Applied Industrial Technologies Inc (AIT) 0 Q0 法說會逐字稿

Welcome to the Fiscal 2012 First Quarter Earnings Call for Applied Industrial Technologies.

My name is Michelle, and I will be your operator for today's call.

At this time, all participants are in a listen-only mode.

Later, we will conduct a question-and-answer session.

Please note that this conference is being recorded.

I will now turn the call over to Mr.

Richard Shaw, Applied Vice President of Communications.

Mr.

Shaw, you may begin.

Thank you, Michelle, and good afternoon, everyone.

On behalf of Applied Industrial Technologies, thank you for joining us on our Fiscal 2012 First Quarter Investor Conference Call.

Our earnings release was issued this morning before the market opened, and if you haven't received it, you can retrieve it from our website at applied.com.

A replay of today's broadcast will be available for the next two weeks, as noted in the press release.

Before we begin, I would like to remind everyone that we'll discuss Applied's business outlook during the conference call and make statements that are considered forward-looking.

All forward-looking statements are based on current expectations regarding important risk factors, including trends in the industrial sector of the economy, the success of our various marketing strategies, and other risk factors identified in Applied's most recent periodic report, and also with other filings made with the SEC.

Accordingly, actual results may differ materially from those expressed in the forward-looking statements.

In compliance with SEC regulation FD, this teleconference is being made available to the media and the general public, as well as to analysts and investors.

Because the teleconference and its webcast are open to all constituents, and prior notification has been widely and unselectively disseminated, all content of the call will be considered fully disclosed.

Our speakers today include Neil Schrimsher, Chief Executive Officer, who will provide an overview of the quarter; Ben Mondics, President and Chief Operating Officer of Applied, who will discuss our operations during the quarter, and Mark Eisele, Vice President and Chief Financial Officer, who will discuss our financial performance in detail.

This has been an eventful day for all of us at Applied, having completed our annual shareholder meeting this morning, and bidding goodbye to Dave Pugh, our CEO for the last 12 years.

We hope you join us in wishing Dave the best as he retires.

It's also my honor today to introduce our new Chief Executive Officer, Neil Schrimsher.

Please join me in welcoming Neil to Applied and to his new role.

Neil?

All right, thank you.

It's a pleasure to be joining on today's call, and I look forward to meeting many of you in the coming months.

Earlier today, we released the first quarter fiscal 2012 results, and hopefully, you've had an opportunity to review them.

A quick recap shows sales for the quarter up $579.574 million, which was up 10% from last year.

Operating profit was over $43 million, representing a 24% increase, and net income was over $26 million, which was up 27%.

Earnings per share were $0.61 for the quarter, compared to $0.48 in the first quarter of 2011, a 26.5% increase.

These were all record results for us, so we feel we've had a good quarter and a real solid start to our fiscal 2012 year.

Now Mark will go over the financials with you in more detail, but we are pleased with our 10% sales improvement against tougher comparables, and even more pleased that we were able to continue to leverage our net income improvement, achieving the 27% gain over last year.

These operating results were driven by sales growth, by a 25 basis point increase in gross margin compared to last year's first quarter, and by lower SG&A as a percentage of sales.

So we continue to execute well on the ability to control costs and to achieve profitable sales growth to improve our net margin.

Going forward, we will remain focused on all aspects of continuous improvement, around cost containment, asset management, margin enhancement, and profitable growth.

With that, I'm going to turn the call to Ben to discuss sales, operations, and our end markets.

Thanks, Neil.

Looking at the overall industrial market, the indices we follow show that the industrial economy continues to grow, albeit at a slower pace than a year ago.

For the September quarter as a whole, industrial production rose at an annual rate of 5.1%.

Manufacturing output moved up 0.4% in September after having gained 0.3% in August.

At 94.2% of its 2007 average, total industrial production for September was 3.2% above its year-earlier level.

And capacity utilization for manufacturing edged up to 75.1%, its highest rate since July of 2008.

The ISM Purchasing Manager's Index rose from 50.6, to 51.6 in September, a welcome sign, as this was only the second increase since March.

For the quarter, the index was 51, down from 56.4 in the June quarter and 61.1 in the March quarter.

Nevertheless, the index remains above the expansionary threshold of 50.

Looking at the top 30 industries we serve and comparing them to last year's first quarter, we saw increases in 25 markets and declines in five, with most of the declines being relatively small.

Overall, our end markets continue to show good growth, with only minor areas of weakness.

