Trex Company Inc (TREX) 2004 Q3 法說會逐字稿

Welcome to the Trex Company third-quarter conference call. (OPERATOR INSTRUCTIONS.) As a reminder this call is being recorded today October 26th, 2004. I would now like to turn the call over to Ms. Harriet Fried.

Thank you, everyone, for joining us today. With us on the call are Bob Matheny, Chairman and Chief Executive Officer of Trex and Paul Fletcher, Chief Financial Officer. The Company issued a press release yesterday containing financial results for the third quarter. This release is available on the Company's website, as well as on various financial websites. A replay of today's conference call will be available through November 2. The call is also being webcast on the Investor Relations page of the Company's website where it will be available for 30 days.

Before we begin let me remind you that statements on this call regarding expected sales performance and operating results, projections of net sales and earnings per share, and anticipated financial conditions constitute forward-looking statements and are subject to risks and uncertainties that could cause the actual results to differ materially. Such risks and uncertainties include the extent of market acceptance of the Company's products, sensitivity to general economic conditions, and the highly competitive market in which the Company operates. The Company's report on 10K filed with the SEC in March 2004 discusses some of the important risk factors that could cause actual results to differ from those expressed or implied on this call. The Company disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. With that I will turn the call over to Mr. Matheny.

Please go ahead, Bob.

Thank you, Harriet and good morning. As most of you are aware, our third-quarter performance was very positive and continues to demonstrate strong, steady growth. Revenue for the quarter was $64 million and reached $224 million for the first nine months of the year. In terms of year-over-year performance, this is an increase of $55 million. Income for the quarter was also up significantly versus the same period last year and totals $1.86 per share for the first nine months. As you might expect, we are very satisfied with the quarter and year-to-date performance. We look forward to finishing the year with unprecedented results and entering next year with great momentum. 2005 looks to be another strong growth year for the Trex Company, one in which we shall build on the success of our Accents deck board introduction of this year, with several new offerings that will both strengthen our product lineup, as well as provide us with the ability to reach an ever-increasing number of consumers and end-users. The array of choices both in color and style that our company will offer in 2005 to the consumer will most definitely allow them to create their space. Now I would like to turn the call over to my associate Paul Fletcher, the Company's Chief Financial Officer.

Thanks, Bob. Good morning. As you are aware, our press release was issued last night, and the numbers I will reference are contained in the last few pages of the release, headed Condensed Consolidated Statement of Operations, Condensed Consolidated Balance Sheet, Condensed Consolidated Statement of Cash Flow. Third quarter of 2004 net sales were 64.4 million, compared to 2003's third-quarter net sales of 41.2 million, an increase of 56 percent.

Company's pull through marketing efforts (technical difficulties) effective across the country, and our 2005 program (technical difficulties) even more comprehensive (technical difficulties. Our Accents product line continued to gain share in the market as it accounted for 27 percent total volume (technical difficulties) the third quarter.

Third-quarter 2004 net income increased 39 percent, 7.1 million, 48 cents per share, compared to 2003 third-quarter net income, 5.1 million or 35 cents. Gross profit for the 2004 third-quarter represented 38.4 percent of sales (technical difficulties) compares unfavorably to third-quarter 2003 gross profit margin of 47-point (technical difficulties) percent. The third-quarter 2004 gross profit margin was negatively impacted by higher purchase poly costs and lower manufacturing output rates compared to a year ago. Purchase poly costs increased 13.4 percent on a per-pound basis over the third quarter of 2003.

Manufacturing utilization averaged 88 percent during the quarter between our two manufacturing plants. However, this was offset by a decline in average output per line. The output rates in the quarter were impacted by the new product start-up activity, product quality initiative, equipment downtime for repairs and maintenance. In the third quarter of 2004, SG&A expenses totaled 12.9 million, compared to $10.5 million in the third quarter of 2003. SG&A expenses increased year-over-year primarily due to increase in headcount-related expenses, such as compensation, benefits and relocation expense. Total SG&A expenses as a part of revenue declined, from 25.4 percent in the third quarter of 2003 (technical difficulties) 20.1 percent (technical difficulties) this year's third quarter.

As of September 30th, 2004, total cash amounted to $61.9 million compared to $38.9 million at June 30, 2004. Accounts receivable declined during the quarter by $18.5 million to 12.8 million as the early-buy credit terms expired in July.

