QUARTER RESULTS 2006
Steve Anderson, Director of Investor Relations
McKamy Hall, Chief Financial Officer
Dr. J. Don Brock, Chairman and CEO
Operator: Greetings, ladies and gentlemen, and welcome to the
Astec Industries, fourth quarter and fiscal year ended December 31, 2006
conference call. At this time, all participants are in a listen-only mode. A
brief question-and-answer session will follow the formal presentation. If
anyone should require operator assistance during the conference, please press
*0 on your telephone keypad. As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host, Mr. Steve Anderson, Director of
Investor Relations of Astec Industries. Thank you Mr. Anderson, you may begin.
Steve Anderson, Director of Investor Relations
Thank you Jen. Good morning and welcome to the Astec Industries
conference call for the fourth quarter and fiscal year ended
December 31, 2006. As Jen mentioned, my name is Steve Anderson, Iím
the Corporate Secretary and Director of Investor Relations. Also on todayís
call are Dr. J. Don Brock, our Chairman and Chief Executive Officer, Neal
Ferry, Chief Operating Officer, and McKamy Hall, Vice President and Chief Financial
Officer. In just a moment, Iíll turn the call over to McKamy to discuss and
summarize our financial results, then to Don to comment on 2006 and provide
some insight into 2007.
In the way of disclosures, Iíll note, that our discussion this morning may
contain forward-looking statements that relate the future performance of the
Company. These statements are intended to qualify for the Safe Harbor liability, established by the Private Securities Litigation Reform Act. Any such
statements are not guarantees of future performance, and are subject to certain
risks, uncertainties, assumptions and other factors, some of which are beyond
the Company control. Some of those factors could influence our results, and
they are highlighted in todayís financial news release and others are contained
in our annual report and our quarterly and annual filings with the SEC. As
usual, we ask you to familiarize yourself with those factors.
At this point, I'll turn the call over to McKamy Hall, to discuss our financial
results for the fourth quarter and full year of 2006. McKamy.
McKamy Hall, Chief Financial Officer
Thanks Steve. We appreciate your joining us this morning.
We are excited about the historical highs in sales, net income, and backlog. We
also look forward to continuing improvement in 2007 beginning with a nice
In sales, we had $162.1 million in the fourth quarter for an increase of 20.5%.
Our international sales were up to $48.6 million from $45.7 million in the
fourth quarter. Increases came primarily from Africa, South America, Europe,
and Canada in the quarter. Our domestic sales were $113.6 million, up from
$108.9 million. Parts sales for the quarter were up from $34.8 million to $38.5
million. For the year, net sales were up to $710.6 million, up from $616.1
million and an increase of 15.3% or $94.5 million. Our international sales were
up from $116.2 million to $192.2 million. Increase in sales came primarily from
Europe, Canada, Middle East, and Africa. The domestic sales were up from $499.8
million to $518.5 million. Parts sales were up for the year from $144.2 million
to $165.5 million for an increase of 14.8% and that is a total of 23.3% of our
total sales. That normally runs somewhere in the 20% range. Our sales
increased in all segments. If you look at the slice of the pie, the aggregate
sales make up 40.7% of sales, asphalt 26.3% of total sales, mobile 18.2%,
and Underground 14.8%. The sales by segment are in the segment report attached
to your press release.
The consolidated gross profit for the quarter increased from $25.8 million to
$34.7 million, an increase of $8.9 million or 34.5%. Also, the basis points for
the quarter increased 220 basis points. In the year, the gross profit was up
from $133.2 million to $168.3 million or 26.3% increase. That is a 26.3%
increase in gross profit on a 15.3% increase in sales or an increase of
210 basis points for the year. All segments improved with the gross margin
percentages being up from the prior year. This reflects work done by our focus
groups, application of lien designs, lien manufacturing, material cost
improvements, combined purchasing, and the benefits of increasing volume. This
was achieved while we were occupying new facilities and relocating and
repositioning of equipment in plants being expanded.
