Regal Rexnord Corp (RRX) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Regal-Beloit first quarter earnings teleconference.

At this time, all participants are in a listen-only mode. Later we will have a question-and-answer session and I'll give you instructions at that time.

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I would now like to turn the conference over to our first speaker, the Chief Financial Officer, Mr. Ken Kaplan. Please go ahead.

Good morning everyone.

With me today are Jim Packard, our Chairman and CEO, and Henry Knueppel, our President and Chief Operating Officer.

This call today is in reference to our first quarter, 2003 earnings announcements released earlier this morning. If you haven't had the opportunity to read it, the new release has been up on our Web site at regal-beloit.com since about an hour ago.

This morning, before we move into the usual question-and-answer session, we do have a few comments that we'd like to first make.

But first, , would you please provide the participants with instructions for asking questions?

If you wish to ask a question, you press one on your touch-tone phone. You'll hear a tone then indicating you have been placed in queue. You can remove yourself from queue at any time by depressing the pound key. And if you're on a speakerphone please pick up your handset before you speak.

OK. Thanks . Before I begin with a few comments on our financial results, please keep in mind that with the exception of historical facts, other statements we make during this conference call may be forward-looking statements.

Investors are directed to the company's filings with the Securities and Exchange Commission. OK. Looking at our first quarter results, we actually feel pretty good about them as they generally met our expectations. Company sales improved sequentially by five percent from the fourth quarter last year with our electrical group over seven percent sequentially.

While our mechanical group sales were virtually unchanged from the fourth quarter, nonetheless they did meet our first quarter plan. Earnings, too, generally met our expectations at 24 cents finishing in the middle of the range - guidance range we provided at our year end conference call.

Net income was $6.1 million increasing 33 percent from the fourth quarter and over 15 percent even when we remove the $725,000 fourth quarter one-time charge we took for planned consolidation. Our cash flow in the quarter wasn't what we wanted it to be. While we knew that receivables would increase as sales rose, we expected to hold our inventories level instead they rose slightly.

We've addressed this and we should see inventories coming down in the second quarter. Our capital spending increased to a $4.2 million level in the first quarter, rising significantly above our 2002 level of spending as we communicated to you it would in our February conference call. Despite the rise in receivables, we were able to keep our debt at March 31 equal to the debt at December 31.

Lastly, another thing we feel good about is that we were able to improve our operating margins in the first quarter as we expected. We said in our last conference call that we expected some first quarter margin improvement, but that dared to be only a small impact from the planned consolidation initiatives we announced in the fourth quarter and from our other profit initiatives that we have underway.

As we've said in the past, the pace at which we can achieve the profit improvements will be impacted by the rate at which our revenues increase. However, we still expect increasing benefits as we move through each quarter of 2003 and further increases into 2004. Now, Henry had some comments to make also.

Good morning. Talk about the first quarter for a few minutes. It was a busy but pretty good quarter overall. We had a lot of activities going on. We completed the move of the mechanical group that we talked about last year.

The physical moves were complete by year-end as we had scheduled, and of course during the first quarter we had the normal start up operations going on. So we feel pretty good about being on pace and on schedule. We should see the benefits of those moves as we move through the next few quarters.

We're in full swing in the electrical group, but the moves that we announced at the end of the year, physical moves, are taking place as we speak. And we still expect to be complete with those by the end of the second quarter and should start to see the improvements in earnings thereafter. We're also - it was a busy quarter as we expanded a couple of faculties to accommodate these moves.

And our continued new product rollouts were fairly significant with several products in both the mechanical and the electrical group. Looking at our markets, as you can see we have certainly improved from the fourth quarter and also slightly from the first quarter of last year. Looking at that in a little bit more depth, small motors led the way in the electrical group with improvement.

Still not seeing the come back of large motors and frankly we don't, did not expect that to be significant yet. The large motors go into large capital projects, which trail the economy. And in both electrical and mechanical groups, we're seeing those, you know, those markets that are large capital spenditure related still cratering.

