Brady Corp (BRC) 2002 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and thank you for standing by. Welcome to the Brady Corporation third-quarter earnings conference call. At this time, all participants have been placed into a listen-only mode. Following the formal presentation, instructions will be given for the question and answer session. If anyone requires assistance at any time during today's teleconference, please press the star, followed by the 0, for an operator. As a reminder, this conference is being recorded, Thursday, May 16th of 2002. At this time, I would like to turn the conference over to Barb [Bolin], director of investor relations with Brady Corporation. Please go ahead, ma'am.

Thank you. Good morning. And welcome to our fiscal 2002 third-quarter conference call. We're glad you could join us this morning. In the call, you'll hear from Katherine Hudson, president and CEO, Dave Schroeder, CFO, also Dave Hawke, president of the graphics and workplace solutions group, and Frank [Gaynor], president of the identification solutions and specialty tapes group. After brief presentations by the team, we will open the floor to questions. Please note that in this call, we may make comments about forward-looking information. Words such as "expect," "believe," and "anticipate" are a few examples of words identifying a forward-looking statement. It's important to note that forward-looking information is subject to various risk factors and uncertainties which could significantly impact expected results. Risk factors were noted in our news release this morning, and the October 2001 -- I'm sorry, January 2002 10-K filed by the -- with the SEC. Second, please note that this conference is copyrighted by Brady Corporation and there may be no rebroadcasting of this without express written consent of Brady. Note also that Brady will be taping the call and rebroadcasting it on the internet, and your participation in the question and answer session will constitute your consent to being recorded. Thank you. And now here's Katherine Hudson.

Good morning. Earlier today, we announced our third quarter revenues and profit for our fiscal 2002 third quarter. The sales were reported at 130.5 million, which is up 8.25% from our second-quarter sales of 120.6 million, but that was just under 5% lower than last year's third quarter. Third-quarter profit was $8.5 million, which is 38% better than our second quarter, but still 27% below last year's third quarter of $11.6 million. We believe that we've begun to see certain markets recover. We'll hear more about that from Dave Hawke and Frank [Gaynor] shortly. But even as some markets are recovering, the growth in those markets is certainly not robust. That signal is consistent with what we hear from many companies and economists in terms of their views of the recovery, that it either will be delayed until later in the year or even into 2003, or, if the recovery really has begun to happen, it's not a hockey stick but a gradual ramp-up. Here at Brady, we continue on our course of positioning the company for growth as the economy recovers, with our eyes on continued cost containment. During this third quarter, several significant events occurred. In April, we announced the acquisition of [Temtech], the security products company located in [Suffern], New York. [Temtech] fits in nicely with our direct marketing strategy both in the United States and abroad, where we will be able to take the patented [Temtech] technology throughout our existing channels globally. We've also announced our second major product launch for this fiscal year. The [Global Mark] industrial label maker has a broad market focus and is being launched to the safety and facility identification markets throughout the world. This comes on the heels of our second-quarter launch of the [ID Pal], which has had broad market appeal where it's being sold. We successfully completed our [Eclipse] wave 2 SAP implementation in Europe, and now have approximately 50% of our sales transactions on one common SAP platform. We also continue to look for ways to stay close to our customers as they move to lower-cost producing economies such as Asia. Frank will talk later about the growth we're seeing in China as the electronics market continues to move there. Brady is generating a significant amount of cash. Even after the investments we've made this year, including the acquisition of [Temtech], our cash balance remains at $70 million. I will be back later to summarize our message before we take questions. For now, let me turn the call over to Dave Schroeder. Dave?

