Simpson Manufacturing Co Inc (SSD) 2007 Q3 法說會逐字稿

Good day, and welcome to the Simpson Manufacturing Company third quarter 2007 earnings conference call.

I would now like to turn the meeting over to your Chairman, Mr. Barclay Simpson. Please go ahead, sir.

Well, good morning, all, and thanks for joining Mike Herbert, our CFO, and myself. We'll make every effort to stay on the straight and narrow, but of course we're human, so we can make mistakes. It wasn't the best of quarters. While we certainly did much better than housing starts did, still it remains clear that we have too much dependence on U.S. starting starts. And despite all that we're doing to reduce that dependency, it isn't going to happen overnight. It's clear that for the first time since we went public in 1994, our sales and earnings this year are going to be down. September was the worst month in the quarter. However, October is looking somewhat better. On the plus side, our Strong-Tie sales to home centers in the quarter were up 17%. And our relationship with our largest customer, Home Depot, is back to being a partnership to the benefit of both parties. In fact, they just announced that we were their partner of the year in billing materials. Also, they have asked us to take back the merchandising of our products in their stores. That will take a while, but should be a plus for both Home Depot's and our sales and profits.

Anchor System sales were down 6% in the quarter. Because of our new sales offices in Beijing and Hong Kong, we expect that number to improve. Initially, our number one seller in China and Asia is epoxies. Given time for our people in China to analyze the market and figure out what products to buy or manufacture there, we expect Asia to be a major part of our future. Sales for the quarter in France and the UK continued to be up in double digits, but not so in the biggest market in western Europe, Germany, where both one and two-family housing starts were down over 45% in the first quarter -- excuse me -- the first half of the year. However, we have had some real changes there in Germany, and we have a new person in charge of sales, and we're working on increasing our market share. Sales in Canada were up 23% for the quarter. Sales outside of the U.S. went up in the third quarter from 17.5% to 20.4% of our total sales.

While Dura-Vent sales were down 17.3% for the quarter, a tiny profit was made instead of the substantial deficits that we had in the first half of the year. Several new products will have been developed by the end of the year at Dura-Vent and some are designed for [vending] new products such as tankless water heaters. We feel that our brand new acquisition, Swan Secure, will contribute to sales and profits in the fourth quarter, and should be an important part of our future. Their people have achieved the difficult task of developing a brand name for essentially commodity products, not an easy route. Swan's and Simpson's channels of distribution as well as people should be a substantial mutual benefit.

Last week we had our annual international sales meeting, 353 of us in Fort Worth, Texas. The theme, of course, was how are we going to continue to improve our sales and earnings regardless of conditions over which we have absolutely no control? The enthusiasm as well as planning for future success were absolutely outstanding. I came away all pumped up. All of you security analysts are going to have to be stuck with me for a little while longer. It's too much fun. But we still are -- despite you're in the meantime being stuck with me -- we're still going to have that gathering in Stockton, which we had to call off, where you can talk to some of the top people in the company. It will be sometime in the first quarter of '08. So, questions.

Hello? Are you there?

I'm sorry, sir?

What is going on?

(OPERATOR INSTRUCTIONS) Our first question comes from Arnie Ursaner. Please go ahead.

Good morning, Barc.

Hello, Arnie.

Couple of questions. Your cash grew very nicely despite the acquisition of Swan. Can you comment on your views on inventories given greater availability of steel? You have been running excess inventory for quite a while. Your view, again of can you reduce some of those and generate additional cash.

Mike.

We believe the price of steel will be going up shortly, and we will probably be increasing our inventories.

Okay. Second quick question I have is focusing on international. You gave us some numbers for France and the U.K. And you gave us a percent of your total sales. Can you give us a feel for the growth in international in Q3, how that compared to Q2? And your view looking out for the balance of the year in international, and also comment on profitability of international, which I don't think you did.

Okay. Let's see, the international -- yes, it went up from 17.5% to 20.4%.

