Brady Corp (BRC) 2003 Q2 法說會逐字稿

Good morning, my name is Keela and I will be your conference facilitator today. At this time I would like to welcome everyone to the Brady Corporation Fiscal 2003 Second-Quarter Earnings Release Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question and answer period. If you would like to ask a question during this time, simply press star then one on your telephone keypad. If would you like to withdraw your question, press the pound key. Thank you. Miss Bolens, you may begin your conference.

Thank you. Welcome to our Fiscal 2003 Second-Quarter Conference Call, I'm glad you could join us. In the call today you will hear from Katherine Hudson, President and CEO, Dave Schroeder, CFO. Also Frank Jaehnert, President of the Identification Solution and Special Tapes Group, and Dave Hawke, President of the Graphics and Workplace Solutions Group. After brief presentations by the team, we will open up 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 results. Risk factors were noted in our news release this morning, and in the 10-Q filed with SEC in December 0f 2002.

Second, please not that this teleconference is copyrighted by Brady Corporation and there may be no re-broadcasting of this without expressed written consent of Brady. Note also that Brady will be taping the call and broadcasting it on the internet. Your participation in the question and answer session will constitute your consent to being recorded. Now here's Katherine Hudson.

Good morning and thank you for joining us. Today, in our fiscal 2003 second-quarter news release, we announced sales for the quarter of $129.6m, up 7.5% over last year's $120.6m. The sales increase was attributable to a stable base business, and positive foreign exchange effect, and continued positive effects from our investments and acquisitions.

Our net income for the quarter was significantly below last year, at 12 cents per share, consistent with the range of 10 cents to 13 cents that was provided last month in our pre-announcement. That pre-announcement had been triggered by various transitory negative events that were affecting our business in the quarter. Including product mix issues, which affected ISST's margins, and Eclipse Wave Three Go Live issues within our Graphics Group.

We discussed in January why we believe that those issues were short lived. The margin issues were associated with lower margin sales that were shorter-term in nature. And, with our Eclipse launch issues associated with the implementation of SAP throughout our North American Direct Marketing Group, the Eclipse team had developed definite plans for how the issues would be resolved.

Business conditions in ISST in the later weeks of January have put us on the right track for the third quarter, so that we can return to traditional levels of profitability for the second half of our fiscal year. As we get closer to resolving the launch issues, sales and income levels are expected to be more in line as we move through the third quarter.

Dave Hawke and Frank Jaehnert will discuss more shortly, but for now I'd like to turn the call over to Dave Schroeder. I will be back at the end to summarize the key events of our call. Dave?

Thanks, Kathy, and good morning everyone. I'm happy to share with you our results for our fiscal second quarter of 2003. First I'll discuss the results of the second quarter in comparison to the same quarter of the previous fiscal year. I will then discuss the results for the first six months of the fiscal year.

Net sales for the quarter were $129.6m, up 7.5% from the same quarter last year. Base business was up 0.5%, the exchange rate impact was a positive 5.1%, and acquisitions added 1.8%. Sales in the US were up 1.1% in total. Base business fell 2.6% for the quarter, while the acquisitions of Temtec and TISCOR added 3.7%. International sales increased by 13.7% in US dollars, and 3.6% when expressed in local currencies. Europe benefited by 15.6% from foreign currency translation, while Asia Pacific was aided by 5.7%. Latin America sales results were reduced by 42% as a result of currency weakness in those countries.

Base sales growth in local currencies for the various regions, were as follows; Europe up 4.2%, Latin America up 42%, and Asia Pacific down 3.2%. From a group perspective, Graphics and Workplace solutions realized sales growth of 9%, primarily due to foreign currency translation adding 6%, and the Temtec and TISCOR acquisitions adding the remaining 3%. Base business was flat for the quarter in the Group.

Identification Solutions and Specialty Tape sales increased 5.4% for the quarter. 4% of this growth was due to foreign currency translation, with the remaining 1.4% reflecting an increase in base business sales. You will hear more specifics about the Group sales and profits from Frank and Dave later in the call.