Thanks, Kathy, and good morning everyone. I'm pleased to share with you the fiscal 2002 third-quarter results for the Brady Corporation. As Kathy just mentioned, we did see some improvement in several markets, but it's still premature to say whether this improvement represents a sustainable trend. In the meantime, our results do reflect a continued commitment to overall cost control, with the exception of selected investments to support our long-term growth. My initial comments relate to the financial results for the third quarter of our fiscal 2002 in comparison to last year's third quarter. Net sales for the quarter were $130.5 million, down 4.6% from the same quarter last year. Base business was down 6%, and the exchange rate impact was a negative 1%, while acquisitions added 3% to sales. U.S. sales declined 11%, and international sales rose 3%. Latin America continues to be hit the hardest by the strength of the dollar, as foreign exchange reduced sales by 9% in the quarter for that region. Europe and Asia-Pacific sales were reduced by 2% each, due to the strong dollar. Base sales comparisons in local currencies for those regions show Europe down 3%, Asia-Pacific up 7%, and Latin America up 10%. The acquisition of [Oakhausen] and [Essett], both located in Germany, contributed 6% to Europe's sales comparison in the quarter. The acquisitions of [Strandware] and [Temtech] together added 1% to the U.S. sales for the quarter. By segment, business was slightly stronger within our graphics and workplace solutions group, which were up 2% over prior-year third quarter. Our identification solutions and specialty tapes group saw base sales decline 16% compared to the third quarter of last year. The acquisitions of [Oakhausen], [Essett] and [Strandware] added 5% to ISST's sales for the period. You'll hear more specific information about group performances in Dave and Frank's segments later in the call. As we discussed in our last conference call, Brady adopted the provisions of FAS 142 on August 1st, 2001, and therefore ceased amortization of goodwill as of that date. As a result, the following financials exclude goodwill amortization for both fiscal 2002 and 2001 for comparability purposes. This reduces last year's SG&A expense by about $1.5 million per quarter. Operating income was $12.7 million, down 29% from the third quarter of fiscal 2001. As a percent of sales, operating income declined by about 3.5 percentage points to 9.7% of sales. Gross margin as a percent of sales declined to 51.4%, down 1.6 percentage points compared to last year's 53.0%. We continue to feel the effect of reduced sales volume on our margins due to higher levels of unabsorbed overhead. SG&A expenses of 38.1% of sales are about two percentage points above last year, due to the reduced sales volume. In dollars, SG&A was flat with the same period of fiscal 2001. Research and development stands at 3.5% of sales, which is consistent with the prior quarter and in line with what we expect for the remainder of the fiscal year. Investment and other income compare favorably to last year because of the more stable foreign exchange environment. Net income for the quarter was $8.5 million, or 36 cents per diluted share, compared to 11.6 million or 50 cents per share last year. Looking at the results for nine months ended April 30th, sales were $381.1 million, down 9% from 419.7 million last year. Base business was down 11%, while foreign currency subtracted another 1% and acquisitions added 3% to the top line. Base sales in local currencies were down 18% in the U.S. and 5% in Europe, compared to the prior year. Asia-Pacific sales were up 8%, and Latin America increased 6%. Looking at the segments, ISST's year-to-date sales were down 18%, while graphics and workplace solutions fell 2%. Gross margin for the first 9 months of fiscal 2002 was 50.8%, down 2.8% from the same period of fiscal 2001, due to the same factors mentioned earlier in our discussion about the quarter. Year-to-date, SG&A spending was 8.9 million less than the prior year, and SG&A was 38.5% of sales in fiscal 2002 versus 38.1% in '01. Again, due to the lower sales base. Operating income for the nine months was 33.8 million, down 19.8 million from fiscal 2001. Other income and expense reflects a 900,000-dollar favorable comparison to the first six months of last year due to lower expenses relating to foreign exchange. Net income for the first three quarters was 22.6 million, or 96 cents per share, compared to 34.6 million or $1.49 per share for the same period of fiscal 2001. Brady's balance sheet continues to be very strong, with virtually no leverage. Cash at the end of the third quarter was $70 million, which is $7 million higher than at the end of fiscal 2001. During the first nine months of fiscal 2002, we have invested $12.7 million in three strategic acquisitions, funded $9.5 million of property, plant and equipment purchases, and paid $12.9 million in dividends to our shareholders. Our cash balance continues to reflect our strong operating cash flow and strict management of working capital. Accounts receivable are up $5 million from July 31st, partially due to lower sales volume in the fourth quarter of fiscal 2001. Inventories were down $1.8 million from July 31st. This was due, in part, to lower inventory requirements as a result of our facility consolidations carried out as part of the restructuring in the fourth quarter of fiscal 2001. Looking forward to the end of our fiscal year, we remain cautious in projecting a strong upturn across our markets. While we may be seeing early signs of life in some areas, the momentum in growth certainly is not clear at this point. Our earlier estimates called for sales toward the bottom end of a range from 520 to 530 million, and net income near the bottom end of a 33 to 35 million-dollar range. These projections were based on our markets ramping up toward the end of our fiscal year, an upturn which hasn't become evident yet. We believe our fourth quarter will be much like our third quarter, resulting in year-to-date results that are just short of the prior ranges. With that, I'd like to turn the discussion over to Dave Hawke, to discuss the operating results of the graphics and workplace solutions group.