All right. What was the actual growth in international?

The actual growth was 11.7%.

And that is slower than you have been running year to date?

A little, yes.

Okay. And just can you give us --

I think that's -- that's because of Germany.

Right. Okay. My -- and profitability in international?

The profitability was up in international.

Okay. You have in the past expressed that kind of a percent of U.S. Where are we put at this point?

Haven't got that, Arnie.

Okay. Final question is with all of the craziness weather-wise, and in California, while I'm sure it's premature to reach a conclusion, are any of your facilities impacted at all? And what is your view on how this could play out over the next few months in terms of demand.

No, the facilities are -- haven't been affected. So don't see any -- any problem.

Okay. I'm jump back in queue. Thank you.

Okay.

Our next question comes from Barry Vogel. Please go ahead, sir.

Good morning, Barry.

Good morning, Barc, good morning, Mike. First question can you give us a percentage change, Mike, in the different sectors of the country versus last year's third quarter starting with the west, excluding California? And then California, the south, southwest, midwest and the northeast?

Yes. Let's see. So why don't I just go right down the list here. California was down 14.5%, the west was down 5%, the midwest only down 1.4%, the south-southeast was down 14.5%, and the northeast was up 10.2%. So total domestic came out at minus 7.8%.

Can you give us a little bit of color for Texas, Florida, and California, which have been your three largest states?

The worst state has been Florida. Way off, and it of course is your second state. And California has not been good either, particularly southern Cal. Southern Cal has really been off very substantially. Texas, it's been down, but not particularly badly.

Okay. On the same -- similar things as far as sales changes. You gave us Anchoring Systems down 6%.

Right.

Could you tell us what sheer wall was down?

Yes. God, what am I doing? Oh, geez. Sheer wall for the quarter was down 22%.

And you -- last time -- last quarter you gave us some color on Quik Drive --

But just one comment on sheer walls, I -- that is because, of course, the sheer wall goes -- goes into housing. The vast majority of the sheer walls go into housing. So it does follow it pretty closely. However, however, I expect that to lessen, I expect it to go back up. I think we're -- it's taking us longer than we thought it would to make real progress there, but I am told by the branches that a couple of them are making real progress.

Does that have to do at all with the new steel sheer wall.

Yes. It absolutely does.

Alright. So you are making progress there.

I beg your pardon.

So you are making progress.That's good.

Yes, we are.

And can you give us some color on Quik Drive?

Quik Drive, yes. Quik Drive down 11.6%, which was -- to me it was disappointing, and I think that one thing that we did not get done as quickly as we thought we would was Europe. Europe sales, while they're making progress there, not nearly as much as was projected. However, once again, I think that that is going to change even this quarter.

Okay. And as far as the home center business, can you tell us what the percentage change in the quarter was, for the whole -- the entire home center end user market, and a change in your largest customer's sales?

No, I don't go in to that, the change. And we don't even have to talk about Home Depot, they are less than 10% now.

You are not going to give us that transparency.

No, I'm not. I can give you what we did in the total. 17% up.

Was what? The home centers?

That's all the home centers. Yes.

They were up 17%?

Yes.

Okay. That's good. And as far as -- Mike, as far as Swan Secure, I have got a few questions. You did state in your release that 3.3% of -- I believe it was connector sales, was Swan Secure. Is that correct?

The -- our Swan sales were in that range.

Okay. Because you did make a comment in your press release. And so that would imply about $6.5 million. If you make in to account the acquisition costs, did they contribute any money or it was break even, or can you tell us that?

It contributed slightly.

All right so I would think -- how much was the acquisition costs all in the quarter?

I do not have that number.

Okay. And, Mike, while I have you, could you give us the tax rate for the year, your capital expenditures for the year, and your estimate now on depreciation and amortization for the year.

Capital $35 million, depreciation and amortization $28.5 million, and barring unforeseen circumstances of the tax rate, approximately 38%.

