Simpson Manufacturing Co Inc (SSD) 2008 Q3 法說會逐字稿

Good day and welcome to the Simpson Manufacturing company third quarter 2008 earnings conference call.

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

Hello, everybody, and thanks for joining Mike Herbert, our CFO; and myself. I assume most of you may be a bit surprised how good were our results were for the third quarter. Certainly I am. Sales being up a hair is not a big surprise, but earnings being up and a gross margin over 40% had me thinking that something was the matter with the numbers. Not so. They were real numbers due to several costs that were surprisingly good. Both material and labor costs were down as were factory and tooling costs. Relatively sales were surprisingly good, part of which was due to buying ahead of our price increase. Sales in the fourth quarter so far are not good and our branches in the US are not optimistic about the fourth quarter or 2009. We are most reluctant to lay people off, but now we're having to do so around the country.

On the plus side, Home Depot sales were up 4% and overall home center sales were up 12%. European sales increased to 15.5% of total sales and international was 23.1% in the quarter. As yet, China is not significant. When our new factory is in operation next year and our sales force has had a chance to gain experience in the potential market, we expect the Chinese and other Asian markets to start to become significant. Our long-range goal remains to become much more of an international company.

In that connection our European manager is in the process of putting together a more organized entrez into Eastern Europe. Western Europe is a mix right now between strong sales in Germany and France, and considerably lower sales in England. Canadian sales were up 12.9% for the quarter, but like our US branch managers, our Canadian manager is anticipating lower demand in the fourth quarter and next year.

Our Swan Secure's acquisition sales were up 5% in the quarter, a remarkable achievement in today's market and partially due to the Swan managers working with Simpson branches to develop a joint sales effort. A key part of our culture, and one of the reasons that we can attract and keep the very best people is that we do promote from within. The manager of our [Bray] operation is retiring and his place is being taken by the current manager of our Columbus, Ohio branch, whose job is being taken by his sales manager.

Simpson Dura-Vent still has quite a bit to do to adjust to the changes in its markets, but it had a remarkably good quarter with sales being up 32.5% and showing a profit of 6%. Large sales increases in pellet stove venting systems and chimney products were quite significant. With the closing of Vicksburg's Manufacturing, the changes in product mix and the acquisition of ProTech, future projections don't mean much, yet. Too many new factors. But such a good quarter, certainly is a plus. On the acquisition front for the first time in quite a while we do not have anything near to closure. We continue to look, though, and our strong balance sheet continues to give us an advantage, which gets more important as the economy stays down or gets worse.

To conclude, and just in case anyone is wondering, we remain a long-range company. We are not for sale, and we're more and more excited about becoming an international company. Questions?

(OPERATOR INSTRUCTIONS) And it looks like our first question today comes from Arnie Ursaner from CJS Securities.

That is Ursaner. How are you?

I'm great.

My first question is related to margins and the level of activity that relates directly to steel. In the early or mid-part of the year, you were absorbing massive steel increases. You built up inventory. You mentioned on your last call that you were not fully recovering your higher steel cost. Steel has come in a fair amount. Two-part question, one -- are you getting closer to recovering your costs? And, B, do you think it impacted your customer demand quite a bit in September and may be one of the reasons you're seeing a pretty aggressive slow-down in the short run?

Yes, I think it -- September there was quite a bit of buying ahead and I think that made our sales higher. Also, we had a little bit -- it goes both ways. One time why we won't be able to get a price increase in nearly as soon as our cost goes up for basic raw materials, and another time you have a little bit of an advantage. This time we had a little bit of an advantage. That is, we were able to buy some steel ahead at the lower price, and then lasted just for a little bit, but that's over.

I guess I'm trying to get a better feel of how we should think about gross margins going forward. Obviously if your steel costs come in a little bit and you're able to maintain price, that would be a positive for margin, offset by less plant utilization. How should we think about balancing those two out?

Well, I think margins, that's not a realistic margin for over 40% in these markets. Particularly as -- I don't know what you're looking at -- but what I see mostly say that it's not going to get better. Probably it's going to get worse for a while. So certainly we don't expect our gross margins to stay up there. In fact, what do you think it's going to be, Mike?