In SG&A for the quarter, we were at $27.7 million versus $24.5 million or
at 17.1% of sales for this quarter versus 18.2% a year ago. In the SG&A for
the year, we were flat at 15.2% in each year. The primary increases in SG&A
in dollars are from 2005 - 2006 was in salaries, commissions and employee
benefits. Basically, we are making investments in people, sales, marketing,
etc. to continue our growth. The income from operations for the quarter, were
at $7 million compared to $1.2 million or an increase of about $5.7 million for
For the year, our income from operations was at $60.3 million versus $46.3 or
30.3% improvement. If you look at the income by segment, which is on the
attached sheet, you will see the results by segment and when you look at
Underground, you initially look at it and see that it reflects a decrease. Let
me call your attention to the information below that and on the next page,
which reconciles the sale of the property that was in the Underground
segment in 2005. If you exclude that sale of property from the Underground
segment, instead of it reflecting a $1.4 million decrease, it would reflect a
$6.3 million increase or a 444% increase. The attached reconciliation also
reflects the fact that when you take out the unusual items for 2005, our
operating income increased from $40.3 million to $60.3 million for an increase
In the interest expense area for the year, our interest declined $2.5 million.
In terms of the effective tax rate, on the quarter, you have to ask why the
change there, three things I would point out to you. One is that the increase
in international sales had material impact. Two, the R&D tax credit,
which was overlooked in the fourth quarter, because Congress only extended
on the authorized credit in the fourth quarter, so we couldn't look at it until
that occurred. Also, the domestic production activity reduction was higher than
expected in the fourth quarter. For the year, the effective tax rate remained
flat. In terms of net income, for the quarter, we were at $6.3 million;
earnings per share were $0.29 compared to earnings per share last year of
$0.05. Looking at the year, we were at $39.6 million. That is a 40.9% increase
on a 15.3% increase in sales. Our earnings per share were up from $1.34 to
$1.81 for a 35.1% increase in earnings per share.
As I mentioned in the introductory remarks, our backlog is at an all-time high.
As of December 31, we were at $242.5 million, up from $127.7 million or up
$114.8 million or 89.9% increase. We always try to update you as well on
January, because that is a more current month, and you are always interested in
the most current information. At January, backlog was $261.6 million
versus $161 million or $100.6 million increase and an increase from December to
January of $19.1 million. The backlogs are very encouraging and Don will give
you more insight on the customer outlook and expectations.
The backlog information is at the bottom of the segment sheet for your
The balance sheet is very strong. We are positioned financially to handle the
growing volume, and at the same time, to consider other opportunities that may
be available. Our days outstanding are in good shape at 37.7 days. Our turns
are at 3.5 versus 3.6 last year. Nothing is owed on the credit facility. We
have a borrowing availability of about $81.2 million.
Our capital expenditures for 2006 were at $30.8 million. Our projections for
2007 are $28 million. The depreciation and amortization for 2006 was $11.9
million. For 2007, it is at $15 million. We will attach the cash flow to our
March filing for your observation at that time.
This concludes my prepared remarks on the financial details. I will be
available to answer any questions you may have later in the call. We do
appreciate your interest in Astec as we strive to improve profitability and
return for the shareholders.
Steve Anderson, Director of Investor Relations
Thank you McKamy. Dr. Don Brock will
now discuss Astec's business operations for 2006 and give us some insight
for the outlook in 2007. Don.
Dr. J. Don Brock, Chairman and Chief Executive Officer
Thank you, Steve. As McKamy said, we are
very pleased with our performance in 2006. The revenues for the fourth quarter
were up 20%, as he mentioned, from $134 million to $162 million. Our net income
was up 516% from $1 million to $6.3 million. Our earnings per share increased
from $0.05 to $0.029.
Our fourth quarter is always our weakest quarter and it's very difficult to
predict. We were pleased with the quarter. Every quarter we always have some
delayed shipments and likewise, we did this year, but we still had a very
strong quarter considering the seasonality of it.
2006 was a record year in both revenues and profits for the Company. Our sales
reached $710 million versus $616 or an increase of 15%. Our net profit reached
$39.6 million versus $28.4, a 41% increase. 2006 had no significant adjustments
such as sale of assets or other things. It was what I would call a very clean
year, just a good growth year. Gross margins increased 210 basis points. Our
return on capital employee reached 16.2%. Our cash flow return on capital
employee reached 27.05%.
