Regal Rexnord Corp (RRX) 2004 Q3 法說會逐字稿

Welcome to the Regal-Beloit Third Quarter Earnings Teleconference. This teleconference originally aired on October 27, 2004 and will be available until November 5, 2004. Please [leave] your full name and the company name and press any key to begin.

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Good morning, ladies and gentlemen and welcome to the Regal-Beloit Third Quarter Earnings Conference Call. At this time all participants are in a listen-only mode, later we will conduct a question-and-answer session. Please note that this conference is being recorded. I will now turn the call over to Mr. Ken Kaplan, Vice President and Treasurer. Mr. Kaplan, you may begin.

Thank you, Monica. Good morning everyone and welcome to the Regal-Beloit third quarter earnings conference call. With me today are Jim Packard, our Chairman and CEO, Henry Knueppel, President and COO and David Barta, our Vice President and CFO.

First I would like to remind everyone that the statements made in this conference call that are not historical in nature are forward-looking statements. Forward-looking statements are not guarantees since they are inherent difficulties in predicting future results and actual results could differ materially from those expressed or implied in forward-looking statements. For list of major factors that could cause actual results to differ materially from those projected, please refer to our 2004 SEC filing.

Okay, if you haven't had an opportunity to review this morning's earnings release, it is up on our website at regal-beloit.com. Monica before turning the call over for -- before I turn the call over to Jim; Monica, would you please now provide the participants with instructions for asking question?

Yes. Thank you. Any participants wishing to ask a question please press "*" then "1" on your touchtone phone. If you are using a speakerphone please pick up your handset. Once again for question please press "*" then "1" on your touchtone phone. Thank you.

Before turning it over to Jim, everyone, want to clarify one thing, the initial release that we send out over the Dow Jones wire, said something about a 15 cent charge in the fourth quarter. They fix it up out of our earnings release incorrectly, it's 1.5 cents, if anyone is picking 15 cents then press the easiest [nine]. Okay Jim, now you've got the floor.

Well most of all are at easier. Thank you Ken and thanks to everyone out there for joining us this morning, it's a happy time here. We got record sales for the quarter and that pleases us of course on are profits are up nearly 39% over last year and that's also a good news given the last several years and have that report something not really enjoyable. I am only going to make a couple of comments about how I feel this quarter was and things that I may have Henry address the operations and then we will have Dave Barta, cover the financial parts of this and then they will it open up for questions.

Again we feel are feeling pretty good about the quarter and the numbers are good. The acquisition of CAC, the business we bought from GE is we got some I think good news report there certainly, we're happy with it, the people are terrific and we seem to be falling in line with our way of making pretty quick and we are really pleased with the way that’s going and the activity surrounding generally that the fact that we have got number of issues behind us moving forward.

I am now going to ask Henry to get into the specifics of the quarter with regard to operation. Henry?

Thanks you Jim. Good morning everyone. As Jim said it was a good quarter I think but any perspective, the [inaudible] was a big quarter and a great quarter, really saw that material buying and we will talk about that part as we go.

From a market perspective looking at what we are talking what was certainly this quarter was led by power generation, the hurricanes situation in the Mid-east drove a lot of demand now. That drives a lot of demand for [gen-fast] we don't make [gen-fast] we make generators and go in [gen-fast] so there is a litter bit of a lack but certainly it's created the needs in our customers and those are starting -- and have started to flow though sell in the third quarter, but overall it's very strong quarter for power generation.

Other markets that were very strong included [AG], pumps industrial distribution and food processing and mining. They were only a couple of markets that we thought were unusually weaker than normal. Those includes pleasure craft marine, and in the HVAC aftermarket and both primarily due to a poor summer.

We continue to make good progress with new products, wash down products and IEC products that we introduced this year in the electrical group and our Shaft Mounts and high efficiency gear drives that we introduced in mechanical group continued to grow; we continue to gain on our customer basis.

