Barrick Mining Corp (B) 2004 Q3 法說會逐字稿

Good day everyone and welcome to the Barnes Group Incorporated third quarter 2004 earnings release conference call. Today's call is being recorded. At this time, for opening remarks and introductions I would like to turn the call over to Mr. Stephen McKelvey of Barnes Group. Please go ahead, sir.

Thanks Brian (ph). And thanks everyone for joining us on the call and Web-cast to discuss our third quarter. With me are Ed Carpenter, Barnes Group's President and CEO, and Bill Denninger, Barnes Group’s Senior Vice President of Finance and Chief Financial Officer.

I ask that if you have any questions that are purely data-driven that you hold them until after the call. And if you have more than one or a multiple part question, please also be respectful of others waiting in the question and answer queue so that we can offer everyone an opportunity to participate.

In addition, I would like to remind everyone that certain statements we make on the call today, both during the formal presentation and during the Q&A session, may be forward-looking information as defined in the Private Securities Litigation Reform Act of 1995.

These forward-looking statements are subject to risks and uncertainties that may cause our actual results to differ materially from those contained in this statement. We would encourage investors to consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission, which are available through the Investor Relations section of our corporate Web site. With that said, let me now turn the call over to Ed Carpenter.

(technical difficulty) Good morning. Similar to our previous conference calls, we'll move quickly through prepared remarks and then get right to your questions.

Let me start by highlighting a few take-aways from the third quarter -- refer you to schedule 1. It was a good quarter. Let me tell you why.

We continued to have record revenues this year. For the third quarter, we had record sales of 244 million, with sales growth in all 3 businesses and operating income up about 5 percent.

Second, great quarter for Barnes Aerospace -- highest quarterly orders ever, at more than $73 million. Backlog at Aerospace reached a record of 175 and the spares RSP continued to contribute significantly to the Group's results.

Third, good progress was made on improving customer service levels at Barnes Distribution, albeit to the low end of our targeted range. And as a final take-away, we had solid top line growth in nearly all of Associated Spring's key market segments. However, raw material prices continue to adversely affect our operating margins.

If you'll turn now to schedule 2, let me share some details on each one of their -- of our businesses. First, Barnes Distribution -- sales up 3 percent; sales from Barnes Distribution strategic growth initiatives, national accounts, e-commerce and tier 2 relationships with our other partner Industrial Distributors improved solidly from a year ago, with a rise of over 70 percent.

As we mentioned in our July conference call, we remain very bullish on the contribution these initiatives will make to Barnes Distribution in the remaining quarters and in the medium-term.

Operating profits in the year-ago period included gains of about 1.3 million on the sale of one of our distribution centers, and severance costs of about $900,000. This year's operating profit was positively impacted by the realization of the incremental synergistic cost savings and lower integration costs compared with a year ago. However, gains were offset by continued investment in our growth initiatives, our sales team, and addressing our customer service levels, which impacted profitability this quarter.

Customer service levels, as I mentioned, have improved each month during the third quarter and have now reached the low end of our targeted range. With the integration of Kar behind us, the new distribution centers operating well, the team at Barnes Distribution is now focused on improving that customer service even higher based on our rigorous internal First Pass (ph) measurement utilized there. We're encouraged by the improvement in the customer service levels during the quarter, and expect that sales levels will also improve.

As I have said, we have put the highest priority on regaining our high customer service levels. And the related costs have had a short-term impact in the reported results. As a final note on distribution, steel supplies have been affecting the supply of fasteners, our largest product group, which continues to create challenges to service levels. As we have stated on our last call, unlike our manufacturing business, however, we do have some pricing flexibility with our customers to pass on the increased cost.

Even -- now let me move on to Associated Spring. Sales increased about 9 percent, including a little over $1 million in sales from DE-STA-CO Manufacturing, which we acquired in mid-September. By the way, early indications would continue to verify that we have an excellent bolt (ph) on (ph) acquisition here.

Sales growth was delivered in most of Associated Spring's key market segments. Let me give you a little color on each of the segments. First, sales in light vehicle productions in North America were -- grew by about 2.4 percent, which out-performed light vehicle production in North America. Associated Spring continue to benefit from its strong share with the transplant companies.

Even though our -- even with strong light vehicle sales, we expect the fourth quarter to be a bit soft as OEMs reduce production by 7 or 8 percent as they continue to bring down their inventories. Sales in the heavy truck grew about by about 30 percent to more than $6 million in the quarter. It's a trend we would like to see continue based on public (technical difficulty) we're likely to see continue based on public -- published results.

