Carlisle Companies Inc (CSL) 2005 Q3 法說會逐字稿

Welcome to the third quarter earnings conference call for October 20, 2005.

I would now like to turn the call over to Rick McKinnish, President and Chief Executive Officer.

Please go ahead.

Thank You.

Welcome to our third quarter earnings call.

With me is Carol Lowe, our Chief Financial Officer.

Our formats going to remain the same.

We have quite a bit of information on our press release.

If you go to our website which is www.carlisle.com there's a lot of additional information you can follow along.

With that I'll turn over to Carol to summarize the quarterly financials.

Thank you, Rick.

This morning I'll keep my comments limited, so we quickly move back to Rick for discussion of the operations.

I also to note my comments will largely refer to results from continuing operations unless I specifically state that they include discontinued ops.

Third quarter 2005 sales were up 16 million year-over-over largely on organic sales growth.

Our year to date growth increased 10% over ' 04 with organic sales representing approximately 84% of the total growth.

Third quarter 2005 earnings of $1.24 per diluted share were up 19% over 2004 earnings of $1.04.

As we noted in our press release our third quarter 2005 results include a 10-cent tax benefit related to settlement of filings for certain federal and state tax years.

The ongoing labor dispute at Johnson truck bodies contributed to their year-over-year reduction and quarterly net income of $0.4 per diluted share.

Third quarter net loss from discontinued operations of approximately 19 million, includes 10 million after tax related to the loss on the sale of the automotive components business.

Third quarter loss also includes an increase for our allowance for for doubtful account for trade receivables that were not sold as part of the automotive business.

The increase in the allowance was triggered by Delphi's Chapter 11 filings.

The cash and cash equivalence balance that you see on balance sheet at September 30, '05, included The cash and cash equivalence balance that you see on balance sheet at September 30, '05, included approximately 39 million for the October 7, 2005 acquisition of the [Arbor] off highway break brake access.

We expected the acquisition to close September 30 but there was a last-minute delay which pushed the transaction out into early October.

Rick will provide you more color on this and other breaking acquisitions.

Our year-to-date operating cash flow of 115 million is very favorable with 2004 operating cash flow of 66 million.

Our securitization program provided approximately 3 million year-to-date of '05 operating cash flow compared with a contribution of 67 million in 2004.

The decrease in our cash use for working capital 2005 as compared with the prior year is largely due to collections with trade receivables.

The cash during the two nine month periods that support inventory levels was less than 2005 than it was in 2004.

I'd also like to note that year-to-date 2005 we have repurchase 500,000 shares.

We have authority to purchase an additional 500,000 shares under our current approved program.

With that I'll turn the call back over to Rick.

Thanks, Carol.

Before I get into each individual segment, I'd like to start with saying we have one less segment to comment on today.

We're out of the automotive business.

If there's anyone out there that's called in because of an interest in auto, you're on the wrong call and we'll give you a brief second to hang up.

We still have two segments that have a meanfully exposure to OE customers.

This is the industrial component segment and specialty products segment.

Those of you familiar with OEs they traditionally have a shut down in the third quarter and these are normally weak quarters if you're servicing an OE and that's the case for these two segments, industrial and specialty.

We suggest these seasonably weak quarters are not suitable to look for mean trends.

I'm simply going to highlight other major issues.

Industrial components, lawn and garden is the largest and most important market in this reporting segment.

It is well documented by this time of year.

Many other companies have commented about it, that we had soft demand coupled with high inventories throughout the channels.

This create a dismal, lawn and garden season.

To reduce our inventory because we listened to everybody else in the channel and adjusted this poor market demand we ran our plant in this segment at 57% utilization which is significantly down from 87% in the prior year.

This generated an $11 million negative change in our overhead variance.

So in summary in industrial components our earnings disappointment has three key elements, unprecedented spikes in raw material, the shutdown of a belt plant that we've talked about in earlier calls and running these plants at a very low utilization.

We have several current actions underway.

First we're determined to enter the '06 season with much better inventory situation.

This reality is in our guidance and it's well underway.

Our Tire & Wheel business has absorbed $65 million of raw material increases in the last eight quarters.