For the quarter, looking at earnings certainly the biggest news was continuously material as we were entering the quarter, we told you that we were concerned about what might happen even know going back to July we did not expect a lot of pricing action. Unfortunately in August there was another round of steel increases and is all of you know, comp [inaudible] shoot up in September and that's had an impact well larger than expected in the quarter. Also from an earnings standpoint, [inaudible] geared improved considerably from where we were in the second quarter, but is not yet at our expectation level.

As we look forward to the fourth quarter, I think the issue is materials, materials, materials. The price round that came in August and September will not be overcome quickly in the next quarter, we are going out with price increases as [respond] to the industry, they are fairly substantially, we expect them to stick and are consistent with what the rest of the industry is going to do but as all of you know there is a time lag between when we put those in place and when they actually have an effective date. So it will have an impact on us in the fourth quarter that Dave will address.

We also expect to see some normal flowing in certain of our markets [AG] HVAC and some general industrial categories as traditionally slowed down the fourth quarter, we are expecting to see that, -- that we [feel] and see in the marketplace. One unusual piece of slow down in the fourth quarter is in China in the power generation market, interestingly enough, it's hard -- to that -- market has being all year, the government reducing incentive to put power generation and the heat wave that was there during the summer in the Shanghai area actually across all of Southern China, obviously, is now cooled down and with some of the higher interest rates that are available, there is a little bit of block in inventory in the channel and we expect that to take a little while to work off, so our fourth quarter we reduced our estimate of what we are going to be selling in power generation in China, that isn't very scary situation, it's just -- we work our way through and we expect to continue to grow in the next year and certainly this year it was [white] hot.

Also in the fourth quarter, we have announced that we are going to close our Electra-Gear facility in Anaheim, California. Frankly, it is difficult decision because it's a very good facility with excellent people, but cost of doing business in California and the fact that the customer base in primarily Mississippi in East, make it the right thing to do and a cost effective thing to do for our future.

Finally, as I look at this quarter, as Jim said, we completed the commercial AC motor acquisition from GE. We only too much into that at this point but so far we are extremely pleased with the -- it's within our expectations in all financial regards and couldn't be happier with people that we've gotten, I think they're very pleased to know that they are aligned with the motor company, primary businesses motors and so we have a lot of high expectations for where we're going to head with CAC acquisition. With that I'll turn it over to Dave Barta.

Well thanks Henry. I'm going to first run through the numbers, I may exclude the results of the acquisition of the CAC business, to make your comparison a little easier and then talk briefly about CAC business. So again sales for the quarter excluding the sales from the acquisition would have been a 180.2 million, which is 13.3% increase over the prior, this is also increased over the second quarter and our second quarter guidance Henry and Jim both had related the thoughts and the message that the third quarter is bit different than usual that we actually see a sales increase over the second quarter and we did.

Sales in mechanical group increased 4.6% and sales in the electrical group increased 13.6 was again both motors and generators is being very strong. Income from operations was 15.6 million and again that's before the acquisition, which is a 30% increase over the third quarter a year ago.

For electrical group income from operations was 10.3 million excluding the acquisition again an increase of 23.3 from the prior year. As a percent of sales 7.9 was compared 7.3 a year ago, so an improvement over a year ago.

Our mechanical group income from operations of 5 million and a 38% increase over last year and that does include the majority of the gains of the real estate we talked about in press release and I will talk about in moment.

Again both groups were impacted by the rise in material cost and our electrical group was really impacted to a greater degree and our guidance in the second quarter conference call we had expected material inflation pricing GAAP of 1-2 cents, the actual that we experienced as we had warned a possibility was about 3-4 cents greater than that; so in total we experienced in the neighborhood of 4-6 cents decrease in earnings due to the inflation versus price.

