Carlisle Companies Inc (CSL) 2002 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Carlisle Companies, Inc. third-quarter 2002 conference call.

During the presentation, all participants will be in a listen-only mode.

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

If at that time you have a question, press the 1 followed by the 4 on your telephone.

As a reminder, this conference is being recorded Tuesday, October 15th, 2002.

I would now like to turn the conference over to Mr. Rick McKinnish, president and Chief Executive Officer.

Please go ahead, sir.

Thank you.

Welcome to Carlisle's third-quarter conference call.

With me today is Kirk Vincent our Chief Financial Officer.

Our format will be the same.

Kirk will summarize the quarter's financials.

I will have comments about our operating companies, and then we will turn it over for some questions.

With that, Kirk.

Thank you, Rick.

Good morning, everyone.

Let me begin by reviewing our third-quarter press release which went out last night after the market closed.

And I'll read the headline of the press release because it is a good one: "Carlisle Companies reports 83% increase in earnings on record third-quarter sales."

Yesterday we reported net earnings of $19.9 million or 65 cents a share on record third-quarter sales of $500 million, which was an 8% increase over third-quarter 2001 sales of $462 million.

Net earnings improved 83% over third-quarter 2001 net earnings of 10.9 million dollars or 36 cents per share.

For the nine-month period end of September 30, 2002, sales of $1.5 billion were 6% above sales of $1.4 billion in the first nine months of last year.

Primarily a result of the acquisition of Dayco industry power transmission and increased sales in our Carlisle tire and wheel company.

Net earnings for the first nine months of 2002 of $57.5 million or $1.88 per share, exceeded earnings of $17.3 million or 57 cents per share in the same period of last year.

After factoring out the effect of a $20 million -- almost $21 million restructuring charge taken in 2001, net earnings would have been $38.2 million or $1.25 cents per share in the first nine months of last year.

In accordance with F AS-1 42, we are no longer amortizing good will.

This change had a positive impact of $271 million or 7 cents per share in the third quarter of 2002 and 6.6 million or 21 cents per share in the first nine months of this year compared to the prior period.

Cash flow was good in the quarter.

Cash flow from operations of $89 million in the third quarter was slightly above 86 million in the third quarter of last year.

For the nine-month period, end of September 30, 2002, cash flow from operations of $162 million was 14% above $142 million generated in the first nine months of 2001.

Out debt to total capitalization decreased from 54% at 9/30 of last year to 45% of this year.

On a year-to-year basis, our accounts receivable security at securitization contributed $36 million of cash flow from operations compared to $40 million from last year.

We did have reduced capital expenditures of $8.7 million in the third quarter below last year's 12 $12.2 million.

Current year spending per Cap Ex is $27.5 million, and that's below last year's levels.

I will now turn the call back over to Rick for some comments on our business segments.

Yeah, Kirk.

I will go through each business segment.

A few comments at the end about our consolidated numbers and our outlook.

The first segment is industrial components.

This segment was up over $40 million in sales.

Slightly over half the sales gain was the acquisition of power transmission last year.

Last year, we had Power Transmission for six weeks in the corridor, so we picked up a half quarter of additional sales at Power Transition.

Carlisle Tire and Wheel grew 21%.

All organic growth.

They were up across all market segments.

Of particular interest is the consumer trailer business.

This consists of smaller trailers, primarily for recreational purposes.

A boat trailer, an all-terrain vehicle trailer, there is a whole host of product applications in this sector.

The market was up 16% this year.

Carlisle Tire and Wheel up 23% in the consumer trailer business gaining share.

The trend here, we believe, is significant.

We believe that people are creating recreational opportunities closer to home and we look for further gains in this very important segment, the Carlisle Tire and Wheel.

Part of our annual planning process, we visit with each company and talk about organic growth and new product development.

We finished that review at Carlisle Tire and Wheel and we were very pleased to note they have introduced over 100 new tires this year.

We expect continued organic growth in this segment.

The next segment is construction materials.

They grew revenues by 7% in the quarter.

All sources of an industry information indicate that commercial construction is down between 12% to 15% compared to last year.

The one area of growth is plastic membrane or TPO membrane.