I think 37% to 38% if we're lucky going forward in the next couple of quarters.

I'll jump back in queue, thank you very much.

Okay.

And our next question today comes from the line of Barry Vogel from Barry Vogel and Associates.

Good morning, Barry.

Good morning, gentlemen. First question, can you give us the change in sales for the west, excluding California, California South Southeast, Midwest and Northeast?

Okay. Excluding California, the West was down 14%. The Midwest up 3%. The South Southeast down 3% and the Northeast up 27%.

What about California?

California down 13%.

Can you give us any color on Texas and Florida?

Beg your pardon?

Can you give us some color on Texas and Florida?

Yes, Texas ran past Florida. Texas is now number two, and Florida is number three.

How about percentage change in sales in those states in the quarter versus last year?

Well, let's see, Texas is up 14%, Florida is down 14%.

Did I hear you correctly that your largest pump center was up 4%?

That's correct.

And your total home center sales were up 12%?

That's correct.

Okay. And could you -- I'm sorry -- ?

What's going on there?

It is my cell phone. Someone is trying to call me. I'm sorry. Hold on.

Let's take the next call.

No, I got it. I got it. Can you tell us how much Strong-Wall sales changed in the last quarter versus last year?

Yes. Yes, shear walls were down 14%.

And anchoring systems as a category?

Anchoring systems was up 4%.

And Europe I think as a category?

What's that?

How about Europe as a category?

Europe was up and it was up -- Europe went from 12.9% of our total sales to 15.5%.

Couple questions for Mike. What can be a tax rate for the year in your opinion?

Between 39% and 39.5% for the total year.

And what is your best guess as to capital expenditures and depreciation and amortization this year?

Less than I said previously. Approximately $15 million now. Depreciation and amortization, $30 million.

What is the status of your attempt to sell that property in California?

We've recently had some interest in it. We are still actively marketing it, so we do not have a contract yet.

Is there a contract for the contract for the next few months?

I hope so.

I will pass the baton and come back online. Thank you very much.

Okay.

And our next question today comes from Alan Robinson from RBC.

Hello.

Good morning, good morning. Given the apparent decline in perhaps demand for your steel connector products and the decline in the price of steel itself, do you view the price increases you instituted in the third quarter as temporary? What are your thoughts there?

Well, it is like trying to predict what is going to go on in the stock market. Right now our people think that steel is probably going to go up again a little later next year. And right now it -- it's flat.

So as it stands now the price increases, you're planning on having no change there?

Oh, no, it's already in. We're not planning on anymore price increases unless, of course, it rockets up. Steel generally doesn't affect us too much except just temporarily, because if our steel costs go up, so does everybody else's. And so we can raise the price. And if it goes down, we're going to drop. If it goes down significantly, we will drop our prices, also.

Okay. That is what I wanted to hear. Good. And then, secondly, you mentioned that Europe was pretty strong in the quarter. But could you give us an idea of sales trends you're seeing so far in the current fourth quarter, specifically in Western Europe?

Yes, Germany is still quite strong. Quite strong for us. I think, though, it's more that we're doing a much better merchandising and sales job than we were doing as little as a year ago. I don't believe it's the economy. In the UK, the economy is poor and so are our sales. In France we're still up significantly. Scandinavian countries showing some weakness.

Okay. Thanks, that's all I have, thank you.

Okay.

And our next question comes from the line of Steve Chercover from D.A. Davidson.

Good morning, Steve.

Good morning. Congratulations, I guess we're all a little perplexed. Can you try and give us a little more color on how you can have sales of Strong-Ties down 2.1% when housing is down call it 35%? Are you putting in -- are people putting in more product per start? Is there new SKUs that you're offering? Is there some sort of migration toward non-residential which I know is part of your strategy?

Well, we did have costs for raw material go up substantially and we did have a price increase which had something to do with it, but I think basically we're doing a better job. We're doing a better job of merchandising. Have you checked our website recently?