Net income for the quarter was 8.9 million, which was a 37% increase over the third quarter last year. Earnings per share, and that was on 24,724,000 shares was 36 cents, which is of 39% increase over last year. This quarter does reflected as we discussed in the press release a net one-time gain of just under $1 million and net income rounded 4 cents a share. We anticipated in the guidance that we provided at the end of the second quarter, a net gain of 1 cent per share and in fact --particular piece of property we will talk about during that conference call actually didn’t close, this is another piece of property that we had a very anxious buyer show up and we are able to complete that transaction, so the [this] property that was on the market in the second quarter; we probably close in the third quarter we are now looking at the fourth quarter close so that 1 penny gain is now in our fourth quarter guidance.

The gain on the sale of property in UK also impacted the tax rate for the quarter, which you will notice was 31.9%; much lower than where we've been running. That exclude the impact of that -- real big transaction and the tax rate was much more consistent with where we have been running in the fourth quarter and again that tax rate excluding that gain, would have been 35.3% and we anticipate the fourth quarter to be a similar number.

Henry mentioned that Jim, -- that for the quarter the CAC business really had a strong month, and we've actually owned it for one month, the month of September and we have already calculated the sales from CAC business were 13.7 million.

From a net income standpoint the business was for our guidance breakeven and -- actually we will talk about the fourth quarter guidance and have some positive news there related to that business. The other housekeeping items for the quarter, depreciation and amortization was 5.7 million and capital spending was 3.5 million.

Now turning to the fourth quarter guidance, we provided range of 26-30 cents and anticipating your questions and going up forward from the third quarter; we will look this, if you take our third quarter, we need to back out 4 cents from the net gain in the sale of real estate, as Henry mentioned we have the Electra-Gear costs, which would cost us about a penny and half on our earnings per share basis. We are anticipating the closing of the piece of real estate that we had talked about for several months, that will add about a penny and half at this point, so, this would offset the Electra-Gear charge.

We are also forecasting, as Henry mentioned, sales to decrease slightly from the third quarter level, but again there is a very slight decrease; but again it will cost us about 2 cents a share versus the third quarter and we are still forecasting that the material inflation/price gap will costs us, we are not going to be able to close that gap and we are actually going to look at that gap basically we enforced them greater than what it was in the third quarter.

On the positive side again the CAC business that we purchased from GE -- that just --in our business, the very strong sales line and we are confident now that in the fourth quarter we will see a contribution to earnings in neighborhood of 2 cents per share. So that's you know versus our guidance we've given previously that would be earnings neutral for the year. I think the only [covenants] that for the guidance is fact that we're also in a process of reviewing from [natural] standpoint several of our pension plans and you know, we are early in that process but there could a small charge in the neighborhood of the penny or so that will arise from that, but basically that's the [walk forward] of the guidance. So at this point, I would ask Ken, if you can talk about our balance sheet and debt position.

Okay. Yes, Dave. At the end of the third quarter our outstanding long-term debt was $275.3 million, a 28% increase from the second quarter debt level of $214.5 million. We were able to pay for GE's commercial AC motor business by borrowing the $72 million cash purchase price from availability in our bank revolving credit facility. And we still have nearly $50 million at the end of September of capacity for our working capital and other need.

Apart from paying for the new motor business, we generated a little over $20 million of operating cash flow during the third quarter and after net plant equipment expenditures and dividend, we have a strong free cash flow of $17.7 million. Our accounts receivables day sales outstanding and our inventory return stayed in line barring only slightly from the end of the second quarter. Our debt-to-capitalization ratio did rise with the acquisition to 40.6% at the end of the September, being near the 40% mid point of our target range of 30-50% that we've been talking about from many years now; even after we have just made this mid sized acquisition. And finally, our all debt covenants remain well below their [inaudible].

So now I'll turn it back to you Jim.

Thanks Ken. Dave, let compliment to you [went through] this estimate that fourth quarter forecast that even I didn't quite grasp all, but I am sure no questions on that. I think what we will do now is open it up to questions. Monica, do you hear?

Yes, one moment please. As a remainder please press "*", "1" your touchtone phone for a question. And our first question comes from the Alexander Paris, Barrington Research. Please go ahead with your question.