All right. Thank you. I'll go back in to the queue.

Our next question comes from Steve Chercover, please go ahead.

Hello, Steve.

Good morning, Barc, morning, Mike. First question, I just wanted to give a sense of what kind of concessions you had to give the unions in order to settle the Stockton strike.

It really wasn't -- that was a very unusual circumstance that caused that strike. We closed the plant in San Leandro, and the people there were moved to Stockton, those who wanted to come. And the pay scales in San Leandro were higher than they were in Stockton. So you can figure out why we had that little disruption there. But it's all over with.

How many of the folks went from point A to point B then? Did the vast majority of them stay on?

Yes, they stayed on, about 80 people.

Okay. And then switching gears a bit, your margins, although they are down from last year, for -- for what it is worth, beat me by a [smick]. What are you doing to preserve margins? I guess I'm surprised that steel prices are expected to rise, given the state of the economy as a whole. So, can you protect yourself on that? And are there manufacturing techniques or efficiencies that can be deployed to protect margins going forward?

Well, of course, we're constantly working on improving manufacturing to lower those costs. What -- and if -- if steel goes up any significant amount, why we can raise your prices because everybody else's goes up also. Now we are doing things to save costs, but we're still a -- we haven't changed our philosophy at all. We're a long-range company. We're spending more money on merchandising, and more money on developing new periods and that kind of thing, which have to do with the future. In China, we're spending money there. And it's not going to pay off for a little while. It will pay off in the long run, and it will grow this company, but in the short run, it's a cost. So, yes, normal things -- we're watching costs all the time, and we have had to lay off some people in some of our plants, particularly in Dura-Vent. I think Dura-Vent is down about 30% in their manufacturing people. But we're focused on the long run, so we aren't doing things to make a quarter's return look good.

Understood. Almost every company I can think of is doing something along the lines of being more environmentally conscience, green initiative here or there. Is there anything that Simpson is doing that is either -- I'm sure it is all real -- but that you can start to brag along those lines of your green initiative?

Mike, what are we doing there?

Our -- our engineers are working on a whole line of products that will enhance a home's green opportunities in the future.

Okay. So we'll start to hear about that in the not too distant future, I assume?

Yes, you will.

Great. Thank you.

Our next question comes from Tom Zeifang. Please go ahead.

Good morning, Tom.

How are you doing?

Good.

Thank you. A few questions --

Not good enough, though.

Did you get any pricing in the quarter?

No.

No. Was there foreign currency impact on revenues or profits in the quarter?

$2.9 million on revenues, $0.2 million on net income.

Net income. And then what was Denmark in the quarter?

Denmark was down.

In line with Germany, or --

Yes.

Like --

Yes, it was. Okay. The rest of Europe did very well, but not that area.

Is Denmark still your largest concentration in Europe?

If you include Germany, yes.

Okay. And then Swan, if I do the math similar to the previous question, it's $6.5 million, that's for two months, correct?

From July 23rd.

Okay. And are the margins at Swan higher than the corporate average or lower than the corporate average?

The margins are quite good. Further than I don't want to go in to it.

But can I take that as higher than the corporate average?

Take it any way you want.

Was the growth in the third quarter at Swan pro forma?

Yes.

Would you tell us what?

No.

And then --

But I can tell you that we are excited about Swan. I think that that is going to be a great acquisition, simply because their people, their philosophy, what they have done to take a commodity, their products are commodities, and they have developed a brand name and a good margin. Now, further than that, I don't want to go in to the exact numbers.

Is there any plant rationality that might be forecasted? In other words do you plan on bringing some of that manufacturing in the house versus keeping those plants?

Not necessarily at all. Their -- Swan Secure, unlike most acquisitions -- most acquisitions the -- Quik Drive was a good one and what similar to Swan Secure, but most of the others, you do close down operations, you get rid of people, that kind of thing, but Swan Secure has done such a great job that they have to have very good people. And so we're -- this integration is going to go slowly.

