Question-and-Answer Session
Operator
(Operator Instructions) We’ll pause for just a moment to compile the Q&A roster. Your first question comes from Joe Giamichael with Rodman & Renshaw.
Joe Giamichael – Rodman & Renshaw, Inc.
I believe someone had begun to ask about your capacity utilization on the irrigation side and I wasn’t able to hear the answer. At what point do you have to significantly expand to meet the projected demand?
Richard N. Parod
Let me answer it from a little bit different perspective but I will answer your question Joe. The question earlier today was at what level of capacity we’re operating at or how does capacity affect us going forward? And, my response is we’re operating and did operate during the quarter at a fairly high level of capacity in all of our manufacturing operations but certainly not at the maximum level. What we did find during the quarter however, is as the volume in order flow picked up is our supply chain in general was strained in that process. We’re not losing sales certainly by our backlog at this point or by our capacity situation today and we can add incremental capacity into many of our manufacturing processes relatively easily but the difficulty becomes having the supply chains able to follow along. So, the question of when do we add capacity I think it will vary by process within our manufacturing process and we can add manufacturing capacity to most of those processes relatively easily and fairly quickly. In some cases they will be a little less efficient than say the more automated processes we have today but, we can add a secondary process or a less automated process to supplement. But, the big issue we have with the order flow that we saw in the second quarter is that the order flow ramped up fairly quickly and our supply chain had difficulty keeping up with it.
Joe Giamichael – Rodman & Renshaw, Inc.
Okay. I think that’s fair. Along those lines, what do you envision peak gross margins on the irrigation side being assuming sort of today’s input costs?
Richard N. Parod
Well, I can’t answer it in terms of a specific gross margin, I think the question would be are we at that peak level? And, I would say I don’t view it as being at a peak, I think we still have up sight potential in our gross margins in irrigation and our gross margins in total. Some of that up sight potential is in implementation of the lean initiatives that we’re doing inside our operations, some of it is in implementation of automated process that we continue to implement on a regular basis or ongoing costs reductions in product cost reductions and it extends beyond our domestic operations to our international operations as well. In addition to that, we have up sight potential in our overall margins through the mix changes that are taking place with the higher percentage of our sales coming from the infrastructure piece of business than what we had seen in the past with a higher overall margin level so we’re seeing margin improvements there.
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