Applied Industrial Technologies Inc (AIT) 2002 Q3 法說會逐字稿

and welcome to the third quarter earnings conference call. All participants will be able to listen-only until the question and answer session of the call.

This conference call is being recorded for instant replay purposes. If you have any objections, you may disconnect at this time.

I would now like to introduce the moderator for today, Mr. Richard Shaw, Vice President of Communications for Applied Industrial Technologies. Mr. Shaw, sir you may begin.

Thank you, Operator, and good afternoon everyone. On behalf of Applied Industrial Technologies, I would like to thank you for joining our third quarter earnings conference call.

You should have already received a copy of the earnings release, which was issued earlier today. If you've not received a copy, you may retrieve it by visiting our Web site at www.appliedindustrial.com.

A replay of today's teleconference will be able within one hour of this call and can be accessed for three business days by dialing 888-562-2795. It will also be available for replay on the Internet within three hours by visiting www.ccbn.com.

I'd like to remind everyone that we will discuss Applied's business outlook during this conference and make statements that are forward-looking. All forward-looking statements are based on current expectations regarding important risk factors, including those identified in the cautionary statement section of Applied's most recent periodic report and other filings made with the SEC.

Accordingly, actual results may differ materially from those expressed in the forward-looking statements, and the making of such statements should not be regarded as representations by Applied, or any other person, that the results expressed therein will be achieved.

Applied assumes no obligation to publicly update or revise any forward-looking statements, whether due to new information or events or otherwise.

With that said, our speakers today include David L. Pugh, Chairman and Chief Executive Officer of Applied Industrial Technologies, who will discuss our overall performance during the Quarter.

John Whitten, Vice President and Chief Financial Officer, will discuss our financial performance in detail.

And Bill L. Purser, President and Chief Operating Officer, will discuss our sales, marketing and operational activities during the quarter.

Here to discuss the third quarter business developments is David Pugh, Chairman and Chief Executive Officer.

Thanks,

. It's good to have you folks with us.

Nine months ago, I had fully expected to report on a positive move in this quarter, but in reality, we saw more of the same recession. I haven't encountered anybody who has called this one

.

While we are well within our most recent guidance, earnings are still feeling the impact of reduced sales volume.

We continue to experience a year-over-year decline in sales volume during the third quarter.

The good news is that we have finally seen a quarter-to-quarter improvement in the daily sales rate. That's the first time that's happened in a long time.

There are some indications that the decline may be slowing, and we are somewhat encouraged by recent, positive movement in the Purchasing Manager Index and in the manufacturing capacity utilization.

Both of these indicators of industrial activity have improved during the quarter.

The

remained above 50 during February and March,

an expansion in manufacturing activity.

Like many other companies, our outlook remains cautious.

We don't believe that two positive data points are enough to completely signal a turnaround. And in our view, the current economic recovery remains fragile.

Although manufacturing activity has improved slightly, it may relate more to inventory replenishment than true, sustainable economic growth.

Again, this quarter, our sales decline was broadly based, with certain sectors, such as automotive and food processing, holding up better than the rest.

Our

initiatives have

quarter of strong sales growth.

Despite the current pressures in the marketplace, and a decline in vendor volume concessions, our margin improvement initiatives have allowed us to grow third quarter gross profit margin by 40 basis points over our second quarter.

Our balance sheet remains in excellent condition, and we continue to generate strong cash flow.

During the quarter, we reduced our inventory by approximately $27 million, compared to the balance at December 31st, 2001, which I know had some of you concerned.

Although inventory is at the lowest level since September of 2000, we believe it's at an appropriate level -- one that balances our desire to improve asset management while maintaining our exceptional customer service capabilities.

In fact, our on-time performance is up four full points for the same period a year ago.

I'm quite pleased that the operational controls we have in place are delivering the combined balance of customer satisfaction, cost control and the asset management so necessary in this economic climate.