In July, as you may recall, we were very concerned about the economy with oil
prices reaching $76 a share and we were somewhat pessimistic about the outlook.
However, as oil prices began to moderate, we saw a pick-up, particularly in the
asphalt segment, in sales starting in September and it has remained very
Our backlog is $242 million, as McKamy said, versus $127 at year-end and it
continues to grow. All four groups were profitable in 2006 and all four group
revenues and backlogs have increased. Our parts sales grew from $144 million to
$165, international sales from $116 to $192 million.
We are looking forward to 2007 with the increase in backlog. We are comfortable
that we will achieve at least the 10% organic growth that we had predicted in
Federal highway funding will increase about 9 to 10% for 2007 versus 2006. The
appropriation bill was about 4 months late coming out, so we expect over the
next 8 months to see some very large highway lettings due to the fact that
there will be rushing to get these additional monies spent during the
government's fiscal year.
We continue to see a wide swing in asphalt prices, but we also continue, on a
positive note, to see states more ________ (no audio).
Our parts sales continue to grow and we continue to concentrate in this area to
try to improve the growth in the rebuild and parts areas.
International sales are also continuing to be strong helped by the weak dollar
in the generally strong world economy. We believe that our new and innovative
products will help us to continue to gain market share in each market that we
serve as we enter into 2007. As McKamy mentioned, we remain debt free with a
strong balance sheet. We continue to look at a number of acquisition
opportunities that fit our business and culture.
As we move forward into 2007, we are continuing to focus on better execution in
our business to continue to make margin improvement through our initiatives to
contain and improve our purchase component costs through better raw material
purchasing and utilization, smarter product design and enhance manufacturing,
and continuous flow processes in our manufacturing facilities.
We will be glad to answer any questions that you have at this time.
Thank you. Ladies and gentlemen, at this
time, we will now be conducting our question-and-answer session. If you would
like to ask a question, please press *1 on your telephone keypad. A
confirmation tone will indicate your line is in the question queue. You may
press *2 if you would like to remove your question from the queue. For
participants using speaker equipment, it may necessary to pick up your handset
before pressing the * key. One moment please while we poll for
Our first question comes from Jack Kasprzak with BB&T Capital Markets.
<Q>: Thanks. Good morning, everyone. Congratulations on the
quarter. I was going to ask first, this morning it was an announcement
that Ingersoll Rand is selling their road development business, as they
call it, to Volvo and I just didn't know whether you guys had any views on how
that might affect you positively or negatively.
<A>: We have, I guess, heard that it was on the market. They
have been aggressive in the last three months in their pricing on paper, and
particularly I guess we see it as a positive. I think it will give us some
opportunities in the short-term, long-term I don't see much difference. With
the short-term opportunities, there is going to be a lot of rearrangement of
their distribution. Ingersoll sold a lot through their direct branches, which
will have to be restructured. We think it will probably be a stabilizing effect
in the market. There have been rumors for a long time that they were going to
try to get out. I think this will be a positive move.
<Q>: Similarly, CRH of course bought APAC back in the middle of
last year so have you seen any change in APAC's behavior yet in terms of their
desire to purchase equipment?
<A>: Yes we did. In fact, if you really look at kind of the slow start in
the Asphalt group last year, it was hurt by the APAC situation and oil prices.
After Old Castle bought it, they have continued to sell off a number of areas,
as you know, Georgia, South Carolina, parts of North Carolina, Virginia, all
except the western part of Virginia and part of East Texas. After those sales,
they have started to invest in the other areas and we have a number of orders
from them now that would fit in the older APAC operations and a number of other
orders pending. We see a stabilizing of that, and it's really positive for the
market. Old Castle is an excellent company and doing a good job.
<Q>: Okay. Thank you very much. I appreciate it.
Our next question comes from the line of
Arnie Ursaner with CJS Securities.