Good morning.

Hey Alexander, hello, you are keeping your record in tact.

How you always get to be first Alex?

I don't know, -- such that alphabetical. The I guess, ask with the -- that fourth quarter, I was little confused trying to get to all those numbers that first of all that guidance as it is, is less than about the -- I think the first call estimate of 34 cents; not that you are responsible for the analyst estimate, but that’s lower than you would have estimated or guided before and is that primarily immaterial, is that the difference?

Yeah the material cost that get -- up is actually costing us about a dime, if you can take a base line of where we would have been a year ago with that pricing cost. So by the dime reduction versus a year ago and versus the third quarter is an additional force there.

And that after 2 cents accretion? That would be taken down by that and then the other two items you mentioned essentially cancelled each other out, right?

Right, the Electra-Gear closing cost us about a penny and a half and this real estate copy that we are going to close or add about a penny and a half, but basically we will even-out.

So the 34 cents estimate by analyst was accurate and it's the difference that and your guidance is the material cost less 2 cents accretion, which we didn’t expect?

Yes, that's a good way to look at it. Right.

Right?

Yeah.

Okay. The electric plant closing, that’s new news, you didn't mentioned that before, right in the last conference call that I can remember?

That’s correct.

Do have any other closers that you have in mind right now, I know you are always revealing it but--

Yeah, we are always revealing, but no, there are no other closer that we are --

Because you went through up fairly extensive consolidation first in the mechanical and then the electrical or vice versa, so --

Correct.

So, this is something you come up with after that -- those major consolidations?

Yes.

And the price increases that you had because of material costs, roughly what have they been year-to-date, on average, it is different for a lot of products?

We are all having a look at each other, because it is a difficult question to answer, you know, each one of the group, mechanical group has a varying marketplace, you know, with different in [inaudible] and there is an automobile that is different in --

What I mean is quite, rephrase that -- either a come here, surely or you have just made them recently?

Yeah, we have announced price increases I think in literally all of our [divisions] that will be affective during the course of the fourth quarter with the latest one being -- the longest out in January 1 and most importantly November and December.

Okay, so there are additional to take care of the price increase and steel and copper and they have already been announced --

Yes.

-- and they will effective sometime during the quarter and that cash enough because of lag time to offset the material costs increases?

That's why we embedded in forecast, Dave said, I think it's about dime -- excess of our earnings of been unrecoverable price increase from raw material --

in the fourth quarter.

In the fourth quarter.

Beside from all that you mentioned all your markets are with the exception maybe one or two are still looking very strong?

Yeah. During the third quarter, I mean, really a bit strong quarter for us and as you know in our last -- past year we've seen some reduction in third quarter this year we saw it continued to bill at the end of the quarter it remain -- it get little bit choppy in terms of the consistency in the feel of the push but certainly not at a concerned level just comparative that the [inaudible] came off.

And there is concern you have mentioned I think about inventories being a little higher at the distributors, I know the national figures show the wholesale inventories are up quite a bit in the electronics people -- the component people are complaining at the or at concern at the distributor inventories roughly a little bit, but yours do you feel a lot you know fairly normal?

We think that's pretty well in line, we wouldn't expect -- we wouldn't expect any pushing our [inaudible] back at the moment unless the final market structure change.

Okay. All right. Thank you very much.

Thanks Alex.

Thank you. Our next question comes from Richard Rossi from Morgan Joseph. Please go ahead.

Morgan -- morning everybody.

Good morning, good Morgan.

Okay, good Morgan everyone. Couple of things, first on the plant closing, could give us some sense on when what kind of cost savings you might expect from that -- know of what kind of time period?

Well, yes I know, the over this the time period when with the closure is this is not a huge plant until there is a -- there are and need a very good people but if this is a plant that about 75 people and the smaller plant by nature and the closing will happen very quickly and we'll be complete, we think by the end of this quarter. The gain back from what we're doing is approximately what is the hit that we're taking and in the quarter and hopefully we will get better from there.

