Regal Rexnord Corp (RRX) 2002 Q3 法說會逐字稿

Lane, -- thank you for standing by, welcome to the Regal-Beloit conference call. At this time, all participants will be in a listen only mode. There will be an opportunity to ask questions, instructions will be given at that time. Should you need any assistance during the call, please press zero and then star and an operator will assist you offline. As a reminder, today's call is being recorded. I would now like to turn the conference over to the Chief Financial Officer, Mr. Ken Kaplan. Please go ahead, sir.

Good afternoon, everyone. Welcome to our call, with me today are Jim Packard, our Chairman and CEO and Henry Knueppel, our President and COO of the company. This call today is in reference to our third quarter’s announcement released before the market opened this morning. Hopefully you have had an opportunity to read the news release. If you haven't it is available right now on our website and has been since about 9:00 this morning. Before starting, please keep in mind with the exception of historical facts, other statements we may make during this conference call are forward-looking statements. We remind you and other investors to consult the company's documents filed with the Securities and Exchange Commission. Without further ado, I want to turn the call over to Jim Packard. Jim?

Thank you Ken, good morning -- good afternoon, ladies and gentlemen. I am happy to be here with you today, hopefully all of you had an opportunity to read our press release. Actually I am feeling pretty good about the quarter. It was at the low end of what we had hoped to achieve but given the things that we saw the rather sluggish pits and starts we had throughout the quarter, with July and August, being actually down more than we traditionally have seen. I mean August never is a good month for us, and this year July and August were more difficult than they have been in the past. Having said that and what we said in the press release about seeing basically bouncing along the bottom every time we see something positive happen, we also incur some negative item, mainly if the order of areas of customers and Orders, not anything specifically trendy. So when we ended the quarter I felt good about the performance. I'm going to ask Henry Knueppel to go over the operations and discuss with you in greater detail some of the specifics about the quarter and also relate to you where we see things going in the fourth quarter and then I will make a few other comments and then going to ask Ken to just again review some of the key financial things quickly and then we will open up for questions. So, Henry --

Okay. Nice to talk with all of you. Highlights of the third quarter, first of all, let's talk about the mechanical division. We had a fairly difficult quarter there with sales not being as strong as we would have projected them to be. As Ken said, it came down to more extended shut downs. We also saw as the quarter developed, a slow down in orders for some of the longer term larger product, such as our [unrecognized], large gears. Bookings were very soft, softer than we expected. There was also a fairly significant slow down in the need for marine transmissions as people quit buying pleasure boats at the rate they had been and the season slowed down this time of year on top of that. Those two things were relatively significant impact and were worse than we projected going into the quarter. On the other side of that, we did see a pickup in smaller gear drives sold to general industrial distribution, particularly as September developed but we did not achieve some of the things, frankly, that we thought we could achieve during the quarter from an earnings standpoint because of the first two divisions of sales and also because we continued to not get up to speed as fast as we expected to from the closure of our Indiana facility in Mitchell, Indiana, in cutting tools. We feel like we are on top of that now we are making rapid progress and we expect to see improvement as the year progresses.

The motor side and electrical group side, generators continue to be very soft for large generators, that marketplace we continue to believe will come back, come back strong in the years ahead but it has not recovered yet but I'm sure you are seeing that from other people who reported the same segment. That creates an unfavorable mix for us in terms of margin mix because large generators are a very good strong contributor and we face the same situation, frankly in motors where large motors, to oil and gas and paper and so on, more value added and normally higher margin simply are down compared to smaller motors, which are stronger for us at this point in time. So we are making good progress. We are no less excited today than we were a couple of years ago about the savings that we are generating from the consolidation of our motor technology group. We are on track, or frankly still ahead of track. However, when you get into environment work, you can save money on material for example a percentage of the sales, but if you don't have the sales, it is very difficult to demonstrate that on the bottom line.

