Wesco International Inc (WCC) 2005 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the WESCO International fourth quarter and full year 2005 earnings conference call. My name is [Laticia] and I will be your coordinator for today. At this time all participants are in a listen-only mode. We will be facilitating a question and answer session towards the end of this conference. If at any time during the call you require assistance please key star followed by zero and a coordinator will be happy to assist you. As a reminder this conference is being recorded for re-play purposes.

I would now turn the call over to Mr. Dan Brailer, Treasurer and Director of Investor Relations, please proceed, sir.

Thank you, Laticia. Good morning ladies and gentlemen, thank you for joining us for WESCO International's conference to review the fourth-quarter and full year 2005 financial results. This morning, participating in the earnings conference call, are Mr. Roy Haley, WESCO's Chairman and Chief Executive Officer, Mr. John Engel, Senior Vice President and Chief Operating Officer, and Mr. Steve Van Oss, WESCO's Senior Vice President and Chief Financial and Administrative Officer. The means to access this conference call via Webcast was disclosed in the press release and was posted on our Corporate website. Replays of this conference call will be archived and available for seven days.

This conference call may include forward-looking statements, and therefore actual results my differ materially from expectations. For additional information on WESCO International, please refer to the Company's annual reports on form 10-K for the fiscal year ended December 31st, 2004, including the risk factors described therein, as well as other reports filed with the SEC. The following presentation may also include a discussion of certain non-GAAP financial measures, information regarding Regulation G with respect to such non-GAAP financial measures can be obtained via WESCO's website at www.WESCO.com.

I would now like to turn the conference call over to Roy Haley.

Good morning, and a happy Groundhog Day to all of you. In an earlier release this morning, it was reported that Punxsutawney Phil saw his shadow and that indicates that six more weeks of winter are ahead of us. Now despite all of this, the sun is shining bright on WESCO. We had a great fourth-quarter and a great year in 2005. And Steve Van Oss will be providing more detail on this in a moment. And then after he is finished, we'll have a Q&A session, led by Steve and John Engel.

As you aware, the economic forecast coming from most sources these days are projecting a somewhat moderating level of economic growth, and generally these forecasts are projecting or suggesting more strength in the first-half of the year with activity possibly tapering off somewhat in the second-half. Despite these projections, and similar projections in our industry space that would suggest growth generally in the 5 to 7 or 8% range. We at WESCO are working very hard to continue our pattern of sales growth of 10% or more and we're working equally as hard on our various productivity and improvement projects that will demonstrate the ability to show increased profitability during 2006.

So with that backdrop, let me turn it over to Steve Van Oss.

Thanks, Roy. As you've seen by earnings release we had an outstanding quarter and another record-setting year. In my prepared remarks I will cover the highlights of the quarter and year, as well as provide some insight on our views for the first-quarter and the full year of 2006, we'll then go to a question and answer session.

Our fourth-quarter results again set company records and include a full quarter of activity for the Carlton-Bates and Fastec acquisitions, both of which were completed in the third-quarter of 2005. Fourth-quarter sales for [indiscernible] the two businesses were $91 million. For the remainder of the discussion, I will be concentrating on our consolidated financials, which include the acquired company results. I will also provide selective results of operations which exclude the recent acquisitions.

Consolidated sales increased by 25% over the fourth-quarter of 2004, driven by 16% growth in our base business. Gross margins improved to 20.4% from 18.7% last year, due to 110 basis point improvement on comparable branch sales and higher margins on acquired companies. Operating expenses as a percent of sales at 13.8% declined 50 basis point from the fourth-quarter of 2004 on the strength of an 80 basis point reduction on comparable branch operations. Operating margins of 6% expand by 2 full points over last year's fourth-quarter, driven primarily by 190 basis point improvement on comparable branch operations.