Same thing is true probably more so in generators, where large generators were extremely slow, small generators for various projects and stand by situations improved and continue to improve over the last couple of quarters.

So, overall, we don't look at that as an unusual type of situation. Hopefully it's the signaling of better things to come as typically we have the large capital good projects crater just about the time the economy is starting to improve.

Our success in the electrical group in terms of growth of sales year-over-year came from new products and new customers and we're extremely pleased with that.

In the mechanical group, likewise, we've seen a mixture in the markets. Some of the markets that we participate in like high performance automotive after market and Marine, have been slow starting this year. We think mainly due to cold and wet spring, particularly in the Southeast. And some of the divisions that sell to the late cycle businesses such as valves that go into new buildings and some of the transmissions that we make that go into construction equipment, have continued to be slow overall.

The OEMs in both groups continue to be pretty tentative but I think a number of people were waiting for the war conclusion and hopefully we will see some definite signals moving forward.

Again, in the mechanical group, new products placed a viscount role is us being able to hold pretty close to flat with last year.

The quarter certainly has challenges from a cost standpoint. The mix as we described small motors and small mechanical gear drives being the growth area and large being the slower area, is not necessarily the best from a margin mix standpoint. Energy costs with freight and utilities were significant and health care costs, as always, continue to be an interesting issue, to say the least. And the marketplace continues to be a little bit messy with people scrambling to get by them. So, all things considered, the fact that we were able to improve our operating margins in that kind of environment, we feel pretty good about.

So for us, I think the good news overall is our new products continue to come on line like we expected. Our moves are on schedule and we're improving our margins in what's a very difficult market. We expect to be able to deliver everything we said on the synergies from the combining of the electrical group backroom operations. Obviously we're going to need eventually to top line revenue to get all of it that we projected.

So with that I'll give it to Jim.

Thank you, Henry and Ken. I have very little to say because I've asked Henry and Ken to really cover the key issues with regards to the quarter and then we could get right in to the question and answering period.

I will say before we start on that, that as Ken opened with, and I think Henry commented, in the overall scheme of things we think it was a pretty good quarter. I think we're feeling very good, I know we're feeling very good about the consolidations and the new products and the things that we've put in place. They're starting to show the results that we'd hope for. Some of them are running ahead of schedules, others are running a little behind in the overall scheme of things.

I'm sure that we're going to achieve what we had projected to achieve for the year in this regard and a lot of that's really going to start to take place as we've said in our previous meetings later in the second quarter and moving into the third quarter.

So it was a good quarter. We had our disappointments and some things we need to do. It's a very unpredictable environment as I'm sure all of you have heard many, many times and you have to be very alert to your actions on a daily basis and we've learned to manage in a very different way in the - in the last year or so.

So with that, I'm going to open it up to questions.

Once again, press one if you have a question. Our first one is coming from Alexander Paris at Barrington Research. Please go ahead.

Good morning.

Good morning, Alex.

Just a couple of small questions to start. The tax rate at 37-and-a-half for the first quarter, is that a good rate to use for the ...

Yes. As I indicated earlier, you know, in the year, we thought we'd moving up above 37 to 38 percent, which - our normal rate, long-term has been around 38 percent. And I think you're going to see us being in the 37-and-a-half to 38 percent range for the balance of the year.

OK. And could you the depreciation-amortization for the first quarter relative to a year ago?

Sure. Depreciation was 5.3 million to the quarter and amortization was about 300,000 and that's 5.6. And last year it was 5.7. So it was just down about $100,000.

Capital spend, you mentioned it was up, but what was the year-ago number?

Two point one. So it was double what we did in the first quarter last year.

OK. And you've got all the strength in the - in the, as you mentioned, in the small motors, small gears, small generators. Does that kind of business go more into the distributors as opposed to the larger ones?

Well ...

Or do they go through distributors?

