Park Aerospace Corp (PKE) 2006 Q4 法說會逐字稿

Good day, and welcome to the fourth quarter 2006 results conference call for Park Electrochemical Corporation. Today's conference is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to the President and Chief Executive Officer, Mr. Brian Shore. Please go ahead, sir.

Thank you, operator. This is Brian Shore. Welcome, everybody, to our fourth quarter conference call. I have with me Jim Kelly, of course, who is our Vice President of Taxes and Planning, and he'll be helping out with the call. And why don't we just get started. Jim will give us some financial perspective on the fourth quarter and the year, and then I'll comment a little bit. Then we'll go into questions, okay? Go ahead, Jim.

Thank you, Brian. Good morning, everyone. Certain statements we may make during the course of this discussion which do not relate to historical financial information, may be deemed to constitute forward-looking statements. Any forward-looking statements are subject to various factors that could cause actual results to differ materially from our expectations. We have set forth in our most recent annual report on Form 10-K for the fiscal year ended February 27, 2005, various factors that could affect future results. Those factors are found after item 7 of our Form 10-K. Any forward-looking statements we may make are subject to those factors. In this discussion, I will describe results of operations based on non-GAAP financial measures, as well as financial results determined in accordance with GAAP. We believe that the disclosure of non-GAAP operating results, as a supplement to GAAP financial results, will assist the listeners in assessing the Company's performance and prospects.

I would first like to summarize the financial information included in the press release for the fourth quarter and fiscal year ended February 26, 2006. Net sales for the fourth quarter ended February 26, 2006, were $57 million, compared to net sales of $51.2 million for the prior fiscal year's fourth quarter. Park's net sales for the fiscal year ended February 26, 2006, were $222.3 million compared to net sales of $211.2 million for the previous fiscal year. Net profit for the 2006 fiscal year's fourth quarter, before special items, was $10.9 million, compared to net profit of $4.9 million for the prior year's fourth quarter. In the fourth quarter ended February 26, 2006, the Company recorded a tax charge of approximately $3.1 million, in connection with the repatriation of approximately $70 million of the accumulated earnings and profits of the Company's Nelco Products Pte. Limited, subsidiary in Singapore, and a pretax asset impairment charge of approximately $2.3 million related to the write-off of construction costs for the installation of an advanced, high-speed treater at the Company's Neltec Europe SAS facility in Mirebeau, France. The treater, which was installed at the Neltec Europe facility when the business environment in Europe was more suited for such a treater, will be moved to, and installed at, the Company's facility in Singapore. Accordingly, net earnings after special items for the fourth quarter ended February 26, 2006, were $5.7 million, compared to net earnings of $4.9 million for last year's fourth quarter.

For the year ended February 26, 2006, Park reported net profit before special items of $31.6 million, compared to net profits before special items of $18.1 million for the prior fiscal year. During the 2006 fiscal year, the Company recognized a tax benefit of approximately $1.5 million in the third quarter, relating to the reversal of valuation allowances against deferred tax assets previously recorded in the United States, and recorded a pretax charge of $0.9 million in the first quarter for employment termination benefits related to the reduction in work force at its Neltec Europe SAS facility in Mirebeau, France. During the 2005 fiscal year, the Company recognized a $4.7 million pretax gain related to insurance proceeds from the November, 2002, accident at its Singapore facility, and a $0.6 million pretax charge for termination benefits related to work force reductions at its North American and European operations. Accordingly, net earnings were $26.9 million for the year ended February 26, 2006, compared to net earnings of $21.6 million for the fiscal year ended February 27, 2005.

The Company reported diluted earnings per share before special items of $0.54 for the fourth quarter ended February 26, 2006, compared to $0.25 for the prior year's fourth quarter. Diluted earnings per share for the quarter ended February 26, 2006, including special items, were $0.28 per share, compared to diluted earnings per share of $0.25 for the quarter ended February 27, 2005. Diluted earnings per share before special items were $1.57 for the year ended February 26, 2006, compared to $0.90 for the year ended February 27, 2005. Including the special items, diluted earnings per share were $1.33 for the year ended February 26, 2006, compared to $1.08 for the year ended February 27, 2005.