We are executing another price increase.

This will be our fourth increase in many of our markets.

In the fourth quarter, we plan to fully recover these cost increases, the ones we've absorbed today, we plan to fully recover these increases by early '06.

We've also laid off 320 employees to lower our costs going forward.

Yes, it's been a difficult period for these businesses but our market share and strategic platform remains very strong and our outlook for improvement is very positive.

The next segment is construction materials.

As you know this segment primarily our commercial roofing business, SynTec.

We spend a lot of time talking over the last couple years about the new strategy at SynTec and I'm not going to go into that.

We think everybody is familiar with it.

It's clear to us as we say on almost every call that the management team here is executing at a high level so I'm going to really move my comments to address a couple of likely questions.

Why was the growth rate only 9.1% in the quarter, it's 21% year-to-date?

A couple of reasons.

First off, was really an unusual quarter.

The quarter started very slowly.

July was quite soft.

It was clear to us there had been stockpiling of inventory because of the price increase environment.

Dealers and distributors were stockpiling inventory in advance of price increase announcements but we are very encouraged by the strength in business the last half of the quarter.

We caught up with a soft July and caught up in the last six weeks.

A lot of momentum going into the fourth quarter.

We are also currently capacity restrained in the TPO Membrane.

We've talked about it quite a bit in the last couple of years.

We've announced a new TPO Membrane plant making pilot runs in the Utah, Salt Lake City area and it should provide substantial new capacity for the '06 season.

We are encouraged by customer interest in this new capability in the western regions of the U.S. and Canada.

And finally quite frankly last year's third quarter in roofing was quite strong.

We've also announced this year and recently three other new plants providing insulation, a critical component to the outer membrane.

Market reception, as we add this new capability remains positive.

The next segment is specialty products.

As discussed earlier this has a weak third quarter because of customer shutdowns so in addition most of this other information is covered in the press release.

I would suggest to you or say that we experienced a softness in our most profitable product line generating poor product mix for the quarter.

We don't see a trend at this time.

I would take a moment because there's some major changes underway and I'd like to describe them.

First, let me talk about Motion Control which is our Heavy Duty Friction and Shoe Manufacturer primarily for class 6, 7 and 8 trucks, these heavy duty trucks on the road.

Throughout the 1990s and 1980s, Motion Control was one of Carlisle's profitable and consistent businesses.

It has excellent technology, strong brand recognition and very good market share.

It's been a clear leader.

Our gross slowed down basically because our costs got out of line.

A couple of years ago we started on a new strategic plan to reinvent this business and regain our competitive advantage.

We started with shutting down a high cost plant, we talked about it in the past and ramping up a new operation in southern Virginia and this has been painful but we needed lower costs lower than that for certain product segments key to this market.

The acquisition we announced in July, a manufacture in China of motion control products provides a strategic model we desperately need.

The confidence level is high that this business is now once again as it's been in the past a growth platform.

The other breaking acquisition that we u just announced on October 7, is easier to explain.

We basically purchased our number one competitor and one of our most profitable product lines and now moving a U.S. piece of this, which is the largest piece, into an existing plant that there's no brick and mortar required.

Both of these transitions should be nicely accretive and we'll talk about that in our '06 guidance in February.

The next segment general industry.

Really, we had improved performance at several businesses as we mentioned in our press release.

This was more than offset by an ongoing work stoppage at Johnson truck bodies.

A couple of pieces of information about Johnson and truck bodies.

The performance at Johnson is getting better each month.

Very encouraged by September results.

We have replacement works hired and trained and aided by striking workers that have come across the picket line and returning to work.

Results are getting better month-to-month and as stated earlier the effects of this dispute will decrease over time.

Now switching to our guidance.

Our guidance for the year is raised from 410 to 425, that's the old guidance.

The 25 to 435.

Quite frankly a very disappointing change.

We anticipated better changes.

The three primary drivers that are creating this disappointment, the soft lawn and garden market demand coupled with high inventories in the lawn and garden business we talked about that.

Unprecedented and I'm sure you're as tired hearing about this as I'm tired of talking about it but it's been a unique period as far as unprecedented spikes in raw materials.