Not probably since the last e-mail came in.

I think we're doing a better and better job with it and our sales force -- we're not cutting back on our sales force, and we're not cutting back on merchandising. In fact, costs, they're going up, because we're the quarterly earnings to us, yes, we would like to see them up. But we're much more interested in the long range and we're willing to spend money now for the future. So you will see a bunch of things where maybe the competition -- and I can't say for sure, I don't know, but maybe the competition has felt obliged to cut back on merchandising and sales efforts, and we haven't. We're putting out a greater effort than we ever have.

Now, you indicated that you might be making some tough decisions in terms of employment levels. Has that happened? What savings can we expect, and will there be charges for that, or is that just going to happen through attrition?

No, it just happens that as you've heard before, we really wait a long time before we let anybody go, because our employees, most of them, have been with us for quite a while. And so finally, though, in our branches around this country, we have had to lay off some people. And it doesn't look like -- who knows? But it doesn't look like there is going to be a turn-around in housing starts in the short run. By short run, who knows? Maybe a couple of years.

I agree with that.

We have -- well, I gave a talk to a bunch of entrepreneurs earlier this week, about 43 of them, and all but two thought that we were going to -- it was going to be at least two years before it flipped around.

Okay. One last question and I'll get back in the queue. Do you feel in Q4 thus far similar to how you did last year? Do you think that the seasonal decline in earnings will be similar or worse?

It doesn't look good right now. It's a little early to guess, but I don't think -- I think they're going to be down against last year.

Okay. Thanks.

Our next question today comes from the line of Don [DeFosset of View Capital].

Hi, how are you?

Good. I have a two-parter. I was curious how you could lay out the sensitivity maybe on the cost per ton for steel, and maybe we could have some sensitivity table of our own to adjust the gross margin along those lines? And, number two, how much -- sorry, I don't think I saw it in the release, but how much CapEx did you guys spend on the quarter and how much do you envision going forward for next year?

What do you think, Mike?

Capital, as I said earlier for the year, is going to be about $15 million. I think we spent about -- my recollection is $4 million for the quarter. We'll spend approximately $5 million in the fourth quarter, most of that finishing up the China facility. For next year, there is a couple things going on. We are going to expand our French plant. That's going to be approximately EUD5 million. We're doing a little bit of work in our Maple Ridge plant and that is going to be about $1.2 million, where half of that will be spent this year. When you take those two events out, our capital budget came in next year around $15 million. Half of that will be spent in the first half of the year and then evaluate how the economy is in the second half of the year.

Okay. And also maybe on the steel side as well?

Well, the steel side, it really is like trying to predict the stock market. And this information is right up to date. It's -- you hear different things like they are apparently, as they have done in the past, the steel mills, they'll cut off an operation, so that demand instead of being less than supply, it equals or is greater than supply, and how much they'll do with that, this quarter and next year, who knows? But right now we're guessing that it probable will be about the same and maybe they will try to put in a price increase early next year, not too early.

That's absolutely right. I guess my only question is for every $50 per ton change in the price of steel is there an EPS sensitivity or gross profit margin number you can give us?

No.

Great. That's all the questions I have. Thank you very much.

You're welcome.

Our next question today comes from the line of Robert Kelly from Sidoti.

Hello, Bob.

Good morning, congratulations.

Thank you.

Just a question.

I'll accept that for all our people.

I guess the first question is for Mike, that the last kind of update you gave us on CapEx was $21 million coming into 2Q. Exactly what are you cutting as far as the balance of the year here?

We decided to delay basically -- as demand slowed down we decided to delay expenditures we had planned for new projects that's in the plans.

So just putting them out.

Yes.

Into '09, or you'll take a wait and see approach?

Wait and see approach. Demand softened dramatically in October, and so we read and see everything else that you hear about the economy, and so we're being very cautious.

Okay. Good. And then you had -- you had in response to an earlier question you talked about maybe margins not being sustainable at 3Q '08 levels, but in the range of 37% or 38% that is pretty significant improvement over what you guys are doing in 1Q. What is fueling that improvement?