This continues to grow.

I think there is a very important trend in this industry that I want to take a moment and explain.

And there are three key numbers.

We just talked about the overall growth in industry, down between 12% to 15%.

The industry information, the total industry, in thermoplastic membrane is up over 9%.

A clear indication that thermoplastic membranes are growing as a roofing solution.

Carlisle SynTec repesents over 76% of the growth in thermoplastic membrane.

We have clear leadership in a roofing solution that is gaining share.

Our local joint venture was approved in Europe and this assisted us in our earnings increase.

I want to make comments about Meridri dry which is an acquisition we made recently.

Our commercial roofing operation, originated out of the roofing business in the 1980s.

We established a business unit within our construction materials segment following the acquisition of Caker Waterproofing in 1994.

We have been in this business for some time.

MERIDRI was a competitor and supper of our coating and business unit.

The combination of these two companies create scale and key products.

It adds several complimentary products to our portfolio and increases our ability to offer full systems solutions.

Coatings and waterproofing and roofing go hand in hand.

They are both basically waterproofing applications.

This acquisition was approximately $30 million revenue and will be accretive in 2003.

By any analysis of the commercial roofing business, we are building momentum, gaining share, and feel very positive about the opportunities in construction materials.

The next segment is automotive components.

They had slightly higher earnings on lower sale.

We have offloaded some lower-margin applications.

The third quarter, as most of you know, is a model changeover quarter, and not many comments to make about automotive.

Transportation product segment, the next segment, had a nice improvement that was led by Trail King which makes heavy-duty trailers for the construction industry, a primary outlet for them is cat dealers or KAMATSU categories.

Sales were down slightly in this segment, but market was down to a far greater level.

We believe we picked up at least seven points of market share in this industry.

We are making money and profitable in a very severe market conditions and we are in position for improvements going forward.

The specialty products segment which is -- consists of our two breaking companies, our industry break and friction company which makes off highway breaking systems, continues to perform just fine already a profitable quarter, despite of very soft conditions.

The story here is in motion control or heavy friction company that services class A trucking.

We had extraordinary events in the quarter as we disclosed in our communication.

We had a $800,000 pension curtailment charge in the quarter for the shutdown of our Pennsylvania friction plant.

We had start-up costs at our new plant in Virginia of over $1 million, and we continue to see some very soft market conditions.

This resulted in losses at our heavy friction company that offset a profitable quarter at our specialty braking company.

The general industry segment, I think to understand this segment, there's quite a difference in performance in here.

Our cheese equipment business that we call Carlisle Process Carlisle Companies systems, sales were down $9.4 million in the quarter.

This is primarily in Europe and on the basis of major capital spending projects being pushed back in Europe.

This sales shortfall in our cheese business offset some very strong growth at Carlisle foodservice which grew 3% in the quarter, clearly gaining share.

On the earnings side, the comparison is the same.

Our cheese business was a negative 2.8 million of EBIT compared to the previous year.

This partially offset improvements in Carlisle Food service, walker and Tensolite.

Food service had a remarkable improvement.

Remark about Tensolite, they grew earnings 19% in the quarter versus the previous year, even though commercial aircraft was down 34%.

We believe we have this business right-sized and well-positioned for future improvements.-We also want to say that the cheese business, which has had a horrendous quarter-end year we believe has bottomed out and many of the projects that have been pushed back for the last four quarters are now coming forward.

A couple of comments about our consolidated numbers.

As we gave out last quarter, we would like to give out our utilization in all our plants in is a consolidated number, it was 67% in the quarter.

We normally shut down for maintenance in July, which most of our major customers do.

So we had a total company-wide utilization of 67%.

The two segments that really come off their utilization in third quarter are the industrial segment and the auto segment.

The unabsorbed overhead from this utilization was $19.4 million pretax.

We had selling price decreases in the quarter of $2.6 million.

This is one-half of one percent of sales.

Not bad considering some of the soft markets we are supplying.

Over half the selling price decreases were in the automotive business.

Raw materials were favorable compared to the previous year by 4.4 million in the quarter.

I would like to make a comment -- a final comment about guidance.

We remain comfortable with the previous full-year guidance of 225 to 235.

