Powell Industries Inc (POWL) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Powell Industries fourth-quarter conference call. (Operator Instructions). As a reminder, this conference is being recorded Wednesday, December 5 of 2007.

I would now like to turn the conference over to Ken Dennard from DRG&E. Please go ahead, sir.

Thank you, Mike, and good morning, everyone. We appreciate you join us for Powell Industries' conference call to review fiscal 2007 fourth-quarter results. I would also like to welcome our Internet participants listening to the call over the World Wide Web.

Before I turn the call over to management, I have the normal housekeeping details to run through. You should have received a fax or an email of the news 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 -- that number, 713-529-6600 -- and we will send one out to you. Also, if you want to be on the email distribution list, please relay that information as well.

There will be a replay of today's call. It will be available via webcast by going to the Company's website. That's www.powellind.com, and that will be available about an hour or so after the call. Or a telephonic recorded replay will be available as well, and information on how to access that is provided in the press release.

Please note that information reported on this call speaks only as of today, December 5, 2007, and therefore you are advised that time-sensitive information may no longer be accurate as of the time of any replay listening.

Also, as you know, this conference call includes certain statements, including statements relating to the Company's expectations of its future operating results, that may be deemed 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 strategies. 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 Chief Executive Officer; Pat McDonald, President and Chief Operating Officer; and Don Madison, Executive Vice President and Chief Financial and Administrative Officer.

I would now like to turn the call over to Tom.

Thank you, Ken. Good morning. Thank you for joining us today to review our fiscal '07 fourth-quarter and year-end results. I'll make a few comments about the quarter and our markets and then turn the call over to Pat and Don for more detailed discussions.

We're very pleased with the improvement in our quarterly and annual results. For both the quarter and the year, we reported significant year-over-year revenue growth due to continued strong demand in our electrical power product markets. Our fourth-quarter bookings reached a record $200 million, backlog ended the quarter totaling a record $464 million, and for the full year, total bookings were $667 million.

I'm pleased to report that the markets that we see remain healthy. We continue to see excellent opportunities and we are successfully closing business at an unprecedented rate relative to the history of the Company.

All of our major market segments remain strong -- oil and gas; utility distribution and generation, including green power; and the transit business. We continue to see many projects in both the planning and the bidding stages. These are very large, complex projects with long-term time horizons. Powell is exceptionally well suited to fulfill the need for these projects, and I believe we will see sustained activity in this area for some time to come.

We're performing well both domestically and internationally in both our ANSI and our IEC product lines. We continue to benefit from our ability to work with our domestic customers on their international projects.

Generally speaking, business is on track and doing quite well, and the outlook from our vantage point remains very strong. Without a doubt, we're pleased with the opportunities that are before us.

At this point, I will turn it over to President and Chief Operating Officer Pat McDonald. Pat?

Thank you, Tom. We continued our revenue growth in the fourth quarter. Revenues for the fourth quarter were at $150 million compared to $149 million in the third quarter. This puts our year-over-year growth at $190 million, or 50% compared to fiscal year 2006, which was an 11-month year.

As Tom said, we look forward to the opportunities ahead of us in 2008, as orders in the fourth quarter brought our year-ending backlog to a record $464 million. All of the electrical power products divisions are seeing strong growth, and we continue our ramp-up of employees to satisfy that growth.

We have doubled our workforce from 1200 to 2500 people since 2004, and at the same time, we have tripled our revenues during that time frame. We have completed a tremendous amount of training with our new employees while dealing with the growth of the business. And we will continue to invest in additional training to bring our people's skill sets up to the level necessary to interact with our new ERP systems.

I would like to take a moment to thank all of the Powell employees for their time and dedication in 2007. I would also like to take this opportunity to express my appreciation to our customers, some of which may be on this call, who have put their faith and business in our hands. We will constantly strive to achieve the highest customer satisfaction and continue to invest in new products and delivered systems in an effort to meet their needs and requests.

Our goals for the future are quite simple -- finalize the transition of the Power/Vac product line; drive for gross profit improvements in all businesses; improve our working capital turns through solid project management, milestone billing, cash collection and timely inventory management.

Now I will turn the call over to our Chief Financial Officer, Don Madison, to review the financial results.

Thank you, Pat. As previously announced, we changed our fiscal year to September 30 from October 31, effective September 30, 2006. Therefore, the comparable periods of fiscal 2006 are comprised of a two-month fourth quarter and an 11-month year.