Now I'd like to briefly review some of the other significant items in our fourth quarter and fiscal year P&L. Comparing the 2006 fiscal year's fourth quarter sales to the prior year's fourth quarter sales, Park's North American sales increased 15%, European sales increased 18%, and Asian sales increased 2%. For the entire fiscal 2006 year, Park's North American sales increased 6%, European sales increased 1%, and Asian sales increased 6% compared to the prior year. For the 2006 fiscal year, North American sales were 56% of total sales, European sales were 15% of total sales, and Asian sales were 29% of total sales. For the 2005 fiscal year, North American sales were 55% of total sales, European sales were 16% of total sales, and Asian sales were 29% of total sales. Sales of North American high-temperature printed circuit materials increased to 98% of North American laminate and prepreg material sales for the fourth quarter of fourth quarter of fiscal 2006. Foreign high-temperature printed circuit material sales were 95% of foreign laminate and prepreg sales for the 2006 year's fourth quarter. On a worldwide basis, sales of high-temperature printed circuit materials were 96% of total laminate and prepreg material sales for 2006 year's fourth quarter.

Sales of Park's North American, high-performance, non-FR4 printed circuit materials, which are a subset of high-temperature printed circuit materials, increased to 50% of North American laminate and prepreg material sales for the fourth quarter of 2006, compared to 47% for the fourth quarter of the prior year. Foreign high-performance printed circuit material sales were 31% of foreign laminate and prepreg sales for the 2006 year's fourth quarter, up from 25% in the fourth quarter of the prior year. On a worldwide basis, sales of high-performance printed circuit materials were 43% of total laminate and prepreg material sales for the 2006 year's fourth quarter, up from 36% in the fourth quarter of the prior year. Park's advanced composite material sales comprised 7% of the Company's total sales for the fiscal 2006 fourth quarter, and 8% for the year.

The gross profit for the fourth quarter of fiscal 2006 was 27.5% versus 20.1% for the prior year's comparable period. For the 2006 year, the gross profit was 24.6% compared to 20.5% for the 2005 year. The quarter-to-quarter and year-over-year improvements in gross profit were due to the higher sales volumes, the effect of cost reductions, and increased sales of higher margin, high-performance products. Selling, general, and administrative expenses as a percentage of net sales was 11.9% for the 2006 year's fourth quarter, and 11.3% for the 2006 year, compared to 11.4% and 12.8% for the 2005 year's comparable periods. General and administrative expenses increased from $3.4 million in the third quarter, to $4.3 million in the fourth quarter of the 2006 fiscal year, as a result of significant increases in expenses related to audit fees and stocks compliance costs. Pretax operating profit before special items was 18.5% of net sales for the 2006 year's fourth quarter, compared to 10.6% for the prior year's fourth quarter. For the 2006 fiscal year, pretax operating profit before special items was 16% of net sales, compared to 9.3% for the prior fiscal year.

The effective tax rate was 16.9% for the 2006 year, compared to an effective tax rate of 9.2% for the prior year. Included in the 2006 effective tax rate is the charge relating to the repatriation of foreign earnings, which occurred during the fourth quarter, and the reversal of valuation allowances against deferred tax assets in the United States, which was reported in the third quarter. Included in the 2005 effective tax rate was a tax charge relating to the Singapore insurance gain. The effective tax rate, without special items, was 11% in 2006, as compared to an effective tax rate of 8% for the prior year.

Moving to the balance sheet, Park's working capital at February 26, 2006, the end of the 2006 fiscal year, was $210.2 million compared to $201.5 million at February 27, 2005, the end of the 2005 fiscal year. Cash and temporary investments were $199.7 million at the end of the 2006 year, compared to $189.6 million at the end of the prior fiscal year. The Company paid a special cash dividend of $20.1 million during the 2006 fiscal year. As we have in the past, we invest available funds on a conservative basis in short-term fixed income securities and money market funds. During the 2006 fiscal year, the Company had capital expenditures of $4.3 million and depreciation of $9.6 million. Stockholders' equity was $245.4 million at February 26, 2006, compared to $242.9 million at the end of the prior fiscal year. This slight increase in stockholders' equity was the result of the Company's net earnings during the 2006 fiscal year, largely offset by cash dividends paid, including the special dividend paid in December, 2005. Finally, stockholders' equity per share at February 26, 2006, was $12.20 per share, compared to $12.19 per share at the end of the prior fiscal year.