With that, I'm going to ask John to give you more details on the financial performance for the quarter.

John -- all yours.

Thank you, Dave, and good afternoon, everyone.

I'll highlight our third quarter financial performance and give you some additional business details for the quarter and nine-month period.

Our third quarter sales of 361 million were 11.6 percent lower than the corresponding quarter last year.

Net income decreased to 2.7 million, or 14 cents a share, from seven million, or 35 cents a share for the same period last year.

Same store sales for the quarter decreased by about the same percentage as the overall sales decline, as there were no appreciable change in the number of facilities during this quarter.

We had 62 and a half days of sales in this quarter, compared to 64 days in the third quarter of last year. We are encouraged by the fact that our rate of decline in our year-over-year daily sales rate diminished toward the end of the quarter, despite fewer sales dates.

Our sales mix for the nine-month period is about 85 percent industrial products and 15 percent fluid power. This represents a shift of about one percent to fluid power from industrial products during the past year.

Industrial product sales fell 11.7 percent during the quarter and fluid power sales were down about 11.4 percent during the same period.

As

mentioned, gross margin

to 25

percent in third quarter last year, an increase of 40 basis points.

The improvements were the result of prudent buying practices, better price management and an incremental increase in catalog sales.

There were 237 fewer associates at the end of the quarter, compared to last year's -- the end of last year's third quarter.

SD&A costs decline during the quarter, primarily due to the lower employee count, lower bad debt expense and reduction in other discretionary costs.

But the decrease was not commensurate with the decline in sales.

Consequently, our SD&A, as a percentage of sales, increased to 23.8 percent, compared to 21.7 percent in last year's third quarter.

Certain costs increased over the second quarter, based on maintaining an infrastructure that will be ready as demand picks up in a recovering economy.

Additionally, we increased SD&A costs associated with out $27 million inventory reduction, primarily distribution costs related to that reduction.

Offsetting this increase were reductions in bad debt expense, due to lower write-offs, and the discontinuation of goodwill and amortization from the adoption of FAS 142 at the beginning of our fiscal year.

As anticipated, interest expense declined during the third quarter to $1.4 million, compared to $2.2 million in last year's third quarter. This decline primarily relates to overall interest rates, as well as lower, overall average net borrowings.

During the first nine months of the fiscal year, we purchased 786,000 shares of common stock for $13.7 million, including 111,000 shares in the third quarter.

We still had 570,000 shares remaining under current board authorization for repurchase.

The balance sheet remained very strong, with a current ratio at the end of March at three to one. And our long-term debt now is approximately

strong cash flow.

provided from operations was $46.7 million for the nine-month period, compared to 32.4 million last year.

Finally, special-purpose entities, as you know, and off-balance sheet liabilities have come under increasing scrutiny.

Relative to our balance sheet, these types of obligations are very minor. We have one special-purpose entity set up for a lease obligation on five of our facilities.

The lease obligation represents a contingent liability of approximately $7.5 million that does not appear on our balance sheet.

Under the lease agreement, and this is what we call a synthetic lease agreement,

pay only rent expense equal to the interest on the lease obligation, which is backed by the value of related real estate.

If we were required to record this liability under any newly proposed accounting requirements,

effect, if any, on our shareholders equity and statement of income.

We also have loan guarantees to affiliates of up to $4.3 million, backing lines of credit of less than 50 percent-owned companies.

Based on our currently available information, we expect that the affiliated companies will fulfill their obligations under these credit agreements without any contribution by Applied.

We wanted to make that issue clear to you and let you know that these are the only off-balance sheet obligations, in addition to our operating lease obligations, that are disclosed in our annual report.

These obligations constitute about 11 percent of our long-term debt and less than five percent of our total shareholders equity.

As stated in our press release, the guidance that we're providing for the fourth quarter is that our sales will range, for the fourth quarter, anywhere from 360 to $370 million, with earnings of about 15 cents to 20 cents per diluted share.