During the quarter we took a pre-tax charge of $4.9 million, related to the early retirement of $200 million of high-cost senior subordinated debt. On going tax initiatives, combined with opportunities provide by our acquisition of the Carlton-Bates company yielded an effective tax rate of 30.8% for the quarter, versus the full year rate of 31.4%. Consolidated earnings per share were $0.80 including the pre-tax $4.9 million charge for the early retirement of high-cost debt and $1 million of after-tax charge for the repatriation of foreign income, excluding these charges earnings per shares would have been $0.88. Great operating results.

Our focus on productivity improvement in all aspects of our business continue to produce outstanding results. A key measure of our personnel and cost productivity is operating profit pull-through. We define operating profit pull-through as the ability to convert incremental gross margin dollars to operating profit and net income. For the last nine quarters we have pull-through of increment gross margin to incremental operating income of 60%. Comparable operating profit pull-through for the fourth-quarter of 2005 was 67%. Our lean initiative continues to impact all aspects of our business and contributed to record-working capital productivity during the quarter. This grows strong free cash flow of $40 million, even after funding additional inventory and accounts receivable required to support the 25% sales growth.

Our balance sheet is strong and improving. Our debt leverage ratio finished the year at record-low of 3.5 turns and dropped by 1.1 turns from the third-quarter of 2005. We have ample liquidity to fund organic growth, as well as accretive acquisitions. The integration of the systems and operations of both Fastec and Carlton-Bates is progressing well and we are on track to deliver the synergy and operating performance in line with our expectations of 2006 earnings per share accretion of $0.45.

Let's look forward a bit. From our perspective the overall economy is stable with solid activity across [indiscernible] markets. We are seeing good activity levels in our commercial construction markets and strong activity in our industrial markets for day-to-day maintenance, repair and operating supply. We continue to believe that an increased level of capital expenditures will be forth coming in both the industrial and commercial markets driven by favorable trends in factory utilization, occupancy rates and the reconstruction efforts in the Gulf Coast. We expect to see pricing pressures continue at a moderate pace, which, over time, while providing some challenges, should be beneficial for our business. On our overall basis, pricing had an estimated $50 million or 4% positive impact on our sales growth for the quarter. Categories with the most significant price increases were building wire and cable and general supplies.

We finished 2005 with a strong backlog of project activity and for 2006 we expect to see the Company continue to outpace the industry in overall sales growth and gain market share. We will continue to work on operational improvement projects to increase gross margin and increase productivity. Improvements in gross margin across all operations are expected to offset anticipated mix shifts toward project business. We expect to continue to pull through at least 50% of incremental gross profit to operating profit on comparable operations. Working capital productivity should be maintained on a (day supply)ph basis and free cash flow over the next several quarters will be directed at debt reductions.

For the first-quarter of 2006, given the continuation of positive trends in macro economic and end market activity, combined with market share gain, we expect to continue to generate growth on our core business of approximately 10% over the first-quarter of 2005. Sales from companies acquired in 2005 are expected to be in the range of $98 to $100 million. Total sales for the first-quarter are expected to be in the range of $1.19 billion. This is in line with historic seasonality, which would suggest a 3-5% decline from the run rate of the fourth-quarter of 2005, which also included a full quarter's impact of acquired company's sales.

Operating margins should expand over the first-quarter of 2005, reflecting both improvements in gross margin and positive leverage on our operating cost structure in our lean initiatives. Operating margins are expected to be 100-120 basis points above the first-quarter of 2005, reflecting gross margin expansion due to ongoing margin improvement initiatives and the impact of acquired companies. SG&A as a percent of sales should improve somewhat over last year's first quarter due to the higher sales volume and ongoing lean initiatives. The tax rate for 2006 is expected to be in the 32-33% range and share count for the first-quarter of 2006 is expected to be 50.5 million shares and average 52 million shares for the full year. The increase in share count is a result of the higher share price and the convertible debt put in place in September of 2005.

Again, we had a terrific finish to another record-setting year. Our momentum is strong and we look forward to another year of delivering excellent service to our customers, improving our operations, providing a rewarding and growth environment for our employees and creating superior shareholder value.

At this point I'll open up the call for a question and answer session.

[OPERATOR INSTRUCTIONS] Your first question comes from the line of David Manthey with Robert W. Baird please proceed.