Total inventory increased by 3.2 million, $21.9 million (technical difficulties) to build up finished goods (technical difficulties) 2005 early-buy (technical difficulties). Leverage remained very conservative with total debt of $55.7 million. Total debt to total capital was 26.1 percent at the end of the third quarter.

(Technical difficulties) September, the Company's $20 million working capital line of credit (technical difficulties) $8.5 million of mortgage debt, were extended by three and five years respectively. Cash flow from operations amounted to $68.5 million in the first nine months of 2004, compared to $21.1 million in the first nine months of 2003. Capital expenditures in the third quarter were $7.6 million; we expect capital spending to be approximately $20 million in the fourth quarter. Construction activity and equipment purchases increased at our third plant site in Mississippi. Seasonality of our business causes the fourth quarter to have weaker sales.

However, the 2004 fourth quarter (technical difficulties) very important as we begin to manufacture our new product lineup and build inventories to meet the 2005 early buy demand.

Bob.

Thank you, Paul. I would like to begin this segment of our prepared remarks by reiterating our prior guidance for the year of $240 million to $245 million in revenue; from $1.75 to $1.80 of earnings per share. As many of you know, our fourth quarter is a seasonally low point for us, and given the shorter, colder days (technical difficulties) time of the year fewer decks get built. Consequently, our sales during this quarter are very much less than in other quarters. We feel it prudent to maintain our current guidance for the year.

Our gross margin performance for the quarter proved to be unfavorable by our standards. A number of things affected the overall numbers that Paul pointed out. While very little went in our favor in this arena during the quarter, some things were planned, while others were not. (Indiscernible) initiatives directed at improving our Accents board so that it can be used with either side up affected line rate, and thus negatively impacted gross margins. This was an important initiative and will be ongoing. Commercialization of new products requires time on production lines and was detrimental to our gross margin during the quarter also. Significant increases in polyethylene costs and equipment downtime were not planned and also affected the gross profit for the quarter. Major equipment failures affects absorption negatively and also adds unplanned costs for repair. Polyethylene costs for the quarter were up 13 percent, as Paul mentioned, versus the prior quarter. We are now seeing some impact from high oil and gas prices. The virgin resin price is at an all-time high; manufacturers are willing to use processed resin where they normally would not. Third-world countries have increasingly sought out low-quality films, raw material for preprocessed resin as well as others who find that virgin pricing is high enough to justify the use of recycled waste. The situation has caused waste generators to collect more material (technical difficulties) sell it, but at higher than anticipated pricing.

Going forward we feel confident in our ability to collect polyethylene raw material; however, the uncertainty of crude and gas pricing in the short-term may affect our margins.

Shifting gears if I might, I would like to spend some time discussing some of our new products, plans and programs for 2005. We have streamlined our product line allowing dealers to focus on faster moving items. We have eliminated some of the slower moving Origin colors (technical difficulties) discontinued some of the older railing profiles. As I alluded to earlier, our Accents board is now reversible in nature so that one side is Accents and the other is Origin. This will give the dealer who chooses not to carry the full Trex lineup of deck boards a choice to have both with the new Accents product. New to the lineup is our innovative Exotics line available in burnished amber and cayenne. The Exotics offering will feature our five-quarter by six deck board, designer handrail and all the accessory pieces necessary to complete the entire project, (technical difficulties) and finishes, This product was developed to offer the distinctive look of tropical hardwoods without the high initial installation costs and the ongoing maintenance requirements into rainforest timber. This patent pending process offers the consumer subtle shadings and natural color variations that create the rich aesthetics of rare woods. Exotics was recently previewed at our annual distributor (technical difficulties), received a very enthusiastic welcome into the lineup.

Going forward, our deck board offering will contain the smooth texture of Origins at our most modest price point; Accents, depicting the warmth of grain woods at a moderate price; and Exotics, available for those discerning consumers demanding only the finest composite available. The launch of the Trex Architect Series Rail System will be rolled out across the country beginning in early 2005. This system is for those consumers who desire the appearance of painted white wood, but prefer the easy care maintenance of composite railing. The Architect Series railing features an appealing textured finish as preferred to the bright and shiny white rail systems available today in the market. It's fast and easy to assemble utilizing the patent-pending Trex Express assembly system that was such a hit this year with contractors. The Architect Series will be sold in box kits complete with everything needed to build a 6-foot to 8-foot section.

We recently conducted our 2005 distributor kick-off meeting, and the process of communicating this information to the dealer base is underway. In addition to new products, we unveiled our programming efforts for next year. While the January through April early-buy program is a significant part of our plan, our full-year incentives program is even more important (technical difficulties) has been improved for 2005. Our distributor and dealer partners share our excitement about next year’s growth prospects and the potential rewards from reaching our mutual targets.