Okay.

And we certainly will listen to what they say.

Okay. And then as far as Europe is concerned, it looks like Germany was the first one to experience slowing permits and applications, and you name it, right? They are about two years behind the U.S.

Way down, yes.

It looks like the rest of Europe is not that far behind. Can you give us some sense of read in -- early in the fourth quarter how the other countries are doing?

Well, they -- they look good. Germany kind of is in -- while -- while they are making some changes there, positive changes, they take time. And as yet, not much is -- well, some things are happening that are positive. And one thing that is positive is we had some real problems with the people there. It was being run out of Denmark -- Germany was -- and we have changed the people in charge of Denmark. We have changed the people in charge of Germany, and it takes a little while for new people to get the things going no matter how good they are, but we really feel good about the future of Germany with the group that we have there now.

Okay. I'll get back in the queue. Thank you.

Alright.

Our next question comes from Scott Macke. Please go ahead, sir.

Good morning.

Scott Macke, your line is now open.

I'm sorry about that. Can you guys hear me now?

Yes.

Sorry about that. Good morning, Barc and Mike.

That's okay. Go ahead, Scott.

Hey, I wanted to follow up on this discussion with steel. Can you remind me where steel pricing was a year ago? And where steel pricing is now for the types of steel that you purchase?

Yes, just -- just give us a moment here.

I do not have those numbers easily available.

Sorry.

Well, can you -- all right. Well, can you give me an idea of the year-over-year price increase? If I look in the third quarter of '07 relative to third quarter of '06. I'm just looking for an idea of that year-over-year price increase you have experienced.

We have seen -- it goes up and down every day. Right now it's a slightly down, but everything we're seeing is -- in all of our -- when we look out with our [fuel cruisers], we're seeing prices rising later this year and in to next year.

Can you help me understand that. You are talk about building inventory into a weaker market. And I'd like to understand the economics of that. How much higher you think steel prices are going in order to justify building inventory ahead of time?

Well, it's kind of like trying to guess what is going to happen to the stock market. You can't -- very often you're off. However, we've got a very smart person in charge, and right now the guess is that laying in some stock will make money for us. Now, whether it actually does or not, is no sure thing. That's the current guess.

Okay. But you are building the inventories, and then we'll see what happens the steel prices?

That's correct. We are bringing in additional raw materials.

Okay. Can -- if we step back -- and just to get a general feel over -- say the last year or two, what annual price increases have been?

No, we don't go into that.

I mean, are we talking -- are you getting double-digit price, or it is a single -- mid-single-digit contribution? I just want to get a feel.

No. Oh, no. It's not double-digit.

And you mentioned that that zero or no price in the quarter is that overall or was that just a certain facet or component of the business?

It's overall.

Okay. And so if I were to look at that 17% increase in the home centers, would that -- is there a disparity where I would get price in home centers and give it up someplace else, or would that be consistent with overall?

No, that's just part of the game. Not anything in particular, no.

And then with respect to recapturing the steel prices, you mentioned that -- if steel prices increase, you feel you can get the -- you can recapture that price. I mean, into a weaker market is there concern that you will have to start giving up some of these steel prices?

Well, if steel really went down significantly, we would lower our prices because everybody else's costs would have gone down for the same reason that we are able to raise prices. You establish with your competition how much you can get for a particular product, and then their costs go up if yours go up, so you raise your prices and vice versa. It's not -- the price of steel is only a short-run problem for us, ever. Just short-run.

I see, and I just wanted to follow up or circle back to the question earlier on sheer wall. I want to get a feel for how many units expected this year in '08. You mentioned that that was -- that you expect that to progress. I just want to get a feel for how significant of a product that is for you, and what that means when you say that you feel that it is progressing.

Well, it's -- let's see. I have given out that number, so I'll give it out now. Sheer wall sales last year were about $35 million, weren't they, Mike? About $35 million?