Good morning. My question was in relation to the upside here, particularly on the sales line, could you talk about which items were most surprising to you? It sounds like it was the core business more so in the terms of the upside than acquired revenues. But could you talk about just which segments, what part of the business did you find to be most surprisingly strong?

David, this is Steve. The acquisitions came in pretty much exactly where we thought they were. As far as the base business, it was pretty broad across all the segments, I wouldn't say that we had a particular surprise in any one area. We had a little additional strengthen related to the hurricane activity which impacted some of our utility business, as well as the manufactured structured housing arena. But what we saw was pretty much broad-based across all the industries that we serve and pretty much in line with what we saw the first three quarters of this year. I wouldn't say that there was a surprise in any one area.

Okay. And then in terms of the read through upside, you discussed the impact on the top line of commodities prices or price increases, is there any way that you can give us a magnitude of what you think that might have contributed to the profitability in terms of basis-points or pull-through? And then, was there anything else in there, were there any year-end true-ups or anything unusual that led to that surprising strength?

Yeah, a couple of points you raised, there David. I will try to answer them in order. As far as the impact on the commodity prices, we felt on the gross margin, I'm probably at in the neighborhood of 20 basis-points or so, so that contributed to some of the strength there. And year-end, as far as true-ups, we always have true-ups every quarter, and the Company has done a very good job of trying to do an accurate true-up on a quarterly basis, so there weren't any really significant true-ups as it relates to year end.

We see some additional strength in one particular area an the supplier buying rebate, as in the fourth-quarter we did a very good read on what the total year would be and we did have several programs when you get above certain percentage of the previous year you get a premium component on a supplier buying rebates, so there was about maybe 10 basis points or so of impact, because of that. But pretty much strength across all the operations with the lean initiatives and margin initiatives that we've been working on all year, getting very good traction during the fourth quarter. We have had been working hard all year through price increases through the channel and I think did a nice job of that through the first three-quarters, continuing into the fourth-quarter and we were able to see once we got those passed through some of the rest of our margin initiatives driving the expansion in the gross profit margin.

Okay, great, and congratulations congratulations, thank you.

Thank you

Your next question from the line of Deane Dray with Goldman Sachs. Please, proceed.

Thank you. Good morning. The first question is on the very strong operating margin performance this quarter, hitting 6% seems earlier than your original projections. I know about the high-quality problem. So the first question, I guess, might be interesting to hear from John regarding the -- what in the branch operations, that 190 basis-points, what was actually going on there? And give us us a sense of how sustainable that is over the next year?

Hi, Deane, good morning, this is John. You know if you look at our operating margin percent across the year, with the first-quarter, second-quarter, third-quarter, fourth-quarter [inaudible] increase the momentum in the first year on an average basis, [inaudible] October prior year. What we see really is this strong contribution from all of our margin initiatives that are impacting gross margin and very strong contribution from all our lean programs on the operating cost side, it's translating into operating cost productivity. And it's really a combination of both the operating cost productivity and the gross margin contribution that's impacting operating margins. There is some seasonality to our business across the year. And Steve talked about that in his comments in terms of where we see the first-quarter kind of lining up. So I would just kind of say overall we had been working very hard as we've talked before for a long time on the margin side of the equation, and we're seeing nice traction, and we see that carrying into the first-quarter of '06 as well.

Deane, if you look at our results and go back several years you will see a pretty standard pattern of the operating margins being lower in the first-quarter and building the second and third, and depending upon where we're at in the economic cycle, kind of holding up in the fourth-quarter. But there is a typical phenomenon you will see in the first-quarter, a little bit of deleveraging of the operating structure on somewhat lower sales and then you will also see on our cost structure that two-thirds of what we do is payroll or payroll-related. You have a heavier impact of payroll-related tax in the first-quarter then it goes into the second-quarter until we get a lot of our employee base above certain tax minimums.

So just to get a sense of the timing on the 6% operating margin goal, is that still a end of '07, or it seems like we're getting there an awful lot sooner?