We have had a lot of discussions with major customers about the fourth quarter.

We believe you are going to see very ultra-conservative inventory practices in the fourth quarter.

We belive that third quarter is a clear signal that we are developing momentum, gaining share in some of our key businesses, and we think we can continue to improve from this level.

With that, I'll turn it back to the operator for some questions.

Thank you.

Ladies and gentlemen, if you would like to register a question, please press the 1 followed by the 4 on your telephone.

You will hear a three-tone prompt to acknowledge your request.

If your question has been answered and would you like to withdraw your registration, please press a 1 followed by a 3.

If you are using a speakerphone, please lift your handset before entering your request.

One moment, please, for the first question.

Our first question today comes from the line of Mark Meeler from CL King and Associates.

Go ahead.

Good morning, Rick.

Good morning, Kirk.

Good morning.

Construction materials looked like it was better this quarter than you were predicting at the end of Q2, 7% year-over-year top-line growth is pretty good in this kind of environment.

You gave us the growth rate of TPO, 9%.

Can you give us how big the volume is?

All right, Mark.

I want to give you a couple of things here.

First off, the 9% growth was the overall industry.

Our growth is substantially higher than that.

I mean, our growth on thermoplastic membranes year to date is 55%.

The point I am trying to make is that thermoplastic membranes has grown as an industry by 9%.

The whole industry in roofing is down 12% to 15%.

Thermoplastic membranes are gaining share in the overall roofing environment.

And we are gaining 76% of that growth.

But our growth rate in TPO this year as I just mentioned are 55%.

Okay.

I think the point is to be able to capture 76% of a new roofing solution is an example of clear leadership.

That's why I wanted to phrase it to you like that.

All right, but when we are looking at that percentage of growth, how big is the product volume, the dollar volume of the segment?

It's approximately 29%.

Okay.

And then there were a couple of other products that you mentioned on the Q2 call and previous calls for the reroofing market.

Fleeceback and hotmop I believe.

What were their growth in the quarter?

They both grew.

Fleeceback grew in the high teens.

It's -- it's targeted at reroofing which is historically a weak segment for us and it continued its growth.

You are right, I mean -- SynTec really gained momentum in the third quarter.

To grow revenues by 7% in this market was a pretty strong performance.

But then let's look at the more mature product, the rubber roofing product.

Did that actually decline in the quarter?

That's correct.

They had declines -- our most mature products declined less than the industry.

Okay.

But overall for the segment, for the construction materials segment, are you still seeing some pricing erosion?

Well, I just gave you the pricing erosion for the entire corporation.

And I gave you that half of that is automotive, and, you know, the other price erosions, quite frankly are spread equally throughout the rest of the company.

I don't think there is really an unusual story of price erosion at SynTec.

There continues to be a lot of pressure in a soft market, but I think it is being managed reasonably well.

Okay.

Great.

Then moving on just a couple of quick questions on the industrial components business.

I think you gave us the Dayco contribution on the top line number, but what about the EBIT number?

Are you seeing better margins at Dayco then when you first acquired it?

No Dayco, everything is flat there.

We had a transition agreement with a seller that just expired 12 months later, which was the middle of August.

We are just now in the opportunity for some improvements.

So the Dayco acquisition has been flat on a revenue and flat on a profitability basis.

So when do you see that turning up on a profitability basis, Rick?

'03.

As we ramp up -- I mean Dayco is starting to get belts from their new plant in China.

Their results are being impacted by a start-up of a new plant.

It is a typical cycle that we have explained on these calls many times.

You know, the first couple of quarters of these new plant start-ups are not much fun and that's contributed to some of the disappointment at our Dayco acquisition, but the cost savings from these kinds of projects will help news later periods.

I believe will start occurring in the second quarter of '03.

All right, one final question on raw materials.

At the end of the Q2 call, you said you didn't feel raw materials would be as favorable in the second half as they were in the first half, and yet in the press release, I think raw materials were actually doing okay.

What's your outlook for the rest of this year and perhaps next year if oil prices stay around $30 a barrel?

Well, I mean, I think, you know, there's a lot of pressure.