Now for the financial results -- revenues were $150.5 million in the fourth quarter of fiscal 2007 compared to $88.3 million in the two-month fourth quarter of fiscal 2006. Revenues increased due to ongoing strength in our primary markets and the strengthening backlog. The acquired Power/Vac product line added revenues of $19.1 million in the quarter compared to $17.6 million in last year's fourth quarter.

Gross margin for the quarter was 16.8% compared to 17.8% in last year's fourth quarter. Excluding the direct impact of the acquired Power/Vac product line, gross margin for the quarter would have been approximately 20%. Overall, we continue to experience strong demand for our products and services.

Selling, general and administrative expenses decreased to 13.8% of revenue in the fourth quarter compared to 14.5% of revenue in the fourth quarter of fiscal 2006. Interest expense in the fourth quarter was $1 million compared to $488,000 in the fourth quarter of 2006. In addition to the three-month quarter, interest expense increased due to interest expense imputed on the discounted purchase price for the acquired Power/Vac product line.

Interest income was $148,000 compared to $191,000 in the fourth quarter of 2006 as a result of lower levels of cash available for investment. Our provision for income taxes reflects an effective tax rate on earnings before income taxes of 35.4%. For the year, our effective tax rate is 35.5% compared to 35.4% in 2006.

Net income in the fourth quarter was $2.5 million or $0.22 per diluted share compared to $2.2 million or $0.20 per diluted share in the fourth quarter of 2006. As of September 30, 2007, our order backlog was $464 million compared to $355 million in last year's fourth quarter. New orders remain strong. Orders in the fourth quarter totaled $200 million compared to $156 million in the fourth quarter of 2006 and $151 million in the prior quarter.

We ended the fourth quarter with $5.3 million in cash compared to $10.5 million at the end of fiscal 2006. As we increased the business activity in our manufacturing operations, working capital has been required to support higher levels of business volume.

During the quarter, cash provided by operating activities was approximately $20.5 million, and we invested $3.2 million in capital improvements.

Looking ahead, we expect full-year fiscal 2008 revenues to range between $625 million and $650 million and full-year earnings to range between $1.65 and $1.90 per diluted share.

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

Thank you, Don. I'll make just a few remarks and then we'll be happy to take your questions. This past year, of course, was not without its challenges. The Power/Vac transition and integration process has been difficult during this period of exceptionally strong growth. And as discussed in previous calls, we had some performance issues at one of our operating units, which we've turned the corner on at this point. We also had the challenge of implementing the new ERP system.

These challenges aside, I'm proud of the organization, of what we did accomplish in '07. Again, we generated record bookings, both in the fourth quarter and for the year, and we maintained and strengthened relationships with our customers throughout this challenging period of growth and exceptional business activity.

Our growth requires skilled people because everything we do is engineered to order. To that end, we have successfully attracted a large number of talented people to the Company. I must say it's exciting to have these new people apply their industry knowledge and watch the organization continue to adapt to new demands.

The volume of business remains high, and the Powell employees in all business units have worked very hard to continue to deliver the superior level of service our customers have grown to expect. Like Pat, I appreciate the efforts of all of our employees and want to acknowledge their hard work, many, many long hours throughout this past year.

We continue to invest in research and development to develop broader product offerings. Our R&D efforts continue to anticipate new demands of the marketplace and keep Powell on the cutting edge of new products for our industry.

Our Powell UK group continues to exceed all of our expectations, and the integration of Power/Vac is now on track for completion in March of '08. I believe we are well positioned for the future with our relationships, with our people and with our R&D efforts. We continue to be excited about these opportunities in our markets and about the future performance of this Company.

At this point, we would be happy to try to answer your questions.

(Operator Instructions). John Franzreb, Sidoti & Company.

(technical difficulty) where we are on the Power/Vac integration and process? What physically remains to be done and what's the timeline for that?

We missed the first part of your questions somehow, John. What was it?

Sure. Power/Vac -- where are we in the integration process? What physically still needs to be done and what's the timeline for that?

John, this is Pat. Good to talk to you again. We are, as Tom pointed out, in the last stages of this. We are in full assembly down in our Kurland facility of the Power/Vac product line. We're moving ahead with our integration move of the fabricated parts now, and that will continue in December and into the first quarter of 2008. So that's the last parts of the transition that are going to be required to be finished up with the fabrication side of things.

Okay. And based on what you know now, are you guys still sticking to your operating margin targets that should exceed the previous peak and cycle based on what you are seeing on the current order book for this cycle?