Thanks, Dave. Third-quarter sales for the graphics and workplace solutions group were 75.9 million, up 2% from last year's third quarter. Currency translation had a 1% negative effect and acquisitions added about 1% to our results for the quarter and offset the [inaudible] impact. Sales to date for the third quarter were higher than the first and second quarter, as was anticipated as part of the normal seasonality in the business. The North American business was basically flat with last year's third quarter, as we continued to be impacted by the slow manufacturing economies in the U.S. and Canada. The acquisition of [Temtech], Incorporated contributed about 1% of growth for the region and offset a slight decline in our base business. Sales in Europe were up 3% in local currency. We showed growth in every country, with France returning to double-digit growth in the quarter. In Asia-Pacific, our business in local currency grew 11%, due to the strength in our Australian business, offsetting weakness in the -- on the Asian continent. The acquisition of Safety Science Services in Australia contributed about two-thirds of the growth in Australia. Our sales to our multinational corporation customers on the Asian continent were down substantially, as they continued extremely tight controls on their spending. In South America, business grew 39% in local currency. This continues a strong trend we've seen for the past several quarters. Graphics group profit for the quarter was $20 million, 2% ahead from last year's third quarter. Profit in local currency was up 2.6%. The profit increase was a result of increased volume, while holding selling expenses flat. Reduced spending and R&D offset a slight decline in gross margin compared to the third quarter of last year. We're encouraged by an improvement in our gross margin percent over the first and second quarters of this fiscal year. This improvement is due to our increased volume and changes in product mix in the quarter. R&D expenses were down 10%, basically due to timing of expenses. We've recently launched three new do-it-yourself industrial printing systems under the [Global Mark] trade name. These are 4-inch-wide thermal transfer printers that can print a variety of signs, tags, and labels in minutes to suit the needs of our customers in all of our major markets. The first unit is a monocolor or single-color printer that replaces our [Labelizer Plus] printer which has been an industry workhorse for the last decade. The second unit will print in color and adds many additional new applications. The third unit adds a cutting mechanism to the color printer, giving the customer the ability to make signs and labels in any shape. All three units have a broad library of applications and can be used as stand-alone printers using the user-friendly touch screen. To complement the [Global Mark], we have launched a software program called [Mark Ware] that provides additional capabilities when attached to a PC. We're very excited about this family of new systems products. These products were developed internally, on a single-development platform with proprietary technology. The [Global Mark], with 11 resident languages, has been launched in North America, South America, and Europe. The product family includes a broad range of proprietary, industrial-grade materials and ribbons. In the short time since we've launched it, we are getting an excellent reception from our customers and our channel partners. We will begin shipping in our fiscal fourth quarter. E-business activities are going well. Our [Seaton U.S.A.] business hit nearly 10% of its orders over the web in April. Our U.S.A. distribution business is doing 50% of its business electronically. We have hit $1 million in custom product sales this year through our web-to-workbench web applications which allow customers to design their own signs, tags and labels on-line. As we look forward, we are not getting any clear economic signals from our major country markets. The U.S.A. manufacturing sector seems to be turning up, but not quickly. Industrial activity grew again in April, but at a slower rate than March. Typically, our business tends to lag a production upturn by a quarter or two. The European economies are also mixed, with economic performance lagging the U.S.A. We are seeing a stablization of industrial activity in Germany, which has been very soft for us all year. Despite the slow economy, we feel good about our prospects in the midterm. We feel confident that we are not losing market share. We have been working very hard to improve our infrastructure and our new product position over the past two years. With the [Global Mark] and a number of other new products we have launched recently, we feel we're well-positioned to grow as the global manufacturing economies turn up. Next I'd like it turn it over to Frank [Gaynor].