Well, we're, actually, the company - we're about 50 percent ...

Right.

OEM and 50 percent distribution. And I - there might be a slight - there might be slightly more that we go to distribution of smaller motors, but it wouldn't be significant, Alex.

Yes. I'm just trying to get a feeling of maybe some of that strength was just the distributors kind of picking up, building inventories a little bit rather than new business.

I don't think that they're doing much to build inventories yet. But, you know, they're still - they're selling to a lot of small OEMs and small OEMs are probably a little bit, you know, quicker to move.

All right. You mentioned new products in a couple of areas. Are there any, you know, major new products that would carving out a new market or are these just variations or new generations of previous products?

Well, obviously, I'm slightly biased, but we are - we are introducing a new, what we call , which is a stainless steel product line from our Hub City division, which is going to be packaged with WASHGUARD duty motors from LEESON. And we're pretty high on this product line. It offers some great advantages in harsh environments over competing product lines. We think it's going to be a pretty significant product line for us for the future. We just introduced a new product line called PowerTorque, which is a shaft mount product line that we think - we have high expectations for. We've, in the motor side of the business, we've come out with a number of different new motors, including the new stainless steel product line for harsh environments.

So, actually, we've got - we've got some products that we think have some very significant advantages in the marketplace. Are they, you know, the kind of thing that covers 50 percent of our product line? No, these are all niche segments, but they're segments that we think can offer above average profitability and where we can provide distinct advantages to customers.

Just one other quick question. Pension cost - is there a - I don't know if we've talked about that before, but is there a significant increase this year and if there were extra costs, were some of those recognized in the first quarter?

Yes, there have been some changes, not like what you see at some companies. There's a swing in our defined benefit pension costs this year, and as far as the defying contribution, you know, they're not going to be vastly different.

But the swing this year is an extra 1.3 million of expense, OK, and that is being spread equally, you know, pretty much over each of the quarters. So yes it would have been reflected in the first quarter.

So you understand last year we were showing about a $1 million of income and this year, we're showing about, we will show about $300,000 of expense on our Plan, which for your information, are really only at Marathon. Everywhere else we use defined contribution.

OK, thank you very much.

The next question comes from the line of Andrea Wirth at Robert W. Baird. Go ahead.

Good morning gentlemen.

Good morning Andrea.

Maybe we can star off with just kind looking at the end-markets a little specifically. You know, you were up sequentially, you know, you mentioned a lot of that came from new products. Just wondering if we can get an update on the specific end markets and we're you're seeing and maybe how it possibly progressed throughout the quarter?

Well, as I said, some of the large capital product lines, pulp and paper, steel, I shouldn't actually include steel, oil and gas continued to be slow, building related, commercial building related projects continued to be slow. Power generation for large projects was slow. You know, and as I said, we got off to kind of a slow start, well I'll get there, in the marine and automotive after-market, just we think from a cold spring, as kind of a late start. A lot of, a lot of smaller OEMs were up. I think you know, that they've pulled back, and are starting to provide products. The, some of the general, as Alex brought up, distribution we saw some improvement in the national chain distribution in some of our regional distributors. Some of that, a couple of those programs were food related, the food processing business seems to be solid and people are spending there again, and we think overall, there's just, like us, there are more companies who are spending more dollars on capital goods where they can improve their productivity, and they hold those projects back for a year or two, like what they have over the last couple years, but the projects now make sense and they're moving forward.

OK, maybe just a little bit more info on the generator side. I know it's kind of been very tough for you especially on the large generator side. Can we get a sense of exactly how that piece performed and maybe just try to get a better idea of how the motors were more of, kind of an internal base on the motors as opposed to, I guess how the generators performed?

Well we don't report below the segment level, so I don't think that we typically would give you specific information on that. But I guess, you know, motors were up on a year-over-year basis, and certainly on a sequential basis. Generators were pretty flat overall. I think up slightly from a year ago, but not much.