It's anybody's guess, I have been wrong about this, we cep thinking it's calming down and going to diminish and then the events that occurred in the third quarter but that's having an effect on us.

The other one we talked about and Carol has quantitied is this work stoppage at Johnson truck bodies.

Three three things prevented us from having the type of year we expect.

I would suggest to you all these factors are short-term in nature and fixable.

We are pleased with our recent acquisitions.

They are in our space in businesses that we know.

We know our competition and we plan to continue to add resources to step up our acquisition effort.

But in summary we remain positive.

Our current path will continue to provide improved results and with that I'd like to turn it back to the operator and we'd like to get some questions.

Your first question from Saul Ludwig.

You reeked out another one.

On the construction materials of the 9% revenue growth, two questions, one, how much of that was price versus volume and then your comments imply that the rate of growth should accelerate and be greater than that in the fourth quarter and into next year based on your comments about the momentum going into the fourth quarter.

Okay.

Let me start with the last one.

No comments about fourth quarter, I don't really provide guidance from quarter to quarter but overall comments we are encouraged by the reception of the new facilities.

We did have a uniquely slow period in July and early August.

We are pleased with momentum but I can't give specifics about the fourth quarter but we are very encouraged by how we finished the third quarter.

The other one, I will say we really don't want to provide any price in volume information specific to the roofing business.

I really quite frankly most other businesses having too many competitors listen in on the call so we elected to really provide a lot of information on the consolidate basis but for this time being when the pricing is so fluid in the marketplace, a lot of issues, we're electing not to provide price and volume information by business unit.

Could you give it to us for the whole company?

Well, I would say -- Carol?

We'll say that right now the pricing is a little ahead of the raw material cost on a consolidated basis but that's not the case for every business on a business by business case.

We are slightly ahead but based on the raw material cost increases we have coming in the fourth quarter, increases in price have been implemented just to cover that.

And relative to your 3% revenue growth in the quarter, was that more price, negative on units?

Obviously our units, our lawn and garden units, they're down 20 some percent with no loss in share.

You're right, when you have a major market to us like lawn and garden that's significant to a large segment like industrial components, no question when the market is down quite a bit in units it has an impact.

The lawn and garden business and the Johnson truck bodies work stoppage took about 19-$20 million out of our revenue in units and really the way we look at it would have been normally a 6-7% organic growth order if thought for those events.

Thank you.

Your next question comes from Wendy Kaplan.

Please go ahead.

Good morning.

Rick, I think you skipped over transportation segment.

Was that purposeful?

I'm sorry.

Wendy, thank you.

Really Jerry Thompson, the president of Trail King is having a fabulous year.

He's executed and recovered his steel increases and you see the comparisons.

No, the results were so good it's the kind of thing when he came to a meeting he put the numbers up and doesn't say anything.

No, Trail King is a great company doing a fine job and that heavy construction segment.

The outlook for that is very good.

They have a strong backlog going into '06.

That business, I should have mentioned and I'm glad you corrected me.

I apologize to Jerry Thompson and his team.

They are having a heck of a good year.

I thought it was good.

I wondered why since you mentioned at the beginning of the call we were no longer talking about one segment, I didn't think that was one you forgot going to be talking about.

Just a more kind of high level strategic question.

As I look on page 8 of your slides which has two pies of net sales in EBIT.

If we add up just the construction materials and industrial components we get to 2/3 of your profits.

We sort of expected that in addition to auto this would be ammouncement about other businesses being discontinued, sold, whatever.

Could you address that issue with us, please?

Well, Wendy, obviously your question is a good one because it voices a concern really throughout the investor community.

Quite frankly I've been saying now for several years we are too diverse for our size.

We're going to get more focussed and allocating capital in businesses we think we can create a long-term advantage.

You're right it took us longer on automotive.

We've been trying quite frankly for five years, too long in automotive.

It's taken us too long.

I think in the near future we still view that ' 05 will be a product year for us in improving our portfolio we've now officially got automotive behind us and we're not finished but the finish line is getting closer and I can't speak to what period whether -- but it should be in the next several quarters.