Summing it up, we see continuing positive trends that support our growth estimates for the remainder of the fiscal year.

From an operations standpoint, we are pleased that our gross margin initiatives continue to show positive results, and our cost-control efforts continue to keep our SG&A expenses in check.

Our inventory turns continued to improve, even though we had a slight increase in inventory levels to support various initiatives.

Finally, we are pleased with our progress on our ERP project.

The project continues to be on time and on budget to the plan, which calls for a total expenditure of $70 million to $75 million.

Our first deployment of the system is scheduled to occur in December with select facilities in Canada, where we can have a highly controlled and highly monitored launch.

We are using industry best practices for our implementation plan to continually validate the deployment date.

Beyond the initial launch, our plan calls for a measured deployment, continuing over the next two years.

With that, I'm going to turn it over to Mark to talk about our financial performance for the quarter.

Thanks, Ben.

Good afternoon, everyone.

Let me provide some additional insight for our first quarter fiscal 2012 financial performance.

Our sales per day during the quarter was $9.1 million, or 9.9% above our prior-year quarter, with the same number of selling days in both the September 2011 and 2010 quarters.

Of the total quarterly sales increase, acquisitions contributed 1.3%, currency fluctuations represented 1.1%, and we believe the impact of vendor price increases was just under 2%.

Our product mix during the quarter was 29.4% fluid power products, and 70.6% industrial products.

First-quarter sales in our service center-based distribution segment increased $39.9 million, or 9.4%, and sales in our fluid power businesses segment increased $12.2 million, or 11.8%, from the same periods in the prior year.

From a geographic perspective, sales in the first quarter from our US operations were up $28.4 million, or 6.2%, acquisitions accounting for 0.6% of this increase.

Sales from our Canadian operations increased $19.3 million, or 35.4%.

This increase includes $3.9 million from acquisitions, and $4.6 million due to foreign currency translation.

Our Mexican operations sales increased $4.4 million, or 31.5%, of which $1.3 million is attributable to foreign currency translation.

During the quarter, our total number of operating facilities remained at 474, as our Chains Plus acquisition location in Montreal, Canada, was offset by a merger of two other locations in the US.

Also, during the quarter, we increased our associate count by 46 associates, to 4,686.

Our gross profit percentage for the quarter was 27.4%, as compared to 27.1% in the prior year's quarter.

Our gross profit margin increase was the result of higher US service center point-of-sale margins, lower scrap expense, as well as higher Canadian gross profit margins.

Our selling, distribution, and administrative expenses as a percentage of sales of 19.9% for the quarter is 60 basis point below the first year -- the prior-year first-quarter rate.

SD&A expense has increased from the prior year in absolute dollars by $7.2 million, or 6.7%, compared to a sales increase of 9.9%.

Acquisitions increased our selling, distribution, and administrative expenses at a higher rate, as these organizations have a higher cost structure to support their operations when compared to our historical structure.

Besides acquisitions, the other major absolute dollar increase is SD&A is due to expenses related to the ERP project.

Our ERP project expense included in SD&A was $3.8 million in the first quarter.

Total capital expenditures related to ERP included in property additions for the first quarter was $5.7 million.

We are forecasting additional capital expenditures of approximately $14 million for the remainder of the fiscal year.

Quarterly SD&A expenses pertaining to the ERP project should run between $3.5 million to $4.5 million for the remainder of fiscal 2012.

Our consolidated balance sheet remains strong.

Shareholders' equity is $632.8 million, consistent with our June 30 level.

Inventory turns continue to be strong in the quarter and reached another all-time high for our trailing four-quarter average.

We expect inventories to increase slightly in the December quarter, and then be flat for the remainder of the fiscal year.

Overall, receivables balances remained consistent while our DSOs increased slightly in the quarter.

Our effective tax rate for the quarter is 36.1%, slightly lower than our guidance for fiscal 2012.

We are forecasting our effective tax rate for fiscal 2012 to be in the 37% range.

We purchased 640,000 shares of our stock in the open market during the September quarter.

Our board provided us authorization to purchase up to another 1.5 million shares today.

We expect to be active in re=-purchasing our stock during the remainder of fiscal 2012.

We will maintain our original sales guidance range of between $2.35 billion to $2.45 billion, and our earnings per share range of $2.40 to $2.55 per share.

Now, I will turn the call back over to Neil for some final comments.

Okay, thanks Mark.

Before we take your questions, I'd just like to say how excited I am to join Applied.

This is really a good Company that operates well, and one week into the role, I'm impressed by the people and the leadership team, including their knowledge of the business and their dedication to serving our customers.