Hydrogen gas springs were down slightly versus a year ago, reflecting weaker tool and dye segment markets, particularly in Germany where we're seeing a down cycle in new product introductions. We expect the sales of nitrogen gas products to pick up early next year. This is based on discussion with key accounts and with our distributors around the world.

Industrial product sales were up about 30 percent from last year. Provided the economy continues to rebound, the industrial product sales should continue to grow, driven by demand for flapper valves or reed valves, office furniture and medical equipment.

Finally, our telecom and electronic sales grew about 9 percent, which continues the trend of 3 consecutive quarters of growth here. However, overall operating profit and margin were below where we would like them, primarily due to the higher raw material costs.

This impacted operating profit during the quarter by about $1.4 million, which was up significantly from the second quarter as we now feel the full P&L impact as inventory turn (ph). While the team at Spring continues to do an excellent job of managing the supply chain to ensure we have customer deliveries, we've been unsuccessful, particularly with our large transportation companies, at passing those costs on. We continue to work it aggressively.

As we stated in July, strongest resistance to raw material price increase is coming from the domestic transportation industry, where about two-thirds of the raw material issues reside today. I might also add that we're seeing not just a cost issue. Availability is increasingly becoming a challenge. And we are seeing a possible worldwide capacity issue for steel spring wire as a category as we move into 2005.

We continue to make progress at addressing the operating challenges. Also parenthetically, I would comments that Associated Spring's new manufacturing facility in Monterey, Mexico is on schedule to begin shipping product in the fourth quarter, bringing online additional low-cost manufacturing capacity.

In summary, Associated Spring has delivered good top line results. The team is focused on improving profitability in the upcoming quarters.

Finally, moving on to Barnes Aerospace. By every measure, a strong quarter -- sales, operating profits, orders, and backlog. We've been communicating that Aerospace should have a solid 2004, even if the underlying commercial market didn't improve. And I think the results generated by the team have delivered on this objective.

Sales for the quarter, as we have said, were up by more than 30 percent to $51.7 million -- generated $73 million of orders, pushing our backlog to a record 175. We said in April that we were driving for orders in excess of $200 million in '04. Clearly, we're on target to exceed that goal.

Orders related to an important program, the GE 90-115B engine, in the quarter were about $22 million. And this obviously remains an important program for us. Operating profit was strong, reflecting both the higher sales and the impact of RSPs. The four spares RSPs operating in the quarter have been performing in line with expectations. As you know, these programs give us exclusive right to sell spare parts on a particular family of engines for the life of the program.

Additionally, in third quarter we entered into a long-term agreement with a European aerospace manufacturer that will give us presence on 2 significant -- 2 different significant commercial aircraft for the life of the program. The sum it up, the results at aerospace -- terrific quarter, and outlook looks strong for the remainder of the year and well into next year. Now, I will turn it over to Bill, who will give you more details on the financial view of the quarter.

Thanks Ed and good morning everyone. Let me begin with schedule 3. It's Sales in the third quarter, as you can see, were up 10 percent. That was in line with our plan and reflected organic growth in all 3 businesses.

Cost of sales increased at a rate slightly higher than that of sales. This was due in part to a shift in sales mix to Barnes Aerospace which represented about 21 percent of Company sales in the quarter, up from 17 percent a year ago. Also impacting cost of sales was lower gross margin at Spring due in part to the higher steel comps.

Selling and admin expenses were up 7 percent for the quarter, but down slightly as a percent of sales. Operating income was up, driven by higher profitability of Barnes Aerospace. However, operating income margin of 6.1 percent was down slightly from 6.3 a year ago, due to lower margins at both Spring and Distribution.

Other income was down due to foreign exchange where we had expense this year and a slight gain last year. You'll see that interest expense was down slightly and while higher -- while average borrowing for the quarter was higher by about 25 million, this was offset by lower interest rates on a revolving credit drawdown.

The effective tax rate for the third quarter was 16 percent, flat with year ago period. I will provide further comments on the tax rate in a few minutes.

Ed provided an overview of the results at each of our 3 businesses. Let me add some more information. At Spring, we recorded 1.3 million of sales from DE-STA-CO. Related operating profit was offset by purchase accounting adjustments not yet finalized.