We also during the quarter were very pleased with being able to do one of our bolt-on acquisitions, the power track product line, which we have moved into Richmond Gear and are now shipping products from there. We continue to believe that bolt-on acquisitions like power tracks, substantially improve our abilities over the long-term because it adds to our product mix for that particular market segment. So we are pleased with that and we are continuing to look at other acquisition opportunities and hopefully we will see those develop as the months go along. So I think I'll answer other when we get to question and answer we can talk about other specific things as it relates to the third quarter but...

Looking forward at the Fourth quarter as you can see our guidance is lower and let me just address that a little bit up front and I'm sure there will be additional questions on that. We have traditionally on some of our motor brands seen a slower fourth quarter, and those of you who have followed us for a few years have seen that with marathon electric. We have also seen a significant mix change towards the smaller motors and we believe that that will continue because the large motors are tied to a couple of specific industries that we don't see picking up in the fourth quarter. Therefore we are anticipating the quarter to be a little bit more difficult than the third quarter was frankly from a mix standpoint of both generators and motors and we are still concerned about the way the fourth quarter will end up in sales predominantly because we've seen plant shut downs in December and in the last few years they have gotten longer and there is nothing on the horizon right now that would say that would be better this year. So given that situation of all situations, very simply we think it is prudent to project it where we have it. It is not a lack of confidence, I can assure you, in terms of where we are headed with operation and some of the improvements. But again we need sales to have the improvements show their capabilities. So, with that --

Thank you, Henry. This is Jim Packard again. Let me just make a couple of comments. The company continues to progress, I think, quite well with regards to this strategy. One of the significant things that we are recognizing that as we push productivity and improvements in both operations, we find ourselves having far more capacity than we really had anticipated. Certainly the lack of orders has made that look much larger than it probably really is. When you try to judge the amount of orders you believe that you are going to have in the future and where the business is going, coupled with the productivity we had moves like the consolidation and cutting tool that we did this year without taking a write-off, although that was not a huge expense that we had for moving that factory and we absorbed all that in our earnings for this year. There are other rationalizations in order to optimize this increased capacity that we most likely are going to take on perhaps some in the fourth quarter and we are studying this now and maybe back to with you some information in that regard.

All those things are the good and bad, of course, you hate to see some of these jobs consolidate. On the other hand, they will make our margins and our profitability far better and given the kind of costs that we are seeing specifically in healthcare and the pressures that we have on the sell side we have to do these things if we are going to remain the high performance company that we traditionally have been. Our efforts in the logistics area, in the sourcing area continue to do very, very well, extremely pleased about that. That is, again, going to provide us some excellent opportunities in the form of profit in the years ahead. Right now, I think all the things we see happening, of course, we really think will pay off in 2003 in a much bigger way, without regard to increased sales, at least that is our objective. If we have the same sales in 2003, we have to substantially improve the profit and that is what we are focused on and what we are trying to accomplish. Certainly, one of the highlights, again for us in the quarter has been cash flow and, Ken, you may want to speak to that and then we will open it up for questions.

okay, sure, thanks, Jim. I just wanted to say that we were -- I did not anticipate that we were going to be able to generate another almost $10 million of free cash flow in the third quarter. I was glad to see that we were able to and that brought us to 33 million for the full year. As we have talked about before, we thought that the number for the full year would probably be in the low 30s to mid-30s and we are still kind of holding to that. It is hard to say exactly how much cash we can continue to generate because we pretty well stopped reducing inventory and we may, depending on circumstances possibly increase a little bit. So in terms of cash flow for the fourth quarter, we are probably looking from, you know, flat to maybe, $3, $4 million of positive cash flow for the quarter and of course, we'll put that into reduction of debt as well. So, you know, with that, you know, I think we pretty well laid that out for you in the news release. John, if you are there, would you give the instructions for the Q & A session and then open it up.