Gross margin as a percentage of sales declined to 49.1% in the quarter, down 40 bps compared to last year's 49.5%. North American margins were negatively impacted during the quarter, as our Eclipse Wave Three Go Live and our direct marketing operations caused depressed sales levels. This systems conversion started on December 1, 2002, and various data cleanup and training issues were being addressed throughout December and January. Sales and margins improved toward the tail end of the quarter as we continued to work toward bringing these units back to normal service levels.

SG&A expense of $54.5m ran at 42% of sales, about four points or $8.4m above the same quarter of last year. 25% of this increase can be attributed to foreign currency translation increasing our expenses in Europe and Asia. Additional administrative expenses associated with acquired businesses, temporary expenses related to the Wave Three Go Live, and geographic expansion of catalogue programs, added another 25% of the increase. The remainder comes from general cost increases, including advertising costs in the Graphics Group, along with pay and benefit cost increases throughout both groups.

Research and development was 3.5% of sales, a level consistent with the prior year. Operating income in the second quarter was $4.3m, down 52% from last year's second quarter. As a percent of sales, operating income declined about four percentage points to 3.5% of sales, because of the factors cited before related to SG&A increases and gross margin declines.

Investment and other income declined $300,000 from the prior year second quarter, due to the net impact of inter-company foreign currency translations. Net income for the quarter was $2.8m versus $6.1m in the prior year. Earnings per share on a diluted basis for the quarter was 12 cents, versus 26 cents last year.

Now I will cover the results for the six months ended January 31, 2003, versus the six months ended January 31, 2002.

Sales were $268.2m, up 7% from the $250.6m last year. Base business was up 9/10ths of 1%. Foreign currency contributed 4.1% to the increase and acquisitions added 2%. US sales, excluding acquisitions, were down 1.5% in the first six months. International sales expressed in local currencies were up 4.3% in Europe, down 3.3% in Asia Pacific, and up 42.1% in Latin America.

By segment, ISST's base sales year-to-date were down 5/10ths of 1%, while Graphics and Workplace Solutions base sales rose 2.1%.

Gross margin for the first six months of fiscal 2003 was 49.9%, down 6/10ths of 1% from same period of fiscal 2002, due to the same factors mentioned earlier regarding the second quarter. In addition, the year-to-date margin decline was impacted by production ramp up costs included in the first quarter, for the GlobalMark (ph) and BusyMate (ph) product introductions within the Graphics and Workplace Solutions Group.

Year-to-date SG&A expenses of $108.3m were $11.5m higher than the prior year. SG&A was 40.4% of sales in fiscal 2003, versus 38.7% of sales in fiscal 2002. The increase is due to the same factors I've mentioned for the quarter. 25% of the increase can be attributed to foreign currency translation, increasing our expenses in Europe and Asia. Additional administrative expenses associated with the acquired businesses, temporary expenses related to the Wave Three Go Live, and geographic expansion of catalogue programs added another 30%.

The remainder comes from general cost increases, including advertising cost increases in the Graphics Group, and pay and benefit cost increases throughout the organization.

Operating income for the six months ended January 31, 2003 was $16.9m, down $4.1m from fiscal 2002. As a percentage of sales, operating income was 6.3% in the first half of fiscal 2003, versus 8.4% for the same period last year. Investment and other income decreased by $800,000, when compared to last year, due to the net effect of foreign exchange, primarily on inter-company transactions.

Net income for the six months ended January 31, 2003 was $11m, or 46 cents per share, compared to $14.1m or 60 cents per share for the same period of fiscal 2002.

Reflecting on the balance sheet, cash at the end of the first quarter was $65.6m, about $14m lower than where we were at the end of last quarter. The decrease reflects the acquisition of TISCOR in January 2003 for about $12.5m, a payment of dividends of $4.5m, and $3.8m in additional investments in plant and equipment.