In addition to the incentives offered for the distribution channel, we have announced improvements in our Trex Pro Contractor, Builder and Specifier programs. We also formally announced our sponsorship with DEWALT and Roush racing for the 2005 Nextel Cup series. This will provide an opportunity to expose numerous fans to the Trex brand through an on-car signage, track-side display, as well as host many customers and users at race events. We are in the process of building print/television advertising for the 2005 season under our new campaign theme, "Create Your Space." As we, and many other researchers have found, consumers are looking for products and design ideas to help them customize their environment whether indoors or out. This thesis taps into that thirst for personalization and will continue our theme of showing dramatic deck environments. For all our products and services, the Trex Company will continue its commitment to quality and consistency. For the coming year consumers will see improvements in the flatness of our boards, more dimensional consistency and further refinement in the surface appearance.

Our employees take a great deal of pride in everything we do. We are very confident in the goods and services Trex has to offer. Consequently, we have decided to extend our warranty from ten years to twenty years.

May of this year, we acquired 100 acres of land for our third plant site in Olive Branch, Mississippi. We have broken ground and would expect the plant to be ready for production in the second quarter of next year. We will build that facility out as demand requires.

Exiting 2004, our revenue generation capacity (technical difficulties) more than $300 million. Exiting 2005 we have plans in place and much needed (ph) equipment order to be able to generate well over $400 million in revenue capacity. Our expectation is to complete this year with $35 million in capital spending. Capital spending for next year is planned to be about $40 million. As we have stated in our press release, our expectations for 2005 are quite strong, calling for revenue and earnings gains in the order of 20 to 25 percent.

Now we would like to answer any questions that you have.

(OPERATOR INSTRUCTIONS.) Tyroon Kahana with Wellington Management.

Just a quick question, you know, in terms of your guidance. You're talking about revenue and earnings growth of 20 to 25 percent for 2005. I guess that's based on the assumption that there is no real change in the gross margin, right, or in the operating margin; and you are basically going to grow earnings in line with revenues. And I am just wondering, you know, isn't that a little aggressive given that you have all this raw material price pressure and your margins have a big impact this quarter on the back of rising raw material prices and, you know, energy prices being so high; but you kind of implicitly making the assumption that you are going to see a decline in those prices going into 2005?

I think a number of things as we tried to outline, not just the cost of raw material impacted the gross margin line. Some of them were planned; like new product introductions are going to be a drag. You have to -- find (ph) out its time for production and practice to build the new products. The other thing is we had this major equipment failure, which doesn't happen very often. But we're not planning on those things happen. Not also planning on the cost of raw materials coming down any. And I expect that we will get better and better as we have historically taking these products and making them at higher and higher rates. So our expectation is actually that our margins return into the low 40s. And I think that we'll have plans, programs and products in place for the top-line growth also.

So if you see, if you look in the first half of 2005, what do you think your gross margins will be?

I think we have said as much as we're going to say with regard to what we think the year's going to be.

So you expect the full year to be, I'm sorry, you said in the low 40s; is that right?

Yeah, 41, 42, 43 percent range.

Starting out the year, do you think it's going to be less than and gradually moving upwards as you kind of deal with these manufacturing issues?

We will give you more visibility on the January call. I think also you have to keep in mind, next -- well, Origins to Accents mixed as well as the railing business. We will give you more indications of how the year, in both margins and first quarter – (technical difficulties)

Okay. One follow-on question, if I may. Any thoughts on what cash flow is going to look like next year? You know, do you expect working capital to be a big use or source of --

You expect operating cash flows to be equal to or greater than this year's operating cash flow.

Mike Selati with T Capital.

(Indiscernible) Capital. I'm sure that was me. Tax rate for this quarter looked like it was down about 1 percent from last year to, I think, 37 or 36. What is the expectations for next year's tax rate?

The expectations, near the 37 percent range today. We adjusted it this quarter as we -- each quarter we take a look at the expectation for the year. And expectations pointing to the end of this year is slightly below 37 percent. You need to catch up this quarter to get the full-year tax rate slightly below 37 percent.

Howard Kelly with SunTrust Robinson Humphrey.

Good morning. This is Howard Kelly for Keith Hughes. What are you looking for, for pricing on these Accents and Origins lines in '05?