I do not recall that number.

I think that was pretty close. And this year, of course, it's down.

Right.

But because this steel sheer wall is used in areas where they have high winds, the wall we had until we came out with the new steel sheer wall, we weren't getting but very, very little business out of high-wind areas, which it covers a great deal of the country. And now we are with the steel sheer wall, but with any new product, it takes time, and it has taken longer there than I certainly I thought it would for us to get our share of the market -- or rather increase our share significantly. The market itself because of the product, a very high percentage goes into new housing. The market itself is -- has tanked. However, the percentage that we're going to get in that market, we don't expect it to do anything except go up, and significantly.

Okay. And just speaking of market share, do you feel, or can you assess if your market share is going up or doing down overall?

Well, if -- yes, you can. Just look at housing starts.

Well, I mean, I would assume that there's a certain portion of sales or what portion of sales are going to nonresidential end markets, which would be relatively stronger I would assume than housing starts.

No steel -- sheer walls go into housing.

Oh, I'm sorry -- I guess I was speaking about just generally your products overall.

Oh, I see. We -- I -- your -- phrase your question again.

I'm just curious where you are trending in terms of market share. If you can tell that in a general overall perspective if market shares are going up or going down for you.

Well, that's -- we have such a high percentage of the market for structural connectors in this country, 2/3rds, something like that, that we don't expect to increase market share. We do expect to increase, and we do every year, increase the market by creating new products. And once again, this year, we're doing that very same thing. So what we do is increase the size of the market every year, but having now such a high percentage, you really can't expect to increase your share of the market, but if you double the market, then your sales go way up.

That make sense. I appreciate all your time this morning. Just one quick follow-up. One more quick follow-up question. I mean you talked about Swan margins being good, international margins to be good, I guess I just don't know what to make of -- I guess for that to mean something to me, I need to know what good means. I wonder if you could provide just a little more granularity or clarity in terms of what you consider good. Are overall margins right now good? I'm just trying to understand your answer to that -- those questions.

Good is a relative term.

Right. So --

Our margins in the U.S., as you know -- anybody looks at our -- our balance or our P&L statement knows they are extraordinary for a building materials company, and we can't make that margin in Europe, generally. However, we are making a good margin there and a good return now on capital.

Okay. Hey, I appreciate all of your time this morning, gentlemen. Thank you very much.

Been a pleasure.

Our next question comes from Keith Johnson.

Good morning, Keith. Just a couple of quick questions for you. I notice, I guess in the press release that you talked about demand in the distributor channel being down on a year-over-year basis. Could you tell me how much that percentage decline was in the distributor channel?

Well, yes, just a moment. What the heck did I do with that? There it is.

Yes, the contractor distributor, and that of course is big builders, a large part of it was down in the quarter 19.3%. Okay. When you look at that same -- That was the biggest -- Okay. -- biggest down part of our whole business. When you look at that channel and compare it to the performance or demand that you saw in the June '07, so looking at it sequentially, was there a substantial decline as you move from the June quarter to the September quarter in that channel? Well, let's take a look at what it -- what it was. Yes, the June quarter, it was down only 4.6%. So there is a substantial increase in that decline, but you are looking at new home sales, and new home starts, that's not surprising. That's true. I was trying to gauge whether there may have been some inventory that kind of got stuck in that channel as you came to the June quarter and still kind of hanging around with demand slowing. Oh, no, I don't think so. Okay. I know you have talked about continuing to spend on R&D and sales and marketing, that sort -- those sort of areas in the company. As you look at how you spent kind of coming through 2007 in those areas, are you getting to what you would consider kind of a run rate as we look in to 2008 for those up SG&A areas? Or would you -- as you look into 2008, potentially look to step up that spending level again? Well, I -- just generally, I'll repeat what I have said about -- we're a long-range company, and we're going to spend on anything that will help us in the long run, and we don't care if this quarter or this quarter -- it's -- it's a cost. Okay. And I think China is a great example, Europe was a terrific example. For years we lost money there while we were working on building a brand name. Now, we have -- we've succeeded to enough of an extent, so we're making money there, real money. And the same thing in Europe -- of course Europe is a little different than China was. We were making money in China until we established a real sales office in Hong Kong and one in Beijing. And people don't pay off immediately. Right. They will, I would expect, as next year goes along, why, we will see a gradual reduction in cost relative to sales, and I would suspect by the end of the year, that we should be making some money there, but that's no sure thing. Right. For the product lines you guys have that are exposed to kind of the nonresidential demand in the U.S., epoxies or into the light commercial-type developments, are you seeing any slowdown in those type of markets yet through this year, or are they still holding in okay? Well, I'm -- I was personally a little disappointed in Anchor Systems. I thought they'd be up instead of down a bit. So where that -- why that happens, I'm not sure. Okay. But I would suspect -- well, I think the odds are that this quarter Anchor Systems is going to be doing better. Okay. I have learned, though, that those projections aren't always right.