Thank you, Jim. It's Brian again. I know this is -- some of this information can be a little confusing. I'm sure you're having the same feeling. This script which Jim just read, is now posted on our website. You may want to take a look at it there and check it out. Let me see if I can just add a few things to help with some perspective, and also give you some comments about current events, let's call them. One thing I want to just bring to your attention, relates to our tax provision in the fourth quarter. Now, there's a lot of things that affected our tax provision last year. Of course, there's the special -- there's the taxes on the $70 million that were repatriated, which is a fourth-quarter item. There also was a special item in the Q3 that was a valuation allowance. That was reported in the last quarter.

But there is something else going on here. If you notice, we have a negative tax rate in Q4 to bring our annual rate for last year to 11% before the special items. The reason that we have a negative tax rate in Q4 is because in Singapore we were granted special preferred tax status, that's tactically what they call it. We had the status previously. It expired on July 1, '05. So we had to reapply for it. So during that period, we were accruing taxes at a higher rate. Let's see, that would be Q2 and Q3. We recently received word from the Singapore tax authorities that we were regranted, if you will, the preferred tax status, but it was retroactive to July 1. So we had to adjust our rate to take that into account for the whole year, which led to the negative tax rate in Q4, which of course, is not sustainable.

Now I just want to bring to your attention, you analysts can do your own work and figure it out for yourself better than I can, but we reported this $0.54 number. But that's based upon a negative tax rate. If we applied that 11% rate, which is more the normalized rate, to the fourth quarter earnings, the diluted earnings per share would have been $0.48 , not $0.54. So that $0.54 is a number, in my opinion, that's distorted upward, because of the negative tax rate in the fourth quarter. So, you can look at it any way you want. But I just thought I'd share that perspective with you. It would have been, again, $0.48, not $0.54.

Okay, what other special items are we talking about? As Jim said, we are moving our last [Fostel] treater, Fostel dispatch treater to Singapore. We actually purchased 5 of these units. They're high-speed, very modern treating technology. We have 2 in our New York operation, 1 in California, 1 already operating in Singapore. All of those treaters are operating on a daily basis. We had installed 1 in France a few years ago, but then we stopped the installation kind of midstream. We realized that the European market was just not suitable for that kind of equipment. So we're transferring the equipment, which has never been used actually, to Singapore. But we need to write-off all construction costs related to the installation of that equipment in France, which obviously, have no value anymore since we're not using it. And that's where we got that special charge. I think it's about -- I don't know, $2.3 million, or something like that in the fourth quarter.

Also note what Jim mentioned about SG&A. This is the G&A portion of SG&A. It went up quite a bit Q4, as compared Q3. And that's because of very significant increases and accounting fees for SOX and just our dealing with this new world order, which you, I guess all as the American public who vote, need to decide what value you're getting for it. I could tell you that from our perspective, it's extremely consuming, extremely distracting. I don't know what value you're getting for it. The expense is -- that's the part that's quantified. What about the lost opportunity, when people like us are spending hours and hours and hours and hours and hours chasing down another analysis, another detail. I don't know. We could be doing other things during that time. But anyway, so look for increased costs from accounting and SOX fees going forward. And I'm certainly not blaming Grant Thornton for that, by the way. They're just in this game, like we are. We didn't create the rules, and they didn't either. We're just trying to live by the rules. So you all can figure out what it all means. But I just wanted you to know, it has a significant impact on our business now, and going forward, in terms of cost and distraction.

All right. Another thing I want to bring to your attention is our gross margins, our operating margins, our net margins in the fiscal '06 year. They actual are higher than they were in the 2001 fiscal year. If you remember, 2001 was our big, big, big year when the electronics market was booming, everybody was making money. Obviously, that's a world that is way, way in the past, that we'll never see again. But I just want to bring to your attention, for those of you who are history buffs, that our margins, our key margins, gross margin, operating margin, net margins, are higher now than they were then. And of course, back then, we made money the easy way. Whatever we're making now, you can be sure there is a lot of blood, sweat, and tears going into those margins.

Okay, let's talk about Q1. In the press release, which you have seen, we did indicate that the markets in Q4 were -- I think we said relatively healthy. I don't know what that mean, but it's one of those kind of terms. And I think we said that they're relatively healthy until now. Which is, we have 9 weeks -- our quarters -- I think most of you know this -- are all 13 week quarters. And we have 9 of those 13 weeks for Q1 in the books already, last week -- which ended yesterday, we won't have that until tomorrow. So we have 9 of the 13 weeks. And as of the first 9 weeks, the market continues to be relatively healthy. And Q1 is tracking nicely, as compared to Q4, in terms of top and bottom line. So that's a little bit in terms of Q1 outlook.