Accounts receivable are slightly higher than the end of the quarter, purely a function of translating European receivables balances back at the higher exchange rate. Inventory is roughly unchanged and in line with our expectations.

In view of the fact that the second quarter finished much as we indicated last month, our outlook for the full year remains at a sales level in the range of $552m to $562m, and earnings of $1.27 to $1.37 per share. We anticipate that the fourth quarter will be slightly stronger than the third quarter.

I will now turn the floor over to Frank Jaehnert to discuss the details of the Identification Solutions and Specialty Tapes Group operations. Frank?

Thanks, Dave. As reported in our conference call last month, the ISST Group started the quarter with relatively weak sales in November, and even weaker December. January, however, was very encouraging, both in terms of sales and profit. We ended the quarter with sales of $56.6m, a 5.4% increasing in sales. And income from operations of $6.6m, a 7.3% improvement compared to the second quarter last year. In total for the Group base business increased 1.4%, and currency added 4% to the top line.

By region, the North American business grew a modest 0.5% versus prior year, Europe's growth was 21% in US dollars, and 4.5% in local currencies. Latin America grew 50% in local currency, while sales in Asia declined 4%, mainly due to lower sales to the disk drive industry. Excluding disk drive, Asia grew 17% in local currencies.

Let me now be more specific about our business by region.

In North America Electronics and Industrial business remained flat. However, we saw double-digit growth in our Electrical and Data Communication Identification product line, due to market share gains in the US. This growth is offset by decline in our External Coating business, and the sale of our Intec (ph) Applicator business last year.

Europe continued to be a mixed bag, by country and by industry. We experience good sales growth in Belgium and the Middle East, however, continued negative in France and the UK. Sales in telecommunications, [utility] and petrochemical construction was pretty strong. [Material] industrial market remains weak.

Sales in Asia declined 4% versus last year. As mentioned above, we had a decline in disk drive products year-over-year. Excluding disk drives, which is very much influenced by frequent product changes, our Asian business grew 17% over last year, with rapid growth in China. In December we expanded our presence in Beijing, with the opening of our new manufacturing facility to focus on the telecommunications market. This location will also service our Laser Cutting Prototype Center for the region.

In Latin America, Brazil more than doubled in local currency, however had modest single-digit growth in US dollars.

Our profit for the quarter grew 7.3%, over the second quarter of last year. We have seen the benefit of cost reduction and a better product mix in January. It's evidenced by improvement in our North American profit margins.

We anticipate continuous improvement in sales and earnings throughout the remainder of the year. In North America we have seen no change in the improved sales trend seen in January. The anticipated sales upturn is not driven by growth in the market, but rather by specific [project] and market share gains.

Although it might still be too early to tell, I have the impression that we are starting to see the benefits from some of our initiatives. In the absence of any unforeseen economic deterioration due to political uncertainties, I would like to change the outlook for ISST, from uncertain to cautiously optimistic.

I'd like to turn the call now over to Dave Hawke. Dave?

Thanks, Frank. Second quarter sales for the Graphics and Workplace Solutions Group were $73m, up 9.1% from last year second quarter. Currency translation had a 6% positive effect, and acquisitions added about 3% to our results for the quarter. The underlying business is basically flat for the quarter.

Our North American business was up 2% over last year second quarter. The acquisition of Temtec Inc. and TISCOR contributed 6% growth for the region in the quarter, while the base business was off 4%. In our base business the shortfall against last year was isolated to our units that went live on Wave Three SAP conversion. As the remaining base business was up about 1%, this is obviously a continuation of the relative softness that we've seen in this region. The SAP conversion has caused an abnormal drag on sales in the region.

Sales in Europe were up 19% in US dollars, 4% in local currency. France led the way with an 8.5% growth, with the UK at plus 4%. Germany and Belgium declined slightly. While the growth rate dropped relative to the first quarter, we feel that this was due to timing of catalogue drops in Germany, and some higher than normal weakness around the holiday period.