I think that we anticipate less favorable comparisons on raw material going forward, the real issue now for us on raw material is '03.

And there's a lot of negotiations.

This is unusual time.

Soft markets and companies trying to push through raw material increases.

So we've had more success fighting this off.

I think you picked up on it.

We can anticipate as favorable a result on raw material in the third quarter.

We continue to be able to push this back, but there's a lot of pressure building, and we won't know yet.

We will probably know December how this is going to shake out for early '03.

But I don't anticipate raw materials being as favorable going forward.

Okay.

Great.

Thanks a lot.

Good job.

Thank you, Mark.

Our next question comes from the line of Michael Sison with McDonald Investments.

Please go ahead.

Good morning, everyone.

Good morning, Mike.

In the second quarter you talked about utilization being 77% and unabsorbed overhead about 19.

In this quarter you lost 10% in capacity utilization but kept overhead above 18 19.

That's great.

Was that largely cost-cutting measures that allowed you to do that?

As we talked about we took an entire plant out of Tensolite and there are various ways that you prepare for this.

Normally one of the reasons -- to go back and look at our second-quarter to third-quarter, you normally see a drop-off in profits in the third quarter and it really relates back to utilization, and that July shutdown, which most of our major customers continue to take.

But we were kind of pleased, Mike, and we thought you would catch this, that the unabsorbed overhead did not deteriorate even though our utilization went down, and it's really a functioning of the restructuring and cost cutting.

A good sign, I think, for the future.

I think that's great.

And in addition, you talked about last quarter hitting, you know, 88% to 90% to absorb that full 19 million when you are at 77.

Do you absorb the full 20 million if you get to, let's say, 78, 80% in utilization now?

No, I mean, we have refined those numbers.

I mean, unabsorbed overhead -- and, of course, this can vary some with product mix, but it goes away with us at around 87%, 88% utilization.

Okay.

Any more cost-saving programs going on in the fourth quarter?

Well, I know I -- if you were asking about restructuring, we obviously will continue to look at and move quickly.

If we have opportunities to improve our businesses.

But there is nothing planned as we sit here right now at this moment.

Okay.

Quick question on Dayco.

When you look at the end markets that you serve in that business, you know, what is the -- the demand been this year and kind of the outlook going forward?

Well, the lawn and garden business has been a little bit of a challenge there.

The AG business.

Dayco has a larger percentage of AG than their sister company in that segment.

And that's been off.

There have been some soft conditions in AG and some of the larger lawn and garden units.

Dayco's share of larger lawn tractors is higher than it is of the consumer tractor.

That's been a little weaker.

The consumer business has been stronger, and tire and wheel has gotten the benefit from that.

So the market conditions for Dayco have been a little more severe than tire and wheel.

Keeping sales and EBIT flat is a positive over the last year?

It is a disappointment, but if you want to call it a positive, you know, I won't disagree, but we are disappointed that we have not made more progress with this business, but that doesn't diminish our thoughts about it going forward.

Right.

Great.

One last question, Rick.

When you look to 2003, you know, what type of volume growth do you think you need to grow earnings, or maybe another way to look at it, if the economic environment continues to be difficult, and you are know, you kind of have 0% volume growth in '03 what would your earnings kind of look like?%

Well, Mike, we are in the process right now of doing our planning, our detailed planning number comes in here late October.

I am very positive right now; some of the early numbers on revenue growth are very encouraging, but it is too early for me to start talking.

We will be talking more about '03 later in the year.

Okay, thank you.

Our next question comes from the line of Dean Gray with Goldman Sachs and Company.

Go ahead.

Hi, first question is, Rick, you had talked before about Carlisle's portfolio and perhaps being a little too diversified for the market cap.

How are you thinking about it these days in terms of potential divestitures?

Well, Dean, I guess I would start by saying what I have been saying, I think we are too diverse for our size, but at the same time, we are very much -- very much determined to have a discipline on how we go about doing this.

I mean, when there are opportunities to improve a business substantially, we plan to execute those improvements and then determine if it should be in our portfolio.

So right now, some of our portfolio changes that we anticipate are -- we are not doing because there is tremendous opportunity to improve these businesses.

I don't want to get into specific segments.