We also want to tell you that starting in Q1, we're going to need to expense our stock options. That's another thing that we just have to play by the rules. We in the U.S., compete for capital. We now have expenses for -- against with foreign companies. We expense stock options, and we pay a lot of money for Sarbanes Oxley and things like that. But this is going to be in our P&L going forward. And at this point, we really don't know exactly what it will be. It's kind of a moving target, based upon what options drop off, what options we issue during the year. But we expect a pretax expense, at least this coming year, to be somewhere in the $1 million to $2 million range. $1million to $2 million for the year. I know that's a big, wide range. I apologize for that. We'd like to be able to tighten it up for you, but we just can't because there's too many variables. It's probably going to end up somewhere in the middle of the range, but we don't know. That's for the whole year. That would be a pretax expense. We're not going to comment on the tax impact, because it's even more complicated than when we start talking about after tax impact.

Okay. So we also talked about our higher accounting fees. So, you all can think about that in terms of what those things mean, going forward. Let's talk a little bit about what's new, what we're working on now. Well, you know that we've been talking for maybe a year now, about being reinvented into an advanced material company. At this point, we're saying we've done that, it's done. We're an advanced material company. We look at ourselves not as 2 or 3 different businesses. We look at ourselves as 1 business. And the 1 business is unified by certain basic core capabilities. And those are in polymer, chemistry formulation, and in coating. So all of our businesses come back to those central core capabilities. Whether you're talking about products in the -- for aerospace, advanced composite materials, or printed circuit material products. They all are unified with those core capabilities. We don't look at ourselves as 2 or 3 businesses anymore.

Let's talk about a couple of initiatives. We're currently in the process of doing the legwork to install a new factory in Singapore that will produce advanced composite materials. At this point, we are in the process of site and equipment selection. We've been working at this pretty hard for a few months. Hopefully the next, I don't know, couple of months we'll decide on our actual site. And we're not sure whether we're going to buy an existing building and reconfigure it, or just have to build a new factory. Those are 2 options. And of course, the equipment we are narrowing in on. And so that's something we're going forward with. We've made that decision. We just don't have any details to report for you. And that has to be in a separate building, by the way, as compared to our existing building in Singapore. But it will all be part of the existing business unit. We're not talking about setting up a separate business in Singapore. It just would be another factory. But it will be run by the existing business unit people. And that's for production of advance composite materials for aerospace. And I should emphasize that it's for aerospace. We believe that the aerospace markets in Asia, although they're really just in -- maybe somewhat in their infancy, we believe that over the next 10 years there will be very good growth there. And we think there will be really nice opportunities for our Company as a part of the integral supply chain for aerospace in Asia. Like I said, it's just beginning. But we believe that that will be a good growth market for us, and we'd rather be in on the ground floor than be Johnny come lately, of course. So we're doing that.

We are considering, just exploring the possibility - I'll just tell you this because, you know, why not - of also making composite parts. But we have not made that decision yet. We need some help with that, because that's not something we have a lot of experience with. We have a lot of experience with making materials. Parts we do not. So we're looking at doing joint ventures and that kind of thing. And that's just something for your information. We don't know whether that will happen or not. As I mentioned, we're moving that Fostel dispatch treater to Singapore. We currently have 1 operating every day in Singapore. We're going to have a second one which will be installed right next to the first one. Those treaters are quite suitable for the Singapore -- the existing Singapore business. They're not suitable for the European business, as it turns out, because as we said, when we originally made the decision to install that treater in Europe, the market was quite different.

We also are upgrading our treater operation in Singapore, so we can produce our full, high-tech digital product line, including products like [polyhemen] products, and that's something we're working on now. We're also considering producing PTFE laminates in Asia, but we have not made a final decision there. We will be adding to our R&D capability in Singapore. Why? Because we believe Asia's the place for the future. By the way, everything we're talking about relates to Singapore and Asia, doesn't it? And we can read between the lines there. So, manufacturing is pretty difficult in the western markets. I don't know anybody building too many new factories in the U.S. anymore, so you all can figure out what the prospects for manufacturing in the U.S. over the next 10 years might be. But we clearly see Asia as our growth opportunity. We also will be looking to do some new things in R&D. And you might be staying tuned on that one. We may have an announcement there. And then finally, our China plant. This is the plant in Zhuhai, which is kind of in the Hong Kong area, is finished. The building is constructed, and we are in the process of equipment installation, at this point. So that, I think, concludes our current events updates, and our commentary on the fourth quarter, our outlook. And operator, can we go to the questions now, please?