The '07 goal, if you may recall, Deane, is related to out base business and we're well on track to get there during that time period. The acquisition margins, if you look at the EBITDA of the acquisitions, or what we talked about last quarter, they would be roughly double what we see in our core business, which was around 5%, and we look at our five-month results with Fastec and three months results with Carlton-Bates, they came in exactly as planned just a little bit north of 10%. So that will help accelerate the 6% target.

Great. And then on the guidance, Steve, that you were talking about sales growth, what are you expecting in the way of price over the near term?

We're seeing the price moderate somewhat and we felt there was 3-4 points of price, percent of growth of price in the fourth-quarter. I expect to see us probably at that level or below. So, with that in there, we're still targeting some of the price will be part of the growth, but we think that we'll be able to maintain, at least in the near term, this double digit growth target, even though a lot of others in the industry reported kind of mid or low-single or high-single digit growth in the fourth quarter.

Good. And then, last question, could you give us some color regarding your mix? What is going on, with let's say larger projects? Bidding activity? We know that larger projects come in with maybe slightly lower gross margin, but you do better in operating margin and where does that stand today?

For the fourth-quarter we didn't see any significant mix shift at all. We're seeing and hearing from the guys in the field, better activity, and some of the larger projects being quoted, the economic [inaudible] of the forecasters for Reid(ph) and Dodge and the like, are calling for high-single digit growth in commercial construction throughout 2006, and we would expected to be growing at or above that level as we did in 2005.

So quote activity confirms it and we just need to see how this plays out?

We're getting good growth in the construction side, but we have had a lot of other initiatives with our national accounts business, which had another record year, and our integrated supply business which had another record year, that grows our base MRO activity at a nice rate as well, so we're seeing really nice balanced growth at this point.

Great. Thank you.

Your nest question from the line of Lionel Jolivot with Goldman Sachs. Please, proceed.

Good morning and congratulations on the quarter. Two quick questions. First, on the cash flow side, you did not include a balance sheet in the press release, did you say that free cash flow was $40 million for the quarter? How much came from working capital during the quarter? And does it include any sales of accounts receivable?

The $40 million was a non-GAAP measurement. It does include the delta in our Accounts Receivable Securitization Program, which puts it on an apple-to-apple basis. For the year we were right at about $93 million. The bulk of that is coming from our net income and DNA, working capital actually consumed a little bit of free cash flow during the quarter.

Can you give us the cash and debt balance, the debt balance including the [inaudible] securitization?

At the end of the year our cash balance was $21 million, both our convertible debenture and our high yield notes were both at $150 million. Our AR securitization program was at $397 million. Our real estate financing at $48 million. Our revolver, was bidding at $29 million. And then we had acquisition notes and other notes of $23, $24 million.

And then, I'm sure you noticed that Home Depot acquired Hughes Supply or announced the acquisition during the quarter. I know that Hughes Supply is not a big, big competitor on your market, but they are still in the top ten. And I was just wondering, how do you look at this acquisition? And how do you look at the competitive landscape in your specific business going forward with the entry of Home Depot?

At this point in the near term we do not expect to see any change in the competitive structure of our industry. As you know, our industry is very, very fragmented, top four or five players less than 20% of the total industry and there are literally thousands of privately-held, locally-limited small distributors. We would view the Home Depot entry and the Hughes Supply acquisition as a positive, it would bring a well-disciplined player into the market, it would be, we believe would be good for companies like WESCO as we see more pricing disciplines and more professional approach being applied to the marketplace. So, we view it as positive.

Great, thanks a lot.

Your next question comes from the line of Curt Woodworth with JPMorgan. Please, proceed.

Good morning and congratulations on a great quarter. Question, can you hear me?

Yes. You're fine.

Question on, I understand the seasonality in the first-quarter, with the margins going down it seems about 90 basis point sequentially, partly on the fixed cost absorption and seasonality, looking to seasonally in the second-quarter where the sales should pick up again, is it fair to assume that the margin -- EBIT margin should get back to the rate you were in the fourth quarter?