<Q>: Good morning. Can you perhaps expand a little bit? You are
seeing unprecedented backlog growth. Could you comment a little bit about your
views of why you are seeing it? Are people expecting significant price
increases? Are you investing people? Are you penalizing them if they donít
except deliveries in a certain time? What is sort of driving this tremendous
growth in backlog?
<A>: Arnie, I like would like to appear more brilliant than I am, but I
am not sure that I know all of the answers to it. There was a certain pent-up
demand out there that we see. We also see in the asphalt side of it, a push to
be able to do more recycle. It has a tremendous economic benefit to the
customer and to the state. That means a re-equipping of a lot of plants. We are
selling a lot of our double barrel plants, what I would call partial plants,
not complete plants, but where they are just buying them in order to increase
the amount of recycle. That is the one driver in the asphalt side of it. It
also helps doing more recycle. You do more milling so it helps the milling
machine business at Roadtec, for our coal planning; it depends on how you want
to refer to it. The other area we see is continuing with energy process. Where
they are, the pipeline industry looks like it will continue to be strong
through 2010. It will continue to grow anything related to energy. It is a
combination of a number of those things. I would say the asphalt is driven more
by the economics to do more recycle.
<Q>: My final question, if you would, is you have been
completing a very significant capacity expansion. Can you give us the status of
that and your view of how you think that could impact margins in 2007?
<A>: The four expansions we had were one here at Astec which is a
facility to build our own burners for the drums and the new pulverized coal
burner. In that, I would say the functionality is probably 75 to 80% of where I
would like to see it. Roadtec is in their facility and it is running at what I
would say 80 to 90% of where we would like to see it. Every time people move,
it takes them a while to get their nest built so they are improving
significantly. Astec Mobile Screens is operating well in their facility.
Kolberg-Pioneer is really just getting cranked up with theirs. I would say that
they are probably 60% there, but by the end of the quarter, they will be
running good. I would say that all of them will be running where we would like
to see them by the end of the first quarter. It will increase capacity.
Probably right now where we have our toughest problem on production is in the
Astec operation with the asphalt plants. We have really been barraged with
orders there, and that is probably the one that is struggling the most
right now and is not one we added on to.
<Q>: Again, you normally have pretty significant leverage.
What do you think the margin degradation in Q4 was or the benefits you hoped to
get in 2007?
<A>: Well again, I think that there is a potential for 100 to 150 basis
points, probably more in margin. The leverage we would probably get more as an
SG&A though as we increase SG&A, and I don't think we will see as much
increase in this year as we have last year. We have added sales people and are
continuing to try to get them up to speed. If we can increase 10 to 15%, we see
pretty good leverage from them.
<Q>: Okay. Thank you very much.
<A>: Thank you, Arnie.
Our next question comes from the line of
Scott Mackey with Robert W. Baird.
<Q>: Good morning, gentlemen.
<A>: Good morning, Scott.
<Q>: Congratulations on a great year.
<A>: Thank you.
<Q>: I first wanted to ask. Just in terms of gross
margin expansion, and again congratulations on the 200+ basis points in 2006. I
was wondering if you had a preliminary target for what you might be able to
achieve in 2007?
<A>: Scott, we are trying to get another 100 to 150 basis points. My
reluctance of being too optimistic there is we still see a lot of inflation and
we are obviously pushing back all we can on that. We are trying with all of our
initiatives to control purchase component costs, but there is still an
underlying inflation there that continues to creep up on us. Steel prices, we
are seeing them trying to push up again. We also see some opportunities in
buying with steel. They just announced a recent increase of about 5% and they
seem to be in sync with each other because everybody seems to go along with it
when one raises the price. My reluctance to get too optimistic on improvement
is due to the inflationary part of it in our purchasing area.
<Q>: As I look at that by segment, it seems that there is an
interesting dynamic. The gross margin expansion in í06 was kind of where one
might have thought it would have been. There is more runway in the Asphalt
group and particularly the Underground group, whereas maybe tenacity
constraints a little more so in the other two segments. As you look
out to 2007, is there a re-shuffling in terms of where the expansion opportunity
is? Or would you still expect to see just proportionately more expansion
in Underground and Asphalt?