Well, we have announced a price increase for next year of roughly 3 percent on our base business. That will go into effect in December. And it's typically discounted or terms are given, early buy period with January, February, March, April. So then our unit realization actually stumps (ph) May. (technical difficulties)

Does your guidance include any effects from the Home Depot agreement?

Well, we're about on track at where we thought we would be so far this year. Over the next couple of weeks, we will have conversations with the people at the Home Depot. And our hopes, and I think, without trying to -- (technical difficulties) be to expand the program across the country. Kind of built into our numbers are a modest expansion.

Modest expansion is built into the numbers?

Yes, several hundred more stores.

Joel Havard with BB&T.

Bob, want to start with you. It sounds like you all have got the good, better, best answer here with Origins, Accents and Exotics. Designer Rail System will be mirrored in each of those, is that right, or is it still kind of a standard product?

In the Origins and the Exotics, Joel. We haven't gone to embossing the handrail system.

But the colors do -- the colors do correlate?

Oh, yes.

You said you had cut colors from Origins. How many colors did you cut and what is left now?

Going to sell Winchester Gray and Saddle; and then we will special order Natural. The call for Madeira and Woodland Brown is very, very, very low.

You are cutting them; it's not even a special order?

Well, if somebody had a big job or something, we would match it.

Okay. I guess you still know how. So you are cutting Madeira and which? I'm sorry.

We are going to support the market, but overtime it will just go away.

The Architect Series rail, in a kit, is that through your existing distribution channel or does that include Depot, or where is it going?

Our existing distribution channel, does not include Home Depot.

Okay. And that's all -- in the press release you call it something like a durable composite. Is it not exactly the Trex recipe? Is there a new thing going on there?

It is a composite. It's different than anything else we have made to date. When you see it you will (technical difficulties).

Okay. Paul, this may be for you. You said poly up 13 percent year-over-year. What was the sort of average cost per pound?

Slightly over 21 cents in the quarter.

Okay. On the, I guess the current environment, the numbers we look at, of course, everybody can see virgin. We have got some plastics trade data that -- you know, kind of a secondary market. It looks like it's up 20-ish percent now. Are you all seeing any relief? Are you still seeing that kind of, you know, call it 13 to 20 percent increase year-over-year?

We're at that level going into the quarter right now.

You're still at 21 cents or is it up still sequentially? (Multiple speakers.) I'm sorry. Year-over-year.

It's in that range, the 13 to 15 percent range.

What was your cost per pound a year ago?

17.

Okay. And let's see ... The issues on production, switching Accents to two-side; I assume that's something that your Trex pros, et cetera, were asking for. That slowed throughput a little bit. You all had talked about previously ways to keep enhancing the speed of that embossing process. Any new technical developments or are we just now doing the board one way, roll it back through, and do it the other way?

That’s getting into proprietary nature --

I will leave that alone. The other issues you discussed earlier in the call about throughput included unexpected maintenance. What number of lines are installed currently and how many of those were affected by, I don't know, whatever events occurred during the quarter?

We had one line down that was unexpected in the month of September. That affected us and it was down for a while. That's pretty unusual.

Yeah, I don't think I have ever heard you all say that before. So you all are in the, what, 20, 21 lines running now?

We're in that range, Joel. And I think it's really more important to talk about the generation capacity. Bob says the 300 million is revenue-generating capacity.

Yeah.

Climbs around and still different products, the metrics are going to change.

That's my understanding. It looks like, actually, you know, quote, throughput is shrinking because of some of these new lines, I guess, that are devoted to rail and accessories, you’re getting less tonnage but it's a higher value product; is that a correct interpretation?

Yes, it is.

Paul, I missed a couple data points. You talked about inventory. Did you have a finished goods, raw material breakout?

Yes. It's 9 million raw materials; 12 million finished goods.

Okay. Where do you see building finished goods inventory into the year-end as you kind of ramp up for these other programs?

Thirty to 35 million.

Okay. And let's see. Any change -- the dealer network has been pretty static at about 90. You talked about -- I'm sorry. That's the distributor count, I guess, your primary customer. That next step, the dealers, I think you all talked about wanting, you know, 5,000 or more eventually. Any progress there? Any initiatives that are setting you up for '05, '06?

We have two very strong initiatives. One directed at convincing existing dealers that benefits of carrying more and more Trex products, any advantages they have in the margin gain they will see. The other initiative is that adding new dealers in a couple of ways. The primary way would be to go to customers, multi-location customers who carry Trex at some locations but not all, and share with them all the good reasons why (technical difficulties) going forward. So, we actually have, for the first time in several years, I think, have a number of very strong initiatives directed at (technical difficulties) and improving it per se in terms of carrying more products in the lineup.

