Gibraltar Industries Inc (ROCK) 2011 Q1 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gibraltar first quarter 2011 earnings conference call. My name is Katy and I'll be your coordinator for today. At this time, all participants will be in a listen-only mode. We will be conducting a question and answer session towards the end of the conference call. (Operator instructions.)

I would like to now turn the call over to your host for today, Mr. David Calusdian, investor relations firm, Sharon Merrill. Please proceed.

Good morning, everyone, and thank you for joining us. If you have not received a copy of the first quarter earnings press release that issued yesterday evening, you can find it in the Investor Info section of the Gibraltar website, Gibraltar1.com.

During the prepared remarks today, Management will be referring to presentation slides that summarize the first quarter performance. Those slides are posted on the website. Please turn to slide two in the presentation.

Gibraltar's earnings release and presentation today both contain non-GAAP financial measures and reconciliations of GAAP to non-GAAP measures are appended to the earnings release. Additionally, the remarks contain forward-looking statements about future financial results. The Company's actual results may differ materially from the anticipated events, performance, or results expressed or implied by forward-looking statements. We advise you to read the risk factors detailed in SEC filings, which can also be accessed through Gibraltar's website.

On our call this morning are Gibraltar's Chairman and CEO, Brian Lipke; Henning Kornbrekke, President and COO; and Ken Smith, Chief Financial Officer. At this point, I will turn the call over to Brian.

Thank you, David.

Welcome, everyone, and thanks for joining us on our call this morning. I'll begin with some brief opening comments and then Henning and Ken will review our results in more detail. Following that, I'll make some closing comments and then open the call up to any questions that any of you may have. To begin with, I'll ask you to turn to slide three in our presentation.

As you can see, we have an improved quarter to talk about today, and we're continuing to capitalize on the improvements that we've made in our business. And overall, our results were aligned with the expectations we discussed on our last conference call. Sales and profits increased by sequentially and compared to the first quarter of 2010.

We executed well on our plans to get deeper penetration with our customers and Gibraltar sales continue to grow faster than the market as a whole.

We completed the divestiture of United Steel Products' connectors business. And although it was temporary, we -- with the $58 million in proceeds from that transaction, we concluded the quarter with $105 million of cash on the balance sheet and total liquidity of more than $200 million.

Right after quarter end, we acquired D.S. Brown for $98 million, using $80 million of our cash. Equally important, though, our liquidity after the Brown acquisition is quite ample to fund internal growth and potential acquisition activity with about $125 million of liquidity remaining. Our integration activities with Brown are moving forward on schedule.

With all that we've done, and are continuing to do, to lower our fixed costs, improve our working capital and have properly aligned inventories, we're well positioned to leverage top-line growth going forward. With our efforts to gain market share, providing sales growth, along with some end market improvements, we're positioned to improve our profitability in the second quarter and over the course of the year.

With that, I'll let Henning jump in to provide some more detail. Henning?

Thanks, Brian.

Turning to slide four in the presentation, the first quarter unfolded as we expected. Against the backdrop of generally weak demand, we did see a few areas of spotty recovery in some of our end markets, most notably industrial construction activity.

Overall, we saw a shift in our business mix towards sales of products for non-residential markets this quarter. Industrial-related markets in particular were bright in what otherwise remains an environment of very slow growth.

From a modest base we've been steadily increasing our industrial market penetration. Our products for industrial applications include, for example, log rating products that go to many types of industrial facilities, such as gas and oil exploration and production facilities and mining operations. We also manufacture a wide range of expanded metal products for filtration and other industrial applications.

D.S. Brown further expands our non-residential footprint, enabling us to target the bridge construction, highway construction and airport runway end markets for the first time. A large number of bridges and elevated highways are reaching the end of their useful life. The average age of the approximately 600,000 US bridges is 43 years and 25%, or 150,000 of them, are currently considered as structurally deficient or functionally obsolete and in need of repair or replacement. Combine that with our increasing -- with the increasing need for our new highway and rail systems and there is significant opportunity for D.S. Brown's infrastructure products in the coming years for repair and replacement, as well as new construction.

Turning now to our traditional core markets, residential repair and remodeling activity in the first quarter was consistent with our expectations. We're seeing slow improvement in the levels of US consumer confidence that lead to spending on deferred home repair and maintenance and upgrades, like adding decks and new rooms.

We also continue to see high levels of foreclosed housing in the market or in the pipeline. Foreclosures add to the headwinds that are depressing new construction. However, when foreclosed houses are sold, the repair and remodeling requirements tend to be substantial which acts as a demand driver for us.