Thanks, Dave. Total ISST sales for the third quarter were $54.7 million, a decrease of 13% from the third quarter of last year. Base business declined 17%, acquisitions added 5%, and the currency impact was a negative 1%. Our run rate on sales per day remain consistent with the last quarter. Our quarterly comparison to last year continues to improve from a decline of 29% in the second quarter to 13% in the current quarter, as the current economic downturn began in the third quarter of last year. Our results by geographic region continue to be mixed. However, as you will hear shortly, some new market [inaudible] strategies implemented in the quarter will serve to leverage our infrastructure across the ISST markets. In North America, sales are down 21% in comparison to the third quarter of last year. As anticipated, we saw strong sales in our electrical market, due to the successful launch of the [ID Pal], a hand-held thermal transfer printer. [Tag Links], our software business, improved as the industry showed signs of recovery. [Tag Links] differs from the majority of our business, in that it is sold into multiple markets and the depressed industrial and electronics sector is only a small part of their space. This improvement, however, was more than offset by the continued weakness in the high-performance products for the electronic and industrial markets. Some of our electronic business moved from the United States and Europe to Asia. Domestic market remains weak. During the quarter, we formed [inaudible] integration unit dedicated to selling larger AIDC solutions and moving the selling of smaller [inaudible] AIDC solutions to our higher performance sales team. This maximizes internal synergies and broadens the product offerings by bringing together all managed data collection products and high performance identification solutions. In Asia, sales were up 6% in local currency. The new [inaudible] is [inaudible] by China where our business has doubled over last year. Electronics manufacturing in China is forecasted to double from 2000 to 2002. We have continued to invest in China as evidenced by our current location in [inaudible] Shanghai and our future manufacturing facility in Beijing. Southeast Asia appears to be gradually coming out of a recession as evidenced by increased activity in the electronics sector, mainly contract manufacturers. We have also seen success with a more focused approach which targets Japanese multinational companies, businesses outside of Japan. The success of this program has mainly been in China, Thailand, and the Philippines. Sales in Europe are flat in comparison to the third quarter of last year. Base business declined 5%. The [inaudible] acquisition last year contributed gross 17% and the currency impact was a negative 2%. Similar to the U.S., Europe's base business remains weak as the concentration of business is in the electronics and telecommunications markets. In Germany, we have seen significant growth in a major account where we are implementing a strategy of becoming an integrated supplier for all identification needs, such as printers, labels, scanners, service contracts, et cetera. In the UK, our power communications business shows a modest growth, demonstrating their resilience of electrical distributors in comparison to the automotive and electronics marketplace. In Belgium, sales of our [ID Pal] are strong and business shows a trend upward as we are beginning to see modest signs of a recovery. Latin America sales in local currency are down 3% versus last year. Sales remain flat and reflect the conditions of our global electronics and telecommunications customer base. Recent product launches continue to be successfully rolled out. A major highlight for the quarter was a strong positive reaction by our channels globally to the [ID Pal] introduction. Distributors have begun to turn inventory. This is a good indication of acceptance at the end user level. Overall, this new product will help solidify our relationship with existing domestic channels and expand our channels in Europe and Latin America. Also during the quarter, we introduced [Label Mark] 2.1, an enhanced version of our labeling software mainly for the datacom and laboratory market. The new version is easy to use, offers additional form features, and supports nonstandard labels. In the telecommunications cell phone market segment, there is still excess inventory. Therefore, the outlook for the next 6 to 12 months is flat. We are a bit more optimistic about [inaudible] outlook as we have been able to leverage our global presence and anticipate modest growth despite the macro industry outlook. In the [inaudible] industry, we are seeing more growth in the consumer electronics segment versus desktop. We're also seeing the trend to smaller components. While we may see [inaudible] changing technology, it will be more than offset by new business. In the power communications segment of our business, excess capacity remains in telecom, industrial automation, cable harness manufacturing, and mass transit markets. We do not see significant recovery in these segments until early to mid-2003. However, we do see continued growth in two areas. First, construction of gas turbine power plants on a global basis, and second, the Asia-Pacific region as they build communication infrastructures. In the electronics market, the consensus is that the worst is over. The outlook for the next few quarters is uncertain, with anticipated recovery 3 to 9 months out. Profit for the quarter was 7 million, a decline of 45%, rather than the third quarter of last year, based on weak sales and our conscious decision to maintain our workforce in order to be in a strong position when the market recovers. In summary, the outlook remains uncertain. We do believe the worst is over, but are not sure about the exact timing of the recovery of our business. I would like to turn the conference call now over to Kathy Hudson.