Do you all have a guestimate yet on what the number of dealers will be at year-end '04 versus what you would like to see at year-end '05?

I'd like to see it up 400 to 500 dealers in a (technical difficulties).

All right. Good. On the Trex Pro Contractor program, I know you all had a quick ramp and then it looks like it's kind of topped off here the last couple quarters. I don't remember seeing that in the release. Does that tie into these existing initiatives or is there a new angle to that program?

No, I just think we need to continue our efforts and add to that number. The number is well over 3000. But as you pointed out, we probably haven't worked at it as hard as we should because that's not near enough clout there. But having said that, we want to be selective and make sure people are trained and have worked with our products, done all those (technical difficulties) Trex Pros who will work diligently (technical difficulties).

And then echoing Depot, we may have been a little aggressive in what we were allowing for the rollout. Your answer to a previous question, I think you said add several hundred stores. Where do you think you will be on a stock basis at year-end '04, if we can use that, or even quarter-end as a benchmark?

Well, we're at a hundred -- I always get this number wrong, but it's between 120 and 123 or 4. And my expectation is that won't change in the next, you know, 60 days. But going forward next year, our goal is to build that by several hundred.

Okay.

Our Home Depot plans have not been set. But clearly, we are going to expand and give you more benchmarks.

Currently the Home Depot has to create the expansion. That hasn't been talked about yet. But I think that we have had enough success in some of the markets. Special order programs have gone actually very, very well in certain parts of the (technical difficulties).

Bob, I believe at a recent industry conference, you talked about Europe just a little bit and how that program is up and running, how you may look at overseas expansion eventually. Is that something we could see in the next couple of fiscal years, that you're maybe putting a pencil to yet? Any thoughts along those lines?

Well, we have a couple of employees in Europe beyond the Spanish plant. And looking for a couple more, and we can grow that business some day, yes, build a (technical difficulties).

We're putting distributors and dealers in place now. And really, Joel, I think (indiscernible) at the 2006 where you'd actually start to see how it's taking (technical difficulties) revenue if any.

Thanks for a good quarter, good luck.

Steve Sharkey with (indiscernible) Investors.

Joel, you're hogging the call, but that's okay.

Paul or Bob, on the gross margin decline of roughly 9 percent, just roughly how would that break down between the higher poly costs and the lower manufacturing utilization be?

Approximately 70 percent of it is -- 65 to 70 percent of it is due to poly. The other is the absorption back from the (technical difficulties).

Okay. And depreciation amortization is that higher on a percentage basis? Or maybe just give me the actual numbers and I will -- or actually, I guess, it's in your cash-flow statement; isn't it?

Right. Right. We're running about 3.5 million.

And SG&A has been running about 20 percent of sales this year, which has sort of helped cushion the gross margin decline. Is that a good expectations going forward?

I think, Steve, it's probably a little bit low versus what our expectation (technical difficulties). But base of what we face (technical difficulty)-wide. I think it was (technical difficulties) that we could (technicality difficulty) at a later date. So our expectation next year is to not be at 25 percent probably closer to (technical difficulty) --

I'm sorry. Say that again, Bob.

Probably closer to 25 than 20 percent. I think we have got to wait another month or two to see exactly what the spending is.

Are you being a little conservative on your gross margin forecast for next year? Because I don't want to forecast macro trends, but I think it's unlikely that, you know, this increase in oil and gas prices could be repeated next year. That seems to be the biggest reason for your reduction in gross margin this quarter; and also you expect to improve your efficiencies a little bit next year and maybe not have bad luck with equipment failures, et cetera. I guess what I am trying to get at --

Well, I think it's prudent we forecast this. And you may be right, there may be some upside, but we're not going to try to run our business on all the upside. I mean, I think we have to manage it.

I agree.

Our goal will be to surpass that number I gave you. But I feel good about that number in terms of being able to achieve it.

No, I understand that. I mean, you should just run the business. I have always questioned whether you ought to provide guidance. But, again, what you're implying is an operating profit margin of less than 20 percent the next year, 18 percent, or something like that maybe, 18, 19 if you have got a GM of 42 percent and if you're, say, 24 percent on your SG&A.

That's right.

Brett Hendrickson with Bonanza Capital.