OK, it seems like there may have been a bottom reached at least on the generator side?

We hope so. I mean you all hear out of Caterpillar and GE and other people and I think most everyone would say that it's cratering and probably won't get much worse but there isn't a lot of signs there yet that of a pickup either.

OK.

Now there could be, having said that, there could be some post-Iraq war project work that could be positive and we're hoping to capitalize on that if it develops.

OK. Great. And then I guess just quickly on the restructuring side, can you just give us an update as far as what's left to be done. And, you know, you had mentioned in prior quarters there had been some inefficiencies being generated through some of these moves, just wondering if that's been cleaned up or what we're dealing with there?

And maybe where we are in the savings line? You had mentioned you were looking for $12 to $15 million in savings in total. Just wondering where we are in that point.

Well, the $12 to $15 million number, Andrea, has to do with what we projected when we bought LEESON and that was the total synergies that would be developed over three years. And we've said all along that we believe we were going to hit those numbers. Now some of that we need to have a little bit more top line on to get all of it.

But we're on schedule with everything. On or above, ahead, of schedule with everything that we thought we could get.

Do you think you're, maybe, two-thirds of the way there? I mean, can you give me a sense of, you know, what inning we are right now as far as that goes?

Andrea, this is Ken. Let me just - I think that, you know, we've talked so much about that over the past and we know we're kind of, let's put it this way, in the third year so let's say we're in the last third of the ballgame of bringing these things to fruition. I think what we're going to do now is probably say, let's wait at the end of the year we'll owe you kind of a report on that. And I think that's the time for us to say.

We are making good progress towards that. We said time and again, we think we'll be in that range and hopefully at the top of it. Now you've just got to let us do this work for the rest of the year and then we'll report back.

OK. Sure. Sounds good. And then maybe if you could just comment on the inefficiencies and where you're at right now and if that was an impact on operating margins this quarter again?

Well, in terms of the moves, as I said mechanical was - the physical moves were completed at the end of last year and just a small tail out in January. You know, but that's always the start of the process and then you have to bring it up in the new locations and we did that during the first quarter.

So there was some inefficiencies still there that we would expect the mechanical group to improve on significantly in the second quarter. The electrical group is really just in the midst of the physical moves and those won't be complete until the end of the quarter and we'll see some tail - the tail out of that in the third quarter and we should start seeing improvements in the third and fourth quarters.

Great. Thanks guys.

The next question comes from the line of Holden Lewis at BB&T. Go ahead.

Morning. Thank you. Just a sort of building on the prior question about your level of efficiencies and profitability, you know, just kind of looking at the year over year change in your operating margin. You were down about, you know, 100 basis points year over year. You know, you saw some of that in the gross margins. Some of that in the SG&A, so it's pretty evening spread.

You know, yet you saw the, you know, the revenues were up a little bit. The inventories were certainly up. Should have some productivity benefits. I mean, can you just give some sense of why we're down so much on the operating margin year over year, given some of, you know, what we should have seen, you know, from a positive stand point?

Is it all those inefficiencies are so temporary or are there other items here we should be aware of?

Holden, I'll try to respond to that. I think what we saw last year and the reason for when you compared first quarter last year versus first quarter this year, is we saw a deterioration, obviously, in our markets as most of our industry did during 2002. IN other words, sequentially business was getting lousier as the year went on.

And obviously in reacting to that and the price pressures that we saw, there was margin degradation. What we haven't been able to do at this point is in one lump fell swoop, improve back to the margins that we had a year ago. But what you have to look at is to say, hey, wait a minute in the fourth quarter our margins dropped, this quarter, first quarter, we've moved up nicely as we hoped and expected and planned to do and we just got through discussing, you know, so many of the things that we said.

We didn't expect the mechanical plant consolidations to give us really any significant benefit 'til the second year - quarter. And if you'll recall, what we said in the fourth quarter, that we expected that to have less than a year payback.