Thanks, Frank. Before we go into the question period, I'd like to summarize a few of the key points from both our earnings release and the conference call. Number one, several of our markets have shown what are some early signs of life, but it's still soon to predict whether this is going to be sustained and will continue in the fourth quarter and for our upcoming fiscal year. We're continuing to watch our macroeconomic conditions and business trends very closely, and our plan is to keep our cost structure constrained until we see some sustained growth. Second, we have introduced our second major product this year, the [Global Mark], and that launch, together with the [ID Pal] which we launched in the second quarter, shows Brady's commitment to development of innovative new products and the leveraging of our competencies throughout the organization. Third, we're continuing to progress in our [Eclipse] and E-business initiatives, as these are growing throughout the organization. Finally, Dave discussed our previous guidance. We expect the fourth quarter to be very much like the third quarter. Therefore, there will not be sufficient revenue and earnings momentum to allow us to reach the original guidance range which we gave you. As more of our markets rebound from the recession, we feel confident that we will eventually return to more normal levels of sales and profit growth. With that summary, let me now begin the question and answer session. I'll ask our operator, Andrew, to provide instructions for our listeners on how to do questions. Andrew?

Thank you, ma'am. Ladies and gentlemen, at this time we will begin the question and answer session. If you have a question, please press the star, followed by the 1, on your push-button phone. If you would like to decline from the polling process, please press the star, followed by the 2. You will hear a three-tone prompt acknowledging your selection. The questions will be polled in the order they are received. We do ask if you are using speaker equipment that you do lift the handset before pressing the numbers. One moment, please, for our first question. Our first question comes from George [Stafos]. Please state your company affiliation, followed by your question.

Good morning. This is Michael [Pack] in place of George [Stafos]. Good morning, everyone.

Hello.

Just had a quick question on the cash flow. It seemed like it was pretty strong for the quarter. Can you talk more about what's going on in working capital?

Sure. As -- I think overall, from a working capital standpoint, we've seen some of the benefits of the consolidation and the restructuring that we did at the end of last fiscal year, so some of the inventories have come down. Additionally, we're seeing some of the initial benefits of the units that are live on SAP and their inventory turns starting to increase as a result of that, and as I think we mentioned, we've got just about half the company on SAP now with the second wave going live successfully through the third quarter of this year, and that being the European portion of it. So we're seeing some benefits coming out of that, and seeing some improvement in the working capital, particularly around the inventory areas. And the activity around accounts receivable, we saw about a day improvement in overall day sales outstanding, so I'd say there -- those are staying relatively consistent through the last quarter.

So most of the 7 million-dollar improvement is explained by working capital?

The 7 million-dollar improvement in cash balances or in . . .

Well, your cash flow increased $7 million, if I understand correctly, and is that mostly explained by the working capital improvement?

While we're -- people are looking, we would like to comment just on the fact that this is the first time we've included our cash flow statement with the release, and we're proud of that, so wanted the audience to know. And now we're discussing it while we're trying to answer your question, Michael.

If I can say, I think in the meantime, if I can chime in, I'm sitting here in a hotel room far away from Milwaukee, but have also on the accounts payable side seen some significant improvement as we have extended the terms to our suppliers. So in other words, our accounts payable dollar amount has come up over the last couple of months and I think that's also contributing to the improvement in cash.

Yeah. That came up, and during the fiscal 2001, we saw a significant decrease in the accounts payable through the first nine months, so the comparison of the increase in terms that Frank was talking about and the decrease that we had last year was about $15 million delta.

And compared to the prior quarter, our accounts payable balance is up by about 5 million, accounting for the majority of the 7 million increase.

Okay. That's great, guys. Thank you.

Thank you, sir. Our next question comes from Adam [Limbach]. Please state your company affiliation, followed by your question.