Hi, guys. Great top-line generation. I just got on the call, I think two minutes late, and I'm wondering if you gave this number; if not, I'd like to have it. What percentage of revenue was Home Depot in the quarter? I think, Bob, you broke that out last quarter, just a few percent.

A little less than 3 percent. For the year, Brett, that's where it's tracking. For the quarter it was about 6 percent.

Okay. 3 percent year-to-date or a little less fall (ph); and then 6 percent for just Q3?

Right. Correct.

And then I think if I heard Bob right, you're in 120 or 123 stores. What region -- is there a region that those are predominantly in, or are they kind of scattered of the Home Depot stores you're actually stocked in now.

We agreed earlier in the year on, I believe it's six different regions with, you know, 15 to 20 stores in each region. That was a mutual choice, ourselves, and the Home Depot folks. We will move through (ph) that kind of process again, I'm sure.

Is it kind of the Great Lakes region? I'm just trying to get a handle for what I can (multiple speakers) --

No, it's -- I don't want to guess.

We're from -- you know, San Diego and Salt Lake to Cleveland and Hartford and Austin, Texas. We're in different regions of the country. If you want to call me to get the closest store where we are stocked, I'd be happy to give you that location.

All right, Paul. I am going to give you a call in the next couple of days.

(OPERATOR INSTRUCTIONS.) Keith Hughes from Robinson Humphrey.

This question is for Paul. Paul, on inventory, you feel good about where you are on inventory right now or are you a little light coming in at the numbers, you know --

No, we feel good coming out of the third quarter. Then, you know, we will build to 30 to 35 million in terms of finished goods, which is where we want to be. We are going to have more capacity in the first quarter, first half of next year to complement the ending inventory. So we will have more than we have ever had and it will (indiscernible).

Okay. And what kind of a lead time were you saying to get products to the distributors?

(Indiscernible) Keith?

I'm sorry. On the third quarter, what kind of -- I know -- (Multiple speakers.)

When w entered the third quarter they were probably two to three weeks. And then we got them back in August and September, they were back to --

Hello. I'm sorry. (Multiple speakers.) That answers it. Thanks.

Dusty Colberson (ph) with Second Opinion Research.

You guys have talked of, you know, other potential applications of the composite wood, such as fencing and so forth in the past. There has been a little bit of talk of a company down in Houston employing some of their composite technology in what could potentially be a large area or market for railroad ties. I'm not sure if this is something you guys are familiar with or something you guys are perhaps entertaining.

Over ten years ago, we looked at it and decided for our -- in fact, I think we actually have a -- used to have a limited kind of use approval from the AAR. But we looked at it and the economics given our process, and decided that it wasn't necessarily a good application for us. Over the years there has been a lot of conversation about it, and there continues to be. But we continue to look at things like that, but at this juncture we don't -- our manufacturing process really -- and the pricing we would have to have to bring us the kind of margins (technical difficulties)for us we would be happy with. Probably won't see us (technical difficulties).

Okay. You're cutting in and out but I think I got most of it.

Sorry.

Mike Selati with T Capital.

That's just so far off it's not even funny. The gross margin impact of the equipment failure, can you quantify that for us?

About 30 percent -- the decline, about 30 percent of the decline is a result of the absorption, the lack of absorption due (technical difficulties) the combination of factors.

Right. It’s repair and changes to the line, then also (Multiple speakers.)

Right. Some of the new product startups.

So it wasn't -- the 30 percent was not all from the equipment failure?

No, a combination of everything related to the output (technical difficulties) and lack of absorption of (technical difficulties).

So you can't put a number next to just whatever equipment failed during the quarter or --

No, I cannot. I think what I was trying to do in my remarks is point out some of it was planned and some of it was not planned. The quality issues and the new products, you plan those things and pretty much you have to do them no matter what. And then we had more dramatic increases in poly pricing than we anticipated, and we had these (technical difficulties) down. So -- neither of which was planned. It all kind of came together during the quarter. That was why I had broken that out, and we had given all those different kinds of activities (technical difficulties) normal.

(OPERATOR INSTRUCTIONS.) There are no further questions at this time. Please proceed with your presentation or any closing remarks.

Thank you. We thank you for your time and attention, your support in the marketplace. I would just like to leave you with the thoughts that we have several new products, plans and programs for next year that are going to strengthen our Company and help us grow. And we will finish off 2004 in fine fashion, and it will be a very good year for our Company. Thank you again. Goodbye.

(OPERATOR INSTRUCTIONS.)