That would be a field you would see in the middle of the year we'd be getting back towards that. We did have a little bit of adjustments on the commodity pricing impact and some normalization with the supplies on rebates, but the ongoing initiatives that we have in place, we certainly look to continue to do that, assuming that we see the kind of macro economic activity supporting 4% range of GDP, we expect to see our sales growth and our cost flow leverage would support those type of numbers.

Okay. Great. And can you tell me for '05 what the organic growth rate was in the integrated supply and the national account business?

They were both in the high teens to low 20's on the integrated supply and national account was in the high teens.

Okay. And last question in terms of SG&A leverage, you had an improvement of about 80 basis points, this year, what's your expectation going forward? I know that head counts remained relatively stable despite the high organic growth, do you still think that's going to continue or are you going to have to higher more people to handled the excess growth?

We had a fantastic year of productivity in 2005. Our productivity the sales per employee work day was up almost 17-18% and accelerated throughout the entire year on our business, without acquisitions we actually were slightly down in head count by a fraction. Really, Curt, it would depend on the mix of business to the extent that we see more of project business come in, we have less pressure on head count, we sense that it's more slated towards a stock or MRO business. We'll see those big items come through our warehouse and we have to order and pick pack ship them and [inaudible] and bill them. So really depends on the mix. We expect that we'll continue to drive productivity and head count. There will be a head count addition depending on the growth rate.

Okay. And just one final question on the acquisition pipeline, can you talk about what you're looking at in terms of acquisitions this year? I know the debt leverage has come down by about a little over a point this quarter, any sense that you want to continue to build on the OEM strategy? Whatever your thoughts are, I'd appreciate it.

We have a history of being a company that's made acquisitions and also have a history of not talking about anything we're look at currently, but I would tell you that we view that as part of our strategy. Our primary thrust has been and continues to be really working on our organic growth and driving our base business and improvements on that, and we will have had and will continue to look at opportunistically on acquisitions in the future.

Great, thank you very much.

Your next question comes from the line of Rob Damron with 21st Century Research. Please, proceed.

Hi, good morning and great quarter. Wanted to ask you about the acquisitions. Where are you in the integration of these business and where do you expect to get the incremental synergies in 2006?

Rob, this is John. We had an aggressive integration plan, we talked about before, for Carlton-Bates we launched 31 integration teams, so we're well on track and I feel very good about the team working the integration across the two companies. And where we're going see the synergies is both in sales and in operations and in administrative processes. We have begun to launch our lean initiatives in conjunction with the Carlton-Bates leadership team, focused on sales. We've conducted many dozens of joint sales calls and we're encouraged by the recognition and the reaction we're getting from customers. In addition, we've launched our lean warehouse initiatives in the large distribution center inside Carlton-Bates. So we're beginning to deploy lean and that's going to translate into synergies again from sales to operations. All in all, I would say that just really good progress. Good teamwork and a good cultural match between the two companies. We're on track to deliver our committed synergies.

In terms of Fastec, Fastec's off to a terrific start. We've had them now for five years -- for five months in 2005 and they are seeing very good double-digit sales growth. So we're seeing nice traction on the sales front working together with our manufactured structures business. The other part where we're going to get synergies is on the sourcing side with our Asian sourcing efforts and we have talked about that before. In the last earnings call we outlined in general our plans there. We have begun the sourcing activities, and we've got initial products ordered for two different product families, and those will arrive and be delivered to customers in this quarter. So, we did talk about getting that effort off and underway, and we're on track as well, really across the board for the integration plan for Fastec. Again, we feel good about the teamwork and the results that we're seeing.

Rob, I'd add to John's comments that both of these acquisitions are playing out pretty much the way we modeled them and thought they would. And in those models and in reality, we'll see a bigger pick up in the last half of the year, primarily on Carlton-Bates as the synergies fall in place as the big component of the cost side of that is getting them converted over to our information technology platform and that was slated to be starting in the latter part of the second-quarter. So, we will see a little bit of lumpiness in that with improvement as the years go on . A little softer in the first-half and a little bit more on the synergies in the second-half.