I think I have made some comments before about some of the segments.

It wouldn't take you very long to do your homework on the most areas we are probably going to focus on, but I'll simply to continue to say that I believe we are going to be more focused and less diverse, you know, three years from now.

But we are very much -- just like acquisitions, the discipline that we are going to have on when we do it and how we do it and the numbers will be very disciplined processed, so very lofty.

I cannot forecast to you any activity there at this time -- forecast to you any activity there at this time.

Okay, how does the acquisition pipeline look today?

It appears to be improving.

As you know, we have only done one deal which we just announced this year which is disappointing for us.

And we think we can improve on that, but at the same time, we think we can improve our businesses and grow our earnings even without an acquisition.

But we are working harder than ever and the pipeline does appear to be at the current time a little better than it was six months ago.

Okay, just talking about one of the businesses.

What was the contribution from Icopal this quarter?

Less than $5 million.

On sales?

How about EBIT.

On net.

Net.

Okay.

And then, Kirk, what's the goal for debt-to-total cap?

And where do you want to finish the year and what are you thinking about for '03 as compared to debt paydowns.

We were hoping when we did the PT acquisition last year to get back to 45% within 12-month time frame, which you consider the accounts receivable securitization program as debt we were able to do -- we want to be between 40 and 45%.

That's going to come down from further paydowns earlier in the year?

What's the time frame?

Yeah, the cash flow in the first quarter is typically not our best quarter as we are building our roofing and tire and wheel business inventories and shipments, but fourth quarter is going to look pretty good from a cash flow standpointed, and by this time next year, we will be closer to that 40%.

Barring any major acquisition.

Okay, thank you.

The next question is from the line of Saul Ludwig from McDonald investment.

Please go ahead.

Good morning, guys.

Good quarter.

Thanks, Saul.

Especially in the construction material sector.

If you look at the second quarter to the third quarter, your revenues were up around, what, $9 million.

And your profits were up, what, about $6.5 million.

That's a remarkable variable margin in a recovery.

What do you attribute that too, and as we go to the fourth quarter where you have a seasonal downturn, would we expect a, you know, 65% variable margin decrement moving in that direction.

Well, I think, and I have gone back and grabbed some numbers here.

The Icopal, we talked in previous periods about the problems with Icopal.

Now the good news is that Icopal is showing positive comparisons.

About one-half, Saul, of the earnings increase in the quarter was an improvement at Icopal in Europe.

From the second to the third quarter?

No, I am talking -- all my numbers I have got here are from the previous year.

Oh, okay.

So we will have to get back to you.

My numbers I have got is -- because as you know we are in seasonal businesses that we tend to focus on the previous year.

So your earnings there were up $3.5 million, so half of that was due to Icopal?

That's correct.

But the sequential change that I was referring to, can you shed any color on that?

Well, I mean --.

I mean performance was outstanding.

Maybe Icopal from second to third was a big increase and would explain -- because that's only a one-liner.

You don't count their sales.

Exactly.

No the Icopal results were very positive in the second quarter, Saul.

No, I mean, I think -- and I made my closing comment.

If you really dig into some of the industries we are in -- and we are talking about construction materials here -- and you analyze the overall industry.

I mean, SynTec has built some clear momentum here.

There's no question they have gained share in mature products.

They are capturing a tremendous share in the exciting new products.

They are just executing.

So I mean I -- I think your numbers -- the Icopal is not in the sales number, and it was about half the earnings improvement in the third quarter over the prior year.

So it's just execution, I believe

Okay.

Next question.

At Foodservice they use a lot of plastic risen and we have heard a lot about resin price increases through the beginning of the year through the third quarter.

What is really happening to resin prices?

Have they started to roll over yet, are they at the peak, and what is your outlook there?

We have been -- $4.4 million improvement for raw materials in the quarter, but you are talking specifically about Foodservice.

The issues there have been flat.

There's a lot of pressure.

But we have been able to hold these raw materials increases off.

I will say the $4.4 million, and I am talking consolidated.

That favorable comparison will come down in the fourth quarter because we are are experiencing some raw material increases.

It has been interesting, Saul.