All this is consistent with the leading third-party forecasts which call for mid to upper single-digit repair and remodeling market growth in the first and second quarters of 2011. This would represent low double-digit growth compared with the first half of 2010, but it would still be significantly lower than the repair and remodeling activity we saw prior to the recession.

In terms of new home construction, the first quarter was in line with what we expected. The current projection of 650,000 starts from the Joint Center of Housing Study still looks like a reasonable number to us. So, housing starts will improve, but will improve slowly. Multi-family starts, however, are expected to be a relative bright spot as it continues its slow but steady rise this year, continuing through 2012.

Non-residential building activity remained generally weak in the first quarter. We continue to expect non-residential construction to be flat in 2011, followed by a slight improvement in 2012.

With 12% sales growth for the quarter, it appears that we're continuing to gain market share. This reflects our continuing success in working with our major retail and wholesale customers to take a broader number of products to more of the geographic regions they cover. We continue to strengthen our relationships with key customers, providing them not only with new products, but with outstanding customer service and innovative marketing.

Our retail channel, which represents 45% of our business in the residential market, continues to expect high single-digit growth in 2011 and our results this quarter bear this out. The wholesale and commercial channels also contributed to top-line growth in quarter one. As Brian said, with the ongoing improvements we made in our business, we are in a position to leverage profitability from this growth.

As outlined on slide number five, we remain focused on Lean initiatives across the Company with a goal of establishing Gibraltar as a low-cost supplier on a global basis.

During the first quarter we closed two facilities in Europe and we're now servicing customers from the remaining two plants in Europe. And our first quarter GAAP results include $900,000 of related restructuring charges.

Our facility consolidations and Lean initiatives have enabled us to significantly improve our working capital position, along with eliminating the inventories associated with closed facilities, we have largely completed in 2010 investments in new information technology systems that are enhancing our operational, sales, distribution, working capital and material planning processes.

Networking capital days declined again in the first quarter to 56 days from an already low point at the end of 2010. Our sales of inventory for the first quarter of 2011 was a low 58 days, in line with our record low of 57 days we reported in the fourth quarter and down dramatically from the high 80-day range only a few years ago. Most importantly, we believe we can sustain these favorable levels of network capital going forward.

With new IT and supply chain systems in place, coupled with the fact that we started the year with inventories that were properly aligned, we feel good about the job we've done managing the volatility in raw material costs. We expect continued commodity volatility in the second and third quarters this year, but we expect to be able to manage this volatility with less impact on margins in 2011 than in 2010. These efforts will continue to center primarily on the cost side of the equation.

We remain focused on providing outstanding service to our customers and we are dedicated to providing them with competitive pricing.

In summary, because of all the actions that we've taken relative to cost reductions, streamlining the business, and the systems we've put in to help us improve our working capital, we feel that we are in an excellent position to realize improved leverage on incremental sales in the year ahead.

With that, I'll turn the call over to Ken Smith for the financial review.

Thanks, Henning. And I'll start with to slide number six in the presentation titled Q1 Highlights.

As a reminder, we are reporting the USB connector business that we divested on March 10, 2011 as a discontinued operation, excluding its results from the continuing operation results reported here. In addition, since we closed the D.S. Brown acquisition on April 1st, its financial results and financial position are not included in the results we are reporting on today.

That said, revenues for the first quarter of 2011 were up 12% from Q1 of 2010, driven primarily by stronger sales in non-residential markets, led by industrial markets that Henning cited. Sales to residential markets also increased modestly. Approximately 7% of the increase in consolidated sales was related to volume, with the balance related to pricing.

As Henning said, the business is well leveraged for sales growth. Our operating leverage, together with improved relationship between raw material costs and pricing, drove the strong period-over-period increase in profitability. Net working capital was a favorable 56 days and we continue to reduce our net debt. The $58 million in proceeds from divesting USP enabled us to close the quarter at a low point for net debt to net capitalization, and also help fund the D.S. Brown acquisition. And we continue to have ample liquidity as cited by Brian.

Now, turning to slide number seven titled Q1 Sequential Improvement. As I said, our top-line growth was driven primarily by improved demand in non-residential markets, as well as pricing. We are reporting $9.4 million in operating income before special charges, driven by a higher gross margin and lower SG&A. EPS for the quarter improved $0.33 sequentially as a result.

Now, turning to slide number eight regarding year-over-year profit improvement. Profitability improved considerably and reflects in part our efforts to mitigate the impact of higher raw material costs through improved operational efficiencies, pricing and favorable volume.