After we get through the transition side, as we've talked about with everybody, we are still approaching and believe that we have the capability to approach the peak of our margins that we have seen in the past. But we still do have to get through this finalization of the transition period and then get our people up to speed in the second half of '08 to be able to be hitting those margin-level targets.

Ned Borland, Next Generation Equity Research.

Just kind of a follow-up question on the last one as it pertains to margins. If I look at the guidance on revenue and EPS, I'm looking at a gross margin range of about 19% to 19.5% or so. Are we still looking at gross margins, say, in the first half being more like 17%, 16%, and as you get through the transition, what are we looking at in the second half of fiscal '08?

This is Don Madison. What we are looking at, when you just lay it out quarter by quarter, we anticipate that we will continue to see improvements in our historical operations as we move forward into 2008. I caution everyone from looking sequential quarter to quarter because individual projects can skew any one quarter.

When you are looking at the impact of the Power/Vac product line, there's going to be an improvement that we will reach at the end of the first quarter. The first quarter relative to the recent quarters will be nominally improved, will reach a step-function improvement at the end of the December time period. That quarter will be -- the January time period will be the first full quarter we will have all assembly and test operations in the Kurland operation here in Houston. We will make another improvement that will occur when we get all the fabrication here at the end of March.

When you are looking at the third and the fourth quarters of fiscal 2008, you will still see incremental improvements that will be required to reach our guidance for this acquisition because of just the training and the tenure of the employees in this business unit. This business unit has approximately 300, 325 employees. The vast majority of them have no more than a year of service, many of them well less than a year of service, and so that we're still looking to have a training curve that will be impacting us in the third and the fourth quarter. We think we will be coming out of that training curve around the end of fiscal 2008.

Okay, that's very helpful. And then, on Power/Vac, what kind of growth are you assuming for fiscal '08 over fiscal '07, given the different end markets associated there compared to your legacy business? I just want to get a sense for how you see that going in '08.

At this point in time, our focus is on operating efficiencies, completing the transition and reaching our earnings results of the business. Going forward into 2008, at this point in time, we're not looking for significant growth in this product line. We're looking for it to be relatively stable, ensuring that we can reach our objectives both from a cost standpoint as well as from a customer service standpoint.

And then, the margins on Power/Vac, excluding the noise of all the integration work, but generally, product line speaking, margin differential between that and your core business?

We are still confident that we will reach our projections of $7 million to $8 million of EBITDA in this business once we complete the integration and get the workforce stable. Keep in mind that the EBITDA of this business does carry a significant amount of intangible amortization, and that's why we talk in EBITDA. From an EBITDA perspective, it will be comparable with our historical businesses.

Richard Leader, First Houston Capital.

Congratulations for the great results. Tom, from time to time, you've talked about the energy bill that keeps popping up in Washington, although nothing seems to get done. Now there's an energy bill in the works. In part, it's going to raise taxes on oil companies and perhaps even impose new mandates for utilities to use more renewable fuels. What is your reading on the current energy bill and where are you as far as the impact on Powell going forward?

Certainly, we've noted some nervousness by our major customers. All of this pre-election rhetoric does have them questioning some things. But so far, nobody has pulled the plug on any projects. I hope it's just rhetoric and [some of this] does not take place in the end. But can't tell you that. Don't know.

Craig Bell, SMH Capital.

I had a question on the backlog. You had a pretty significant increase in the backlog this quarter. I'm just wondering, was that due to a couple of large projects or did you see you really strength across the board?

Craig, we saw strength really across the board. But as always, and as Don pointed out, we always have to hesitate quarter to quarter because we can have some fairly large projects that come in that have a tendency to skew the numbers at any one point in time in a quarter. But we are seeing strength across all the type of portfolio of projects that we look at, and we're booking in that accordance.

And then on the last conference call, you guys talked about your CapEx spending and the possibility that you might pull some of that into this fourth quarter from the early part of fiscal '08. Looking at the numbers there, it certainly looks like that happened. Number one, is that accurate? Did you manage to get some stuff done in the fourth quarter that was originally slated for fiscal '08? And just two, if you could sort of talk about what kind of projects those were.

Craig, the CapEx spending for the quarter was $3.2 million, I believe it was, and $14.3 million for the year. Yes, we did pull in about $2 million worth of work that we had originally thought we would do in the first fiscal quarter of 2008 as we tried to shore up some of the fabrication area. I will let Pat talk about specifically what we've been doing in the fabrication area.