We will provide financial guidance update on next fiscal year -- fiscal 2003 -- as we progress through the fourth quarter and have slightly better visibility in the coming year. Bill?

Thanks, John, and good afternoon, everyone.

As

mentioned earlier, our third quarter continued to see a broad weakness across most of the industry segments we serve.

Demand for replacement maintenance parts was sluggish, as industrial manufacturing continued to languish in the recession.

I agree with

.

While two months of improved performance by the Purchasing Managers Index doesn't make a trend, it is encouraging. This index improved from 49.9 in January to 54.7 in February and 55.6 in March.

This indicates some expansion of manufacturing activity during the quarter, which should be good news for us as we generally lag this index anywhere from seven to eight months.

As you know, we also carefully watch the capacity utilization rate, which began to fall in June of 2000 and drop below 80 percent in January of 2001. That rate continued to drop sharply and hit a nearly 20-year low in December at 74.4.

We've been encouraged by the January news of increase to 74.7, February increase to 74.9, and March's number was released this morning at 75.4.

American manufacturing, while still not firing on all its cylinders yet, is at least beginning to move.

How fast it ramps up remains to be seen.

After five consecutive quarters of significant declines in spending on

capital goods, there's a general expectation of a recovery.

Sharp draw-down of manufacturing inventories over the past six quarters has also set the stage for a rebound in the manufacturing sector.

Inventories in both durable and non-durable goods fell again in January.

We're also beginning to see an increase in our request for quotes. While this hasn't translated into an increased in order yet, it is a good indicator of improvement in the economy.

At this point in time, I would sum up my thoughts saying that I'm not sure whether I'm less negative on the downturn or a little more positive on the optimism that we're seeing in upturn. During the quarters, we saw our combined automotive and tier one business -- and if you'll remember, those are the customers of ours that actually serve the auto industry.

This segment has increased over 10 percent.

Food processing also saw some modest improvement.

Many of the other industries we serve, however, still show declines that indicate a continuing weakness.

Our Canadian operation softened slightly during the quarter, but support of the petroleum industry in Alberta, coupled with continuing higher prices of oil, has led to stronger performance by the Canadian operations versus the U.S. operations.

During this challenging period, and I add as well as for the foreseeable future, we're going to continue to focus on strict asset management and cost control.

I want to make a point here that both of these focuses, though, have not resulted in any impact on the service level to our customers.

And I think that's important to underline here.

We're going to continue to aggressively pursue efforts to enhance our margins.

We've also begun field sales initiatives that we believe will help us grow our top line.

We continually review and evaluate the efficiency of our distribution network, and as part of that effort and focus, we closed nine service centers in the last nine months.

As John mentioned, we have approximately 237 fewer employees today, compared to last year's third quarter. This reduction was achieved mainly through attrition.

We will continue to take advantage of selected opportunities to improve gross margins in

buying, as we did in December. We do expect margins to continue to gradually improve over the long run, due to our margin enhancement activities.

Incremental sales from initiatives like our catalog offering continue to grow. In fact we've been very pleased with the results of our Maintenance America catalog and believe that our new Fluid Power Connection catalog will also be similarly successful.

During the past quarter, these catalogs contributed sales of more than $8 million at higher than our average margins. As a matter of fact, our Maintenance America catalog sales increased over 60 percent, when compared to third quarter of last year.

You may recall that the fluid power catalog was initially distributed to about 100,000 customers. This catalog was launched in October of last year, and though it's early, we're still getting -- we're getting some very positive feedback from our customers on this new catalog.

Both the Maintenance America products and the Fluid Power Connection -- also they -- our AppliedACCESS e-commerce Web site.

While I'm speaking of that Web site, we continued to improve our AppliedACCESS Web site during the quarter, and we now offer full search capability on more than 350,000 products and the ability to purchase over two million products.