Our reduction in SG&A expenses included the impact of lower fair value for previously awarded performance-based equity compensation upon the decrease of Gibraltar's stock price in the first quarter of 2011. EPS from continuing operations also benefited from lower interest expense.

Regarding free cash flow, 2010 benefited from cash from discontinued operations and our reductions in working capital. Our cash flow results for the first quarter of 2011 reflected higher net income that was offset by our investment in higher accounts receivable driven by the increased sales.

Turning to slide number nine, Net Income/EPS, I'll comment on the non-operating income tax expense. Net interest expense decreased compared to last year, the result of lower average borrowings. We had draws on our revolver in Q1 2010, but none during the first quarter of this year.

Regarding our credit facilities, we drew on the revolver early this month to help fund our acquisition of Brown. And concerning our debt maturities, our $200 million of subordinated debt matures in over 4.5 years from now, in December of 2015, and our revolving credit agreement matures in August of 2012 and we expect to favorably extend that revolver well before then.

Regarding income taxes, for the non-GAAP results the effective tax rate for first quarter of 2011 was 34% compared to 48% for the first quarter of 2010. The effective tax rate last year included a discreet item worth 9 percentage points.

Our GAAP results, the income tax rates for Q1 of this year and Q1 a year ago were 48% and 45%, respectively, which were above the statutory rate for the US, primarily due to non-deductible expenses which, for the first quarter this year included acquisition transaction fees for D.S. Brown and Brian's voluntary surrendering of a portion of equity awards previously granted to him.

Turning to slide number 10, Cash Flow. We used a little over $12 million in cash for operations in the first quarter this year, primarily for working capital as a result of higher accounts receivable. After significantly reducing our working capital in 2009 and again in 2010, we began this year with a very low amount of working capital and, as a result of the rise in sales this first quarter, we used cash for higher accounts receivable. I expect that during the seasonally stronger portions of 2011, the second and third quarters, we will be using cash to invest in receivables and inventory. And the fourth quarter of this year will be a period when we generate cash from lowering our working capital and, for the full year, have positive free cash flow.

Turning to slide 11, Net Debt Reduction Continued. We reduced our net debt outstanding by $43 million, or 30% from a year ago. And as mentioned earlier, we closed the quarter with nearly $105 million of cash on hand, which included the proceeds from the sale of USP.

Early in the second quarter this year, last month, we used $80 million of our cash for the D.S. Brown acquisition. And as we speak today, our total debt is approximately $230 million, cash of about $25 million, for a net debt position of $205 million. And as Brian cited, sufficient liquidity of approximately $125 million.

With that, I'll turn the call back over to Brian.

Thank you, Ken. I'll focus your attention now on slide 12 in the presentation.

As Henning said, with the work that we've done to gain increased market share, consolidate operations, permanently cut costs, and lower our breakeven point, we're in an excellent position to deliver improved sales and profitability in 2011. At the same time, with faster working capital terms and a good record of generating cash from operations, we're also in a position to supplement our organic growth with growth from accretive acquisitions.

Historically, our first priority for developing -- for deploying our cash has been to pay down our debt and we still want to keep our debt at moderate levels. Looking at the market today, however, we do see opportunities to make accretive acquisitions that improve our overall operating characteristics and provide a return that is equal to, or greater than, our average cost of capital.

The acquisition of D.S. Brown Company, which we completed in early April, exemplifies the type of transaction we believe makes sense for Gibraltar and their shareholders. It's a business with a strong growth profile and one that offers immediate accretion and returns in excess of our weighted average cost of capital. It provides value-added products, holds market leadership positions, and has the potential to create opportunities for us to further expand our market share.

As we said in April, D.S. Brown has a record of strong and profitable growth over a sustained period, outpacing its overall market growth with a five-year CAGR of 10% and strong prospects for a continued growth. We continue to expect D.S. Brown to be immediately accretive to our non-GAAP earnings, excluding acquisition and other one-time costs, and accretive on a GAAP basis in the first 12 months of combined operations.

Wrapping up, we're more positive about 2011 than we were about 2010 at this same point last year. Although the signs of end-market recovery have been inconsistent and modest at best, we have, in fact, seen some evidence of improvement. We entered 2011 with highly efficient, low-cost manufacturing and distribution facilities, properly aligned inventories, as well as ample production capacity for growth as we take additional market share and as our end markets rebound. As a result, we're confident in our ability to report continued profitability improvement in the second quarter.

