncash, related to the amortization of intangibles. So, again, that will eventually be fully amortized, and we will increase the earnings associated. But, again, there is an incremental cost.

R&D is another real cost that's associated with the acquisition. Now we are maintaining not only an ANSI product line from an R&D perspective, we are also maintaining a IEC product line. The anticipated cost, which includes the run rate that was in our first quarter relative preacquisition, is roughly $1.25 million of incremental R&D cost that will be included in SG&A. Insurance, partly because of a foreign subsidiary, partly because of the environment that we are having from a financial standpoint, and partly because of just the property damages that occurred over the last two or three years, have driven our insurance costs up roughly $0.5 million.

Now, the last big item, relative to the run rate that we were experiencing back at what you would consider the optimum period of around 2002, is selling expense. Selling expense this year, is expected to be up around $2 million, -- compared to the rate that we were running in 2002. And that $2 million, part of it is due to a much broader geographic area, as a result of having a foreign subsidiary, and $20 plus million of -- excuse me, $40 to $50 million of revenue being generated in parts of the world that we weren't present previously. And the balance of it is looking at the mix between the internal and the external cost of doing business here, domestically. But all in all, that has a real cost to the business.

Go through and add up these numbers that I have just gone through, I pretty much documented about a $9 million cost increase of doing business today, relative to what we were looking at in 2002. Which is, again, our lowest year relative to SG&A compared to revenue. Revenue in 2002 was $306 million. We had about 13% SG&A. This year, we are going to do somewhere over $300 million, and we're probably going to run around 15.5% SG&A, about a 2.5 point increase, relative to our revenue.

That comes back to about a $7.5 million cost increase to the business. The costs, predominantly things outside of our control, or related to the acquisitions, cutting back to about $9 million. So we are seeing some improvements in our business. And I wanted to make sure people understand that, because we have consolidated our operations. We are doing things differently today than we did three years ago. But it is hard to see it when you are looking at the numbers at the top level, because of all the activity that's going on within the business.

That's a relatively long explanation, but I hope that gives you a little bit of a picture of what has happened to the business in 2006 ,compared to 2002, for those that have been following the business for the last four to five years.

Okay. Thank you. That's a good explanation. If I could ask an additional question here, on the UK operation. Tom, you had mentioned that you all were trying to bid more business into the Middle East area. What is going right there? Where are the opportunities, and is it the international electrical standard that is starting to work for you with that acquisition, as far as attempting to carve additional business in the Middle East?

George, we are still active with ANSI in the Middle East and other parts of the world, Nigeria. But there does seem to be a basic shift toward IEC in general. So we will see more activity in that arena. But, Saudi Arabia, Kazakhstan, you name it, that whole area over there is very, very active right now. It's more active probably than I have seen it in maybe eight or 10 years, really. So we are certainly working hard to participate and we are participating in that. Yes, it is very competitive, of course.

Tom Spiro, Spiro Capital.

Sticking with S&I for a moment. Tom, I was wondering how the integration is going, the cooperation between the two groups now? Do we introduce them to our customers? Are they introducing us to theirs? Do they take the lead in the overseas new business operations, or do we? What is kind of the on-the-ground practicalities of working together?

The transition is working very well, and they are introducing us to new opportunities, and certainly, we are introducing them, here domestically, to new opportunities, and some of our existing foreign customers. But Don just came back from a trip, so he can tell you a little bit more about it.

Well, I will give a little bit of an overview, then I'll pass it over to Mark to talk a little bit more about the market side. But from an administrative standpoint and from an acceptance standpoint, that has been the most positive surprise I think we have had in the acquisition. The cooperation level, the desire of the S&I folks to be associated with Powell Industries, and our reputation in the industry has been very, very positive. So, therefore, from a cooperation standpoint, it's been excellent. From an administrative standpoint, the integration, of the majority of that is behind us. From a financial -- the SG&A side -- excuse me, the G&A side, I would call that basically complete, although there will obviously be ongoing issues. The biggest one they will be facing is in 2006, is actually being compliant with the Sarbanes Oxley with the UK operations, which is probably the largest open issue still yet to impact us from a G&A perspective from the integration.

I will pass it over to Mark, and let him talk a little bit more about what we are seeing from a marketing/customer perspective.

Well, from the marketing/customer perspective, we are still at the very early stages of all of this. We are covering the obvious things to begin with, in that we are introducing S&I to our existing customer base in the United States. Which, by the way, is travelling a lot more and doing more global projects. So that's working well. And we are also taking advantage of some of the exposure that S&I has in parts of the world. They actually do have an office in Azerbaijan in Dubai, and we are starting to learn a little bit about their contacts and their customer base in that area, in case some of the voltage levels in different products that we make in the ANSI world can be applied in those areas. So on balance, it is still very early. But I think momentum is building, and we are certainly working on it on a regular basis.

Thanks very much. Good luck.

George Gaspar, Robert W. Baird.

Yes, can you break down the employment situation in the increase that you mentioned that you picked up 60, and that your intention is to add 100. How does that distribute, both those numbers. How does that distribute, for example, in Houston, and elsewhere in the United States. I assume it would be Chicago or Canton, Ohio, and then what would be involved in the UK operation?

George, let me just say simply, the bulk of that new employment is right here in Houston, at our Mosley facility, and our Ship Channel facility, although there has been some additions at our North Canton facility in Ohio. Transdyn is relatively stable, as is the bus duct operation at Ohio -- in Illinois.

Okay.

Most of it is right here.

All right, thank you.

Thank you. Management, at this time, I will turn the conference back to you for any closing comments you may have.

Well, I certainly thank you. I appreciate you joining us today, and look forward to talking to you again the next quarter. Adios. We are out of here.

Thank you, ladies and gentlemen, that does conclude the Powell Industries first quarter conference call. Thank you again for your participation, and at this time, you may disconnect.