So in order to get that, and you know we spent one point two million dollars to do that. So when you look at those numbers you realize that that's going to bring margin improvement in the next couple of quarters through the end of the year. And even more so coming out of the planned consolidation moves we're doing in the electrical group, which we said we won't be completed with 'til the end of this quarter.

So I say it's that, you know, if you try to compare one quarter to last, you know, there's so many things that impact it. I think we should be focusing on the sequential improvement from the bottom now.

OK. I guess on that regard, you know, I guess I'm less convinced of the relevance of talking about that because if you look, particularly on the electrical group from a revenue standpoint, you know, other than, you know, fourth quarter 2000, I think you made an acquisition, I mean it's not uncommon for you to see your revenues in the electrical group particularly down materially in the Q4 versus the prior period. And then up in Q1 over Q4. I mean that seems to be a seasonal pattern and I don't know that the sequential improvement, you know, this Q1 over the prior Q4, was, you know out of line with what you've seen historically.

So I guess I, you know, I guess it's less clear to me that we should necessarily be, you know, taking the Q4 revenues in particular and comparing to Q1 and saying wow, this is a real sign of improvement. It just kind of looks seasonal to me.

Well, we believe that it is real improvement. And I guess it'll take us producing our numbers in the second quarter to demonstrate that. But let me say this, nothing is historically the way it used to anymore, Holden.

There are so many factors impacting the economy with internationally, you know, the world's global market, that, sure, we in the past had seen some seasonality in the fourth quarter. And there may be a measure of it. But attribute, all of what happened in the first quarter to say this was just seasonal recovery, we don't think that's the case and I guess that's the way we put it to you.

Yes, I - this is Jim Packard. I think one of the things I want to add to this is it's not an excuse, but it's a reality that we have to deal with everyday. We take a look at our costs now versus a year ago in the area of workers' comp, health care, corporate insurance in general, energy, the list is pretty endless. It adds up to a significant amount of money, coupled with continued pricing pressure that we see throughout all of our markets in every direction.

And all of those things regardless of how many things we do from a rationalization standpoint, improvement and productivity and so on, substantially impact those results. So when I look at these additional costs, which are not small, and add them to where we were and where we are, I guess that's why we think we've improved so significantly is that we're making progress and the difference is we're walking upstream but we're still making progress as opposed to when you're able to walk downstream and have a lot of incoming orders to help you increase the volume.

So, yes, I think Ken's correct, Holden, that the proof will be in the pudding. We didn't promise more than we delivered in the first quarter and the answer's going to be whether we'll be able to see those things develop in the second and third quarter as we predicted. We're not a group of people, at least in the 20 plus years that Henry and I have been here, who have been prone to make predictions that we didn't achieve.

Sure. No, you've always come in within the range. And I guess along those lines, you know, I remember in Q1 - or in Q4 you sort of said you were expecting some form of recovery, but not in Q1. You know, this quarter you're saying you're expecting some form of recovery in 2003, in fact, a meaningful one. But, you know, clearly not going to happen in Q2. You know, to what extent are some of the savings that you're kind of projecting and the progress that you expect to make? You know, to what extent do those rely on seeing that meaningful recovery? And I guess I would sort of extend the same question to, you know, the inventory. As you said, they were up. I mean, is that in anticipation of a recovery and does that present a potential productivity or a production issue if that recovery doesn't come in the second half?

Well, the inventory issue is one - we did build our inventories when we started to move our products. I mean, certainly, we took a look at each location that we were rationalizing and build inventory so that we would meet customer demands. Now, as we start to hold those inventories in place and reduce them, it's certainly going to have an impact on us. If we don't see sales increase, we're going to - we're going to lose absorption. So it could cost us. But yet we still need to let those inventories work down or at least hold them in place as we see any kind of a sales pick up, you know, develop.

In terms of the first part of your question that you asked was the - had to do with the improvement.

Yes. The impact on savings from your expectations for a meaningful recovery.

For sales.