<A>: I think Underground's got a lot of room. I think the Mobile group's
got a lot, because they went through a total reorganization of the manufacturing
facility last year, which was disruptive, you canít help it. So
it affected their margin last year. As we added about 60,000 square-feet
there, once it continues flow-through manufacturing, and they are still
adjusting somewhat to that. Improvements have been made, and I
think you will see quite a bit more room there in the mobile side of
it just as they get up to speed. In the aggregate side, I think
we will make a significant difference at Kolberg-Pioneer as they get their
continuous flow going. We moved a lot of stuff around out there from one
fabricated here, you plained it there, then you move back and
assembled somewhere else and now it's all in straight line and as it gets up to
speed, it will make a significant difference there. Asphalt is going to be
up, I think, just by volume. As much as anything, we are making some
changes, but it's not changing where you run a hundred-yard dash there,
because they are wide open on manufacturing right now.
<Q>: I guess just a follow-up on that quickly, especially with
your comments earlier on bumping up against potential capacity constraints
is that, in that business. As we look by segment, and you commented
earlier that you expected to potentially achieve 10% organic growth or
more in 2007, how should we think about that by segment?
<A>: Good question. It's down all across. I think I would
have to, what's your comments, Neal? I would say it's pretty well...
<A>: Yeah, we see it somewhat even it could possibly be a bit
more in the expansion with the company. It's pretty much even right
across the board as we look at it.
<A>: The only thing, Scott, Iíd add to that, Astec Group, the
asphalt plant is probably going to be a little more than that because they
were down the first part of last year. If you look at the backlog down
there and they were $37 million last year and $110 this year, and
they continue to add volume. We really think that we have the equipment of
choice with a high amount of recycle, so they got very strong backlogs right
now. They have the opportunity of being up a little more than normal.
<Q>: Sounds great. Thank you.
Once again, if you would like to ask a
question, please press *1 on your telephone keypad.
Our next question comes from the line of Rich Wesolowski with Sidoti and
<Q>: Thanks a lot. Good morning.
<A>: Hi, Rich.
<A>: Good morning.
<Q>: Hey, Don, just to confirm where you are with
liquid asphalt prices. If oil stayed at $50 for the remainder of the year,
would that be a meaningful help or hindrance for the business?
<A>: If it stays in the 50 - 60 range, I think the
industry is fairly comfortable with that, Rich. The rule of thumb on it,
is take the price of a barrel of West Texas Crude and subtract $10 from it
and that's what heavy crude is going to sell for and multiply that by 6
and that's what a ton of asphalt is going to cost. Going through that
math, that puts it around $300 a ton and that's what we are seeing. We
have seen some winter fields where people are buying on the spot market in the
winter down in the low $200s. One thing that really helped the attitude
of our customer was that huge spike in July where they were up to
$400 a ton. They bid a lot of work at that and then when it came back
down in the fourth quarter, it sure helped their profitability and our
optimism. I personally think you are going to see oil
stay around where it is. You can get a reading anywhere you want to on
that. I was up in the Tar Sands, week before last in Canada, and they
are predicting within a year it will be at $100/barrel. You can hear
whatever you want to hear on prices, but to answer your
question, the $60 is okay.
<Q>: Okay. What stage are you in terms
of investing in the sales and administrative personnel? We saw that
grow just about the rate of sales in 2006. Considering the higher backlog
in sales growth do you expect that this year?
<A>: I don't expect it to grow as fast as it did last
year. We have had a number of other increases that McKamy didnít mention.
We have added people for Sarbanes-Oxley. We have added an
internal audit staff over the last couple of years. We have added a number
of overhead things that will not continue to grow and as we make acquisitions,
should not continue to grow. So, I hope we are plateaued but to
tell you, my goals are to get back down to 14% but I don't think we
will quite get to there, maybe 14.5.
<Q>: Okay. Finally, can you just detail the major
projects within the $28 million í07 cap ex budget?
<A>: There is about 70% of that in the machine tools. Basically
we are adding at Telsmith. We are adding just about all over the company,
primarily, new automated machine tools. The rest of it will be pretty
well maintenance, capital expenditure, automobiles, trucks, things like that.