In its most recent month, our Internet selling efforts have hit the $1.5 million mark. Our

marketing programs continue to show progress and up are about three percent this year to-date.

The

programs cover markets that make up about 17 percent of our total sales. These programs, we feel, will serve us well when the level of manufacturing activity begins to grow.

Our service business continued to grow, although slow, during the quarter. If you'll remember, these include

, which is our minority-owned joint venture for hazardous materials, our rubber shop services and our fluid power shop services to name a few.

I would like to conclude by sharing what some of our customers are telling me as I travel the country making sales calls.

I'm attempting to spend about half of each month in the field, calling on our internal customers, which are our associates, as well as our external customers, and listening to the voice of the customer.

One of the things that's coming across very loud and clear to me is the need for differentiators and

to our customers. The time when the economy is down, such as it is now, this will bode us well as the economy begins to turn.

I'm going to now turn the call back over to

for some closing remarks.

?

The macroeconomics that we're facing -- we are committed to coming out of this recession as a more operationally-sound company, acting on those things that are within our standard controls.

We've reorganized our quality department and re-focused our entire operation to make sure that we are delivering maximum value to both our customers and our shareholders.

A total-quality mentality is being engendered in order to correct every process flaw, no matter how small.

Our efforts in asset management, cost control and margin enhancements are paying off.

Profitable growth is still to be realized.

With that, I'm going to turn this back over to

and

a few questions.

Thank you, sir. At this time, we're now ready for the question and answer session.

If you would like to ask a question, please press star, one on your touch-tone phone. You will be announced prior to asking your question.

If you would like to withdraw your question, press star, two. Once again, to ask a question, please press star, one now.

Sir, your first question comes from

.

Hi, gentlemen. Good afternoon.

Hi,

.

Hi,

.

They told me I've got to go easy here, so I guess I'll do my questions with a smile.

Hey, right from the top, a little more color on the SD&A -- just making a comment about, you know, you're not -- on your color on that, obviously you mentioned, you know, we took some headcount down, but then, you know -- I guess just if you could give me more color on that.

Where things are going.

Just to -- there were some pluses and minuses.

Overall our SD&A cost was down from last year, but it was up from the second quarter -- areas where it was a cost for associates, as we go forward.

And so that was one of the costs.

In addition to that, we had some additional costs relative to when we took down some of our inventory ...

Right.

... of $27 million of inventory.

Most of that cost flowed through cost of sales. There is a portion of that, however, that flows through SD&A costs, primarily the cost for procurement and warehousing of the product, that we defer a portion of that when the -- when we build inventories then we expense that when we sell the inventories.

And so that's on the plus side. On the minus side, of course, we have lower bad debt expense, because we're experiencing lower bad debt

.

Just to give you an idea, we probably had about a half a million dollars in savings this year versus last year.

This year, we're probably about 1.4 million versus about almost two million -- our bad debt circle.

Last quarter of last year bad debt expense was about $2 million. So if we knock on wood and -- hopefully, we won't have too much in the way of write-offs.

Of course, we'll have that going for us into the fourth quarter.

So, you know, we had some ups and downs, and, of course, we were a little disappointed that -- the fact that our SD&A cost was a little bit higher than what we experienced in the second quarter, but overall, I think, on balance, I think we're in pretty good shape looking out to the future to -- as we look to improve our sales.

So it's probably not a thought here that things really accelerate then in the fourth quarter.

No, we're not expecting that it -- that to happen.

OK, 'cause -- so you didn't like add sales people in there at all?

No.

No -- OK.

John, I don't know if you've talked -- I know I've asked this question about, you know, same store sales during -- you know, by month.

But during the first quarter -- any color on, you know, what it looked like through the three months?

OK.

During the March quarter, which is ...

Yeah, yeah, John.

I'm sorry -- during the third quarter.

Yeah, we saw that there was a pickup as the month progressed.

We saw a pickup in the daily sales rate over the ...