Well, we're, I mean, there's nothing that's static anymore, Holden. I mean, as you know in the market like this, there's no prices increases and certainly there's always the opportunity for erosion. So it's not a static market that we can say, OK, just, if everything stays the same, we're going to improve X percent. We're going to improve our cost line - no question in our mind. The marketplace, in the end, at the end of the day is going to dictate how much of that you can bring home and how much you can't.

Some of these costs that we, that Jim mentioned, which are very significant during the first quarter, such as utilities and unemployment comp and some of those kinds of things, hopefully are easing. Well, hopefully, they are easing as we go into the second quarter. So, you know, we're not going to be able to give you a definite answer on some things, but we expect to see the improvements be very real from our perspective.

Yes. I - yes. I think the key to what Henry's saying is the sales didn't change. We're still expecting these improvements because we should have less factories and less people and a number of the things that we've done to improve the productivity are going to be there.

Right.

And actually, I guess, you know, when I'm looking at the sort of the breakout in your cost, you know, 25 million in SG&A, that's not much different from what you had in the past few quarters. I think, you know, you kept that in check reasonably well. I guess it's more on the gross margin side, which would be less impacted by some of those items you were talking about being, you know - yes. They're not after me. That's all I'm worried about.

You know, those other, you know, the gross margin wouldn't be impacted by the insurance and the unemployment and some of those issues. And so, I guess, what's behind the gross margin being down at a time when revenues were up and production was up, you know, on a year-over-year basis?

Well, some of those things do impact in the gross margin. Unemployment compensation for employees in the shop and so on falls below - or above the line as opposed to in SG&A and so on. And utilities certainly fall there. So it's not as simple as saying they just all fall somewhere else. But, you know, as we've said, I mean there's a lot of margin pressure going on in this market place. Can't fool around about that, and it's going to continue to be here as long as this market place stays this messy.

OK, all right, so, but it wouldn't be inaccurate to say that you know, you have stepped down in terms of overall margin level road to a year ago, but that you've bought and then you expect to come back up regardless of volumes just because the internal improvements you're making.

Yes, I think that's fair.

OK. Thank you.

Yes, one thing I wanted to add to that, I think if you look, I mean our margins, actually in comparison with some of our comparator group are pretty darn good and yet we're sitting here predicting they're going to get better. So I mean, I think you can see there's a pretty heavy tone of optimism to where we think we're going.

OK, great, thanks guys.

Our next question comes from the line of Alexander Paris at Barrington Research. Go ahead.

Hi. Just to summarize for a minute, you've talked about a lot of things that have changed. You've made a lot of in the marketplace, you've had higher expenses and insurance and so forth, and you've made, and in the process of making some internal improvements, and actually since the last peak, you're significantly different company in terms of your exposure to say the electrical area. So putting that all together, when you get back up to that next peak, wherever it is, is there any reason why our gross and operating margins from the last peak can't be duplicated? Is there enough structural change that there's, you can't get back up to those margins, or could you get above those margins?

First question for you? What are you saying is the last peak? What peak are you referring to Alex?

Well, let's say the last peak in your earnings was in 1998, I think the Asian crises and everything else started coming after that. So back in 2002, let's see, you had, from my records, anyway, 29 percent gross margin and 14.9 percent operating margin, I think, yes.

I'll talk about it briefly, technically, and then perhaps Henry and Jim want to put the qualitative comments on it.

You know, I think we, when we went out on our stock offering a year ago, we said that the peak that we had in '95, which was, I think a in terms of EBITDA margins was something like, you know, 21 to 22 percent. We didn't think that that was likely to be duplicated, because of so many different factors, the fact that we now had a big electrical business, where we were strictly mechanical back then, where you know, pricing pressures have changed so dramatically, the world, it's truly a world market that we all know, I won't get into all of those things again.