We think we'll get this portfolio issue behind us.

But I would just caution everybody you can see from the pie chart you just referenced.

We don't think it's going to have any impact on our earnings ability.

It's just overall improvement and we think most of our investors recognize where the changes are going to be but we hope to have some announcements about this in the near future but can't give you anything definitive today.

Okay.

Thanks, Rick.

Thank you.

Your next question from Peter Lisnic.

Please go ahead.

Good morning, Rick, good morning, Carol.

Rick, I'm a little confused about the, I guess your last comment on the forecast and it being relatively disappointing.

I think this quarter looks like it came in pretty good and you mentioned raw materials as being one of the drivers for that disappointment but it sounds like for most of the quarters at least this year you're able to offset raw material costs at least on a net basis for the overall company.

I'm trying to square away what you're seeing in raw materials and it sounds like you've got enough pricing power to pass that through, is that a fair assessment?

We do have the pricing power.

We've said for years we've got the power to make this margin neutral overtime.

Always a time lag and I think we're getting better at it.

Let me comment, Carol's information to you was correct but let me add this, Carol has given you price increases relative to raw material cost increases.

She's not given you cost increases on utilities, on fringe, on freight rates, all of the other cost drivers so it's really, we have to be careful here.

Because everybody is talking about raw materials, we're giving you information about raw materials only.

Quite frankly we've got business that is have not recovered through really at all this year overall cost increases.

Some have not even recovered raw materials but in the overall basis she says we recovered raw material but in some segments we've not gotten the other cost drivers I just mentioned.

We have the power to do it.

I ran through that.

We are out in the fourth quarter in industrial which is our belt business with price increases and I think I did say we plan to recover these price increases as we enter into '06.

Yes, in general we've got the ability.

The industrial business we've got businesses there that have 50, 60, 70% market share so it be foolish to think we couldn't get these price access increases.

The problem is when you've got OE business it takes a little bit longer.

Why I took the time at the beginning to talk about the two segments that have some OE exposure, which is specialty and industrial and two of our segments lack lagging behind the others.

Fair enough on that front.

If you could maybe give us some insight into the off highway braking business.

Seems like the kind of the fundamentals we hear from people in the off highway industry are pretty good but you reported sales down in the quarter.

Something happen there or what's the fundamental outlook for that business?

The outlook is excellent.

Heavy construction, mining, we're bullish and we just acquired out competitor in that space.

I think, just to go back, this product line as we've looked at it has some of the highest margins in all of Carlisle.

Yes, we had a patch in the third quarter that their business was off but if you look at their five-year numbers, everybody is a positive and we had the unique opportunity to go by our number one competitive space and just happened to have idle space in our existing facility to move all of this into, so it's a very attractive project and we'll be scrambling to get that done in the balance of the year and look forward to how this looks inside our existing brick and mortar for '06.

No, our off highway braking, you know, has attractive -- and good solid management team and pleased to acquire our competitor.

In these businesses, why I mentioned to start, seasonally weak.

We spent a lot of time in the first quarter saying don't pay attention to the roofing business in the first quarter because it's a seasonally weak quarter.

In a seasonally weak quarter if you have any other event that's negative it's magnified because it's normally a seasonally weak quarter.

Don't worry about a roofing business in the first quarter.

You've really got to don't pay so much attention to events in a seasonally weak quarter and that's the case for specialty and industrial in the third quarter.

Okay.

That answers that one.

If I could answer one more question on the roofing business.

I would have guessed that part of the reason you didn't post a double digit increase in sales for that segment in the quarter was maybe hurricane-related.

Can you give us a sense of what kind of impact on overall operations was from the disasters in the gulf region and how that translates into next year's numbers look like without giving us next year's numbers?

Peter, it's a good question.

Obviously this is an important business.

We are allocating capital.

We'll leverage this franchises, we're excited about the opportunities.

I tried to leave you in my comments we are encouraged.

Encouraged how we finished the third quarter after the third start, the new facilities.

You've seen enough performance for several years the strength of this franchise in that channel is strong and we're trying to leverage it.