With that, we'll be happy to take any questions that any of you may have. Thanks.

(Operator instructions.) Robert Kelly, Sidoti.

Good morning, gentlemen.

Good morning, Bob.

Good morning.

I didn't catch this, the non-res business was up -- was the key driver of revenue growth in 1Q. Was it up along the order of 30%?

Actually, 21%.

21%, okay. Thank you. If you would, could you kind of walk us through the margin bridge for gross margin between 1Q '11 and 1Q '10? You talked in 4Q about the mismatch on raw materials being a 500 or so basis point drag on the gross margin.

Yes, our materials -- I'm sorry, I should let you finish.

Yes, just what that -- was that a drag again in 1Q and what was the offset from productivity and some of the cost cuts you made over the proceeding four quarters?

Yes, our gross margins are up about eight-tenths of a percent. Our material costs are up one percentage point year-over-year. And the difference really came from the higher unit volume that we had, which for the total Company was around 6%, and the increased efficiency that we've gained that we've been talking about now for the last couple of years.

Okay, so those two offset the 100 basis point increase in materials.

Yes. And again, our material costs, we manage. I think we felt very good about it. We managed it pretty close. We know, for instance, in the quarter that there was extreme volatility in certainly aluminum and plastics; resins were up substantially. And I think our folks did really a good job in addressing those issues during the quarter.

Yes. So, you were able to get -- you had the year-over-year pricing -- price benefit of 4%, 5% or so. Does that increase as we move into the balance of 2010? Does it run into a tougher comp? I believe you had price increases in effect during 2010. Do you take more in 2011, just given what you saw in 1Q?

No, we think we're pretty well balanced as we go into the second quarter. So, we expect to see the same types of improvement as we go forward, particularly on the higher unit volumes that we expect.

Okay, great. Just as far as the SG&A run rate for 1Q, one of the lower run rates we've seen in a couple of years. Is that -- sort of that percent of sales, is that a sustainable run rate we should be thinking about for the next few quarters?

Could you repeat that, please?

Your SG&A run rate --

Oh, I'm sorry, yes.

Is about $21.5 million?

No, we don't think that's sustainable. I think that Ken had outlined, I think, two significant items that took our SG&A down. However, as we go into the second quarter, we believe our gross margins will be higher and so that we should be able to sustain the -- not the SG&A, but the operating margin as we go into the second quarter, but with a different balance.

Got you.

Plus, we also -- add onto Henning's remark, we're also going to have about $3 million a quarter for D.S. Brown. It's now going to fold into our results of SG&A.

Understood. What will be the cost savings from the two European facilities you closed in 1Q?

We expect about a one-year payback on that $900,000.

$900,000, yeah.

Okay. And then, just as far as the D.S. Brown acquisition, you dipped into your revolver a little bit to pay for that acquisition, I believe, along with the cash on hand. Do you use the excess cash flow that you see in 2011? Do you pay that all back? I mean, should this kind of pro forma debt level that you called out for the current -- for currently, I guess, will that start to lower as you go into the back half of 2011, I guess?

Yes.

Yes, I think on the back half we expected it to have a modest draw, along with any working capital needs would be paid off.

Okay. Thanks a lot guys. Good quarter.

Thank you.

Kalpesh Patel, Jefferies.

Good morning.

Good morning.

Good morning.

Yes, the name is Kalpesh Patel. Sorry about that.

If you could provide some details regarding specific products and where they're trending. Obviously, the non-residential portion of your business is doing well, but I just wanted to get a sense more specifically on products, and end markets and geographically what's going on there.

I think geographically we saw a pretty even distribution across the country. I think in the products themselves. Those that were related most closely to repair and remodel activity seemed to be moving most aggressively, which is what we would have expected. We see some of the specifics, which we outlined industrial applications, have been more buoyant as we go forward. I think we continue to see that movement.

I mean, I guess specific products for, like, I mean, the bar grading you mentioned. Was there others?

Expanded metal I think we saw begin to move very positively. And I think -- and we didn't talk about this, but as we know, we've had some significant weather conditions throughout the country this year. And I hate to say this, but our products play well into helping repair a lot of the damage that is going to take place. Just anecdotally, when we looked a lot of mailboxes that are going to need to be replaced, and many of our other products, which are roofing-related products will probably do very well during the remainder of the year.

Okay. And then in terms of end markets, I think you mentioned oil and gas.

Yes.

Right. I mean, is there other markets that you're seeing an uptick in besides oil and gas?