Certainly. Ladies and gentlemen if do you have a question, please press the one on your touchtone phone. You will hear a tone indicating that you have been placed in queue. If your question answered our wish to remove yourself from queue, please press the pound key. Once again, if you do have a question, please press the 1 at this time. We do have a question from the line of Holden Lewis with BB and T. Please go ahead.

Thank you, good afternoon, gentlemen. I want to visit the mechanical electrical performance, specifically it seems like the electrical kind of behaved as you expect it to in light of modest improvement during the quarter of industrial production on a sequential basis. You know in contrast, mechanical, despite sequential improvement, IP was down on the revenue line, unlike the electrical and then looking at it kind of from the profits in dollar terms, this was you know, the profit margin was significantly lower than say in Q1 when the revenues were at the same level. So, it looks like it is significantly weaker performance in mechanical versus electrical and I am sort of curious whether there was maybe some excess spending in there or really what that underperformance was driven by primarily and is it a go-forward issue?

Well Holden, a piece of that really has to do with the cutting tool move and trying to get that up to speed. We really started that and completed it toward the end of the second -- the physical move toward the end of the second quarter and the lion's share of the training and bringing all that up to speed hit the late second quarter and during the third quarter. We would have thought we would have moved through that a little bit faster than we have, very honestly. But we didn't and so, that certainly had a negative impact. The other area that has been, I think, of significance to us has been the slowdown in some of the transmissions that we made, for example, our velvet drive division, which are pleasure boat transmissions. Typically that has been a much stronger performance in the third quarter than we have seen this year and what was missing this year was a a lot of the aftermarket reworked projects that are at higher margins. So that certainly was a negative and finally, our orders for large gears and transmissions from our foot Jones, Illinois, gear division, those three really hurt us significantly from the standpoint of the quarter.

those three -- issue, as Henry mentioned, we shut down a plant in Indiana and consolidated it into another plant and none of that was capitalized and we took no charges, no one-time charges to do that. I don't know the exact costs in the $400-$500,000 range that we expect will pay back in the first half of next year and we are still incurring some of those costs.

yeah, and that was there in the third quarter.

Yeah most of the cost is in the third quarter. So, I think, the mechanical side of the business, is three things, cutting tool business continues to be bad and we had to consolidate a plant; we absorbed all those expenses; it is moved; we expect that to be behind us; we ought to recover all that money in the first half of next year. The bolt transmission business is not, not growing, we do not project it to grow it is a good business it has high margins, but you can't leave it in the facility that it is because the -- it just will not be a profitable operation it has to be moved and we have to be out of that facility and, of course, the larger gears, the five-foot, the six-foot, big beveled gears, big projects, those are the three areas where we have got -- we have bad performance in the mechanical group but we are confident in all three cases that we have taken or have pretty vivid plans to correct by the end of this year.

Okay. So yeah, I mean, 4 or 500 what ever that will end up being per cutting tool, will actually reverse itself Q4 but certainly going into next year, will you continue to see these other issues, you know, the lack of large gear box sales and pleasure -- are these still decelerating further, so there is more cutting to take place or are these just an issue hitting Q3 and will it be pretty similar going forward?

I think similar in the fourth quarter than to the third quarter.

Boat transmissions will be worse.

That is right.

Boat transmission business will probably not get better in the next quarter and the larger gears, those are all project oriented. You know those are going into dams and locks and big pulverizing machines and lumber and all --

paper.

pulp and paper market and so on. That is the mechanical side. Not exciting but what is the facts.

Thanks.

Thanks Holden.

We have a question from the line of Bob Schinofsky with CIBC World Market. Go ahead

Just a follow-up question to Holden Lewis'. In terms of the large gears, when you are talking to your customers for the first half of next year, how are the conversations going? Is it to the point where it is not going to be many orders, just looking for business to show some slight improvement before they start putting orders in or how should we start building the models for that?

I wish we knew how you could build the models that are what we are trying figure out.

right.