There continues to be a considerable amount of manufacturing economy weakness across the continent. This weakness is being offset by the impact of additional pages and titles in the recently dropped European Seaton (ph) catalogues.

In Asia Pacific our business in local currency grew 10%. We continue to see strength in our base Australian business for the core Seaton (ph) and SignMark (ph) brands, as well as with our start up efforts mailing into New Zealand.

In South America business grew double-digit in local currency. This continues a strong trend that we have seen for the last several quarters. We are having solid results in Brazil, with both our Seaton (ph) and SignMark (ph) brands, despite the high level of financial instability.

Despite the increase in overall sales, profit for the Group was $13.3m for the quarter, down 14% from last year second quarter. Profit in local currency was off 21% from the prior year.

Profit outside of North America grew faster than sales in each region. Our overall sales were dragged down by North American profitability.

About three-quarters of the negative/positive impact in North America was seen in our two sites going through SAP conversion. We experienced not only higher costs associated with the implementation, but also depressed sales level. While we have built a small backlog of orders related to the Go Live, our sales shortfall is a result of service levels below historical norms.

We have been working diligently to get through this painful perform dip, and expect to be fully recovered by the end of March. We saw an improvement during the month of January. This would make the duration of the performance dip four months, which is in line with our other SAP conversions.

Unfortunately these problems are compounded because these two units are direct marketing units. These businesses have large volumes of orders, a large range of products, a high proportion of custom orders, and a much higher proportion of purchased products. Most of the orders are taken over the phone. Average time to process orders was up dramatically due to learning curve, some ongoing data cleanup and normal start up glitches. Delays in processing orders means our call centers aren't answering calls at our normal service levels. Since rapid service is a major part of our value proposition, we have certainly lost business due to our poor service during these past two months.

We have prepared extensively for these SAP conversions, and have incurred an additional $1m in SG&A expense preparing for the Go Lives. Despite a much higher level of effort than we made in our previous conversions, we still experienced a performance dip. While we expected that, we didn't expect the dramatic effect on sales levels during the service disruption.

The teams in both locations are working very hard to get back to normal service levels. We have also had a significant portion of people from other locations helping with data cleanup and problem solving.

The remaining one quarter of the North American profit drag comes from slightly lower gross margins, due to lower capacity utilization and higher selling expenses for a variety of sales and marketing initiatives. We expect some sales pick up in the second half of the year, due to normal seasonality, and the effect of continued initiatives. We are not anticipating any particular lift or additional drag from the economy in North America. As I mentioned, we expect to have eliminated any negative drag from our SAP conversions by the end of the third quarter. We expect growth to continue outside of North America.

We announced in January the acquisition of TISCOR Inc. an industry leader in developing site and equipment inspection software for handheld computers. TISCOR's products help customers more productively manage mobile workers, in a range of safety, maintenance, security, and asset management applications. Their products automate recording of critical data, leading to improved productivity and accuracy. TISCOR had sales of just over $10m in 2002.

I'd like to turn the call back over to Kathy Hudson.

Thanks, Dave. Before we proceed with the question and answer session, let me summarize some key points from our call today.

First, as you've heard from Frank and Dave, we believe that we have the majority of the bad stuff that significantly affected our second quarter net income behind us. ISST's margins began to show improvement through the late second quarter. Graphics difficulties with the launch are being addressed and corrected as quickly as possible, and we expect to see a return to our pre-launch activity by the end of the quarter.

Second, we're not waiting for the economy to improve, but instead we've put into place many initiatives and investments that are beginning to take shape in the form of additional market share, and improved profitability for our existing products. Additionally, we continue to pursue acquisitions that will provide an added dimension of growth by adding value to our shareholders.

Thirdly, we've expanded our reach throughout the world, with our further investment into Asia, namely China and Malaysia. During this quarter, we opened our plant in Penang, Malaysia and a secured facility in Southern China, so that shortly we will have three operations in China, to meet the needs of out customers in the rapidly growing Southeast Asian region.