I believe there was an article from the "Wall Street Journal" talking about commercial is starting to slow down slightly.

Okay. When you look at real quick kind of revisiting gross margin, they of course dropped from you guys were in the June '07 quarter, I guess still coming under more pressure. Where they are now around 37.4% in the September quarter for gross margins, and given the conditions you guys are facing, I mean, is there a potential step down again as you kind of work through the seasonal slow point, as we go, I guess into the December quarter? Or is there a way -- or are the operations getting closer to being right sized, I guess for the kind of market conditions? Well, I think it would be a disappointment if it goes down any appreciable amount more than that. Okay. What do you think, Mike?

I would agree.

All right. One final question, just any kind of update on the acquisition front? Well, there's a lot of excitement, but nothing they could call absolutely close. Okay. However, we are looking at quite a few possible acquisitions, and of course, it's -- the opportunities are greater for the worst reasons. Well, yes, I guess that makes sense. But you guys have plenty of dry powder? Yes, and we, as you know, I have had a lot of pressure over the years to take some of that cash we have and buy our own stock, and I have said the same answer, no, we're not going to do that because we want to use that to expand the company. And I think the odds -- with what is going on in our industry, the odds that we are able to find better acquisitions now are -- well, they are better than they have been. Okay. And we're looking at a lot. And I guess I did notice you guys kind of increases your borrowing capacity substantially through the quarter. That was just in case that great large acquisition comes along, we want to be able to do it. That makes sense. All right. I appreciate the time. Okay. Keith.

Our next question comes from Alan Robinson with RBC. Please go ahead.

Yes, sir, Alan.

Good morning, just a quick clarification on one of the comments you made at the start of the call. You mentioned that September was the worst month during the third quarter, but that October -- I heard you say was up year on year. Did I hear that correctly?

It -- October -- I -- what I think I said, October is looking better.

Okay. Okay. And -- oh, and just real quickly, the San Leandro facility in California, you have had a delay on closing the sale there. Do you expect that to close in the current fourth quarter?

No.

Okay. So that's an '08 item?

Yes, it is.

All right that's that's all for me. Thank you.

Okay.

Our next question comes from Barry Vogel with Barry Vogel & Associates.

Mike, I have two quick questions, the first one is, if you had closed the San Leandro sale in this year, what would have been the net after-tax gain on the sale? That's the first question.

The pre-tax gain on the sale would have been approximately -- $ 5.5 million -- $5 million after real estate fees. With a 38% tax rate, you can do the math.

Okay. And you didn't give us the actual breakdown of operating income by segment. Could you give us the venting products operating income in the quarter and the connective products operating income in the quarter?

Okay. Net sales connector products [$197,000], venting products [$21 million], income from operations connector products $35 million, venting products $14,000. That's a big change from -- from the first half of the year.

Okay. Thank you very much.

Okay.

Our next question comes from Tom Zeifang with Lucrum Capital.