Alright, on price increases --

The gain back, Richard, is after [inaudible].

Right, so it will unfold over the next year quarter. On these price increases two things; one, are you anticipating or have you seen any pre-buying to try to get under the cover of the old pricing.

Yes. Just a little bit premature for that to happen we would anticipate given the level of increase that there will be some of that, you know, how sensitive that is going to be is, you know, is not determinable right now.

Okay and finally on these price increases. I know this is not a good question that can be probably answered but I mean would it be fair on modeling if for '05 to assume that in the period -- that if there aren't any more material cost increases substance in the next few quarters. That the cost increases that you have to continue to absorb until these prices catch up will probably unfold over the next one or two quarters as well?

Yes.

Okay so we have got some impact of these cost increases in the first quarter, less in the second and hopefully by the second half they are not a factor?

Yeah, this is [inaudible] I think you are right, with the exception on the little -- I am not sure, that is going to affect second quarter next year; I think if we are going to get them they are going to get in place and be in place before them and may be in place right now, for -- comparative conditions and number of other factors, so I think the drag all into the next part of the year. The only reason that could happen would be continue to acceleration in unexpected increase of any given product, you know, I can't predict that.

No, I am sure no.

The predictable part of this is that we should last price increases, therefore putting in should be in affect, it should be rolled to all that and not penalized there first quarter I will be very surprised and disappointed.

Okay and one final thing in the last conference call, you talked a bit about healthcare cost being above forecast, I think around a penny above your forecast. What was the case in this quarter?

I think the system was where we [inaudible] the good news is that we didn't see escalation.

Okay.

I think we now we are, I think, we want to be pretty close to plan right here [now]. Because we think we are going to locate that all -- and be closer to plan by year-end, that's in our forecast. That's another very unpredictable thing the way it's done from an accounting standpoint.

Sure.

You just don’t know.

Well it maybe saving on [inaudible]. Might be a fact; alright let me get back in the queue. Thanks.

Thanks.

Thank you. Our next question comes from Mike Schneider from Robert Baird.

Good morning guys.

Good morning.

First thing is the raw materials issue. I think I've heard two different numbers, Dave you mentioned a 4 cents squeeze an impact in the fourth quarter for raw materials and Jim, I heard you say a dime?

The 4 cent was, I was basically rolling forward for the third quarter to the fourth quarter guidance, with an additional 4 cents hit versus the third quarter, but if you look at where we are on a cumulative basis versus a year ago, it is a dime.

Okay.

That makes sense to you?

Yes.

Okay.

And then I guess, give us a sense where the price increases put you as you enter 2005? Are you neutral; are you still behind a bit? Just trying to get a sense of what the margin leverage is in 2005?

The increase the should put us -- put is in trouble.

Okay. And then that ---[multiple speakers]

-- as Jim just explained before I mean if the -- if you look at the third and the second quarter unless there are further increase in materials will be completely neutral, yes, if the change is obviously, that's a new gain?

Right. Right. So assuming status low prices, which is dangerous at this point but assuming commodity purchase don't rise further what are your expectations for incremental margins in 2005?

Well nobody wants give you -- nobody wants to give you a sure number on that, and I am glad they don't, but I mean certainly we -- we feel strong about, you know, all the things we've been doing and they got to continue to pay off and --

Yeah, we the market is -- if the market is up we expect some general market improvement in certainly in the first half of next year. I know there is some question marks on that at the moment but we that's what we expect but we're going to see I think the sales leverage on any growth and in even in a flat scenario we expect to see some of the gains that we've been working on flow through.

Okay. And I guess the fourth quarter sales being a down a bit -- could you again just explain what market and why those markets would be down in the fourth quarter?

Yeah. The one that I mentioned it was an unusual one is the power generation in China.

Sure.