Finally, while the most recent launch of our Eclipse initiative has been painful, we now have 70% of our business on common processes and a common platform. This will allow us to continue to leverage our resources more efficiently throughout the organization.

These factors combined should allow us to meet the sales and profit ranges that Dave Schroeder discussed earlier. Specifically, we expect fiscal 2003 sales to be in the range of $552, to $562m and earnings of $1.27 to $1.37 per share, with our fourth quarter being slightly stronger than the third quarter. Certainly the current geopolitical climate could affect these projections, but for now we believe these ranges are achievable.

Now I'd like to begin the question and answer session. I'll ask our operator to begin to line up those questions. Keela?

At this time I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Our first question comes from Reik Read of Robert Baird.

I just wanted to touch base with you guys on the margins going forward. Dave, you had given us an idea that you're starting to see some improvements with the disruptions as a result of SAP. Can you try to quantify for us where it was at the peak in terms of being disruptive? You said it's going to be probably back to normal run rate some time in March. Just talk about the difference between those points in terms of where we are right now?

Well what I can say is after Go Live you typically run into -- some of your worst disruption technically happens in December, but you have kind of about the same impact on the business, even though you're improving in January, because you're still doing catch-up on some of the issues from December. So I would say we had our worst service issues in December. When we looked very much at the metrics, those started coming down in January, throughout the month. So I would say we see the peak and we see the improvement -- the peak in service disruption and we see the stats coming down, problem areas coming down and service areas going up pretty much throughout the month.

Do you have to make additional resource investments today to make sure that you're back to normal by March?

No, we're just going to continue with the intensity that we have on it right now. Really, it's an all hands on deck kind of situation. So we've got all the people in those two sites, and in addition, a number of folks from our other sites that are helping out. So we're not going to need to do anything additional.

Can you just comment on the mix? I know it was challenging this quarter. Can you tell us where things are trending and what the expectation is by the end of the year?

I think that what we're seeing, and I'll leave it Dave Hawke and Frank to elaborate on this. But I want to go back to your first question and just quickly say that the nature of the direct marketing business is very transaction intense. However, it's also true that it's a pretty immediate thing. So when we have an issue such as we've had in December and January, it's something that when we're through it and, as Dave said, we'll be through this by the end of March, it kind of gets back to business as usual. We have our customers order in relatively small amounts, so they're placing orders for $200. And what we've seen is some of that business went away in the December/January timeframe. But when our service levels return we have no reason to believe that we're not going to be back to exactly where we have been.

Where the story regarding mix is concerned, I think that, as Dave Hawke mentioned - and he can elaborate on this in a minute - I don't think he's seen any dramatic difference in his business, or trends in mix that would - again, other than this short-term disruption that we've had in our Go Live sites in Connecticut and Canada - I don't think he sees major changes. Where we have seen basically improvement is in ISST, and I think going forward we expect again a return to more traditional quality of earnings and profitability levels.

Before I turn it to Frank to comment on ISST and then Dave to be more specific on Graphics, I should say that we, like every other US-based company, are impacted very significantly by healthcare costs. When we look at what we have in terms of the cost of our benefits to our employees over the last three years, on a per capita basis in the United States, it's doubled. So what that means is we have to find additional productivity to try to make sure that we can handle that. We've made great progress there, but I would just like to point out that some of this is not market share, it's not product related issues, it's the fact that healthcare costs in the United States of America have skyrocketed.

I'm going to turn it over to Frank, I think he will have pleasant news.

Thanks, Kathy. Well the pleasant news first of all is that we grew 5% in the quarter in sales and 7% in profit. Now this was mainly due to a very strong January. When we were on the conference call a month ago, we were all shocked in ISST by the poor margins in December, margins which were below where we normally are. I am pleased to report that in January we came back to normal levels.