[OPERATOR INSTRUCTIONS] James Bausch, Smith Capital.

Can you talk about -- I don't know if you usually do this when you're at this period of the fiscal year. But can you talk about the next fiscal year, versus the fiscal year just ended, in terms of what you're expecting from the top and bottom line? I'll let you answer that. And I have a follow-up question.

Absolutely not. We're not going to comment on that. And the reason is, we have no idea. So we'd be wasting our time with the exercise. We're in markets which are extremely unpredictable. The visibility is very poor. And, all you want to do is get this kind of consensus feeling that everything is great, especially in the electronics market, because that's your sign to be careful and watch out. But we are absolutely not in a position to meaningfully comment -- comment in a meaningful way on top or bottom line for this coming fiscal year.

Got you. And can you talk, if you have any visibility into end markets that might have driven the strength this quarter? And -- on the just-reported quarter. And then any type of clarity on -- you mentioned things are tracking nicely versus Q4. What does that mean? How should we be modeling things, or are you not able to provide that type of clarity?

In terms of the markets, I mean it's really the key markets that we sell into, so that would be telecommunications type equipment, internet-type equipment, infrastructure equipment, wireless communications equipment, especially on the electronics side. And then the aerospace markets are quite strong at this point, as well. So there's I think some broad-based strength in the economy right now, that's probably affecting our current performance to some extent. And then as far as the first quarter is concerned, at this point I think we could say that things are tracking nicely against the fourth quarter. That means if you look at our top line, for instance, through those first 9 weeks, it's at the level, maybe a little tad better than the level that we saw in Q4. If you look at the average, let's say weekly, top line, it's at that level, and maybe a little tad better in Q1 as compared to Q4 of last year. As far as the impact of the bottom line, we're not going to give any specific commentary on that at this time.

Got you. And then 1 final question. Anything that you've seen, in terms of concern of double bookings? And then finally, gross margins are -- were great in this reported quarter. To what extent do you feel like that's sustainable?

The -- so the gross margins -- there's a lot that comes together to affect the gross margins. And it's difficult for us to comment specifically quarter-to-quarter on the gross margins. It's certainly our objective to keep working hard on the gross margins. As I commented, when you look back at the 2001 fiscal year, the gross margins were not at this level. But in those days, it was pretty -- frankly, with the benefit of hindsight, we probably wouldn't have told you this at the time, but the benefit of hindsight, we'd all say it was pretty easy to make money then. The gross margins that we're dealing with now are the result of continuing to drive the technology in a -- the technology content of our sales, and of product sales. As well very tightly controlling the business, our costs, and when we get into pricing and spending on equipment and things like that. So we're trying to drive both sides of the equation. Obviously the margins -- the technology content, the margin content of the sales up, and we're trying to keep the costs under control. But it's really very difficult for us to comment, especially short term quarter-to-quarter, except to say, again, it's our objective to keep working at that.

One of the things, since you mentioned it, that we are dealing with, is if you look at the cost of copper on the [Homex], whatever, you see it's gone up quite a bit. That's an issue for us. And that's not a new issue. We've been struggling with that issue for the last, I guess 5, 6 months. And even before that actually. It just keeps going up and up. For those of you who know our product line, we do buy a lot of copper foil for our printed circuit material products. And that's something we are dealing with. We need to continue to work hard to offset that impact. And that's something that we're doing every day. I'm sorry, there was another question -- .

Yes. I was just asking about double bookings or inventory level sell-through. If you could kind of give us a sense of where that stands.

Yes. That's a really excellent question. Our inventory levels are about where they should be. We're very much on the alert for that kind of thing, in the supply chain. I haven't heard of serious instances of that. But we're definitely watching out for it. We're concerned about that irrational exuberance factor creeping in a little bit here. But we haven't seen any hard evidence of that. So at this point, we're just watching, but we haven't seen anything.

Thanks again.

Louie Toma, Long Trail Investments.