Yeah, we see most industrial companies are now starting to be a little bit more lenient on spending of capital. And so, as they refurbish their facilities, as they look to increase their efficiencies, we find that they're reaching back and using more of our products to help accomplish their targets.

So, this is manufacturing companies, chemical companies, etc.?

Yes.

All types of manufacturing facilities. If you think about it, when things slow down a lot of companies go into a conservative mindset relative to repair and maintenance capital expenditures. And as their business outlooks starts to improve, they catch up on differed maintenance, step one, and we're feeling the benefit of that. And step two is then they gradually start to look at expanding their production facilities as demand continues to improve. So, it's a combination of all of those things, starting to gain some traction.

Got you. And if you could talk about your order rates by month. I mean, how did they trend, say, from January, February, March, and even if you have some data on April.

Yes, we do. We see in better in April. They're trending as we expected they would. They're all trending up and they're trending up in the areas I think that we've highlighted. Repairing and remodel continues to be strong and I think we indicated growth in that area of 5% to 8%. We think we're on target with that projection. We've talked about some of the drivers on that, particularly some of the foreclosed -- foreclosure activity is driving repair and remodel, and we see that continuing through the remainder of the year.

So--.

And that goes back to our overall positioning, where either new build residential or new build and the non-residential markets are not where our business is mainly focused. In residential, 75% of our business is for repair and remodeling activity, and we think that's the first area to begin to feel an uptick in the economy. And the same is true for the non-residential area and we're already starting to show the impact of that in the industrial area. So, I think our overall positioning has us situated well to be an early stage benefactor of any economic improvement overall.

Okay. And I guess one last question. In terms of -- you mentioned, I think, in your opening remarks and in the press release regarding market share gains. How do you, I guess, track that? Do you have actual percentage gains or is it that your competitors are going out of business? I just thought maybe more detail on that would help.

Yes. We know that the -- we know approximately the overall size in the market. We know what percentage of the market we're taking. And yes, in many instances some of our competitors are going out of business and we've had opportunities to provide the customer base with products.

We track very carefully the participation levels that we have with major wholesale and major retail customers. And we look at the number of stores of those major accounts that we're selling and we look at the number of products that goes into each one of those stores. And we believe we've got, and are achieving, significant gains in penetration which today, to a degree, are masked by the continuing relatively low level of demand. But, as we achieve this deeper penetration and demand for the product picks up, it'll be kind of a multiplier effect on our sales going forward.

So, without giving away any competitive information here, we're tracking it and we know we're making progress.

Okay. Thank you. Congratulations.

Thank you.

Thank you.

Tim Hayes, Davenport & Company.

Hi, good morning.

Good morning.

Good morning, Tim.

Two questions. On the SG&A, what was the two items that lowered SG&A in Q1? How much did that impact SG&A?

The -- are you talking sequentially or--?

Just the absolute amount in the quarter.

Our fair value of equity awards, we actually had a negative expense of about $1.4 million, compared to actual expense on the fourth quarter of 2010 of $2.2 million. And that kind of a swing largely has a fair degree of correlation to our stock price. So, at the end of December 2010, our stock price was around $13.70 or $13.90. At the end of March 2011, the stock price was, I think, around $2.00 less than that. And so, that has a bearing on the value of any earned awards a year from now and the prospect of our earning shares here in the third performance year of 2011.

And I'm expecting that if we held, all things being constant, I would expect in our next three quarters of this year we'd probably have somewhere in the order of maybe $0.5 million per quarter of expense, if we didn't have such volatility in the stock prices we just had sequentially.

Okay. And that was the compensation piece. What was the second piece again?

Well, we just had some lower -- we had lower staffing compared to a year ago as we become more and more efficient. So, there may be a little of that that creeps back as we particularly invest in direct labor. But, I would say on total, the biggest swinger has been this fair valuing of our previous equity awards.

On the equity awards, if we're going to look for a sequential increase, Q1 to Q2 might be around $2 million, maybe a touch extra for higher staffing. And then, you get another $3 million from D.S. Brown, so we're looking at --

No. No, no. No, we're --.

Yes, he's got the right math. We had about -- SG&A in our first quarter of about $21.5 million.

Right.

He's -- the question is what's that number approximately in the second quarter. To that $21.5 million we'd add $3 million for Brown, and we'd probably add somewhere around a $2 million of equity, equity fair value expense.

Yes, we're not adding staff. We've added people through an acquisition.

Nor new awards.

Or new awards, right.

Okay.

He's trying to value existing awards that were made in previous years.