I'm also excited about our growth prospects.

We will be committed to realizing our full potential and really serving all the stakeholders -- our shareholders, our customers, our employees, the suppliers we represent, and the communities where we live and operate.

I look forward to working with Mark and Ben and our 4,600+ associates to grow and expand the Company and to generate strong shareholder returns going forward.

With that, we'll open up the lines for questions.

Thank you.

We will now begin the question-and-answer session.

(Operator Instructions)

Matt Duncan, please go ahead.

Good afternoon, guys.

Hi, Matt.

The first question I've got is actually for you, Neil.

First of all, congrats on your new position at AIT.

Just curious, what about the Company was attractive to you, and maybe you can talk a bit about your experience working with distribution companies in the past?

Sure.

As to, hey, I think what's attractive, it's a very well-run business, strong foundation.

If you look at the financial capability, I think there's opportunities for us to further expand and grow.

I think with the team, and we've started having some early conversations, that's organically, and that can include acquisitions as well.

So, I'm very excited to be coming in.

I've also been fortunate to really work for three really good multi-national companies, and all of them going to market through channels.

A lot of my roles and experiences have been directly with the channels, then from a manufacturer's side and prospective, but also spending time within markets and end customers.

In there, you realize the value that distribution provides.

Really, the functions of the channel will always get fulfilled, and it's who can do them best and who can provide them at the best value and -- hey, as I assess this team in Applied, it's well positioned and I think we'll have the opportunity to further execute going forward.

Okay, great, thanks.

Mark, on the ERP system install, it sounds like you're now looking at maybe $15.5 million in expense cost there this year.

Is that down a bit from where you had previously thought it would be in fiscal year 2012?

It is down a little bit, and that's because we are now anticipating that of the spend that we were projecting in fiscal 2012, we'll be able to capitalize into property additions a little bit more than we had thought over the summer when we gave our initial guidance.

The forecast we have for all of fiscal 2012, the CapEx forecast is a little but higher than what we said over the summer and then the SD&A is coming down as sort of the low end of the range that we gave.

Okay.

Just to be clear, it's down a couple of million dollars from where you thought it was going to be before, correct?

Yes.

Okay, thanks.

Then lastly, Ben if you could maybe give us some insights into sort of what you saw in the trends in the business in the quarter, maybe on a month-to-month basis, and then through October, if you could call out any end markets that were particularly strong or particularly weak during the quarter?

We typically have a slowdown in the summer.

The beginning of the quarter we had our seasonal, typical seasonal slowdown and as we moved into August, September and so far through October, we've had sequential increases is in our sales per day.

Typical of what we expect in the beginning part of the quarter, and we've continued to show growth throughout the quarter.

From an end market standpoint, as I said we have 25 out of 30 of our industries that were up.

We showed particular strength in a number of areas -- food and beverage, machinery manufacturers, primary metals, durable goods, and also mining.

From the weak side, high-tech continues to struggle compared to prior year, and we've also shown some -- we've seen some weakness in segments of the forest product segment, as well as portions of the transportation equipment industry.

Okay, thanks for the insights, appreciate it.

Sure.

Jeff Hammond, please go ahead.

Hi, good afternoon, guys.

Neil, welcome to applied.

Thank you, Jeff.

Just on the SG&A line in general, you had been running kind of closer to 21% through the back three quarters of fiscal 2011, so even with a healthy spend in ERP, you dropped quite a bit sequentially.

Can you just talk about the moving pieces there?

Is this kind of 20% level that we saw in the first quarter sustainable?

Jeff, well we're going to really work hard to continue our control of SG&A, and that's one of the things we pride ourselves on, managing that on a go-forward basis.

But whether or not we can sustain this run rate going forward, we believe that we'll continue to leverage our expenses, so that we continue to get benefits from the leverage from our sales to the bottom line.

But I'm thinking that some of the impacts that we had in the September quarter for -- in expense perspective, may not continue completely going forward.

So, some of the run rate that we had -- we had some one-time benefits that happened in the quarter that helped us a little bit.

As we go forward, those will be in the plan on an ongoing basis.

For instance, we had some gains on sales of two pieces of properties that we had.

That provided us a small benefit within SG&A and there are no potential other gains in our plan, going forward.

That will have a small impact as well.

Is there a way to quantify the one-time benefits?

I mean, is that --?

I think we had some of those gains, and we also had some situations with Dave's retirement and Neil's coming on board with some of the compensation expense and options and things that will be coming on board with Neil, as that rolls into our expenses.