Actually the reason we are not that strong with our fourth quarter projection is the kind of things we are hearing out of people for the first time is that we don't know. I mean they really -- no one knows, the threat of war, the -- you all know what's going on in the world and Henry and I just got back from two weeks in Europe where the story is maybe even getting worse. And no one knows where they are going and what they are going to do it just nation almost impossible to forecast. There was a part of me that didn't even want to give out a forecast for the fourth quarter because it was so unpredictable. So when ask you people about large gears and big project and they tell you don't know, you are kind of -- you are kind of left out in the cold, because they know more about that business than you do and so it is just very difficult to say. So they are not projecting very much optimism in the fourth quarter. On the other hand, strangely enough, the small gear side of our business has actually been improving and almost all of that is going through distribution. So, you see the OEMs kind of not knowing what is happening and of course, the distribution market responds to everything anyway. It doesn't project anything. So, they are responding to a higher demand in the mid and small gear boxes, but the larger ones, the ones we are having the most difficulty with right now are somewhat unpredictable.

Yeah, it cycles. It is not highly unusual. The large stuff typically follows the small stuff, up and down.

Right.

I guess the difference this time is we thought that both had kind of gotten to the bottom and the bigger stuff took another continued on down further than we expected it to.

right, let me just add one thing, one more question onto it then. As you talk to the customers is there just a level of uncertainty in terms of making orders for 2003 or have they committed as of yet to say we are not going to be spending those capital dollars?

They have not said they will not be spending. I don't think that they are certain enough for what's going to be happening to make that kind of a call. We are not -- I don't think we are at that level, but -- but as opposed to -- well, not going to say this time last year, but this time last year, we were all recovering from September 11th, but by the end of last year, there was a genuine optimism in terms of the way people viewed the -- this year with a hockey stick that was going to start some place that they -- halfway point in the year and move up. Right now, I think people are saying we are not sure when that might happen, but we don't think it is going to get a lot worse. It is just kind of -- we play it day by day type of attitude.

okay, great, thanks, Jim, thanks, Henry.

Thanks, Bob.

The next question from Michael Schneider from Robert W Baird.

Good afternoon, guys.

You’re a little slow on the button, Mike; I figured you would be number one.

It is Friday, I'm slow. I guess first maybe we can start just on the pace of the quarter, guys. The indications from BALDOR and even others, there was actually again hopeful optimism but some strength at the end of the quarter, maybe you can describe the monthly trend and what you have seen so far in October?

Well, as I said earlier, we started out with July and August. They were down more than they traditionally are I mean; they were really difficult, really difficult months for us. We were really concerned whether we were going to make the whole quarter at that point, but things got better. -- in late August September, picked up as I mentioned just a moment the smaller gear box business in probably the mid-level in motors, small and mid-level in motors have actually been pretty good and we have had some great successes with it. If we could get -- if we could get the large motors back again into the oil patch going and a few of those things, motors would probably be doing terrific. So the trend has been -- the trend has been for the quarter was good near the end but recent discussions about the war in the market going down and so on just placed so much uncertainty in our sector it's hard to say where that trend will pick up or not. We are coupling into the fourth quarter at not much a stronger level of order than we thought back in the latter part of September, I mean the latter part of August and most of September and then the traditional December slowdown that we always see and when we did that that is where we came out.

And knowing that the large motor end gears generally are the leg up and down and the small motors as I understand it still doing well and now you mention small gears are doing well is it that we are all looking in the rearview mirror here and just so brow beaten that we can't appreciate that the leading signs are there or is it ( inaudible )

I couldn't have said it better. Yeah there is no question about it. You are looking out. You are looking at everything differently today than you used to look at it. There is nothing traditional about what is going on for us. And we are more concern about the future than we have been for a long time in terms of order intake. Mike, we thought, not early the first part, middle of the second quarter, February, March, we thought it was a nice pickup in small motors, small gear drives, everything fit the puzzle that we all projected. And that was by mid-year we see the turn, it was starting, we -- and so on. When we say small motors going well it is really a relative thing. They are going well compared to larger stuff but it is hard to say other than September was certainly better than August and July. Hard to say that we are seeing

So small -- ( inaudible )

Month over month improvements of significance.