Okay that's helpful. Thank you.

Your next question comes from the line of Dan Whang with Lehman Brothers. Please, proceed.

Good morning. My first question was regarding your backlog. Could you talk about what rate of growth that saw and what the general sort of mix of that is?

As you know, Dan our backlog is primarily project business. It's a meaningful component, but it's not the largest piece. We saw good growth in the backlog and throughout the year we ended up more than our sales growth rate. Sales growth in the core business, 15-16% and the backlog was up more than that. Pretty much across each one of our business units.

Okay. And I guess that is kind of an acceleration, I think the third quarter you saw the backlog pick up in line with top-line sales [inaudible] and mix definitely is shifting a little bit more towards the project-related side. And, actually jumping over to the utility business, I think, there has been some articles written up recently about the Energy Policy Act that was passed last year and perhaps some more optimistic look on the TND spend for various projects. Are you seeing any signs of that? Any type of pick up and any potential benefit you might see?

I wouldn't say nothing directly from the act, but as you know WESCO's strength in utility is in the transmission and distribution business. So to the extent that that happens, we're extremely well-positioned to take advantage of it.

And then, in terms of the stock versus direct contribution of revenue, could you talk about how that worked out in the quarter?

Directionally, we saw a strengthening, not that it was down, but a rate of change our stock business actually picked up more than the direct-ship business.

Okay. And finally, on, just jumping over to the lean project you have been working on the last number of years, what stage do you think you are at? Are you kind of in the fourth inning or kind of in the seventh inning of the improvement process there and benefits that you might see?

Yes, and I would characterize as a broad-set of lean initiatives as opposed to just one project and I would say we're still is in the first three innings. Might be second into the third inning. We're seeing nice traction, but quite frankly, the more that we implement leans the more we realize how much further we have to go. We just see a tremendous number of opportunities and the more we're get engaged with it the more we drive it into sales and operations and our core administrative processes, we see more opportunity quite frankly. I sit here today much more optimistic and bullish in terms of what we've got in front of us. I also think, as I mentioned earlier, taking the lean programs and applying them into the acquisitions is going to yield some significant benefits and that's really a big driver behind our synergy savings. So we've got a long way to go. We've begun, and we're seeing good results, but much more to come.

Thank you.

Your next question comes from the line of Steven Fisher with UBS, please, proceed.

Good morning and great quarter. John, you mentioned that Fastec was up solid double digits in the quarter and I guess it's year-over-year, could you tell us what Carlton-Bates was growing?

Carlton-Bates as well had good sales growth and Fastec, my comment was with respect, since we acquired Fastec. So, in terms of the nice double-digit growth, and we're seeing good traction at Carlton-Bates as well.

Is Carlton-Bates up around the same kind of year-over-year for the fourth-quarter growth rate as sort of the rest of the Company?

This is Steve, I will tell you that both of these acquisitions are performing right in line with our expectations, and our expectations were that they would, when we did this we would be looking at businesses that grow, had the ability to grow at or above the industry rate, and we'd be able to take our programs, our initiatives apply against them to help accelerate them, specifically in Carlton-Bates side is that we have a lot of through our national accounts a lot of opportunities to take them forward. So what I don't want to do is, I'm not going to get into a pattern here of breaking out our acquisitions into pieces of our business. The way we look at these is overtime, in a short period of time they will be rolled into our core processes and be performing similar to our core operations.

Okay. It looks like you added three distribution centers and I'm guessing that's from Carlton-Bates and you took out 10 branches going from 390 to 380. Are those numbers right? And were takeouts on the branches all Carlton-Bates?

There's always, there's always a little magic on how we come up with those numbers because the definition of a "Branch" whether we had a program that could be inside of a customer's location, but what we did, we picked up a distribution centers with that. There were 31 branches in Carlton-Bates and 4 or 5 with the Fastec and at this point in time we've not consolidated any of the operations. So we would have to look -- we can talk about that offline, but there has been no consolidation of significance at this point as of yet. That's in front us still.