In the first quarter, Dave did not receive equity awards because of his retirement being imminent, and those awards are coming on with the new CEO.

So, we had a small hiatus for that in our expense, too.

Okay, and what was the $1.9 million in other expense?

That is two main components.

One of those components is foreign currency translation, specifically for Mexico, with the dramatic change they saw in the peso right there in September.

That was about $400,000.

The remainder amount was an item related to the accounting for our shadow 401(k) plan, for which is a non-qualified plan that we have assets invested in for the benefits of deferred compensation for our Associates.

Those asset values went down in the September quarter.

Because those asset values went down, there was a loss in those values, and that was recorded as a loss or an expense in that other line of about $1.5 million.

The corollary to that is that reduced our compensation that we owed our associates for that deferred comp amount and so that was a benefit that flowed though our SD&A expense in this quarter, also, which is another one of those what I would call a one-time benefit in the SD&A run rate that happened in the September quarter.

It doesn't impact the overall profitability for the Corporation because those all net to zero.

While that accounting can be somewhat confusing, that's in accordance with US GAAP as required.

Okay, great.

Can you just hit on M&A pipeline?

Maybe, Neil, should we expect kind of a pause as you take a fresh look, or do we continue to work with an active pipeline?

Yes, I don't know what the history has been on the commentary, but I would not expect any pause.

Hey, five days into the job, it's been part of the reviews.

We're not planning on any pause from acquisition standpoint.

Can you just comment on activity in the pipeline?

How people are thinking about valuations?

Are people more willing, less willing to sell as a result of some of the uncertainty out there?

I will jump in on that.

I think our pipeline remains pretty robust.

I wouldn't say there's really been any change in the last three to six months on sellers' expectations and buyers.

We are talking with numerous folks here.

We believe that we should be able to continue to work these, and over the past 12 months we've closed four acquisitions, and I think that's probably been pretty close to our average track run rate for the last several years.

I see no reason why that won't continue or potentially even increase going forward.

From my side coming in, it appears that there are numerous targets.

If you think about a challenging economic environment, that may have stimulated some.

Also a growth environment and the cash requirements then to fuel and fund growth may have some others look at alternatives for their business.

So, I believe we are going to have good opportunities.

Okay, thanks guys.

Greg Halter, please go ahead.

Yes, thank you and welcome to you, Neil.

Thank you, Greg.

This question is really for you, just right out of the chute and I know you've only been there for days or so.

Just wondering if you have had time at all to think about what kind of leverage the Company may take on in a perfect world and what kind of operating expense goals and return parameters you may be thinking about?

I would say hey, you're right, I'll take your setup first.

A few days into it, no specific targets attached.

I think obviously, the Company has capability and some firepower to use in this, but we will be professional and prudent as we go through it, so no hard targets to share at this stage.

Okay.

We'd presume you'll be developing some over the coming months or quarters?

Looking at the quality metric that you've talked about in the past or I think Dave may have mentioned it, the customer credits, I think it is?

Any comment there on how that stands?

We have had a very good trend of continuing to see decreases in the customer credits and we're probably, since we've been tracking it, we're probably at a low since we've been tracking for the last 10 years or so.

Our credits we issue to customers are going very well, which is an indicator of how efficient we're running the business and when it comes to orders and quotes and delivering to customers.

One final one, relative to the end markets.

Relative to the 25 that you mentioned that were up, I think in the past you've given some parameters on how many may be up double digit or 20% or whenever.

Would you care to opine on those in this particular quarter?

I don't have the numbers in front of me, but if you look at our overall business, I'd say the ones I mentioned that were strong were up very strong, double-digits, and then we have a mixed bag of single digits to low-double digits.

So, it's tough to say, but overall, we saw broad-based, nice, solid increase in a wide variety of industries.

Great, thank you.

(Operator Instructions)

Brent Rakers, please go ahead.

Yes, good afternoon.

I wanted to hit, if I could, more on these operating cost line.

Mark, you started to talk a little bit about the 401(k) and how that might impact the numbers.

I didn't hear you quantify maybe what that impact would've been.

I'm assuming that number -- that amount is going to just shift amongst the second, third, and fourth quarters?

Well, that was a discussion of the shadow 401(k), which is a non-qualified deferred compensation plan that we have for associates here.

So that means the assets that are within the plan are still on our books, and so we need to mark-to-market those assets every quarter.