In addition we have taken action on the pricing side and also on the cost side, which we now are going to come into effect in the second half of the year. This makes us believe that our margins are going to continue to improve moderately from the January level. So as a matter of fact, it's pleasant. As I said at the end of my conference call, I'm changing my outlook from uncertain to cautiously optimistic. Again I don't think it's the economy, I think it's initiatives which we have invested in over the last couple of quarters which made me believe that not only is our margin going to improve, I also think we are taking share from some of our competitors.

Maybe I can just add to that. Kathy made the comment, and she's dead right, that our margins are holding pretty much exactly the same, with the exception of the Wave Three sites. If I pull those sights out for the first and second quarters of this year, gross margins are exactly the same percentage.

Okay. And just one last question on your guidance; You mentioned fourth quarter will be up slightly, do you mean that on a sequential basis, and are you talking about revenue?

Revenue on earnings, and yes on a sequential basis. We're talking about fourth quarter being slightly stronger than the third quarter of '03.

And can you give us a sense as to what 'slightly' means?

Probably not anything that's any less subjective than 'slightly'.

All right, fair enough, thank you.

Your next question comes from Jim Kissinger, of Kissinger Laughlin Capital Management

Good morning everyone.

Hi, Jim.

I'm trying to get a sense of -- you're kind of guiding us to about 7% top line growth for this year, you know, for fiscal '03. Can you break that out into base foreign exchange and then acquisition?

For the balance of the year, I think it would look similar to what we're seeing in the second quarter. As we mentioned, currency is adding right now, about 5 points to the top line. We have shown nominal base growth, and I think both groups mentioned that they're now looking for any big push from the economy in the next couple of quarters. Then the acquisition additions add around 1.5 points to close to 2 points on the top line.

So if I look at this, Dave, I should probably say, okay for the year top line growth 7%, 5% is currency and 2% is acquisitions, and the base business is basically flat. Is that a fair way to look at it?

Yes.

How do you guys see -- to get into your range of the numbers you're talking about, you need 10% or 11% operating margins in the second half of the year. How is that going to look on the gross margin SG&A? How do we get there is, I guess, my question? Do we go back north of 50 on the gross margin side? I'm trying to get a sense of that. Then I'm also trying to get an understanding of, you know, you're 70% through Eclipse and by the end of this fiscal year those sites will be up and running. How or when do I get both the revenue lift from the project and/or some significant SG&A savings so we get some margin expansion that had all hoped for, for the money and time you guys have put into this thing? There are lots of questions, I'm sorry.

Let me take a shot at some answers for most of them. I think as Dave mentioned, we see business service levels returning in the third quarter, back to the original service levels in the direct marketing business. At that point in time we should be finished with a lot of the data cleanup and Wave Three expenses. So you'll see some benefit to having that completed, both in top line coming back with service improvements as well as some of the expenses terminating at that point in time.

I think some of the reduction in SG&A coming as a specific benefit of the Eclipse project, come next year, as we start to see some additional growth, and we're able to support some of that top line growth on a fixed investment from SG&A.

So that's not designed into the projections that we have through the second half of this year.

So the SG&A stays high, the Eclipse thing begins to really help next fiscal year?

I would say that's true, Jim. I think the other thing is I would not have put a lot of gross margin expansion into the rest of this year. I don't think we're having -- I have to go back, and I always love this story, because it always shocked me when I first got here. Nine years ago gross margins were 52%, and I thought, man, there's no way you can keep that. And over the course of the next five years we went up to 57% or 58%. Now we're hovering in the high 40's. So I think at this particular stage, 49%, 50%, is about acceptable at the moment given the economy and where we've been and what we've taken out of.

Going forward, if we can stay at the 50, 52 it's really nice. The days of 57,58 really surprised me, and I'm not sure they're going to be here again. I would comment that we expect to see our earnings improve over time, because of reductions in SG&A. We have not seen them yet, won't see them much this year, again for two reasons. One of them is we need some sales growth to come. The other one is the resources we've put into both the launch of Wave Three and the dig out of Wave Three, that must all hit on the SG&A line.