I just wanted to get a little more color on the gross margin, just a follow-up to the last question. And I guess as I look at this quarter relative to last quarter, revenues were basically flat. But you had 70 basis points improvement in the gross margins. And I guess, so leverage wasn't a part this quarter. Just trying to figure out what's -- so you have mix and you have lower costs. Can you -- like, of the 70 basis points, can you give us any color on how much of that might have been mix versus cost or -- the mix versus cost. And my second question is relating to your comments on the G&A, regarding the Sarbanes Oxley and accounting issues. So just to get a sense, is the $6.8 million -- should we expect that going forward? Is that a good level of G&A to -- or SG&A to -- as a number to go forward with?

Well, let's take those in reverse, if we could. We had some catch up G&A in Q4 because we were -- we really didn't expect these costs, or we would have provided for them during the year. So we can't actually say that. We can't guide you there. But there were a lot of additional costs that came through in Q4 that we just weren't expecting. Now going forward, we're going to have to re-evaluate where we're going to be at the end of the year, and try to provide more intelligently for those costs so that we have more of a smooth G&A during the year. So there's that factor. Like I said, a little catch up maybe in Q4. As far as Q3 to Q4 differences in gross margin, I think that's what you were asking. I think that the percentage of high performance products in our -- on the printed circuit side was up a little bit. And, that's where the margins are going to be the best, in the electronics part of the business.

There's one other factor that we haven't really talked about, which is that sales were a little higher in Q4 than we expected. We had a lot of shutdowns provided for in Q4 for the Christmas holidays, and also the Lunar New Year in Asia. And what we do is, we basically provide during the year, so that when we have these planned shutdowns, the businesses or the facilities operations will kind of operate at a break-even level. But business was a little bit stronger, and we actually had to operate during those periods. So that actually drops a little more money to the bottom line, because we have already set up a provision to cover for these periods when the factories won't be operating. And then we operate the factories, and that gives us a little leverage there. And that gave us a little bit of oomph, as well, as compared to Q3. There are many more shutdown days, planned shutdown days, in Q4 and Q3. At the beginning of every fiscal year, we have our business plans, and each facility has planned shutdown days. And we begin accruing day 1 of the fiscal year to cover those shutdown days. Do you understand the concept?

Yes.

Okay, good. I think those are 2 factors that you might want to look at. And Jim, you want to -- anything else from the Q3 to Q4 comparison on gross margins?

Well, you're right as far as the mix. If you take a look at the high-performance products, in Q3, we were at 41.6%. We're at 42.5 in Q4. So mix certainly had a big play, in terms of improving the margins in Q4.

41.6 versus 42.5 of the total revenues was high performance?

That would be [inaudible] revenues of the printed circuit material.

Printed circuit materials.

Circuit material, okay.

Not the composite sales.

Right. Great quarter, guys. Thank you very much.

[OPERATOR INSTRUCTIONS] Richard Kugele, Needham & Co.

This is Sean Hannenexe stepping in for Rich. First question, if I may. If I could just get a breakdown of your top 20, 10, 5 customers in the quarter, and then I have some follow-ups.

Jim can help you with that, I think.

Yes, I think we can do that. All right, let's start off with -- all right, for the quarter, the top 10. Samina, was number 1, Multec, Tyco, Wus was number 4, [Penasis] was 5, DDi was 6, Tapco 7, Hitachi, and Litton, and [Merrick]. So that rounds out the top 10. The next 10 would be -- .

No, let's not. We don't -- .

Really as a percentage.

I'm sorry. I'm getting too ahead of myself here. All right. So your top 5 is 54.5% for the quarter. Okay. The top 10 was 73.8% of sales. Top 20 is 82.8%.

For Q4?

For Q4.

And then, of those 4, Samina, Multec and Tyco?

Yes.

Well, we only tell if they're above 10 -- .

Yes, all 3 are -- .

All 3 were 10% customers?

Well, actually, Samina was 19.4%. Multec was 11.4. Tyco was a little below. But they were above 10% for the year.

Okay. All right. And then just kind of reading off of that, and this gets to some of the visibility discussions earlier. Some of these customers, overall have begun to experience larger and extended lead times. To what degree is that at least directionally improving your visibility? And can you provide some color on that?

Our lead times to these customers?

No. In terms of your customers, their lead times.

I don't understand what you mean by that. You mean our lead times, in terms of rush sales to our customers?

No. Sorry. Your customers' lead times seem to be extending.