When the stock market goes down and those assets whose value, what happens is then the compensation, this deferred compensation that we owe associates goes down.

So that is a reduction of SD&A expense.

Then, on the corollary, side of that, since the assets lost value, well that's an expense, but that is shown as a non-operating expense, so that goes in the other line item that we report.

There's a $1.5 million in that $1.9 million line item that is an expense that relates to this reduction in our asset values, but that also then showed as a reduction in our SD&A costs.

When we plan this throughout the year, we plan everything to be sort of flat, because none of these changes impact the net income to our Corporation -- it nets to zero, but it does make some of the line items look a little different based upon the market performance.

And then, Mark, just to clarify a couple of your other comments about SG&A, you referred to the gain on the sale of property, that's just the number that shows on the cash flow statement, correct?

That is correct.

Similarly, some of Dave's compensation, is that going to the cash flow statement as well?

That $633,000 that was $1.3 million the year before?

For the amortization of the options?

Yes, when Dave was granted options in the past, since he was retirement-eligible, we were required to expense those immediately, as opposed to over the three-year option vesting period.

That was what happened a year ago in the September quarter.

It's not just Dave, if anybody that's employed that's retirement-eligible, we have to expense options immediately.

Mark, there were no one-time compensation-oriented costs associated with the CEO change negatively impacting the September quarter, or raising costs, I guess?

Not significantly.

We did have some costs for the search.

It wasn't material for the quarter.

Okay.

Just a couple more -- it looks like you finally really ramped up hiring.

I guess this is the great -- the most significant, sequential hiring up-trend in about three years?

Can you maybe comment on what direction those new employees are focused in?

Yes, I think the number was maybe 46 and boy, some portion of that, nine or 10 were from our single-location acquisition, Chains Plus.

The remainder, we have a focus on customer-facing associates.

We've had an initiative to fill some spots that maybe we eliminated during the downturn and we'll continue to see some incremental movement upwards in our associate count as we move forward.

Okay.

Last question, you talk about being more active in terms of your share re-purchase.

Any better sense of what kind of parameters around that you're going to use?

Brent, I think we're going to keep the same philosophy that we've had for the last several years on our share re-purchase program, where we're going to be buying opportunistically at various times throughout the year and being active in the market.

We believe our stock is a good buy.

Great, thank you.

Adam Uhlman, please go ahead.

Hi, guys, good afternoon.

Hi Adam.

Neil, welcome on board.

Thank you.

Ben, did you talk about the trends that you saw with your cost government customers this quarter?

Any updates that you might have to the full-year outlook?

On the government segment of the business, we did -- we've seen some of the obvious headwinds that you'd read about with budget constraints.

Overall, we're slightly down for the quarter in our government business.

We've had some downturn at the defense-related subcontractors, and we've seen some growth at the federal and state level, and our team continues to expand our reach into more government entities.

As we've said before, our market share in the segment is very small, so we continue to expand our customer base and we're still focused on it for the year, in conjunction with some of the headwinds I mentioned earlier.

Okay, got it.

Mark, the gross margin for the quarter was really strong.

How should we think about the sustainability of that rate as we move through the year?

We feel really good about what we're able to accomplish on our gross profit percentage for the quarter.

Looking forward, I think we'll see some normal variability around the numbers that we are delivering now.

I think it'll -- we still have a focus on trying to work on gross margin and improve margins, whether or not we can continue and maintain this throughout the full year.

We're going to work hard, and that's exactly what we're trying to focus on.

But I think we'll see some consistency and variability.

As we look backwards into what we've been talking about for the last couple years, we've been stating that fiscal 2012 will get us back into what we call a normal flow of business of how things flow through our financial statements with the LIFO and the inventory reductions, and the issues that we had like that.

Things are stabilizing now and we expect to see less variability.

Okay, got it.

Then the inventory increase in the quarter to support various initiatives -- was some of that pre-buy ahead of supplier price increases, do you flesh that out a little bit more?

I think it was just normal buying.

I don't think there was any strategy there to buy before price increases and things.

So, our philosophy has been over the last year or two is to try to buy at the rate of cogs.

So we're trying to work that philosophy, but we're also strategically putting inventory in for potential growth opportunities.

Okay, got it.

Thank you.

Holden Lewis, please go ahead.

Thank you, good afternoon.

Hi, Holden.

As it relates to sort of the end market question again, can you just give us maybe a better sense of maybe not so much the core, but we've got kind of a month under our belt and maybe you've got some stuff tonally.