A lot of announcements have been made on these basic commodities and then the negotiations start.

The third quarter, and I think Mike picked this up, is an example where we thought we might have a more negative raw materials even in the third quarter.

We are saying the same thing, the raw material will be more negative in the fourth quarter of '03, and it is in our forecast for the year, but quite frankly, these soft markets are providing and with some of our leadership positions in some of these businesses, we are having some success at managing our way through this $30 a barrel oil price.

So -- but it's changing weekly, monthly, and very hard to forecast right now.

And then finally, Rick, you talked for a long time about new products.

And you looked at your R&D spending and your consolidated statement up 20% year to date, up 12% in the third quarter.

It sounds like you are really getting a return on that investment.

You alluded to the 100 new tires helping you in that sector.

Can you share with us any other examples of new products that are beginning to make a difference reflecting this increase in R&D spending?

Well, Saul, I could -- I could spend hours -- I could tell you -- I think roofing is an example and we have already talked about their new products, Fleeceback, TPO, excellent result.

The tire company with 100 new tires.

Trail King has gained 7 points of market share; they've introduced new products on live bottom dumps.

I mean here an interesting business for Carlisle; this is a construction business.

We believe there will continue to be a lot of infrastructure rebuild in this country.

Trail King has over half these heavy construction trailers.

You go to Katmasu or Kat, they continue to introduce new products.

So they believe their market in construction trailers is down 70% this year, and they are down only slightly.

So I could point to foodservice growth.

Their travel-related businesses are down quite a bit, Saul.

They are up 13%.

These are all new products.

The point I want to make that I have made before.

We grew this company organically, consistently from 1990 to 1996 in the high single digits, 7, 8, 9, 10% organically.

And I have said it before and I will say it again, we believe we can do it, and we are going to do it.

We have the talent in these companies to get back on that organic sales growth performance area and that's what we are doing and I could go through each company.

The organics sales growth number is part of the incentive compensation system.

We just have had meetings with every operating unit, and all we talked about in these operating unit reviews are new product development.

So I hope -- I think the third quarter is a clear sign.

If you analyze the markets we serve, and our revenue performance, I think you are seeing clear science of new product development having quite an effect on Carlisle and we think that we have just got started.

Great, thanks a lot.

Ladies and gentlemen, as a reminder, if you wish to ask a question, please press the 1 followed by a 4.

Our next question is from the line of David Gireau with G-Ro Price.

Actually it is David Gireau, but good try.

A couple questions.

Talk about where foodservice margins are today.

They have been very, very low and are moving in the right direction.

Also talk about -- when we think of '02 versus '01, can you go through the profits of Icopal in '01 and also in '02 or also with -- what is sort of driving those better results at Icopal?

All right, David, let me start with discussion about Foodservice to your question.

I didn't give this out because, you know, when you are comparing to a -- not a very strong quarter, sometimes these percentages can be misleading, but Foodservice earnings in the third quarter were up over 60%.

But I didn't throw it out because we've talked a lot last year about the start-up of all these plants, about the new distribution centers, so it is not really a good comparison.

But the foodservice margins are much improved, are moving very quickly toward, you know, construction materials and other companies kind of margins, and we see it as a vehicle.

I mean, I have been saying the same thing.

We now have paid the price to create industry-leading service.

This is so important here.

Call us by noon, we'll ship you any one of 10,000 foodservice products that day.

That's how you start creating leadership in some of these specialty segments.

So we still very much view foodservice as a growth platform and its results are getting better at a pretty rapid clip.

But their margins are actually double-digit now?

Yes, yes.

Okay.

Now the other question I am going to throw to Kirk on Icopal.

Icopal had basically, David, no impacts on Carlisle last year through the third quarter.

It started to make a positive impact, and I think, maybe in September, but really it came in October, November, and December.

Through this year, Icopal has been much improved.

It has new management.

It's undergoing a lot of reorganization, restructuring, but year to date, their profit -- operating profits are probably around $30 million on a consolidated basis, and we have 25% of that in our numbers.

Okay.

That's great.

Can I ask one follow-up question on the foodservice margin question.

In theory, this business was a business where you were -- you had a channel of distribution.