I think that going forward it is actually true that the company and what we've put in place at the global platform, all of the infrastructure that we have could support a company twice our revenue. So it's pumping the growth on the top line that's going to really drive some stuff for us. I think hopefully we'll start seeing that again, barring the uncertainties of the political climate. One of these years we've got to have a really great year, because the last three have not been at all.

I guess what I'm trying to get at Kathy is, you know, if you're running at say 550 in revenues this year, I'm trying to understand the inflection point, whether that's time and/or revenue to see that? My sense is, if you could get the top line closer to 600 - whether that out a year or two years, and it's partial acquisition and part just normal growth - is that when --you know, you'd probably get some help on the gross margin line because you're plants would be running a little faster, and the SG&A leverage really happens. Is that the right number, is it 600 or is it 650? How do I -- that's what I'm really trying to understand, where the leverage from all this investment happens and what the magnitude of that is. Not long ago you talked about driving the SG&A down 500 bps, kind of on a linear basis, but given what's going on in the economy, it's not going to be 1, 1, 1, 1, 1, it's going to be 0, 0 ,0 ,2 ,3, - that's what I'm trying to understand.

I see where you're going. I think obviously if we get to $600m, certainly which we planned to do a lot faster than over two years, we begin to see some significant benefit. I think that the likely thing that we will try to do, which unfortunately costs a lot of money in the short term, will create a pattern that's not linear. Just for forecasting purposes we said we'd stream out a point a year. Given that we've had so many goose eggs, I think that what we will have to do is figure out a way to get ourselves one point, two points, 1.5 points, 1.5 points, something like that.

Okay, well best of luck, let's hope the economy gets better.

Well we're seeing lights. Light is at the end of the tunnel, little glimmers.

What are you seeing on the manufacturing side at all here in the US, because some of our players are beginning to see some small pick up, or at least it's not getting any worse?

It's definitely not getting any worse.

Jim, I hear you when you say the economy; that we hope it's going to pick up. I've made this comment before, the longer the stakes the better for us. It's almost like on the one hand I'd like it to improve, on the other hand, I don't like it to improve this fast, because we are going to hang in there. We continue to invest in Asia, and we continue to invest in our Eclipse project. We are continuing investing in R&D. This is not showing necessarily the bottom line impact right away. But I can tell you there are not too many companies out there right now who take similar steps. The longer the stakes are, the better for us. I think our competitive position is going to improve. So I hear you, and I would like this to get better, but I also would like to say, even if this takes longer, mid term this might even be better for us.

And I think that's reinforced by Frank's earlier comments that his PCI business has been picking up, not because of the economic growth but because of competitive displacement. I think a lot of that comes from our consistently going out and marketing the products and having new products that have been introduced through the year as well. So I think that drives a lot of the competitive displacement activity.

Good, let's hope they all die and you guys get 100% market share.

Again I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your next question comes from Bob Bridges of Stirling Capital.

Could you elaborate a little bit on the accounts receivable? I think you said most of the rise was due to the translation from Europe coming back. I guess I'm curious a little bit about your aging and delinquency characteristics over the last three and six months?

Actually the aging and delinquency characteristics have not changed much one way or the other. The addition or the increase in the accounts receivable has been related to the translation impact on the European balances, then the additional receivables with the acquisition.

Okay, that's all I've got, thanks.

At this time there are no further questions in queue.

Thank you. With that question done we will end the call now. If you have further questions, you may call me at 414 438 6940. The audio and slides from this call today are available at our web site, which is www.investor.bradycorp.com. If you'd like to listen to a replay of this call, you may do so starting at 1 pm Eastern Time today. The phone number for that call is 1 800 642 1687. International callers can dial 1 706 645 9291. A pass code of 7944665 will be needed to activate the call. The phone replay will be available until 11:59 pm on Tuesday February 18, 2003. As always, if you have questions, please contact me. Again thanks for your interest in Brady, and have a great day.

This concludes the Brady Corporation fiscal 2003 second quarter earnings release conference call, you may now disconnect.