We have invested in some additional fabrication equipment in the turret area and the press brake area as a result of the Power/Vac integration and also just the growth in volume that we have. So again, as Don pointed out, we were looking at those originally in the first quarter of '08. We pulled those into our final fourth quarter to make sure that we get that capacity in line ahead of the actual needs and we're ready and available with those pieces of equipment.

As it relates to 2008, we're still projecting that we're going to be probably in the $8 million to $10 million CapEx area for fiscal year 2008, based on what we know at this point in time.

By the way, those things are humming, and they sound really, really good.

Arnie Ursaner, CJS Securities.

The question I have relates to your backlog -- a couple of questions, subquestions related to the backlog. One is, what percent of the backlog do you expect to ship in '08? Number two, subquestion relates to -- obviously you don't want to give specific numbers post the quarter, but we do have a lot of -- October and November are behind us -- if you have seen a continuation of the trend. And third, given the fact you are so busy, what should we expect on the margins on backlog you are taking on versus corporate average, if you will?

While we're pulling together the percentage to be shipped out in '08 of the backlog, the backlog margins, as we've indicated, the margins were taken at or above our corporate anticipated levels. So again, we feel very confident that we're going to be able to meet our objectives that we're putting out in our guidance as it relates to the margin that are sitting in the backlog right now.

Trends in October and November?

Well, October and November, we're finishing up this last year. It would be remiss for me to be talking about October and November right now.

Okay. And the percent that would ship?

Hang on, we're getting it for you.

While you're doing that, if I can shift gears and ask Tom Powell a question, since you are in a very public forum, you've indicated you intend to retire. You own quite a bit of the shares. Can you comment on your plans, if you have any, for any orderly distribution of your shares?

I will be working on that fairly soon to do some programmed selling, not a great deal, but enough to make me comfortable in my old age.

But your plan would be something like a 10b-5 plan, or are you considering a public offering, which might get you broader and better distribution?

Probably the 10b plan.

Arnie, we've got the number here for you on the backlog question. About 8% of our year-end backlog will not ship in fiscal year 2008. The vast majority of the backlog is scheduled to ship in the next 12 months.

George Gaspar, Robert W. Baird.

Good quarter, expect a lot more going forward here. And my question refers to the gross margin. I think Don mentioned the improvement without the Power/Vac problem. If I calculate, if you were back at 20% on gross margin against your revenue stream, the total gross profit would have increased considerably, increasing net before interest income taxes, which shows $4.5 million, 3%. That would calculate to $9,340,000 or 6.2%. Can you get past 6.2% as you clear the deck totally when you get out of Iowa, everything is in sync, can you reach that and more?

George, our goal -- I mean, I followed part of your math there, but I was trying to keep up with you. But I guess the simple answer is that we feel, have a great deal of confidence that we're going to be able to achieve our standing objectives of meeting if not exceeding the last peak. The business is moving very healthy from a volume standpoint. Our efficiencies are an opportunity, and the market price [flows] are remaining firm.

So when you're looking at where we were going to be able to deliver results in this market cycle that we're currently operating in, to say that we can do better than we did in 2002 I think is a very realistic objective and continue to believe so, both for our historical business as well as the consolidated results after the Power/Vac acquisition.

And then there have been some questions on the backlog. My question would be how particular can you be with us on the backlog increase? Can you give us a little flavor on is that coming through your channel assembly area, is it for offshore installation on platforms, production platforms, or is it other aspects of the industrial market? Can you shed some light on that?

George, our backlog gain has been everywhere, across the board. It's been in the utility, it's been in the industrial and it's been in every one of our divisions. So we have, as I said in my opening remarks, we've seen strength across all of the divisions, and we continue to see it in the percentage relationships that we have had historically of our industrial to our utility splits.

Okay, all right. And if I could slip in just one more, process control, not much profit on the business. And it looks like it's becoming more marginalized in terms of total revenue stream relative to your overview as you are going forward, considering what you are estimating for '08. Any thought process on either how you can improve the picture there, what's happening in the market, or is there another plan on this particular segment?

George, let me start that, and then I will let Tom add his comments as well. Clearly, the process control business unit is dependent upon municipal projects. On municipal projects, it is public financing. We have seen in this past nine to 12 months increased activity in the inquiry, in the quotation stage, and there are several projects now that we think are very close to being funded, of which we are in an attractive position for a potential award.