Oh, okay.

Yes. And that would seem to have implications on your visibility within the quarter. Is there a way you can provide some color around that?

Our lead times, which we are not extending, and we work real hard to keep those down, because of the fact that we want to -- really one of our fortes is in quick turns and responsiveness. So even when the market gets stronger, we try to keep our lead times down. So we don't -- we don't see any visibility in particular, based upon our own lead times or backlogs as a result. And we hear these things about our customers' lead times stretching out. And, I don't know what to say about that. You probably speak to our customers from that kind of perspective more than we would. Our dealings with our customers are kind of more on a nuts-and-bolts basis. But, I guess I'd rather not comment so much specifically on our customers' business. I think, like I said, you probably deal with our top-10 customers, with those kind of questions very frequently, I'd imagine.

Okay. Thank you.

You're probably in a better position to evaluate that than we are.

All right. And 1 more follow-up then. And this is really getting to taxes. How should we be thinking of taxes going forward, either for fiscal '07 and beyond? Or even more specifically, just for next quarter?

Well, we were kind of afraid someone would ask that question. We're just stumped. I mean, there's so many things that seem to get in our tax rate these days. And then we've had this -- what was that, in the third quarter, Jim?

Valuation allowances.

Valuation allowances that we have to look at from time to time now. I know this is a crummy thing to do, but we're feeling that our tax rate will be moving up in '07 compared to '06. But it's really hard for us to bracket it. And by the way, we spent a couple of hours last week talking through that. And to come up -- and see if we could come up with some kind of a range which we felt comfortable with. And we just thought we'd rather not do that. Hopefully, when we announce Q1, we'll have a little better perspective on where the tax rate is going. Also, look, just -- let's be honest with you about everything here. I've been on my soapbox about Sarbanes. You notice we're reporting late this year, as compared to -- I don't mean -- we're not late in our compliance, but late as compared to what we normally do. I mean, it's been a bear to get this quarter closed. The amount of effort is unbelievable.

So the amount of time we've spent in terms of speculating or forecasting things like tax provisions for '07, has been pretty minimal, because we've been just trying to get this quarter closed and this year closed. So that's a fact of life, and I guess we're not going to apologize for it too much, because it's not an environment that we asked for, or created. But that's why, again, maybe in Q1 we'll feel a little more settled down, and we'll be able to give you a little more intelligent input on the tax provision. But sorry, at this point, other than saying that we think it's going higher, we just have difficulty quantifying it.

Okay. And if I can just go back to some of your comments around copper pricing. Is there any other color that you folks might be able to provide in terms of increases in commodity pricing, and how it's affecting your business going forward, and possibly how you're mitigating some of this?

You mean outside copper?

Yes.

I don't think we'll comment on the other raw materials. Those are not really going through any unusual patterns, though. Those are kind of more consistent with our historical patterns. I think we've said in the past, that we don't comment specifically on our arrangements with our suppliers or our customers. And in the past, when we've had raw material changes, there have been instances when we would deal with our own selling prices. But we never just kind of publish a price reduction or a price increase. You'll never see a press release in part saying, oh yes, we're increasing our prices by 5% or something like that. We're very against that, because we try to work with our customers on a case-by-case basis, and more intimately. And I don't know about anybody else, but the thing that really gets me worked up, is when I read a press release from some supplier that they're increasing prices across the board. We may do $20 million of business with them. And I'm thinking, boy, you know, that really doesn't show a lot of class. So we're just completely opposed to behaving that way. So -- but other than copper, I think what best we could do, is say there's really nothing that's out of the ordinary, consistent with the patterns over the last few years.

Okay. Thanks very much, fellows.

We have no other questions at this time. Mr. Shore, I'll turn the conference back over to you for any additional or closing comments.

Okay. Well, that's -- thank you very much, everybody, for attending our conference call. I guess there were surprisingly few comments and questions this time. But maybe we covered most of what we needed to cover during our introductory remarks. Jim and I will be here the rest of the day. So if you have any follow-up questions, please feel free to give us a call. Thank you very much. Since we're at -- the fourth quarter is reported a little bit later, we'll be back with the first quarter conference call I guess within probably less than 2 months. Probably into June at some point. So we'll be talking to you again soon, we would expect. Thank you very much, everybody, And have a great day. Good-bye.

This does conclude today's conference. Thank you for your participation. You may disconnect at this time.