But yes, we're going, we expect to have significant improvement, exactly where that, the next peak is going to come, you know, that's not really what we're trying to accomplish. We're trying to continually take costs out of the organization wherever we can find it, streamline our business, enhance our margins through the products, the niches that we attack. And we think that we're going to get them back into the, and I'll keep talking about in terms of EBITDA margin, back into the mid to upper teens. And we haven't changed our thinking on the ability to achieve that, despite the length of, let's call it the industrial manufacturing recession.

Will they get back to the prior peak? I mean, time will only tell, but even if we don't, we think there's a tremendous improvement from where we are that we can bring to the bottom line and show some excellent returns for our shareholders.

Just one other question related to that. When you first bought Marathon I think their margins, operating margins, were lower than the mechanical. You weren't quite sure if you could get them back - pick them up to the same level as the mechanical.

Since then you've made several other ones in the acquisitions in the electrical area and then integrated them, hopefully improving costs on all of them because of the synergies. Looking ahead, is - can electrical margins be equal to your prior mechanical margins now after you've seen this now for several years?

If you could give me the '98 market back, Alex, in all respects I would say - my personal opinion is yes. But ...

I'm not talking about peak, now, just on an ongoing basis. Is electrical business just because of its nature going to continue to be a lower than mechanical margins?

No. I don't think so. I mean, that's my opinion. I don't think so. I think that by the time we finish with the things that we have planned, I think that our margins can be very competitive with what we've done - what we're doing in the mechanical group.

Having said that, neither one today is close to where we were then.

Right.

And that kind of peak may or not be anytime in the near future.

Alex, this is Jim Packard. You know, my attitude and the way we made the company and our philosophy is that I don't know what the number is, but I know that we are going - we expect ourselves to be a high performance company and to be in the upper quartile of anybody you would legitimately compare us with in like businesses.

We've been there. We've spent a lot of time in that category for a lot of years, and it's my expectation that when we have a decent economy and we've completed the things that we need to do in this business. That's where we're going to operate.

OK. Thank you.

If there are any further questions, now is the time to press one. We go back to the line of Holden Lewis at BB&T.

You've made some comments about difficult pricing. I think in the past you're tone has been, you know, pricing is difficult. It's always difficult. It's not necessarily incrementally more so this quarter than it was in the last. Is that really still the case or have you seen pricing get incrementally worse over the past few months or quarters?

No. I'd say it's like it has been over the last year.

OK.

I think what Ken means, excuse me, which means every time there's an order available, everybody goes at it tooth and nail.

OK. And can you put into a little bit longer-term perspective, you know, certainly putting it into the context of the questions about your long-term margins. What has happened to pricing. since the past peak in '98? I mean, have you seen kind of, you know, an annual decline of some odd?

Or have you met inflation? Or what's sort of been the long-term trend?

Well, if you look at the government statistics it would say that they would tell you that electrical products have been going down in pricing approximately two percent a year. So we don't try to get a lot more specific about our specific product lines, but certainly there's been a downward movement since '98. Probably more pronounced in 2000, 2001 and 2002 as people try to fill capacity.

OK. Thank you.

And at this point there is no one else in queue.

OK. Good. We'll just close with this. You know, one of the things that we didn't spend any time talking about has been our efforts in sourcing and joint ventures and our Chinese position. We continue to put a lot of emphasis on sourcing product around the world and we continue to put a lot of emphasis on selling product in different locations than just the United States, which has been a thrust of ours and we also have been working forward in expanding our manufacturing capacities in China, in particular, and I think with some great success and we hope to be able to talk about those as the months go on and the years go ahead in terms of expanding our capability.

Our logistics operation is showing considerable improvement each month and I'm feeling really positive about our ability to deliver our product quicker than any of our competitors and in the overall scheme of things I guess I'm feeling pretty good. I hope that we can see the end of the war bring some renewed confidence in the industrial marketplace and we'll have better months ahead.

With that, we'll close. Thank you.

OK. Thanks, everyone. And thank you, Ken.

Thank you.

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