So small motors lost momentum throughout the year from the early signs of improvement

They stopped gaining; I'm going to say sometime in March. And never -- never really rekindled that.

Okay that's good insight and then in terms of just the facility ( inaudible ) Jim your obviously expressing some -- or signaling some initiatives that you will take in the consolidation and I guess what I am wrestling with is that we have seen the impact of the costs flow from the P and L and when do we begin to see the benefits of the consolidation start to overwhelm and more than offset the expenses you were talking about or is it a case where the initiatives you take will be at year end and the early part of next year depress the earnings in the first half?

I think that is one of the agonizing things, you know, do you -- you let these -- the last plant closure consolidation that we had frankly all the others we have been doing, we have always absorbed these costs, we have never had these charges of one time and you know getting beyond this and we just haven't -- never had to do it so we are not really experienced at it, Frankly. Some of these changes that we are talking about could have pretty big costs associated with them. I think we need to study that more and understand what we should and shouldn't do in that regard.

Let me add something for you here. When we talk mechanical group and we have plant closure that has to run through the P and L. The things we are still working on relative to the electrical group, you know, we set up reserves in purchase accounting. What that is going to enable us to do is charge those costs next year when we get some of the initiatives against some of those things so, you are going to -- yeah, yeah, we are still optimistic about everything we have said in the past relative to margins and the improvements that we are going to see and I think we will start seeing them next year. As far as the timing, you know, so much of that depends on what's happening in the marketplace as well as you know, Mike. I hope that helps.

Mike, one thing I want to say the things we are thinking about a mechanical group right now are all new thoughts, all new, you know -- thing we're doing in the electrical side of the business not new thoughts. We put a lot of time and energy and effort into those and pretty well have that staked out, know exactly where we are going. We are on schedule, above schedule, you know, we need some wind in our sails to appreciate some of the earnings appreciation that we thought we were going to get out of them, but the mechanical side is really a recognition of really focusing on it and saying where is this business today and where is it going to be for the next three years and recognizing that we got way more capacity than we got -- than we need and we now have to do something about it. So the real question is when do we do it, how we do it and how much is that going to cost us? I think we are what we are trying tell you is we don't have all those answers right now, but clearly, the preliminary review of that would indicate some very significant improvements. Now, I would like to get it done tomorrow and, of course if I think of it in the morning, I usually like it done by noon. These guys need six months. But, we are going to get -- we are going to really nail that down here in the next five to six weeks.

On the electrical side the efforts you’re talking of -- if you laid back the leasing and Ken the reserves you were talking about --would that lead back to the leasing transaction as well?

that is correct.

Okay and Ken, can you give us some insight as to how much is set aside?

no, that is not something that we have ever talked about publicly. So I'm going to defer on that, okay?

Okay. Final question, Ken, now that you are below three times debt to EBIDTA was there a reset of the interest rating?

No actually, the interest rate reset on August 15th after we achieved it in June, so, still staying below 3, but that doesn't get an an extra kick, the next kick would be after we get below 2 1/2, and that won't be for some time given some time given where the economy is now.

Okay, thank you.

Next question is from Walter Lipstack with McDonald Investments. Please go ahead.

Hi, good afternoon, guys.

Hello, Walter.

With regard to you know some of the consolidation I guess looking at the mechanical group begin, are there any businesses that you might think of divesting, might we see some of that over the next year?

Well, there are days when I would think about that yeah, but realistically no, not saying we wouldn't do something if it was appropriate, I can't imagine anybody pay us what we would have to have or believe they are worth if we can do what we think we can do with them and projected we can do with them, probably wouldn't be the best thing for us to do.