With that said, Barnes Aerospace had a terrific quarter. OEM sales were up 22 percent. Aftermarket sales were up 84 percent, which included 2.7 million sales from the RSPs and a 38 percent increase in the overhaul and repair business.

Military orders generated in the third quarter were about 11 million. And we received approval on about 4 million of annual business and overhaul and repair related to the 10 year, long-term agreement.

In October, we made another RSP payment of 4.5 million. An additional payment of 14.5 million will be made in April of '05 and the final payment in July of '05 -- that will be 13.5 million. All of these RSP payments have come from cash held outside the U.S. and we expect that future payments will be paid with foreign cash as well.

So, a great quarter for Aerospace and we expect further growth in 2005 and beyond as the airframe OEMs (technical difficulty) we have recently been talking about stronger aircraft deliveries in 2006 than previously thought.

At Barnes Distribution, continued progress was made on strategic growth initiatives. The national accounts team opened 15 new accounts in the third quarter, with a sales potential of more than 3 million. E-commerce sales increased by 17 percent to 1.1 million. Tier 2 programs increased 64 percent to 3.2 million for the quarter. These strategic initiatives have run rate now of about 35 million, up from about 21 million last year.

The Raymond Division of Barnes distribution, which distributes specialty springs, had a sales increase of 6 percent.

Turning now to schedule 5, as I stated earlier, our tax rate was 16 percent for the third quarter. This resulted from a reduction in our projected full year effective tax rate from 23 percent to 21 percent, based upon the reversal of discrete tax items due to the expiration of the statute of limitations.

Capital expenditures in the third quarter were 4.5 million. As previously stated, we expect capital expenditures to be in the high 20 million for the full year of 2004.

Moving on now to schedule 6, at the end of the third quarter we had 34 million in cash our balance sheet. During the quarter we made an additional RSP payment of 12.5 million on in July. And we paid 16.9 million in September for the acquisitions of DE-STA-CO Manufacturing, of which 4 million was sourced from foreign cash.

You'll note that our gross debt-to-capitalization ratio is 45 percent, on the high side of our targeted range of 40 to 45. Our trailing 12-month debt-to-EBITDA ratio was 2.8 times versus a covenant of 3.25, giving us additional borrowing room of about 45 million. So, we feel better balance sheet is well positioned to support near-term growth investments.

As a final comment, let me mention that our Sarbanes-Oxley 404 compliance effort is on track for successful year-end completion. We reported external 404 comps of about 800,000 through September and expect to spend an additional 3 to 400,000 in the fourth quarter. Let me now turn it back over to Ed.

Straight to Steve. Okay, thanks Ed and Bill. With that Brian, please go ahead and start the Q&A.

(Operator Instructions). Matt Summerville, KeyBanc Capital Markets/McDonald Investments.

A couple of questions. First, in Aerospace, Ed or Bill could you provide a little more color on a couple of things? OEM was up 22. Can you delineate in terms of how strong -- if you are seeing any strength in that market outside of the triple 7, and then what you're seeing in terms of military? You gave the order number, I mean, is it down year-over-year? Are you seeing more of an acceleration or a stabilization there?

And then, what is your overall feeling in terms of aftermarket outside of the RSPs over the next couple of quarters? And then lastly, if you could comment, given all the growth you're seeing in this business, are staffing levels adequate for 2005? And are you going to have to add a lot more resources here to this business to keep up with all the orders you are booking?

Why don't we take them in reverse order? That way when I forget the first question, we can come back it, Matt. One of the things that I really think the Aerospace team did a wonderful job at is they have been able to produce the products that we're producing today with essentially the same headcount that we had a year ago. If I look at that in total, I would expect that to continue? Can we do it -- for example, a year ago, if I look at apples-to-apples, we have about 5 more people in overall Aerospace, which is just under thousand people, than we did a year ago. I would expect that they continue to give productivity enhancements out of that. But at some point will probably see some staffing increases. We try and hold over time to a reasonable level, both from a cost and from a consideration of our folks' basis. And right now we're able to do that.

Second question was on -- or third question was -- does that give you an answer for that, Matt?

Yeah, yeah, I mean I guess (multiple speakers)

The answer is nominal at most.

I mean, do you have enough capacity, in terms of actually on the factory floor, to keep up?

Two different questions -- I am sorry. I answer the people question. We have plenty of capacity in terms of equipment.

Okay.

Second -- and we're moving some around as we speak doing that. But we're comfortable with our capacity, although it is something we're going to watch carefully because we are starting to make a step function in our demand there.