Okay. No, that helps. And then the tax rate going forward, do we go back to using a 39% still -- a hold?

I'd say anywhere between 39% and 41% is going to be a reasonable rate for the year.

And then on -- sequentially, you had -- the revenues were up, what was it, I think 14% and there some mix in volume and price. Sequentially, how much of that 14% came from price?

Half was volume and half was price, approximately.

Okay. And then the price increase -- I'm assuming that -- the stuff that goes through distribution, you tend to raise the prices more fluidly than the stuff that goes to retail, is that correct?

Not necessarily. There's different discussions that are had, but not necessarily.

Okay. And the final question, then, is would the price increase that you were able to achieve sequentially, does that -- did that give you a little extra boost in margins just from the FIFO impact and, if so, how much?

No, we don't look for price increases to improve our margins. We look for price increases to hold ourselves even with our material costs, and so we're very careful. I think we try to match our selling prices to our material costs, period. And we don't look to enhance margins through that process.

Okay. Thank you.

Okay.

(Operator instructions.) Seth Yeager, Jefferies & Company.

Hey. Good morning, guys. Good quarter.

Thank you.

Thank you, Seth.

A couple of just quick ones. On the accretion guidance for Brown, does that include any synergies?

Very modest.

Very little.

Then under $1 million?

Yes.

Yes, as of now.

Okay. Alright. And then, what is the CapEx of that business and how should we think about incremental working capital going forward with that business?

It's probably around 3% of revenues for them. And the annualized revenues for Brown's around $60 million, $65 million.

Okay. And then working capital, is there any modest -- I guess what should we think about it for as far as an increase?

Very close to where we are as a total company. So, we don't anticipate any significant change from the total working capital that we've displayed.

It's probably pretty close to 20% of revenues for their -- non-working capital on the balance sheet.

Alright, thanks. That's helpful. And then I guess last question, more conceptual. Just looking at the price (inaudible) here. It looks like there's been a slight falloff in steel pricing. And I know you sort of addressed this in the prior question, but a falloff in pricing over the last few weeks, with you matching price increases and with your buying patterns. Are we going to see any of this -- are we going to see any incremental pickup in the second quarter, just based strictly off of timing?

No, we think we're fairly well balanced. I think we've done a good job in managing our inventories. So, we -- I think -- we give our business units a lot of credit. I think we're in, we believe, probably in one of the best balance positions we've been in in a long time. And that's -- that's why we've made the investments we keep talking about in information technology, to give us the tools that we need to attain those balanced positions.

Alright, thanks. And if I could add just one more, with Brown, did that business come with a material backlog you guys could share?

It did come with actually a very large backlog.

Care to quantify?

Well, we'd rather not quantify the backlog, but it's substantial.

Okay. Alright. Thanks a lot. Good luck.

You're welcome.

Mark Parr, KeyBanc Capital Markets.

Hey. Good morning, guys. It's actually [Jason Broches] in for Mark. How are you?

Good.

Good morning.

Hi, Jason.

Hi. I just -- actually, most of my questions were answered. I just wanted -- did you guys happen to comment on the kind of sales growth you expect from D.S. Brown versus the, I think, $65 million that you've outlined for 2010?

We expect strong sales growth for D.S. Brown. I don't believe that we did quantify our expectation at this point.

Okay. And do you -- excuse me. The net effect of the divestiture of USP and the D.S. Brown acquisition, do you still expect that to be -- I think you said in March high [T&TPS] accretion. Does that still look like the case?

Yes, it is.

Okay. Alright. I think that actually takes care of me. Thanks, guys.

Thank you.

You're welcome.

Leo Larkin, Standard & Poor's.

Good morning. Could you give us guidance for CapEx and depreciation for 2011?

CapEx will be around $15 million or so.

$15 million did you say?

Fifteen.

Fifteen; one-five.

Okay. And depreciation?

Depreciation is probably --

28% in depreciation.

Well, it could be about 24% if we include Brown.

Yes.

And on top of that would be another element of amortization. That would probably be $7 million or so.

Okay. Thank you.

At this time I'm showing we have no further questions. I'd like to now turn the call back over to Management for closing remarks.

Thank you, Katy.

We're starting the year off on a positive note and we have expectations that we're going to be able to continue on that pattern as the year unfolds and, specifically, in the second quarter. We thank you for your continued interest in the Company and look forward to reporting back to you at the end of the second quarter with more good news. Thank you.

Ladies and gentlemen, thank you very much for your participation in today's conference call. You may now disconnect. Have a wonderful day.