About 60 to 70% of it is in machine tools.
<Q>: Okay, great. Thanks.
Our next question is
from Jon Evans with Wells Capital.
<Q>: Can you talk about two issues, I guess. First of all, relative
to acquisitions, can you give us any kind of insight into kind of where you are
potentially on the acquisition front and then I guess if you are finding prices
are too high, is there a point that you return some of that cash to the
shareholders on the balance sheet?
<A>: We have looked in the middle of last year at probably six to
seven acquisitions. We personally think the prices are pretty lofty,
particularly if the financial buyer gets in it we don't have a chance. We
are working on a couple of potential acquisitions right now. One of those has
been, we think, is pretty far along in due diligence. Again, it's too
early for us to make any comments on that. Your second part of that question
<Q>: Well, I guess if you get to some kind of point where you
just return some of this cash to the shareholders in like a special dividend or
<A>: We have looked at that considerably last year. We have been
asked that question quite a bit and our Board had a dedicated meeting just to
discuss the subject and at that time, we had a number of acquisitions working.
Some are still working. Secondly, we are just in the process of redoing
our loan agreement and that was up in the air last year. If we do not come up
with an acquisition, we will look at either doing a stock buy-back or giving
out dividends on the cash. We are not going to just sit on it.
<Q>: Okay. One last question. I think last quarter you talked
about , that you had raised prices and I guess because you are seeing
maybe some steel prices or raw materials starting to go up for April, are you
thinking about putting anymore price increases, and maybe the other thing is
can you help us with the backlog? Do you have the ability to go back to them
and push price if raw materials go up?
<A>: Last year, the last part is, no we are a fixed price contract and
again, our backlogs, while we've got substantial backlog, everything we got
will be out of here by August at the latest. So, we don't have long, long
deliveries stretched out there. We did have one large plan in California that
was a long delivery and it had an escalator in it, but in general, we do not
have an escalator. We increased our prices a little earlier last year,
particularly in the asphalt side of it. We have been able to push up but there
is more push back now than there was just like we are pushing back on our
suppliers. When steel was leaping up at 200% per year, they were more amendable
to us raising our prices substantially than they are now. We have increased
prices but it's been more in the 4 to 5% range and not at great numbers.
<Q>: Does that mean you had another price increase or was the 4 to
5% what you already had?
<A>: That is the one we already had.
<Q>: Okay. Thank you so much.
Once again, if you would like to ask a
question, please press *1 on your telephone keypad.
Our next question is a follow-up from Jack Kaprzak from BB&T.
<Q>: Don, I just wanted to see if I heard you correctly or
interpreted you correctly. We know the backlog was up from the end of December
to the end of January. Did you indicate that it has continued to grow here
through the end of February or were you just referring to that number that you
guys gave from December to January? Just trying to get the more up-to-date view
of the backlog.
<A>: Jack, one reason that helps it grow is January is usually a
weak month and that is one reason it grew. We are continuing to get sales and
this is a busy time of the year. It is when people are buying. The mobile side
of it, they really don't start buying until right now. They want it all in the
next two or three months. We are seeing a very strong market, I guess, but to
answer your question, I think that's what you were looking for, but we think
the market is very good right now.
<Q>: That certainly was what I was hoping you were going to say,
yes. Thanks Don.
Our next question is a follow-up from Jon
Evans with Wells Capital.
<Q>: One last question. Because your backlogs are so strong, is
there any kind of issue that you believe you are missing any kind of sales or
are customers concerned about that?
<A>: Jon, on asphalt plants, we missed a couple a couple of weeks
ago and then one of them came back to us. We, for the first time, are beginning
to see where some people can't wait.
<Q>: Because they try to get it ordered, right? Or they are not
going to get it.
<A>: Yes, they've got work and they've got to get it ordered so we
are right at that point right now. The frustrating part on a lot of these big
orders both on crushing and asphalt plants. The large orders, they order in and
they get delayed because of permitting or something else and it's a constant
shifting around. International sales are also strong, too, and again
those, youíve got to meet a boat so generally those don't gets pushed back but
domestic sales where permitting often gets pushed back. Specifically, we have
lost one or two. I know the week before last, we lost two and then we got one
of them back.