Good morning, again. Do you have a breakout -- because I don't remember. Commercial versus residential mix?

No, we do not.

Would you give me an estimate or is it something you just don't care about?

We care about it, but we don't know, because our distributors most of them sell everybody.

Okay.

And they don't keep track for us.

Understood.

We did find out, though, this year -- in fact we started to find out last year, that we were selling a higher percentage of our products to U.S. housing than we thought.

Okay.

However, I think -- what we're doing is pushing products more -- well, we push them all -- but pushing products -- we're more interested, for instance, we're looking at acquisitions. If an acquisition is -- has a product that's substantial that does not go in to U.S. housing, it gets extra points.

Oh, okay. Okay. Great. Then on the home centers, there's -- if you look back over the last four or five quarters -- and I probably don't have to remind you -- the quarterly growth is extremely volatile, anywhere from plus or minus 15% to 20%. This quarter I think you quoted as plus 17%. Last quarter I think was down -- down 17%. Is there something going on there that doesn't make sense to me?

We can't figure it out either. You get things like -- you'll get a new manager, perhaps, who is in charge of inventories, and he says knock your inventories off to all of the managers. And then the next guy says we don't that, we're losing sales, so it goes up. It -- man, we have had a lot of trouble projecting. However, our relationships -- for instance, the one that I mentioned with Home Depot now is so much better than it has been for several years, and I would expect that particularly, as we are starting to take over the merchandising again at their request, that we should be doing better and better with the Home Depot. And we're also working hard with others, Lowe's and others.

So would you expect inventory management to obviously be better because you are going to be controlling it. Would that mean the volatility would go down?

Well, we won't be controlling it, no. No. We will have an influence on it, but control is -- comes from the top.

Because if the trend continues, you can expect the fourth quarter to be down substantially.

I -- I wish I had an answer to that.

Okay. And then --

You are correct, of course, but I hope you are wrong.

Yes, so do I. So the -- and then, could you give me a sense of the fixed versus variable. You make a comment in your press release about the high fixed cost. Can you remind what the percentage is of fixed versus variable, so I can get some margin assumptions?

No, we don't go into that.

And why is that?

Well, things that we don't go into, we have a reason where we think it might possibly end up being a negative with somebody somewhere, which comes back negative on us.

Okay. Okay. Thank you.

Okay.

Our next question comes from Steve Chercover from D.A. Davidson. Please go ahead.

Thanks, again.

Hi, Steve.

Two questions. First of all, you just acknowledged that you are probably 2/3rds of the steel connector market, the traditional strong ties that we think of. So my question is how vulnerable do you think you really are to price competition given that you are the market? And -- so what I'm saying is if steel prices were to go down a little bit, couldn't you actually just hold price and enjoy better margins because really no one is going to come and try to chisel way at your share.

I really can't answer that question. It depends on what the circumstances are at the time. There really isn't a general answer to that, it just is that in the long-haul, steel prices don't affect our margins, only temporarily. Because everybody, their costs go up or down as much as ours do. And I think we have at least as good relations with the mills as any competitor does. We also pay our bills, when we make a commitment we follow through.

Sure. Okay. And then my -- my last effort to try to understand some of the input costs. Are the epoxies and the powder-actuated fasteners, are those products driven by petroleum or other petrochemicals? Can you give us a sense?

Not so much on the powder-actuated tools, but epoxies, plastics, resins all are impacted by petroleum

And it's the same relationship with $92 a barrel really doesn't impact your margin, because you just pass it through.

In the short-term it can have a small impact.

Okay. Thanks, Mike.

Just like any of those changes -- steel changes, in the short-term it can have an impact, long-term, no.

Understood. Thank you good luck in the fourth.

Thank you. We'll try to do it without just on luck.

(OPERATOR INSTRUCTIONS) Mr. Simpson, it appears at this time there are no further questions.

Okay. Thank you, Curtis.