And that is a tremendous turnaround, because I think we had about 18 straight months of sequential drop.

Right.

And we saw that turn around in February.

Turn around in February?

Yep.

OK.

So that's essentially, sort of, the bottom in that daily sales and now ...

Well, you know, I wouldn't say that we have seen the last of it, but there are some positives, although not huge positive, but at least

February and March.

So February and March were not -- what I'm just trying to get at in terms of comparison numbers is -- they were positive in February and March?

Yeah.

Yes.

Really? OK.

That's different than what ...

The previous months ...

We're talking a sequential month, not year-over-year.

Gotcha.

OK.

Year-over-year there was still a decline.

Thank you. Thank you.

I just wanted to make sure I understood it. OK.

But -- OK. So, all right.

That makes sense.

So on a comparison year-over-year basis, February was down so much, and then March probably was down, you know, less -- on a year-over-year comparison.

Yes. On a per-day basis.

As far as the days, we had 64 days in the quarter last year, and 62 and a half days in the quarter this year.

Right.

OK.

Now you said that that -- just back on that number -- you had it down -- you said it was the same -- roughly the same, but were on different days.

If I heard that right -- down 11.6 percent total sales, and then you said same store was roughly the same.

Right.

Mentioned the days -- wouldn't that change it by about a percent, though?

Yes.

If you were to look at it on a per-day basis, I did -- I just gave you the overall.

If you were to look at a per-day basis, it'd be down maybe a little over one percent, so that would -- on a per-day basis it would be -- we would have been down about 10 percent on a per-day basis.

Yeah. OK.

That makes more sense.

All right.

And then, I'm going to keep rolling here. A little more specific in terms of the bearings business.

Can you kind of break that out and tell us -- give us some color on that? I mean, especially since, I don't know, auto's better and food processing -- you know, you use a lot of bearings there.

we're -- you know, I don't think it's appropriate to get that specific in this discussion, since we're kind of on a -- in an open forum here.

Sure.

So I -- you know, I would appreciate it if we could back off of that one.

OK.

I guess -- let me step back then, 'cause you did give us some nice

the auto business. I want to make sure I heard that right -- that tier one auto is up 10 percent in the -- in the quarter?

Yes.

Right.

Automotive has shown some strength, which is ...

OK. And then final percent price increase -- how's that going?

How'd that go? What's -- what might you be doing to get that through?

I'm not sure I understand what you're talking about on the two percent price increase.

I might be -- I might be wrong, but, I guess, bottom line -- did you try to pass on prices starting in the -- you know, the start of the calendar year?

Was there a price increase to ...

We have been passing on ...

OK.

... price increases to the extent that we can.

You know, we're under

. A portion of our business is under contract ...

Right.

... which limits us in the timing and where we can, you know, put those price increases through. So, you know, with regard to, you know, our

.

Next question.

Sir, your next question comes from Michael Hagan.

Good afternoon, guys. It's Michael Hagan speaking for Holden.

, try to save us some questions next time, will you?

Anyway, I guess what I -- you know, I'll try to follow up on the pricing issue.

You are seeing talk about -- from steel folks. And yes, we are getting some firmer prices and, of course, one of your major suppliers, I mean, you know, put out some news today.

And in their -- what they're seeing is actually a little more costs, I guess, in their actual productions of bearings.

So one would assume that the cost of bearings would have to be going up somewhat.

Any take on that -- elaboration on that?

Logic would follow, but at this point in time, we're not in receipt of any new price increases.

OK. And I imagine -- do you have contracts staggered throughout, or do you have contracts that, you know, take place in one specific quarter and that's -- you know, the majority of your contracts hit then?

, typically, the contracts are staggered at around January 1, July 1. Those typically are the key points.

OK. And then, I guess, let's go into

a little more.

Benefit costs, you know, staying up -obviously, that will probably be going forward. The costs associated with paring down your inventories -- that should make its way off the P&L, I would think.