Hi, good morning. It's Adam [Limbach] from [inaudible] Robert Baird & Company. The one question that I have is just a broad-based question relating to pricing, and that is, should, you know, the markets improve and as that's sustainable, how are you guys viewing the pricing, you know, six to nine months out as compared to, say, in 2000?

In the year 2000 pricing?

Well, I guess to be more specific, you know, gross margins, you know, in 2000 and 2001 as sales were, you know, 140, 145 million, were the mid to high 50s and is that likely to come back, in your view, should your end markets recover?

I think that the -- that is an excellent question, and I would have told you -- and I think I did in quarterly calls during the year 2000 -- that our expectation is that our gross margins would remain more in line on a sustained basis with historical rates, which are not above 55%. They actually historically, prior to the really robust boom times that we saw in 2000, our margins hovered between 52 and 55. I think that that is a much more reasonable place to expect margins to be than anything that was at the 57 or 58%, which was what we had in the year 2000 period. Another thing that's happened, I think, is during this recessionary period, people's pencils have gotten a lot sharper regarding purchasing and I think our opportunity to do much with price really has not been around for several years, and I think that that's -- we're not likely to see much price. Now, the interesting thing is where we do get opportunities to maintain margins is through new products, and introductions such as [ID Pal] and [Global Mark] allow us to maintain or at least keep a floor on our margins because we come in with product systems that have proprietary materials and that really offer value to our customers. But I would say in the long term, I would have a lot of trouble expecting gross margins to expand to that level on the recovery that they were in the year 2000.

Kathy, thank you very much.

Thank you, sir. Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the 1. As a reminder, if you are using speaker equipment, we do ask that you please lift the handset before you press the numbers. One moment, please, for our next question. Our next question comes from Scott [Horseberg]. Please state your company affiliation, followed by your question.

Yes. Scott [Horseberg], [Inaudible] Investment Management. Hello, everyone. Just a little more color on the [Eclipse] project and how things are going, in addition to just the SAP and, you know, is there any extension of the time frame where you hope to get to the objectives that were outlined a couple of years ago when it was started.

That's also a very good comment and I'll comment and then maybe Dave Schroeder might want to add a little something to it, but we just -- as was mentioned in the call -- completed our second major wave of SAP implementation, so that now we have about half the business in terms of revenues and transactions on SAP. The -- it's kind of -- this is a good follow-on to the question that was asked earlier about margins, gross margins, because the long-term hope is that SAP and that implementation, plus the process improvements that we're putting in place and trying to standardize and streamline how we do business, that that will reduce SG&A as a percent of revenue. So that means that while there may be pressure on gross margins, hopefully we're going to be able to offset some of that by reduced SG&A as a percent of revenue. The question of timing is an interesting one. Had we not had this prolonged recessionary period for manufacturing, I think we would have started to see an acceleration in [Eclipse] benefits right away, as of right now, because we've really had folks on the system from the first wave for more than a year. And it takes at least a year after you put in SAP and new processes for everybody to not only learn to use them and use them efficiently, but begin to innovate and make further improvements with those. So our feeling is we will get everything we wanted out of the [Eclipse] project. I would say -- and Dave Schroeder can follow up a little bit on this -- that because of the recessionary period, we are probably 12 to 15 months behind in realization of benefits. And that's just my guess. We haven't tried to quantify that because we're too busy trying to sell something. Dave, you want to make any comment?

No. I would agree with those comments. I think as -- if we look at operational benefits in our manufacturing operations, we're seeing the benefits that we expected basically on the schedules that we expected. When you look out at the benefits of integrated information, cross-sell/upsell opportunity and having a common look at our multinational customers, we'll start to see those benefits and being able to handle more business and handle it more efficiently as we see upturns in our markets. So to the extent that the economy has been a little bit softer and sales have been soft, that, as Kathy had mentioned, has delayed some of the returns on it, but we still expect those to be there when business turns around.

I think the -- the comments earlier on working capital really are, to a great extent, benefits from the SAP implementation, and from process improvement. Some of the activity that we're seeing, which has caused us to really do much better with management of accounts receivables and inventories has been due not only to SAP but even in non-SAP units to improved processes of trying to go after that and reduce working capital. So the benefits are coming. They're not coming at quite the pace we would like because of the economy, but as everyone knows, as that top line starts to come back, we certainly have the leverage to see those returns start flowing through.