And that business is growing drastically for us over the last two years and for the reasons that I mentioned the channel really filled up in late in the last three months is filled up significantly and has going to be significantly slower in the fourth quarter as people [churn] through inventory. We expect that to be a non-issue as we get you know in the middle of next year and they have this same problems growing for next year that they had for this year but it's going to – but it will be impact in the fourth quarter. And then we have other markets that are traditionally for us a little slower in the fourth quarter though include [AC], HVAC is typically less slower in the fourth quarter and there some industrial markets where the real build of product [inaudible] in the second quarter and third quarter and not in fourth quarter.

There is always the impact with everyone trying to reach year-end with lower inventories and cut back and so you write on that, it's being tradition.

Okay.

And Mike just a kind of frame that [inaudible]. When we are talking about how that all add, we’re talking about low single-digit decrease versus the third quarter and than the other people caution you on it will also have the full quarter impact of GE acquisition. Where you have an additional two month so that now again for the third quarter on average -- we are not looking at if that being as strong as what the month of September was for that business. But again you need to add that on top of.

Okay, so the low single-digit increase is organic excluding GE acquisition?

The low single-digit decrease, yes.

Okay. And then well -- I was in that power-gen plants in China and then I know you need to break, but is there anything else going on in that market that is change in -- your mind Henry in terms of cost or demand or your position there?

Well, not really. I mean the cost of commodities were up over there as well. There, you know, there is a little bit more stress in the economy there than it has been; it's not significant at this point, but certainly the government taking steps to try slow things down a little bit. And as you know they have even announced they may even lesser want [flow] to a small degree in the next year, which will be interesting to see how that plays out. But there is not big significant change. This has to be I think really just a kind of power generation specific kind of a scenario could happen.

Okay. I will get back in line thanks guys.

Thank you. Our next question comes from Bob Tabs (phonetic) from PKI Capital (phonetic). Please go ahead.

Hi. What was your quarter-end cash balance and it appears that there is fair amount of dilution you are going to experience from your contingent convertible issue that 2 and 3 quarter percent. Are you planning any anticipation-dilutive measures for that issue? Thank you.

Sure. The quarter-end cash balance was $20.8 million and again on the contingent convertible issue, obviously, I think everyone is aware that the EITF (phonetic) has basically [inaudible] with their official position on that. And we have until the middle of December could take any actions that we might take and at this point -- there is really probably three options; one, would be to do nothing different. I think the second would be to, you know, swap that out in some way with another type of [inaudible]. And the other I think would be the change that the convert we have in place today. So you know we are evaluating all those. I think you will hear from us in the next several weeks what we are going to do. At this point we are turning towards the options that will allow us just not to be nearly as dilutive as it might appear.

Okay. Thank you.

Thank you. Our next question comes from Michael Greenworld (phonetic) from [inaudible]. Please go ahead.

Good morning. Inventory increase quite a bit and I was curious of what amount of that was associated with the GE acquisition?

Sure the inventory increase from the acquisition was approximately $24 million.

Okay.

But if we take that out inventory really pretty flat.

Okay. And on the operating margin basis I was curious is the -- I know the net income impact of that the acquisition was flat, what about on the operating margin, is it bringing the overall operating margins down or is it -- I mean do you have the numbers script out without the acquisition in there?

Yeah. That business on an operating margin basis was just slightly more than breakeven, so basically from that you have taxes and interest adopted -- and you get to a kind of bottomline is a breakeven, so yeah on a percentage basis that profit the -- reported results from the electrical group down part of--

Are you willing to quantify that?

There operating margin on 13.7 million sales was low single-digit.

Okay.

Again reflecting lot of the cost related to the accounting for the start-up and inventory write-up and amortization so forth.

Okay. So going forward what do you expect out of that unit?

You know as we get through the initial turn of inventory and the purchase accounting aspects of this we expect this business to be, you know, very close to what our electrical business in total run.