But I didn't hear any specific mention about energy prices -- gas prices, you know, for your trucks in which you actually do your deliveries.

That really had -- did not have any major impacts in plus or minus during the quarter.

We are seeing a little bit of an increase in, you know, the cost of air travel, as everyone else is seeing. And as people are -- more people are traveling now.

But the energy cost itself really has not impacted us to any significant extent. One of the things that has helped us, actually, during this last current fiscal year, is the fact that we had a milder winter than we had the previous year.

And that actually helped a little bit -- offset some of that increase in energy costs.

OK. All right.

Then let me also peck away at the

that we saw.

And you have said that you saw some sequential improvements. However, you know, inventories aren't up, so that leads me to think that what you're seeing there in improvement -- is that nothing- you know, nothing but normal seasonal trends?

Because it's not as if you're -- you know, padded up inventories for the next month. I mean for the next quarter.

The cut in inventory's pretty severe.

Yeah, I think -- well, I mean, I guess you could -- you could say that it could be a little bit of seasonal demand, but we actually had fewer sales days in this quarter than we had the same quarter last year.

So I think from the standpoint of just looking at the sequential sales numbers, I think -- and the fact that there are a few industries that are -- that have turned up that were previously, kind of, like in a downward direction.

One, of course, is being the automotive industry.

So those are a couple things we're looking at.

Of course, it's very -- it's really too early to tell how strong -- if there is a recovery, how strong it's going to be.

after what we've been through over the past 19 to 20 quarters, just seeing a number that doesn't have a bracket around it is, you know, cause for celebration.

the numbers -- the positive numbers aren't high. It's just -- it looks like that -- you know, that decline may have reached the bottom and where we can slide along there without it continuing to go down.

Right. Well, could you guys share -- which of your markets did you see the deepest cyclical downturn?

And I'm not saying that, you know, are still seeing, I'm just saying, since things have gotten sour since last March, you know, what segments do you think really dipped the hardest?

, this is Bill.

I would say the steel industry, obviously, was the market that we saw take a strong dip. Certain segments of the forest products industry, OEMs, semiconductors -- would be three that would come to mind as we think about having the most severe downturn that we experienced.

Semiconductors have gone up like a

.

Sure.

What percentage of the mix is semiconductors? I'm not terribly ...

It's a small percentage,

.

It's a -- we included that in our

machinery and equipment sales, and we include the -- you now, all our own OEM's in the same segment. It's probably less then three percent of our business.

OK. All right.

And then -- John, I guess you mistaked me for

, 'cause I'm asking the kind of questions of you too.

I'm sorry.

call you Holden.

One last one. I guess I just wanted to slip -- how's the -- how's the mix, specific within the industrial products?

How's our mix looking now between power transmission and bearings? It used to -- I thought it used to be kind of -- kind of fifty-fifty.

Are we seeing some more skewing into

?

Actually,

, it was more slanted toward the bearing side of the business, and we've seen -- I would say it's been moving more toward an even, as far as sales between the two component groups are concerned.

And as John mentioned earlier, we're seeing a little bit stronger segment from fluid power, as far as our overall sales too.

OK.

So the fact that bearings are -- I guess

more than power transmission -- is that a matter of mix or is there something else going on there? 'Cause I thought that you were trying to, you know, push more into power transmission products.

Well, there's still a good bearing market there that -- you know, we don't have any problems selling bearings. We're not walking away from bearing business, and that is a strong suit of ours.

It is a core, and as we find new opportunities in different industries -- I think one of the things that's happened is some of the focus marketing programs helped us uncover some potential in the bearing business that we were not aware of. And we've seen some growth along those lines.

OK. So it's, I guess, a result of some strategic opportunities that you've seen.

Absolutely.

OK. Fair enough.

Thanks a lot, guys.

Thanks,

.

Once again, if you would like to ask a question, please press star, one.

The next question comes from

.

Hi, guys.