MRO continues to, I think independent of the spares -- which is really not independent but is a different demand driver, continues to do well. And we would expect to see that continue to ramp up as we see some of the planes pull out of the desert and as the seat (ph) miles grow. This will not dramatically change in the next quarter because as you know they are headed into their peak wintertime traffic. Military -- Bill you commented on the 11.

The 11 was about 15 percent of orders, on average. As I think you know, it tends to run around 25 to 30 percent. But these orders can be lumpy at times. We certainly don't see any trend down at this time on military orders. It will move around.

Because of the longer-term nature of those -- of the selling cycle in military, I would expect that we will continue to see lumpiness in that area. As you may recall, I think last year we had a very large order in regards to some gas turbine parts for the tanks and that caused a flip, too. We continue to feel good about that program. The guys that focus on that are doing an excellent job.

OEM was up 22 percent. We did see some improvement at our -- at the triple 7-driven GE90-115B. But overall, we continue to see good, strong part demand for other airplanes and other engines. And in the one that Bill mentioned, where we have just signed a contract with a European, that will even diversify our commercial vehicle -- commercial aircraft business even more.

And then just one question, particularly on Spring. Do you expect your raw material situation to be incrementally worse in the fourth quarter versus the third quarter?

That we do. And it's not going to be dramatically worse. It's probably another 2 to 300,000 hits.

Okay thanks, I will get back in queue.

David Siino, Gabelli & Co.

One question for Bill about the tax rate, I guess previously -- you're looking long-term may be something in the low to mid-20s. I was wondering if the new tax legislation, and given the amount of profit that you make overseas, changes that equation any?

Well, there is no new tax legislation.

Well, pending.

We're obviously looking at what is out there. And the total (ph) is something more concrete. As a parent, it's tough to comment on. I think what is happening overall is we're going to see a lot more volatility in Company results, not just with (ph) Barnes (ph) (technical difficulty) because some of these -- some of the tax legislation that is out there and likely to be found (ph). Our outlook continues to be in the low to mid-20s over the next medium-term period.

Okay, and just one question on Aerospace. You are not getting any hit on raw material there?

We tend to have -- these are exotic materials. We tend to have longer-term contracts with our suppliers. So this year we will see little if any impact, and don't expect a significant impact there next year, either.

The other point, David, on Aerospace is a lot of our -- or not a lot, but some of our forgings and castings are provided through long-term agreements with the ultimate (ph) customers, in fact, as we do that on a pass-through basis.

Okay, and how is it pass-through to the extent you see it in Distribution?

You are talking about the cost increases?

Yes, raw material.

So far, we seem to be able to effect those changes. Again, you've got to remember that material cost as a percentage of our sales dollar in Distribution is dramatically different than it is in our 2 manufacturing businesses. So that gives us a little leverage on that. But also, we're selling to such a wide, broad customer base that no single price change is dramatic.

Okay. So your vendors may be charging a little more to the extent that they can -- (multiple speakers)

They are charging every penny they can right now, David.

Mike Harris, Robert W. Baird.

I just wanted to get an update regarding your guidance. As a number of people on this call probably remember, last quarter you issued a press release right at the beginning of the call, giving guidance for '04 of $1.60 to $1.65. Any update on that guidance?

No. You know, one of the things that we do -- as you correctly recall, it was the first time that we had ever given guidance. And it was really based on our plan that was approved in December of '03. We put out that guidance as our -- which is essentially our -- a bracketed 2004 budget. And we're still at this point essentially on budget. So, we're not issuing any guidance to the extent that we see that we're not going to make that number. We obviously will share that with the Street and with our investors. But right now, we're comfortable.

And looking at the 1.8 million raw material variance in Associated Spring, Bill, I'm assuming that there was an unfavorable LIFO adjustment in that number. Can quantify that for us?

Sure. The 1.8 includes 400,000 for LIFOs. The raw material itself was 1.4.

Okay. And then, I'm assuming that this LIFO adjustment, which is an accounting adjustment at the end of the day -- I mean, you've been accruing or provisioning for this on a quarterly basis. Where steel is right now or the steel situation, do you feel comfortable with how you're going to shake out for 2004? Have you been provisioning enough for that LIFO?

Yeah, we run the numbers quarterly. We're very comfortable in each of the groups that we have a good handle on LIFO. And then ultimately it's an annual calculation, which we'll be doing next month. But we think we're in good shape on a year-to-date basis.