<Q>: Relative to Arnie's question, risks and uncertainties making
people take delivery out, since the backlogs are so strong or are they being
able to push out because of permitting, etc.?
<A>: The customer is the boss. We can't shove it down their throat.
<Q>: Gotcha. Thank you very much.
Our next question comes in from Arnie Ursaner
with CJS Securities.
<Q>: Hi. I wanted to follow-up on a couple of things. One is you
mentioned share repurchase as a possibility. Just remind us, do you have an
authorization in place already?
<A>: Our Board basically said, when we get to that point they would be
ready to talk. We don't have one in place right now.
<Q>: Okay. I know we have been trying to avoid focusing on delayed
shipments because they tend to happen pretty regularly. Can you quantify the
impact of the delayed shipments in Q4?
<A>: Yes, we can. It probably would have been 10 million in volume. Some
of those are paid for, you know, totally paid for. It's a mixed bag. With
Sarbanes-Oxley and with the focus on revenue recognition, we just can't
recognize it until we ship it. I hate to even talk about it as McKamy and Neal
have talked about it before here, it seems like every quarter, we are looking
at $10 to $12 million in delays. It carries from one to the next.
<Q>: My final question is, obviously strategically you focus on international
growth as an area for you. At what point do you think you would like or are
planning to build some capacity directly in international markets, and if so,
is it underway at the moment?
<A>: We don't have any thoughts in that area right now. It's..,
again, we build niche products and to get the volume in any market, various
markets are pretty good for us, but it's added capacity to our plants here and
the more volume we can run through our existing facilities, we can ship an
asphalt plant, Arnie, to Australia for about 15% of the price of the plant
and to try to build over there would run us more than that. So, right now from
an economic standpoint, it still makes more sense for us to build it here.
China is different but the demands in China, they really want lower. We sell a
few plants in China now, but they have so much protectionism and to
go over there and compete for the local Chinese market, the technology they
want is so much lower. They are not after manpower reduction or labor reduction.
There are plenty of competitors already in place over there for the lower tech
equipment. Right now, our strategy is to try to fill the next boat from here.
<Q>: Okay. I think you mentioned you are going to have about $28
million of capital spending in 2007, yet 2006 was a major build year for you.
There are years for capacity expansion yet there is less than a 10% decline.
Can you comment a little bit more about where that capital spending will be
going and is some of that lingering carry-over stuff from the 2006 build?
<A>: As we added in 2006, a lot of the money we spent was on bricks and
mortar at those four facilities and this year, as I said, we are adding
capacity and metal working equipment and machine tools, a lot of the machine
tools we are buying are $1 million and $1.5 million purchases. We are trying to
upgrade and get the modern machinery and as we up our continuous flow through
the plant, we are just trying to up the through-put-through by more modern
machine tools and more metal working equipment. Its tools this year instead of
bricks and mortar.
<Q>: But as we think toward 2008, should that number be
drifting down to a more normal maintenance capital expenditure-type number?
<Q>: What would that number be?
<A>: Well, our maintenance capital expenditure is around $12 million a
year, somewhere like that.
<Q>: Okay. Thank you.
Our next question is from Alex Mitchell with
Scopus Asset Manager.
<Q>: Actually, all of my questions have been answered.
Gentlemen, I am showing no further questions
in queue at this time.
Steve Anderson, Director of Investor Relations
Okay. Thank you, Jen. We appreciate your
participation for the fourth quarter and year-end conference call for 2006.
Thank you for your interest in Astec. As our news release indicates, today's
conference call has been recorded. A replay of the conference call will be
available through March 6, 2007 and an archived webcast will be available for
90 days. A transcript will be available under the Investor Relations section of
our website within the next seven days. All of that information was contained
in your news release that was sent out earlier today. Since there are no
further questions, this will conclude our call. Thank you very much.
Ladies and gentlemen, this does conclude
today's teleconference. You may disconnect your lines at this time. Thank you
for your participation.