Okay, fair enough. Um, on the gross margin line, can you talk a little bit about what you are seeing in pricing for both motors and the power transmissions? As well as raw material costs and the impact?

yeah, talk about that for a few minutes. In terms of the electrical side of life, we have seen definitely some compression over the last couple of years on motors. We have talked about this in previous calls and the market overall down between 1 and 2% a year, probably overall in price, it has been a compressing market. I doubt it will continue to do that I mean it's got to be getting close to the bottom of that cycle at this point. The raw materials, we have had some relief there, we are concerned about steel for next year because of the new tariffs, but we have seen improvements and reductions in cost, copper, for example, aluminum, some of the other materials that we use, certainly, we are aggressive source internationally to try to accomplish those things and been very successful over the last couple of years. The things that we have been less successful are with, there are things that everybody is less successful with right now; the cost of insurance has gone up substantially over last two years; the cost of health care has gone up substantially; where you are in an environment you have price compression and those kinds of costs are offset a lot of the other things that we have been able to do and it makes it a very difficult market, a very difficult and very difficult on margins.

Can you quantify that a little bit, I mean are they up in the margin or are you talking about something for '03 with increasing health care cost?

we have had increasing health care costs for the last two or three years that have been fairly significant, so it is not just a continuation of that the difference is when you can't get pricing offset, it makes it all the more difficult to swallow.

Okay. And then Ken, just a couple of, you know, balance sheet cash flow -- accounts payable, I think we need a cap EX and depreciation number?

The accounts payable end the quarter at $30.9 million hopefully you can put that into your models. In terms of depreciation, it was 5.3 this quarter. It was a little bit lower because as we looked at them in the prior quarters by about $400,000, because as we looked at the spending for the year, we saw that we weren't going to come anywhere near what we had been relating earlier and so we had some adjustments to where our depreciation would be. So, that's why that's down. Amortization was $200,000. Cap ex, $2.3 million. As you know from what I have reported in the past quarters, that is pretty well flat with the first and second. That brings us to 6 1/2 this year. I do think that it is going to be higher in the fourth quarter. And, you know, but now it looks like we are probably going to be in the $10 million range for the year, which is considerably below the initial thought. Okay?

Thank you.

Just a quick reminder, ladies and gentlemen, if you do have a question, please press the 1. We do have a follow-up from Michael Schneider. Please go ahead.

Jim Henry, maybe you can just shed some light on your European trip, what was the goal and maybe give us some feedback from what you heard?

The -- we have operations in Italy, Germany and the UK, so we were there visiting them and we have also got some supplier arrangements that we are working on-- arrangements that we are working on there and supplier arrangements that we have, people who are supplying us with certain products. And then we were just generally looking at the marketplace over there to see where it's going and what kind of opportunities there might be for us in the area of acquisition and so on, but we visited with a lot of people on a lot of different sectors. And they are experiencing every bit of -- at least in the industrial sector, experiencing I would say probably in the gear area, maybe even worse conditions than we are in the electric motor area was seasonally better but not good. And they are not projecting a great things at the moment.

Okay and then on the oil and gas patch I'm wondering if the -- if you guys are well positioned at least in what we hear is kind of the new drilling paradigm. Most of the drilling emphasis is going overseas internationally even the Bush Administration is pushing for are you guys connected with the right accounts, if indeed the drilling activity picks up overseas and it doesn't commeasurably pick up in the U.S.?

We think we are. A lot of it -- still to this day, a lot of the engineering and supply change for much of the oil business is still handled out of this country. I know in our flow control business, we have had an exceptional year, for example, in the subC valve accuwaiters. There's been at times not even able to keep up with that. Now that's starting to slow down isn't it Henry

Slow down, not seeing quite the orders there, but expecting to pick up in this slower part of the season the weather tends to keep them out of the water for a --but --

The point I want to make there is -- where the supplier probably -- I think probably the biggest supplier in subC Manual ac waiters and we are getting orders for those from all over the world. So I think in the area of -- we still feel like we are on top of that, whether it is here or somewhere else.