Sir, does that answer your question?

Yes. That's very good. Thank you.

Thank you. Our next question comes from Bob Bridges. Please state your company affiliation, followed by your question.

Sterling Capital Management. Congratulations, everyone. This cash flow is very impressive, especially with the backdrop of the environment that you've got. So good going. Keep it up. A question about just your initial reaction, both from just customer comments and on your initial book on the [ID Pal]. Would you characterize it as meeting your expectations? I know it's still early. Or is it perhaps ahead of expectations?

It's still early, but I think so far it's ahead of our expectations. I've just spent some time with distributors the last two days, and they were all very excited. The inventory is turning. You know, it's always interesting. You put out the first stocking orders and they are sitting there and waiting, is it going to sell off to the customers, but it's very well received. I think the price point is right. It's an attractive-looking product. It's very sturdy. And so far, I think our expectations have been exceeded. Now, it's still too early to say it's a huge success, but at this point of time, we are positive from what we have seen so far.

By point of reference, can you mention maybe some comparable products that it might be competing in the marketplace with, or is that -- is it too diverse to even try to go into?

I think it's too diverse to get into. You know, it's -- what we are seeing is we are seeing it getting into some markets where we have not even targeted it for, you know. Even some of the registration costs for warranty come back, we'll see which markets they go into, but it seems that they are even competing in some areas where we did not expect it to compete, areas which might be slightly outside of our [inaudible] but of course we're going to take this -- take advantage of this and going to sell in these markets.

Frank, can you give us kind of an overview in what you're saying in AIDC? Is there any resurgence in any of those business lines?

Yeah. I mean AIDC, of course, has been hit hard, like all the other industrial and electronic accounts. What we see especially being hit hard is major systems integrations. You know, let's say you're a big company, you have a warehouse, logistics center, and data collection equipment, barcoding and scanners and you would like to integrate this into your ERP system. Companies are just holding back. I would say it's hardly any orders in this area. I mean, they're out there and everybody says we'll do it, but let's just wait another month, and another month, and then it's another month. So it's very, very quiet in this area of big projects. Price competition continues to be intense in this area as it always has been, but I think it's going to come back, especially in the smaller [inaudible]. It's going to come back as soon as the overall economy picks up.

Would you characterize within the last quarter as trending lower than the prior quarter, or is it -- has it bottomed?

You know, I think in general it has bottomed, but it's very difficult because, you know, sometimes you get a sporadic order, get an uptick and then, you know what, maybe it's coming back and all of a sudden, next month or next week, it's dead again.

Sure.

It's very difficult. But I think that's an indication that we have reached bottom and that inventories have also come down to a lower level now. You know, that -- our customers basically use us in the majority of our business. I mean there's still some progress of excess inventories at our customers but, I mean, in general when you have sporadics up and down it's an indication that inventories are at a low level, business picks up, you feed it immediately, which of course is challenging because then you have to make it happen overnight. Nobody's keeping inventory anymore.

Sure.

So I think it's an indication that we are at the bottom.

Okay. Good to hear. Thanks.

Thank you, sir. Ladies and gentlemen, if there are any additional questions at this time, please press the star, followed by the 1. As a reminder, you will need to lift the handset before pressing the numbers. One moment, please, for our next question. Management, at this time, there are no further questions. Please continue with any further statements.

With that last question, it is time to end the call, but if you have any further questions, please feel free to call me at area code 414-438-6940. The audio and slides from this call today are also available on our website at www.investor.Bradycorp.com. If you'd like to listen to our replay of this call via phone, you may do so starting at 1p.m. eastern time today and the phone number for that is 1-800-405-2236, and a pass code of 401096 will be -- will need to be entered to activate the call. Again, please call me if you have any questions or want to discuss anything further. Thanks for your interest in Brady and have a great day.

Thank you, ma'am. Ladies and gentlemen, this does conclude today's Brady Corporation third quarter earnings conference call. Just as a reminder if you would like to listen to are eplay of today's teleconference presentation, the phone number to dial is 1-800-405-2236. You would need to enter access code 467063. We thank you for your participation on today's teleconference presentation and at this time you may now disconnect.