Okay good. And then, just within Barnes distribution, that 1.2 million of costs quantified for strategic growth initiatives. Can we just get a little more detail here on what that involved?

Sure. About a year ago, we talked on the call about an investment in something called an M-strut (ph) mechanical strut, part of what we call custom solutions within Distribution. Of the 1.2 million, it was about 300 for that program, which is going very well by the way.

We also spent somewhere in the 6 to 700,000 range in Distribution on sales management. This would be some corporate account folks and regional sales managers and some recruiting in there. And finally, some customer incentives, what we call thinning for about 200,000 in the quarter; as we roll out the new customer national accounts, oftentimes that would include the thinning. So those were the 3 major components.

Okay that's helpful. And then just sticking with distribution, you had about $700,000 in incremental costs in Q3 for freight and overtime costs. You talk about that your fill rate is back at the low end of your targeted level of around 96 percent plus. Can we expect that 700,000 to decline looking at Q4? Or are we still expecting some headwind there?

We expect that number will decline a bit. Let me just address that fill rate question.

Prior to the integration of Kar, it was our logistics approach to have a master distribution center in Kentucky that would hold all stock SKUs and the outlying DCs would only hold those for their region. And it might be 20,000, 30,000, something like that. It's part of the Kar integration. There was a change in that strategy to where we said we want to have the full 50,000 SKUs at all the outlying DCs.

So we're continuing now to rebalance what is about $54 million worth of inventory in the states. And that's where this cost comes in, trying to get that balance right, where we've gotten better as you can see from the service level improvements. In the fourth quarter we're seeing -- we're expecting a reduction in that number. There will still be a spend, but it won't be the 700.

Okay. And then last question -- I'm assuming there were no foreign currency impacts to the top line.

There was minimal foreign currency impact. For the quarter, for BGI in total was about a little less than 1.5 percent out of a total of 9 and it just didn't seem material. That would have come through at Barnes Distribution -- a little less than 1.5 percent of their 3 percent total. And at Spring, about 2 percent of their 8.8 percent was foreign currency.

On a consolidated basis, it was I'm sorry less than 1.5 percent?

Actually 1.4 consolidated.

1.4 percent. All right, I appreciate it. Thank you.

Robert Stallard, Banc of America.

Just a couple of questions. First one, could you clarify what the organic growth was in the Aerospace division for both OEM and aftermarket this quarter?

It would've been a number --

Just a minute, we will give it to you. Because we have to take -- the only one that comes out of that not -- would be non-organic would be the RSP, which is all in spares.

Robert, I will have to come back to you with those numbers. I don't have them readily handy. But, we will do that.

Okay, no problem. Moving on to raw materials being an issue this quarter, what makes you confident you will be able to renegotiate your prices for next year, particularly on the transportation front where it still seems that their end market is very tough?

The answer is that it is very tough. We have a number of -- particularly with our larger customers, we are under contracts that have periodic renegotiation dates on that. And really, essentially for our smaller industrial clients and for the tier ones, we don't tend to have long-term agreements. So, those smaller customers have been going, as we have gone along -- and Bill and I and the people at Associated Spring talk weekly on the status of those. And we're pretty comfortable with that.

The longer-term agreements which have expiration dates -- many of them at the end of this year -- some of them will roll over into next model year basis. And those are what are really being talked about right now. But we have no -- we do not have a commitment, in many cases, to provide those parts at the existing prices. But having said that, I’ve been around this track a number of times and you just have to sit down and work it out.

(technical difficulty) If the customers were not willing to accept a price increase, could they necessarily go somewhere else?

We would be more -- in some cases we would be more than happy to help them. It -- in contrast to distribution, I think we made the point earlier where raw material is a less significant percentage of our cost in the case of springs. Particularly depending on the type of spring it is, it can be a very important part of the overall costs.

And while we can become more productive in our factories and should, we really can't pass that -- the dramatic cost increases that we've seen and I am sure you guys track also.

Looking at nitrogen spring, it was a bit soft this quarter versus what we've seen the past. Again, you said you expect this to turn around. What has sort of driven on the site (ph) underperformance this quarter? And why are you confident that is going to pick up in 2005?

We've taken a pretty good hard look at it. Fact is we were in Europe last week, Bill and I both. It would appear that a large number of programs that were originally slated for this year are really not going to happen this year. There is a slowdown in the tool and dye industry. While we specifically named Germany, we're seeing it in other places. And those are the primary cost drivers of nitrogen gas springs.