As it relates to the hurricanes, John Alt Meyer the President is putting three additional sales people on the ground, in the gulf region.

We want to participate, in the rebuilding of the gulf region and that just falls in my overall comments we are encouraged.

A good positive outlook.

We need the capacity and the other reason was rate is down is restrained at our TPO plant.

Our Membrane plant ,by the way, is in Mississippi, and it was not damaged but we are on the ground in the area adding resources to help rebuild the gulf.

Really more exciting than that to us is this new infrastructure we are putting out west where we've not been able to bring the value to these customers out in the western regions of Canada and the U.S. and the reception we are getting and the interest throughout the channel as we bring up this capability in the west frankly is exciting long-term.

Of course, the hurricane to us that will be a short-term event and we tend not to talk much about it.

Okay.

And in terms of the TPO plant out west, my understanding is that essentially sold out.

Is that a fair assessment?

Well, what's a fair assessment.

Accurate?

We're encouraged about the reception quite frankly.

John Alt Meyer and I spent a lot of time.

He's getting more bullish about that operation every month as we explore all the opportunities out west.

I won't say when it's going to be sold out but a high level of confidence that we'll move fairly quickly and using the capacity.

Okay.

Appreciate the time and nice quarter.

Thanks.

Thank you.

Your next question comes from Kevin McVeigh.

Please go ahead.

This is Kevin McVeigh for Dean Drake.

A couple of questions.

First, I wanted to get a better sense, if I did my math correctly I think the organic growth was 2% in the quarter.

Could you give us a sense of how the different segments contributed to that?

Could you tell us the organic growth directional across the segments that come to the 2%?

Kevin, if you look at within the earnings release you can see the sales growth for the quarter by segment so you can see construction materials by comparing the year-over-year was about 9% as Rick has disgusted.

You can go down segment by segment and obviously the industrial components had the decrease has already been discussed.

From an organic standpoint we added that for the quarter that was only approximately hundred thousand that related to acquisitions.

There was 1.8 million related to foreign currency so the rest of it is all organic and again we lay out what the increase is by segment by segment in the discussion.

Okay.

I guess the other thing it looks like,if I did my math correctly Johnson Truck year-to-date has been about 1% impact on earnings?

Could you give us a sense of, go ahead?

Go ahead, I'm sorry.

A sense of what the impact could be in the fourth quarter potentially into '06?

Kevin, I can, we talked about the numbers in the second quarter.

We laid out the impact in the third quarter.

You can see a decreasing rate.

I'm projecting continued decreases in the losses.

I said September was much better, getting better month-to-month.

We are projecting decreasing impact.

It's in our guidance and quite frankly it looks like we are not currently visualizing losses in '06.

But I can't project quite frankly first quarter but I think for the year we're not targeting any losses in this business in '06 for the year.

That help any?

One last question if I could.

In the transportation segment the operating margins are up year-on-year and said it was attributable to price.

Can we get a sense of how the 760 basis points breaks down?

I think Rick said earlier we're reluctant to talk about the detail between volume price increase because of the competitors that wasn't on the call.

I could just provide a little color.

Number one, this is what happens, this is what should happen in a business where you fully recover your cost increases.

What you're able to pass through to the customer and your market strengthens.

When you can see in transportation that the sales are growing and this is the normal leverage that we would expect and they're executing well, as I mentioned.

So really they pass through the raw material increases and the bulk of the improvement is the positive advantages, higher volumes.

And, Kevin, we can say that volume increases out pacing the price increase for that business, for all of transportation products.

Okay.

Thank you.

Once again if there are questions please press star on the touch tone phone.

Another question from Wendy Kaplan, please go ahead.

Carol, some of the costs that you all referred to in terms of the fuel benefits, freight, et cetera, can you quantify this for us in terms of, you don't need to do it by segment, certainly, but some sense of how big that nut is and you, what portion of it you are covering at this point and what your plans are to cover the rest of it?

To cover the rest of it is going to be price increases largely as well as continuing to look at productivity and labor force in some instances.

Surcharge for fuel and things like that.