Okay. And can you -- I don't know if I missed this, but what amount of the revenue increase was associated with prices -- pricing?

Not enough. Yeah. Probably you get in the neighborhood of 3-5%.

3-5%.Okay. And I think that's all I have for you. Thanks a lot.

Thank you. Our next question is a follow-up from Richard Rossi from Morgan Joseph. Please go ahead.

Yeah, I just wondering given the acceleration material cost I think unlikely the metal cost collapse are you doing any lock-in material over a longer period of time, or anything -- forward?

What we hedge -- you know let me just walk you, a quick walk down the line here, it's a number commodity -- number one material that we use in deal and that is --

Right.

You can sell the contract to someone.

Right. But they can --

As we learned this year, [inaudible] as you look at [copper] we do hedge, bigger program there; we do try to lock that in up to a maximum of 70% of what we have use and it can vary from that, obviously, based on what we you know these individual situation. But we do try to lock that in. we do lock in the proportion of our [inaudible] but a smaller portion.

All right thank you.

For any questions please press "*" "1". And our next question is a follow-up from Mike Schneider from Robert Baird. Please go ahead.

Hi guys just share with us the thought through the quarter any orders --and we obviously had some summer slow down but did you see any distinct trend during the quarter with orders?

Mike, as said before, you know at the end of quarter if you look back 6 months ago you can just feel that there was a push, you know -- orders were building; there were some inventory growth in some of the channels and so on. And I think that slowed down during the third quarter. We didn’t end up with, you know, surprise negatives during the quarter, you know, we certainly, we saw a significant change with negative; but I think we saw a little bit more caution perhaps in some of our OEM business and some of the distributor business as well about what the next quarter hold. So I think we are a little bit more cautious but certainly not worrisome.

We didn’t have any one market to my knowledge, where somebody was --

Yeah and we are expecting, you know, greater turns, I think -- just pretty generally across the board.

Okay and industrial distribution Henry you mentioned that market was good this quarter, have you made any distributor wins or suggest that signed up a general industrial economy here in U.S. is still on demand?

Well, I think the answer is, we have some wins and we have a number of wins. OEM and distributor [inaudible] to company, we have some new products that we think we are adding to the channel, but you know, I think overall you have to pay with industrial distributive marketplace.

Okay. That's all I have thank you.

Gentlemen at this time I show no other questions. Do you have any concluding remarks?

[inaudible] I guess conclude. I don’t know if Michael still there but yes Michael is just we go back and we didn't have a pretty good gain in the distribution area even though what Henry said was correct. Whether I would get -- who that was, I think you know but we are pretty pleased with that and that relationship is growing quite nicely as we expected add to our future growth and prosperity in years ahead. We don’t have anything else report from here. As expected the start out it was good quarter. We feel pretty good about the results; we are feeling extremely good about our people and the way they have responded to this situation. We are disappointed in our performance in not being able to [inaudible] price increases the way we like to. Unfortunately, it’s a competitive market and we have some of competitors who lagged substantially in [raising] their prices and ultimately pay the price we have. And we have some other competitors who have announced increases in their pricing, but the strange reasons are not making them effective until the 1st of January, so if we had our way, our price increases would be effective tomorrow, and we would be protecting our shareholders and our investment that other companies are for some strange reason, being to be [content] loosing money and they are and yet still not raising prices. Yes, it's a little bit of a negative statement on my part, probably some great deal of frustration as well. But we are pleased with what we're doing as, we said the CAC business, from GE and the people that we come on board there has been a real asset, I think that's going to be everything that we thought it would and will be really looking forward to reporting good results there in the first quarter and then we will be [inaudible] we will tell you very much specifically after that. Otherwise, I don't think there is anything else; Henry, anything?

No.

David?

No.

Jim? (phonetic). We appreciate everybody joined us. Have a good day and have a good weekend. Bye.

Thank you. And ladies and gentlemen, thus conclude the conference call. You may now disconnect, thank you very much for participating. Thank you for participating.