Are you hearing people speak more, less cautiously, more, less optimistically, and are there any markets in particular where you saw maybe meaningful deltas to their performance, up or down?

I guess, I'll take the last question first.

The meaningful deltas are the ones I mentioned, the largest ones, anyhow -- food and beverage, machinery, primary metals, durable goods, mining; on the upside -- weakness, high-tech, and then segments of forest products and transportation equipment.

From just a general tone standpoint, Holden, there is certainly caution in the market.

In our conversations with customers, suppliers and discussions at trade associations, everybody is asking the questions, so there's obvious concern.

The general commentary we hear from customers and suppliers, even after the question, is everything is going fairly well.

So the industrial economy is doing better than what you might read in the media on the general economy.

Okay.

Can you speak a little bit about the inventory increase?

I mean, you cite maybe some specific opportunities?

Does that relate to specific sale-oriented initiatives that you're talking about and can you elaborate?

Or is it just, you might be seeing a national account, you might be able to get one on reposition, Just trying to get a sense of what you're talking about when you talk about those opportunities causing you to bump up the inventories?

It's a combination of all those, Holden.

We give our local folks the autonomy to put the inventory in that they need to support the customer base.

It's a combination of some of the initiatives we have, whether it's a focus on a product line or on a certain industry, or geographic area.

So, it's a combination of all of the above but nothing significant in any one area to note.

Okay.

Lastly, Neil, welcome aboard.

I wanted to ask, without putting you to have to give us numbers after five days, I guess the flip one of the earlier questions around, when you looked at the opportunity that was presented to you, what did you see that you could bring to the opportunity?

Are you more inclined to try to seek more leverage, or are there overseas opportunities?

What did you see that you felt you could bring to the opportunity that sort of made this a good match?

Well, I think on one, the foundation that exists on the continuous improvement, cost containment, asset management, margin enhancement, and really the team's focus on profitable growth.

I'd like to think that I can plug in and help those continue as well.

Then, as we look at our financial position and capability, I think we have opportunity within our footprint and serve customers to organically grow and look for expansion opportunities.

And then, also then with acquisitions.

So, right, with no debt the balance sheet is perhaps too conservative, and we should have opportunities going forward.

Okay.

Great, thank you.

Greg Halter, please go ahead.

Hello again.

Just wondering if you could define the timing of the stock re-purchases by month, and maybe what the quarter and share count was on a basic basis?

I don't have that specific information with me, but we began our stock re-purchasing in the September quarter, around mid-August, and we went through the entire quarter, just about, for that.

So that was our timing.

That will be disclosed by month in detail in the 10-Q.

I just don't happen to have that in front of me.

All right, thank you.

(Operator Instructions)

Holden Lewis,

Hi, thanks.

One sort of housekeeping item.

On the tax rates, it sounds like you're looking at maybe between a 37% and 37.5% tax rate for the balance of the year to sort of come around to that 37% total.

Just tell me if that's right, or if that's too high?

But, it looks like in any event that your Q1 will wind up being lower than what you're looking at for the rest of year.

Can you sort of give some explanation for why Q1 may been a little bit lower than normal?

Holden, some of that is related to mix as to where the income is.

But, I would say that we're probably looking at 37% range for the next three quarters, whether it's -- we end up the whole year at 37% or little bit underneath that, that's really close variability for things.

But, there wasn't anything specifically that happened in the quarter that really changed the rate.

As you know, as we continue to grow in Canada, the Canadian tax rate is a lower effective rate than in the US.

It's been going down in Canada for the last several years, and I believe they still have some additional scheduled declines in their future.

So, that's always a help.

That offsets the state and local US tax increases that we continue to experience throughout the country, too.

But it's a mix thing.

Okay and then you said that M&A in Canada was $3.9 million.

What was the US M&A dollars?

For the sales?

Yes.

We said 0.6% of the sales increase in the US related to acquisitions.

And what did you say the dollar increase was --

(inaudible -- multiple speakers) 6.2% sales increase in the US, of which 0.6% of that related to acquisitions.

Okay, and what did you say the dollar increase was, I think you give it?

Total US dollar increase was $28.4 million.

Okay.

Great, thank you.

At this time, I'm showing we have no further questions.

I will now turn the call over to Mr.

Neil Schrimsher for any closing remarks.

Hi, just quickly I want to thank everyone for being with us today on our first quarter investor call, and we look forward to talking with you again In January.

Thanks, everyone.

Thank you, ladies and gentlemen.

This concludes today's conference.

Thank you for participating, you may now disconnect.