Yes, things are moving probably six months later than where we had hoped to have been at this time last year. But clearly, we are optimistic about what the marketplace is going to be able to afford us in 2008. But again, keep in mind that when you are looking at the process control business, it is a longer cycle business. So the orders that we book in 2008 will help drive growth in 2009.

Well stated, Don. George, that's a good group with a lot of talent, and they've just suffered somewhat from a lack of available business. We have secured several international projects in the last number of months, opened up a new horizon in Australia, and from that viewpoint, we were successful. We've bid a number of very large projects. And at the current time, we're getting a lot of questions from the clients for clarifications, etc., which is always a good sign. When they go silent, that's not so good. But they are asking a lot of questions.

We're optimistic about what we might be doing here in the next several months, but of course, it's business, and it remains to be seen. But I'm optimistic for that group toward the latter part of '08 and '09.

Shawn Boyd, Westcliff Capital Management.

Congrats on the quarter. I want to just start with, going back to that previous question for a second, in terms of the guidance, let's take the midpoint of the revenue guidance for '08. Can we assume that the process control systems is flat to slightly up, or do we see that down within that guidance number?

We typically have not and we continue not to break out individual business units in our guidance. But I think you can draw the conclusion that with the backlog that we're walking into the year with, it's not going to dramatically grow in the near term.

Got it. Which -- yes, at that $30 million level. Okay. The other thing I wanted to hit in terms of revenue growth, in the past, you guys have been great about giving the organic year-over-year growth in electrical power products, so for example, last quarter, that being 28% and 20% the quarter before that. Here, we're kind of up against that stub quarter. So what I'm wondering is, can you give us an apples-to-apples organic growth number for electrical power products revenues this quarter?

Basically, if you go back, we've talked about it -- doing the match here, I'll walk you through the process. Clearly, we had a two-month quarter last year, of which we had $17 million and change of Power/Vac product line. So you would need to extrapolate that out to a three-month quarter and then compare it to this year, less $19.1 million of Power/Vac sales.

Got it. So something in the $25 million, $26 million range versus $19 million this year?

Yes, sir.

Got it. Okay, that's helpful. And one other question, and I will get back into queue. When we look at the year-over-year growth in both backlog and orders, to be very blunt, it's just on fire. It's very robust growth relative to the midpoint of the guidance in '08. So what I'm wondering is, if the majority of that business is going to ship out in '08, is the offset primarily Power/Vac being flat, or do we have a certain amount of conservatism that's in the guidance that we're looking at? Just help me on the difference there in the growth rate.

All of the above. Basically, when you are looking at it, we still have six months of Power/Vac relocation to take place, and then we have not only the training and learning curve for the employees in the new business, the Power/Vac business at our Kurland facility here in Houston, is that we've brought on board close to 600 employees in the last 12 months. And if you go back over the last 30 months, we've nearly doubled our workforce. We have doubled our workforce.

So you've got a significant number of people that are coming up the learning curve that we're still investing in training, we're still investing in time and effort and reaching the efficiencies that we set our objectives based on. So, therefore, there is some variability as to how fast we're going to come up that curve, how quickly we will get our workforce to productivity and effectiveness levels that we're targeting, as well as just the completion costs of the Power/Vac transition. So there are some variabilities going into next year, but the guidance that we've given you we believe is one that we will be able to deliver on.

Understood. Appreciate the additional color there, Don. One other question, if I may. Seasonality, as we think about the business, should we expect kind of a drop into the December quarter with it being the first quarter of the year and then up from that point, or should we just think about the business kind of increasing linearly from these September quarter levels?

Shawn, the first quarter, if you're looking at seasonality, we really don't see seasonality with the business model that we're in right now. But I think you always do have to remember, our first quarter now does include Thanksgiving and Christmas, the two biggest holidays of the year. So with that number of working days always taken out, or first quarter will always not be as robust potentially as our other quarters because of the number of days that we do have out for holidays.

Okay, so outside of holiday impact, it should be fairly linear?

Yes.

Well, again, I will only add to that, be careful with linear trajections, because we are project-based business, and project-based businesses can have some lumpiness quarter to quarter.

Understood. Appreciate the additional color, guys. Thank you.

(Operator Instructions). John Franzreb, Sidoti & Company.

Previously you shared with us your thoughts about the cycle and where we stand in the cycle. I wondered if you could give us an update on that based on the current quotation activity, what you're seeing as far as where we are and how much longer we have to go in the cycle.

John, I still see the cycle as what we've been talking about. It's elongated. It is -- the growth, the angle of the growth, is not going to be as great as we have seen. But definitely, the strength of the marketplace is staying up there. So I think we're seeing good indications of the next couple of years.