I guess if you look at it probably the easiest thing to do in terms of quantifying it related to freight and, Wendy, I don't have it in front of me broken out completely but it all gets, it shows up in unabsorbed overhead, the biggest piece of it and year to date we are running unfavorable compared to the prior year by more than $30 million.

And included in that is freight variance and other items such as utility variances and things like that.

That's helpful, thank you very much.

Your next question from Saul Ludwig, go ahead.

What was the operating rate in the quarter?

percent on sales?

No, operating rate in the factory. 78%, 72%?

Capacity utilization?

Right.

For the third quarter on a consolidated basis was 67% for ' 05, year-to-date was 75%.

What was it last year?

Last year 2004 third quarter was 81%, year-to-date 2004 was 79%.

Our Utilization, Saul, was dramatically lower than the prior period last year.

Okay.

Another question was with the sale of the automotive business you got money in two ways.

One, money for the assets and then you've got money for the receivables that you retained.

How much did you wind up getting for the automotive business?

Well, Saul, I don't know, we've disclosed everything about it so far and it's ongoing.

Still a few pieces we are negotiating we're selling a piece to another company as we speak collecting receivables.

We will disclose all that.

So far.

Just ask so far?

Sol, approximately 50 million.

It's netting out write off and reserves we've taken related to Delphi.

I'm talking about cash.

Not real money.

About $50 million?

Yes.

Okay.

And the final question, is there any other tax issues or tax audits that are still lingering that could have an effect out in another quarter?

Are you completely done with all of your tax audits such as that won't be a factor?

A nice positive help this quarter.

More of that on the way?

Not that we know of, Saul.

Let me make a comment.

That raises a question.

We disclosed every quarter, we disclosed last year.

We had a positive thing on tax last year and I would say to you I know everybody is going to discount all this and that's fine.

These constant positives on tax do relate to the way we do our books and it should be some thought process and credit sooner or later for a company that settles their audits and has positive impact as opposed to negative.

So we settle the '02 and '03.

I think Carol?

On the Federal.

We had some last year and if you're going to discount it I'd like you to go back and pick out the insurance recoveries and tax things from last year.

So make it an apples to apples.

We're not trying to discount it, I thought it was good news and wondering if there was moor more good news behind it.

Not that we know of, Sol.

The next question from Gregory McCostco, please go ahead.

Thank you.

Could you talk a little bit about that new, you mentioned a new capability in membrane?

Yes.

Okay.

We've introduced this, I think we announced some time because the plant is built and just starting to run.

My term is pilot runs, prototype, we're very early and that's why I characterize it as we'll have meanfully quantities for the '06 season.

TPO Membrane is a sun belt product, it's a white or tan or any color you want.

We sell it primarily in the sun belt.

We've been growing that business at a rapid clip.

I'm guessing in orders of magnitude it's been growing in the 20%, it's growing in the teens.

Over the last four or five years we've expanded a plant in Mississippi a couple of times and it has sold out now.

Our team is telling me we are capacity restrained.

That was one of the factors in our growth rate in the third quarter and we are excited to be having this new plant coming up at this particular time.

It's also more meaningful because it gives us an ability to provide a value to the western region that quite frankly is unique in the industry.

Is there any difference between this plant and the other plant?

Is it pretty much a look alike?

Obviously with each plant there's always differences, capability, speeds, control capabilities because it's always we learn from each plant and we think the next one is better technology but it's still making obviously TPO membrane that will appear to the average person just like the membrane in Mississippi.

Good.

And you mentioned that you feel comfortable that you've not lost any share in the lawn and garden area?

Is that basically from your customers knowing the production they have and what you're supplying?

Yes.

I'm saying that our share in the '06 -- '04, '50 season looked very close almost identical to the share of the '04 season in lawn and garden.

Is there space to grow and gain share in that area going forward next year?

We've got such a high share there.

We've got shares very high.

We've always said we will go with the market there short-term.

We are growing the commercial.

What's happening there you've got the consumer side of that business.

The riding lawn tractors that sell it, the mass merchants and that business is the one that's been down this year.

The -- business.

There's a commercial lawn services.