Okay. That's helpful. And then the SG&A as a percentage of sales, you talked about improved year-over-year in the quarter, which is good. The dollar amount was up 22 million sequentially, I guess if you exclude the $9 million litigation charge in the third-quarter. Was there anything that was kind of one-time in nature there or is it just the increase that is just a function of the increase in sales?

There was no one-time big issues there. The acquisitions in general that we completed in '05 had a higher cost structure and contributed to the dollars, but when you look at the rate of sales, quarter-over-quarter in our base business, the improvement there was about 80 basis points. You can see the mix had something to do with it, with the acquisitions in there. So, for a better comparison going from the fourth-quarter forward will give you a better feel for what the mix is between the gross margin and the SG&A.

Okay. And just lastly, did you say what the foreign exchange impact was in the quarter?

I did not, but it was about 0.5% on sales. Coming primarily from Canada. For the year it was about 80 basis point. Not a significant component.

Great. Thank you.

Your next question comes from the line of Brent Rakers with Morgan Keegan, please proceed.

Good morning. Just wanted to follow-up briefly on the SG&A question that was just asked, I guess, given the level of fourth-quarter profitability, did the Company elect to make any kind of unusual year-end discretionary contributions or some sort of bonus comp or other incentive comp that kicked in because of this high level of profitability in 2004?

What we do on that, Brent, we watch all of that an a monthly and a quarterly basis against all our program and they get trued up each month. So there would have been some additional compensation expense in the fourth-quarter as it continued to accelerate, but there was no special programs. No special adders put if there. There so just been the normal true-ups that you see that we do every quarter.

Fair enough and just another question. Last quarter you mentioned about $400,000 additional in SG&A from fuel-related to shipping and handling costs, can we assume that number probably increased even more from there?

It would not been significantly different from that.

Okay. And then shifting, well, I guess along the same lines, you talked a lot about the operating margins going into Q1relative to this big number in Q4, and if you look at, I guess the last three, four, five years the sequential pattern is roughly for flat operating margins from Q4 the prior year to Q1 of the next year, and I was wondering if you could comment on that and again maybe try to re-explain what the nuances there are.

Well, we typically do see the seasonality in the quarters on that, you see the first-quarter being a bit lower than what you would normally see in the fourth-quarter. So what I generally try to do looking at it is the most comparable you have usually looking at quarter-over-quarter, over the first-quarter and we would expect to see the expansion happen at that level for the most part.

I think what you are looking at if you look back at the last couple of years, what we had, '03 into '04, primarily, and '04 and '05 was economy that was really strengthening and what we saw was sales more in line with the dropoff, if you like to look at '03 to '04, sales were essentially flat, fourth quarter to first quarter. And when you look at sales in the fourth quarter of '04 to '05 they were essentially flat as well, so that's what was really driving the comparisons of an EBIT margin that was similar. And we bit into a very good strong year in '05 and what we would expect to see a little more normal seasonality and given what the GDP did in December and what the forecast is for a year that is flat, slightly down for '06, we would expect to see more normal seasonality that we saw prior to 2003. When I look at this I'm really building up from the first-quarter of '05, which I think is more indicative.

That's very helpful. And then, moving to the gross profit margin, and again, accepting the, I guess, the 20 and the 10, the 30 basis point you mentioned that might be to kind of either true-ups or inventory-related profits, it sounds like you feel pretty good about the fourth-quarter numbers kind of being a go-forward number there. I mean, obviously, some mix shift pulling it down but some other initiatives maybe holding it this level?

I think, actually, if you adjust to those two items that we talked about and that's the level that was pretty indicative of what we think the operations are generating. There is a lot of pressure in the marketplace to take our margins down. As you know, nobody likes to -- suppliers want to see price increases and customers don't want them or see price decreases and that puts us flat in the middle, but we've got a lot of good programs and a lot of good initiatives that have been taking traction for some point in time. We really worked hard on putting some pretty significant price increases through the channel in the early part of 2005. So we think that we should be able to maintain margin levels adjusting for those couple of items given that the mix shift doesn't change dramatical.