Hi,

.

Could you flesh out the AppliedACCESS doings? How they're doing and what -- give more detail on the progress there?

, this is Bill. If I compare the e-commerce offering in the transactions of the third quarter of last business year to this, we've more than doubled the business through the e-commerce effort.

It's growing nicely. Again, we're staying close to that curve.

As you know, others have gotten ahead of the customer's curve and had to take some write-offs. We don't plan on doing that, so we're staying very close to that curve, and -- by listening to the voice of the customer.

We still see that growing. We still have confidence in that channel and will continue to invest prudently as it continues to grow.

Is that running at a loss?

That is -- I would say yes.

That is still running at a loss 'til we get more through-put.

OK.

Do you have any break-even time forecasts that you could share with us?

Not at this point in time that I will share with you.

And

, you know, part of that -- it's depending more whether you want to talk about offensive or defensive strategies here. We have had this capability to play in the larger markets in the national accounts where we are playing, even though the national accounts may not have fully implemented at this point.

So when we talk about a break-even strategy here, gee, if we were to exit this, I would think we would -- we would certainly lose some major accounts.

, this is John Whitten.

I just wanted to mention one other thing -- maybe to give a little of our color to this.

I was out visiting customers a couple weeks ago, and one of the things I found that some of the larger customers -- they were actually using AppliedACCESS to do research online.

But they were actually placing their orders in their usual customary fashion -- either calling us or faxing us their orders, even though they were doing that -- the work online.

They were just doing it the way they felt most comfortable with, as far as placing their orders.

Not unlike Amazon and Borders.

OK.

How about vendor relationships and expansion on national scenes and things like that? Any developments?

Well --

, this is Bill. I can't say that there are any majors on the horizon at this point in time.

We continue to look for opportunities that make good sense for us and that are a good fit. We -- our strategy is to stay around the core business, because we think we understand that. That makes good sense for us.

At this point in time, I don't really have any major announcements to make along those lines -- other than we'll continue to explore those opportunities.

Many of the opportunities are brought to us by our customers.

And we listen to what our customers say and then see if it makes sense for us.

Okie doke.

Thank you.

Thanks,

.

The next question comes from

.

I do have a couple more questions, so, hopefully, you won't mind.

We thought you were tired from

.

No.

Anyway, you know, on the catalog, obviously -- continue to love how that's going. And the $8 million, kind of, in total -- couple of parts on that.

Number one, is the fluid power catalog -- remember last year, we kind of had this run rate, and I can't remember where we actually ended up with the Maintenance America catalog. But, of course, I remember the goal was, sort of, between ten and $20 million run rate.

And we really tracked, if anything, sort of above that or, at least, in that range the whole year.

Is the fluid power catalog -- I realize we're down pretty bad in our industries, but did the fluid power catalog -- where we're going to have to change, sort of, the goal here.

Do you get to this 10 to $20 million run rate a lot longer, or is it -- it's on track -- it's on track?

, this is Bill.

Actually, it's tracking better than our Maintenance America. You know, I hesitate to make that comment, because it's really still new, and we put, you know, 100,000 catalogs out, which may or may not be considered a large sampling.

So at this point in time, the reaction from the catalog has been above our

and exceeding the Maintenance America run rate. And in the

I believe it is.

We continue to grow strong with Maintenance America, and it's proving to be a very good offer.

What is the current run rate?

We hit 2.8 million for March and last I heard, it might be tracking.

We're still going to celebrate when we have our first $3 million month on that. So I wouldn't be surprised if it's this month.

I'm getting the

ready.

Where did we end December at?

You know, what was, like, the month of December -- obviously a bad month, but ...

I don't have those numbers

at hand.

I don't think I have those.

I was just trying to get an idea what the growth curve was

during the quarter.

We brought every conceivable number in here, and that's one we didn't bring.

So that 60 percent. If -- 'cause I thought I heard two different -- there was a number that was up 70 percent in the release.