We have a very high share there and that business continues to grow and even grown this year so we've got pieces of that that continue to grow but we don't see the growth rate there in lawn and garden because we currently have a high share that we see in other market segments in that business.

Within general industrial, I know you talked about the Johnson truck body and I think you mentioned food service and the [tinsel] as being strong.

Can you talk about Carlisle, the systems and equipment area?

That's our business that does stainless steel, specialty products for food and dairy.

Operations in Europe and the U.S. that started from our original acquisitions in the cheese business.

And, Carol, their results were --

They were up in sales year-over-year as well.

But there's always, they do large projects and their contribution was more meanfully on an EBIT standpoint as some of the larger projects were winding down and they operate on a bill and progress basis and some of those margins that they've had favorable results on the projects their starting to show up with in our EBIT but net positive year-over-over as well.

But just looking at the results on that slide with regard to the sales in the quarter and the EBIT.

Was that basically Johns truck body was the problem for the sales, basically flat and the EBIT down?

Yes.

In other words the loss at Johnson compared to the prior year was greater than the decrease in EBIT and the sales diminished.

Let's face it.

Tensolite had a reasonable quarter, food service had a reasonable quarter but we're not happy with the overall results, even after you factor in the Johnson truck bodies situation.

And is the shall we say happiness or need for improvement in the systems area, systems and equipment?

I would categorize it as almost across the board.

Okay.

Thank you very much.

Thank you.

Your next question from Godfrey Birckhead Please go ahead.

In answer to Saul'ss question about the operating rate, I think your answer was 67% overall.

If you took the industrial components business out which, of course, is your most important business, what would the operating rate be?

Godfrey, I don't have that calculated excluding that.

Rick shared in his comment the fact that utilization for industrial components for the third quarter was 57%.

Okay.

So obviously had a significant impact.

Yes.

Okay.

And your capital expenditures this year, Carol, are going to be what, about hundred million dollars?

Some of it is going to depend on the timing of wrapping up the new installation plant and new TPO plant on the West Coast which we've been disgusting.

As reflecting cash flows 76 million.

We'll probably be a little, we'll be under 100 million for the year.

85 is a good guess?

That's a good guess.

Okay.

Are they going to continue at this high level going into 2006 and beyond?

Well, Godfrey, obviously we hope to continue to find under served areas in the roofing business.

We very pleased.

If you look at the numbers we're making good use of the capital as we expand this capability but I would give you an overall general statement.

Because you had quite a step up there in the past couple of years.

I would say that this, you're right, we are reaching near the end of having our model in place and so if you want to look at it like this, will our spending on this business be as high the next two or three years the best?

Probably not, but we hope to find another avenue that's just as solid.

You're right.

Based on the current strategy and what we're executing we are getting closer to the end of that cycle.

Okay.

Will you be able to give us an estimate for Cap Ex in the next conference call you have?

Yes.

Yes, we will, Godfrey.

And one last one, what is the doctor and amortization going to be this year, please?

Approximately it should be approximately 57, 58 million.

Okay.

Thank you very much.

On the current rate about 56.

Thanks very much for your time.

Thank you.

Your next question comes from Pete Lisnic.

Please go ahead.

A quick follow-up.

In terms of the stock buy back for the quarter.

Can you talk about that in the context of what the acquisition environment looks like?

In other words you use capital it buy back stock so I'm wondering if, A, why you bought back stock.

But, B, what you're hearing or what the acquisition pipeline looks like?

The acquisition pipeline, there's a lot more activity.

We just did a couple of deals that are in our space kind of deals in the braking business.

We are excited about acquisition.

We see the need and talk about adding more resources internally so that we can explore and execute acquisitions so the acquisition activity level and pipeline is very bullish and so we still see more use of that going forward.

We've not been happy with the amount of acquisitions that we've been able to do the last few years and expect improvement going forward.

But with that said we said from time to time don't read into stock buy back that we're not, we don't have acquisition opportunities.

We're going to explore with our board constantly when we see our stock at attractive levels we're going to buy it and we still have going forward, all the Capital Markets are available to us.

So there's no reduction off acquisitions because of the stock buy back.

Okay.

What about in terms of pricing on available deals.