If you step back for a minute and think about nitrogen gas springs versus mechanical springs -- mechanical springs, which we sell a lot of also in dye applications, have a lot more replacement parts. One of the big positive features of nitrogen gas springs is their long life and their consistent engineering for us during that long life.

So it doesn't have as big a replacement market as it does new market. And that's what we're seeing right now. Discussions -- detailed discussions with both our large distributors as well as our large customers would indicate that those -- that the programs are going to be back in '05. And we're looking for growth rates of where we typically ran.

Would that be back to a sort of double-digit rate perhaps next year?

Very low -- we've never claimed anything more than a mid-teens growth rate in that issue (ph). (technical difficulty) But, for an industrial product, especially with one with our market position, we're pretty happy to have mid-teen growth rates.

Yes, very good. And just finally on the overseas cash, roughly how much have you got left -- available for spending on RSPs or other such activity?

At the end of September we had about 30 million, Robert.

That's great. Thanks very much guys.

But, Robert, I would also add to it (technical difficulty) -- one of the first-class problems we had is that because of the profitability the overseas guys (technical difficulty) then used to grow.

(Operator Instructions). Matt Summerville, KeyBanc Capital Markets/McDonald Investments.

Question on some of the expenses you incurred in distribution -- I didn't understand the 6 to 700,000 in sales management. Are you adding people?

There is some -- I think I indicated, Matt, we're adding some folks in corporate accounts as this program grows. And my understanding is that is the single largest area, and also some regional sales manager positions that we're filling.

I mean, wouldn't expenses like that continue as these growth initiatives become an increasingly critical part of the revenue stream in that business?

There are really 2 costs associated with -- one is the recruiting cost, which in this level of salespeople is higher than our normal salespeople Matt. So part of it is one-time and part of it is ongoing. You're absolutely right.

Just in terms of the operational issues -- and this is just how it is termed in the press release in spring, is that anything other than some of the growing pains you're having? I think it relates more towards the transplants and that you're operating at or above capacity still at some facilities. Or is there something else going on there?

No, I think as you know we talked about that in July. And we think that once we get some of these situations stabilized that the cost -- the manufacturing costs will come back to historical levels. Right now, though, I think the biggest driver of their profitability issue is still in raw material, which you have pointed out.

And then, Bill, can you review your pension situation for '04? And share with us any thoughts that you have in terms of '05, what the incremental hits or lack thereof there will be to the P&L, and then what your thoughts are on medical-related costs and in Spring next year, in terms of -- I guess I'm looking for is what is your expense structure going to do next year, kind of from a base level. And then, I guess the follow-on to that is, what are you guys doing in that business to cut costs here?

Sure. Let's talk about pensions first. This year, year-over-year versus last year, we are about a $1 million hit. We wouldn't expect to see that sort of incremental hit next year. We obviously have not set our assumptions yet, which will happen in January. But I would not expect the full, as I say, million year-on-year hit that we had this year.

Medical, we're seeing probably less than what industry medical cost inflation numbers are that you read about, but still an increase. We're obviously looking at the various plans and evaluating different options there. But, medical I would expect year-over-year this year and next year to be somewhere in the mid single digits in terms of increases. And can you repeat the last part of your question, Matt?

Yes, I guess I'm just kind of thinking about the relative sizes of Spring and of Distribution even right now. And we kind of already talked about Aerospace. I mean, is there some incremental cost cutting that you guys can do here? I mean, is your headcount where it should be? You know, 4.5 percent margins in Spring are fairly depressed. I guess looking out into '05, what can you guys do next year?

I will comment that obviously we're focused on the steel price increases and mitigating that impact next year, in terms of incremental hit over this year. We've also had a major push this year on lean manufacturing and done a lot of good work there, various (indiscernible) events around the world. And you don't see the benefit of that right away. And we're looking to see some of the payback from that investment next year. So yes, there are always opportunities, especially when you are under comps downs (ph) and raw material pressures.

And gentlemen, at this time we have no further questions. Mr. McKelvey, I will turn the conference back to you for any additional comments.

Thank you. Thanks again for joining us today. Should anyone have any follow-up questions after the call, please call me at 860-973-2132. Otherwise, we look forward to speaking with you again in a few months. Thank you.

And that will conclude today's teleconference. Thank you everyone for your participation. Have a great day.