You buy little companies and add them to your extensive distribution and really grow them quite faster than they grew before, leveraging new distribution.

Are we to the point on an internal basis where we feel comfortable replicating that strategy going forward making little acquisitions, adding them to your distribution channel and getting nice incremental revenues associated with those acquisitions?

Is that where the margins are now?

Are we feeling that we are confident we can do that again?

Yes, what I would add to that is a focus on plastics.

Core competency is core plastics.

What you see the kind of addition we'll make to take advantage of our distribution capability will also be very closely tied to our manufacturing core competency.

Okay.

Can I ask -- can I ask one last follow-up question.

Looking at giving '03 guidance yet, are you to the point where you say that's 03 Cap Ex will be a little greater than '02 Cap Ex, or is it still a little too early.

I will say it is too early, but on a very preliminary basis, I think '03 Cap Ex right now -- this is very preliminary -- I would say will be very similar to '02.

Okay.

Congratulations.

A very nice quarter.

Thank you.

Thanks, David

Ladies and gentlemen, again if you wish-to ask a question, press the 1 followed by the 4 at this time.

Gentlemen, there are no further questions.

Please continue with your presentation or closing remarks.

I am sorry, we do have a question from Godfrey Birckhead with SBK Brooks.

Please go ahead.

Mr. Brooks -- I am sorry, Mr. Birckhead, your line is open.

-- the other income expense net line where you went from -- you had a million dollar turn there, please.

Godfrey, this is Rick.

Yeah.

We had some problem with the phone connection and did not hear probably at least the first half.

Could you repeat yet?

Yes, thank you.

I had some housekeeping questions, Rick.

Thank you.

The first one was, in the other income expense net account, you had a million dollar turn from a $300,000 loss to a $700,000 gain.

Can you enlighten us on how that happened please?

Godfrey, hi.

I am racking my memory right now to remember what that was, and I know the minute I hang up I am going to recall.

It is generally -- that account generally has to do with asset sales or with currency in most companies.

No asset sales to speak of.

I will get back to you on that question.

Okay.

Okay.

Are you going to share with us the price that you paid for with Meridri?

No, Godfrey, it is our practice -- we've talked about the revenue.

You pretty well can see what our construction materials business has done on margins.

It shouldn't take you very long to figure out the profits in this thing.

Okay.

We are saying it is accretive.

So we are pretty much going to stick with what we have already disclosed.

Okay.

All right.

In the foodservice area, Cisco and U.S.

Food Service as we all know are the two large factors in that industry, and I guess gaining market share.

Do you do business with them?

Absolutely.

Okay.

Are they --.

They are both very good customers.

Are they the two major customers that you have?

They are two, but there are others, you know.

Edward Don, a whole host of U.S. resources -- many -- and that's a significant point.

You see, the strategy here, Godfrey, is even though we make -- we are not in the food business, we are in the food equipment business.

I understand.

And what we are doing is if you have a product broad enough, a product portfolio broad enough that you can have your products hauled into every restaurant every day by the companies that bring the food to them.

Right.

And that's where the breadth of product offering is so important and showing really good results for us right now.

Okay.

Godfrey, getting back to your first question.

Yeah.

It was right in front of me.

It is primarily Icopal earnings this year as opposed to nothing from last year.

Okay.

Of course.

Thank you very much for that.

What about 123 option costs?

Can you share with us what the negative earnings would be there and what do you intend to do about that?

The 123 -- you mean the --

The cost of options.

Oh, yeah, we are going to stick with our current method of booking it until FAS tells us differently.

It would be very small impact on our ETS.

Like, what, a couple of pennies a share or something?

3 cents max.

3 cents max, great.

Then finally, Cap Ex this year will be what did you say before?

$40 million.

Okay.

And depreciation, please?

We are at flat lined $15 million a quarter.

Okay, $60 million.

Thanks very much, gentlemen.

Thank you.

Gentlemen, there are no further questions.

Please continue with your presentation or closing remarks.

We don't have anything further.

I would like to thank everybody for taking the time to listen to the Carlisle conference call and that concludes our conference call.

Ladies and gentlemen, that does conclude the conference call for today.

You may disconnect and thank you for participating.