Okay. And one of the things that -- your bringing the GE business on board was to maximize some cross-selling opportunities with the GE salesforce. My understanding is that you have not put that really in place yet. Can you kind of update us on where you are as far as opportunities in cross-selling the GE product line and the power product lines are?

It is in place, but it is in a small area. Again, what we're trying to do with our GE counterparts in the sales organization is understand how we can best use their talents and their markets that they have and supply power product to them. We want that to be very targeted, very focused, and be very successful at that as opposed to a general market launch.

And how long do you think until you get to a general market launch?

Well, again, I'm not sure that I would say we're ever really going to be at a general market launch, because when you look at the broad market segments that they play in, there's a lot of areas that they will be very successful, they are successful in today, they're successful there with Power/Vac, and it is not a market segment that you would see a Powell vac product in.

So, again, we want to be very selective in the market segments that we're going to be successful on, and we have had successes with those areas that we have already focused on right now, especially in our international area.

Looking at the backlog, could you just share with us how much of the backlog is into the utility market and how much is into the industrial market?

John, we don't have those numbers quantified, but there's nothing to -- I have no reason to believe that they are not very close to what we're shipping from a revenue standpoint. From looking and monitoring the orders on an order of order basis, of what I see, that mix is not significantly different than our revenue mix.

Where did export sales or foreign sales end the year at, Don?

We ended the year at, for a full-year number of around 34%. The fourth quarter was a little bit lighter than the previous quarter, bringing the year-to-date average down just a tad.

What are your expectations for that in the year ahead, based on the current backlog figures?

At this point in time, I don't think -- I will yield to Pat or Tom -- that you're going to see substantial growth from a mix standpoint. We're seeing a very strong domestic market, even in addition to the international market. Both markets are growing. But when you are looking at the two-year point-to-point changes, I would actually think, from at least my perspective, the domestic market, because of how low it was back in 2004, is actually seeing more growth than we've seen in the international market. Not to say that the international market is soft, it just did not get as low back in the couple, three years ago as we saw here locally.

So when you're looking at our long-term outlook, we are a U.S. company. The vast majority of our products are focused on ANSI markets. And therefore, you're going to be 30-something percent, most likely, for the near term.

Gentlemen, any disagreement with Don?

No. Why would we? No, again, I think we go through various cycles in this business where the customer base that we have does their projects domestically, then they do some of their projects internationally. And how successful we are is going to dictate what our split is. But again, slightly different -- we are an international company that basically follows our customer base wherever they want to go in the world.

George Gaspar, Robert W. Baird.

Back on the acquisition income and coming out of Iowa -- can you give us any thoughts on potential relief that might come from GE on the original business acquisition and manufacturing problems that have persisted and trying to get completion out of Iowa? Can you talk about this at all?

No. Again, I don't think that's something -- we acquired the business and we're moving forward with the business.

Okay. And current employment -- what is the current employment now versus pre the Power/Vac acquisition, and how do you see it going -- where do you expect it to be in 2008 versus current?

Well, as we pointed out, we're a little over 2500 right now. We've added approximately 300 to 350 as a result of the Power/Vac acquisition. So, again, over half of our addition has been in all of our other areas. We still expect that we're going to be in the 200 range more as it relates across all of our businesses, as it relates to the volumes that we're seeing for next year.

Craig Bell, SMH Capital.

In the past, you've talk about some low-margin backlog that you were carrying, some of it related to Power/Vac, some to the issue you had earlier this year. And you had indicated you had hoped to have that all worked off by I think the end of December. Is that still the case, or have you worked through the majority of that, or how does that play out?

As it relates, George, to the -- Craig, excuse me. I'm sorry, my brain is going. As it relates to the acquisition backlog that we had with Power/Vac, we're still on track to work through that by the end of this year. As related to our other division that we have talked about and the backlog issues that we have on there, that management team has worked very hard to mediate that, and we believe that we are well positioned to go forward with that division now.

Shawn Boyd, Westcliff Capital Management.

The question has been answered, thank you.

Thank you, sir. At this time, I would like to turn the call back over to management. Please go ahead.

Thank you for joining us today. We look forward to talking to you again in the next quarter, with hopefully better news. Have a good day. Thank you. Bye.

Thank you, sir. Ladies and gentlemen, this does conclude the Powell Industries fourth-quarter conference call. Thank you very much for using ACT teleconferencing. You may now disconnect.