Great and just two more final questions, I guess. First, there's mention, obviously, about the repatriation of the $1 million after-tax numeric. Do you have a pre-tax number and then where does that show up on the income statement?

That will show up on our income tax line. What we did, we took advantage of the Jobs act that was in late '04 that took the repatriation of foreign income down to a normal tax rate, to a 5% tax rate, and we dividend the money back from Canada. It was in the neighborhood of 20 some million dollars that we brought back in and took advantage of bringing that cash to create jobs, and other investments here in the U.S..

So it's all on the tax line?

All on the income tax line.

And just one final question, I think you've hit most of the segment in growth rates. Could you maybe comment on what the growth rate was in utilities, maybe what the year-over-year benefit was that you estimate may be tied to the hurricanes and then maybe a number for kind of the manufactured housing-rv segment?

The hurricane activity we thought for the quarter was about 3, 3.5%, maybe in the range of $35 million or so in the fourth-quarter. Our utility growth was pretty consistent throughout the whole year, very strong, and our manufactured structures group, I would say, had a strong fourth-quarter when they would typically see seasonality and that would be laid down. So they had a good third quarter, and fourth quarter was strong, and we would expect to see some of that strength continue into the first-quarter, but it's going to be tapering off.

And then, obviously, I guess, the $35 million hurricane number, I guess, may be a little bit of elaboration. I think the incremental number in the last quarter, primarily September was 7-10 million and you have obviously seen that continuing. What kind of sustainability is in that $35 million number?

As I said, we'll see that pretty much taper off, if not go away in the first-quarter.

Great. Thanks a lot.

Kind of emergency-piece. Probably later in the second-half as they really get around to the reconstruction efforts that would affect the electrical products, you would see some benefit of that and we've got a full force of folks in the gulf states trying to take advantage of the opportunities down there.

Thank you.

[OPERATOR INSTRUCTIONS] Your next question comes from line of [Abashik Rodhod]ph with Merrill Lynch. Please, proceed.

Question on end markets. Can you give us more color or what your seeing in non-residential construction and [UBD]ph market, how much was your sales last quarter from these markets and what is your outlook for '06?

There is a report out showing today from the Dodge organization showing that the non-residential construction for 2005 was about 5%. We've been operating generally speaking in construction markets and that involves business from all of our operations, including our international operations, our business has been in the double-digit range for construction markets. So we have benefited from a lot of initiatives in programs focused on and targeting areas that are of particular strength to us, even though the market itself in the aggregate has not been as strong. So that's, sort of broadly speaking the construction industry, as Steve mentioned that we've had good performance across the utility industry. Both in terms of the operations and power plants, our large installation, as well as in the transmission and distribution segments of the utilities business. And again, that business is handled principally by one of our branch groups, but frankly, by other parts of organization as well. The remainder of your question had to do with which market segment?

Just how much was your sales from utilities in the fourth-quarter and what is our outlook for sales growth outlook from non-construction in utilities for the rest of year?

We don't break that type of detailed information out. I would just tell that you that the utility business has been good over the last five years and we have continued to be well-positioned to grow it above market rates in that business.

Okay and lastly, are you seeing any large projects in non-[indiscernible] construction utility market?

We talked about our project business in general. The forecast for that is for that to improve over what we have seen in 2005. Roy just talked about the growth rates and I really don't have anything else to add to that?

All right. This is great. Thank you.

There are no more questions and I will now turn the call over to Mr. Brailer for final remarks.

We don't have any additional remarks other than to suggest that we've got a lot of work still ahead of us, as John has pointed out, the initiatives that we've been working on in all areas of the business, whether it be in the sales arena or in inventory control or asset management, the more we dig into looking for ways to improve them, the more opportunities we see. So, we're focused on a strategy that involved building our business through operational excellence, and we have made a lot of progress, but we believe we have a long way yet to go. We thank you for your interest today and look forward to seeing you sometime soon. Have a good day, bye.