Okay.

I would say perhaps the area we don't have quite the -- for example, if all the development of oil and gas went into Europe let's not say Europe but eastern block and Russia and so on, they typically use IEC motors as opposed to anima motors, to the extent that oil and gas picked up in that country, we see that on the motor side, wouldn't see that as quickly if that was the only place there was oil and gas pickup. Typically, more oil and drilling all over, not just in one sector of the world, even though it may be more vigorous there in terms of long-term growth.

Thank you.

We do have a follow-up from Holden Lewis. Please go ahead.

Yes, thank you A couple of things here. The tax rate was a little bit lower than it has been. Are you just towards the 35% tax rate or what is the catalyst behind that?

No that is exactly right. Basically, we have had during the year some income tax refunds associated with past years that we were able to take as income. So yeah, that is what we were doing, we were kind of zeroing in on the year and what the rate is for the year and think it will be about 35%.

Is that a one-year kind of deal and then the next --

Yes it is and next year we will be back to more of the usual, back up probably in the 37% range.

Okay. And then just confirm, you said that you have been reserving some funds for, you know, moves that you might take in electrical?

no. No. That came about when we acquired lease and electric back two years ago.

Okay.

As part of purchase accounting, when you have plans that you are going to implement, you basically establish reserves for those at that time. So we haven't been doing it, it was done back associated with that acquisition.

Okay, but those still exist and so whatever you decide to do you don't have to incur the full charges in the P and L at this point?

That is absolutely right.

Well, with the exception of, Holden, have to be those things that we planned to do. All that was done on specific schedule with specific plans in mind.

I got it okay. Then with the 20 to 24-cent guidance is there any kind of spending issues that are plugged into there that gets you down or when you talked about maybe coming back in Q4 to talk about the initiatives you are discussing, that might be incremental costs that we start to have to factor in for, you know, Q4 and a couple of quarters next year?

It would probably be incremental to what we have put up for our guidance.

However it also depends where we end up in the range, obviously. If we can move up to the higher end of the range, we may still be in the range, it if we have the one-time type things. Do you see where I'm getting at?

Mm-hmm. Okay. Thank you.

Mr. Kaplan, no further questions. Thank you.

Okay. Well, John, then we will all say as Jim wants to say something, go ahead --

Don't know how many of you still have on there thank all of you for joining us. What I can tell you about this call and these discussions that I don't like is that unfortunately, we are always explaining why things aren't better. I don't want to leave anybody with the impression that we are not -- not pretty enthusiastic and optimistic, I'm particularly pleased about the kinds of opportunities that we have. I am excited about the Potential that I believe we have in front of us. We clearly recognize that we may not see a terrific Biggs climate in this country, maybe for a long time in the industrial sector, but as a company, we do have a good view of what we need to do to remain productive and get our margins where we have forecasted them in the past and to continue with our thrust now that we have got our debt well in hand to do bolt-on acquisition answer would expect us to be more aggressive in that area and continue to do them. So unfortunately, we get so involved in answering questions as to -- about the economy and where things are going that we lose sight that -- of all these things at least we get excited about every day and come to work and try to do and I hope we will leave you with an appreciation for that and where we are going. And so with that, Ken, I think we are done and we can just sign off and look forward to talking to all of you at the next conference call or where we might run across you. Thank you, have a good weekend.

Thanks, everyone.

Ladies and gentlemen, this conference is available for replay. It starts today, October 18th, 5:30 p.m. central. Will last until October 25th at midnight. You may access the AT&T executive play back service at any time by dialing 800-475-6701 and entering the access code 655678. That number again, 800-475-6701, and entering the access code 655678. That does conclude your conference for today. We do thank you for your participation and may now disconnect. ( end call, 3:42 p.m. ) End call.