I thought Bill mentioned 60 percent. It might be just 'cause of, you know, what time period we're talking about, but, you know, in the month of March -- 2.8 million.

Is that up 60 percent versus last March?

I have that information, but I don't have it right at my fingertips.

OK.

When I was putting this together, and -- I didn't bring that in.

Yeah, it was the same period last year.

Yeah.

That was your ...

Seventy percent over third quarter last year.

OK. Yeah.

OK. And then I wanted to actually jump back to this pricing question.

I promise this is my last question.

I kind of went back, read my notes and I was asking the question the wrong way, 'cause I was thinking about the pricing, obviously, in the marketplace.

But with vendors passing prices on to you. Obviously, we kind of lost some of the discounts there.

What's the situation with price increases to you at the start of the calendar year?

What we're experiencing from vendors, or what we're ...

Yeah, I was just wondering, are they trying to -- I mean, they're always trying to pass on price increases, but what's been, sort of, this average price increase that they've been knocking on the door with in the third quarter?

We really haven't seen --

this is Bill. We really haven't seen a major bust on price increases in this quarter.

Now toward the end of last quarter, we did realize some of the power transmission distributors' increases.

We're anticipating some increases from the bearings suppliers, but at this point in time, we have not seen them.

The average price increase varies, and they'll give you a range, and it depends upon your product mix and how you purchase as to what the impact would be.

And they'll give you a range of anywhere from for to six percent.

Yeah, OK.

And you said anticipating it from the bearings guys. Is there any reason to think that they have any more pricing leverage?

In other words, is there any, you know -- any sort of dynamic out there that would make them slightly better in terms of leverage?

I don't know that they would have any leverage versus a

manufacturer as far as price increases.

I was thinking just among the bearings guys. If there was, you know, if the consolidation that sort of occurred a little bit there ...

I see where you're going.

, I haven't seen that at this point in time. I guess we'll have a better feel for that probably more toward the calendar year, when they normally announce increases.

At that point in time, we'll see if consolidation is having any impact. But I'm going to tell you my forecast is that it will not.

OK. Thank you very much.

Thank you.

I did find the Maintenance America sales for the month of December, and it was about 1.6 million for December of 2001.

And that compares to about 2.8, as you mentioned.

How about days?

Days -- yeah, December 2001 was 19 days versus 20 and a half.

So on a day and a half, we went from 1.7 million to 2.8

to answer the question.

Once again, if you would like to ask a question, please press star, one.

Our next question comes from Michael Hagan.

Hey, guys. This is Michael again -- Holden.

Could you repeat what you said -- did you state any growth in national accounts or any national accounts figures? I just didn't see that in any of my notes.

National accounts, Michael, are running at about the same rate as our total sales are running with regard to decline.

OK?

So they're trending with our total sales.

OK. Perfect.

I appreciate it

, because what I was going to try to get into was, you know, obviously, these national accounts are purely global manufacturers, and you're seeing a lot of them saying, "All right. We have to restructure our business."

Not only are we -- some of them

far reaches of the world.

And I'm just curious if you, you know -- if you've yet seen any kind of impact of some national accounts perhaps moving operations father away than where you currently are. Where your footprint, you know, currently extends to.

That has not been a major impact for us. I know that there are -- with our Canadian acquisitions, we have -- it has given us better relationships with some accounts that had been a long-time account of ours in the United States -- has given us a

there.

We're looking forward to developing the Mexican piece, but we are still in our infancy stage in Mexico.

I wouldn't say that we have either lost any business as a result of being moved out of the country to either of those places, nor have we, you know, tremendously

.

I'm showing no further questions at this time.

OK, thanks

.

With that, gentlemen, thanks for joining us this afternoon. Appreciated your questions.

Hopefully, we've given you enough to go get your jobs done. And we're all looking forward to a growth in this industry.

So thanks for being with us. With that, we'll close this session.

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