Has it gone up?

Stayed the same?

Down?

It's gone up.

But that's a key for us.

Why more than ever as we've talked people get upset with our discipline and slow movement but we'll be in our space with companies that fold in and where the numbers work.

We're going to leave it to somebody else to create these new platforms now at these prices.

Okay.

Sounds good.

Thank you.

Your next question comes from Michael [Bunyonaire].

Please go ahead.

Yes.

Good morning.

I apologize in advance because I missed maybe the first 15 minutes.

Clearly you have been able to perform very well in a tough environment.

Could you just quantify, year-to-date could you just mentioned that your utilities and costs were up $30 million and that you've been able to obviously increase prices and offset raw materials, cost increases.

In aggregate, are you going to be able to more than offset all of the costs as we go forward or are you seeing portions of your costs growing much faster than either pricing or volume and I'm thinking about the total company in aggregate.

Well, that's a good question.

As we talked about it's such a fluid situation with these recent raw material spikes and that's why I wanted to spend time on these other increases.

In general, overtime with our market shares in our key markets where we are focusing, we can fully recover raw material and recover enough over time of these other cost drivers that when we do our normal annual, annual productivity improvements all these things are margin neutral over time and we say that because we still are not back to our historic margins.

We still haven't gotten back to the margins that we averaged in the 1990s.

That's right.

So for all these reasons we keep having to talk about, raw material, et cetera, it's happening to us but long-term our plan is to get back to our traditional margins and nothing that we see out there that tells us because this will all play out, how we do relative to our competition.

Because all these other things, that's why I spent time on the braking business and acquisition in China because we continue to create advantage in that market spaces this will all be neutral over time.

Our frustration has been all this it seems like each year is another crazy environment, the last years preventing us from getting there.

To answer your question long-term improvements and price increases we believe will recover all these price elements.

Once again your construction materials business is tremendous and new products are obviously helping you.

Competition which you just referred to is obviously something you have to pay attention to so it depends on whether the competitors will allow you to execute on the pricing.

Do you have any sense both year-to-date and as we go into the end of the year since you are already talking to a lot of your customers whether you'll be able to recover?

And I'm trying to get a sense of unaggregate if you take all the costs year to date, everything in, are you going to be able to offset it as we go forward or is it still a drag of, I don't know, $20 - $30 million that we need to overcome.

When you say more than offset, in general because of the magnitude in the marketplace as far as raw material increases, we're getting multiple price increases.

We have been getting.

I don't have the number but it's, we're talking about several hundred million here of price increases.

If you look back over several years and so it's been an unusual period of time.

We've got to strengthen the markets.

To get these price increases we are going out.

If you look at every other underperforming company in the last couple of quarters, take the third quarter, they are out with price increases in the fourth quarter.

In general the environment is good on getting these price increases.

We are getting now, the question is going to be, this is really on your mind if the market is softer, how much of the price increases will stick.

And I'm just, I can't speak to that issue at the moment.

We'll talk more about that as we enter into '06 but if you want to talk about 'auto we are getting -- '50, we are getting the price increases.

Will this stick if the markets soften and I cannot address that today.

Congratulations.

Excellent performance.

Thank you for your thoughts.

Thanks.

Your next question comes from Gregory.

Please go ahead.

Just one quick follow-up on the last question.

With regard to price increases you said earlier that there was a 30 million variance generally between raw materials, fuels and everything?

That number I said it was greater than 30 million.

It really, that's our unabsorbed overhead.

What this includes are variances related to freight, utilities, benefits also includes the productivity factor and as we discussed the capacity utilization is dramatically different third quarter '50 versus third quarter '04. 81% third quarter last year.

So into that is that productivity piece of it.

I don't have the information in front of me to be able to break out specifically how much is freight, utilities and all of that to segregate it from the productivity.

But overall variances.

Year-to-date is more than $30 million.

Oh, year to date.

Thank you very much.

There are no further questions at this time.

All right.

Thank everybody for taking the time to listen in on our conference call and we look forward to talking to you again in February '06.

Thank you.

This concludes today's call.

Please disconnect your lines and have a wonderful day.