The future is uncertain and it's really hard to say.

That is a fact.

And if I look at our -- the changes we've seen in October so far, I'm -- I hope it's going to be in the 37% range, but if our demand falls off dramatically and the economy continues to deteriorate, we can see much worse margin than that. So that is my best guess at the moment.

Okay.

But it is very tough out there for us at the moment.

Understandable. Northeast growth of 27%, pretty impressive in this type of environment. Is that all acquisition related?

No.

Share gains and any help there?

No, I really can't tell.

Okay. And then just Dura-Vent being profitable, kudos to you all. The sequential and year-over-year improvement in sales, is that a 100% Ventinox and ProTech, or are you seeing the core Dura-Vent business pick up a little bit?

No, that was the core business. Things like pellet vent sales, way up.

So, I don't know if -- ?

And some chimney products way up.

So if we could dig down, some of the changes you made in Dura-Vent over the past six months, nine months or so -- stripping out the acquisition, is the core Dura-Vent business now profitable?

Well, it certainly was in the quarter. The projections are little murky right now. There are too many variables there -- the closing of Vicksburg and the change in products. The change in products that are on the markets that Dura-Vent hits, it's rather drastic and any projections right now, I'm not comfortable with them.

Right. Understood. I'm just saying the changes you made thus far are driving the profitability improvements at Dura-Vent?

Yes, definitely.

And you have to remember Dura-Vent business is seasonal and cyclical and when oil was high, earlier in the year, a lot of people decided to go in and buy increased pellet stoves and wood stoves this winter to heat.

Thanks, guys.

Our next question today comes from the line of Keith Johnson of Morgan Keegan.

Hello, Keith.

Good morning. Just a couple of I guess follow-up questions, maybe starting with Dura-Vent. Can you give us an idea of how much Vicksburg or -- I guess first of all, are the changes with the old Vicksburg facility complete and everything fully integrated in California?

What do you think, Mike?

No, they are not. Due to the demand in the chimney side, we still have three chimney lines running down there. It is our intent to keep those running up through December 31st of this year and then we will move those lines to California. And then the Vicksburg facility will remain a warehouse distribution center with 40 or 50 people in it until we sell that building.

Is there any idea of how much cost you may have incurred to date or when we look at the operating losses that we saw in the first half of the year in this segment, how much of that cost was related to moving lines from Vicksburg to California, or -- just trying to gain an idea of how what drove the substantial improvement in operating income.

I think you should focus on substantial improvement on my comment earlier about the demand of cyclical demand in pellet and wood stoves based on people's [hoarding habits] when oil is really high. I mean, that is the big driver.

Okay. So just higher-margin type products or it was that big of a -- ?

It's demand.

-- better utilization.

Demand has spiked so high.

Okay. Can you give us an idea of what the revenue from your acquisitions were, I guess by each acquisition here in the quarter?

Have you got that, Mike?

I don't have that easily available.

Okay. But just make sure I'm thinking about it, right. It is Swan, Liebig and ProTech.

Swan is pretty clear. They're doing extremely well. They were up 5% in the quarter.

Okay. And then I guess the Liebig acquisition helped anchor systems as a whole -- ?

Not as yet.

Okay.

Not as yet. It certainly will, but not as yet.

Okay. And then ProTech I guess added a few million, couple million to Dura-Vent?

Well, it, as yet, again it takes a little while to get them integrated and make it work out, and you -- at first you have costs.

Okay.

And then you get it working. It probably helped a little bit.

Okay, thanks a lot.

Okay.

And our next question comes from the line of Timothy Jones from Wasserman and Associates. Please go ahead.

Yes, sir.

Hi, Barclay. I'm sorry I missed about the first six minutes so I hope I'm not redundant. But one thing, you said in -- I'm a little confused you said that 15% or so rise in your inventories is basically due to higher raw material costs. I suspect steel. Yet you said the steel prices in the quarter were down slightly. Is that just because they rose so much in the first -- in the prior nine months, or something?

What do you think, Mike?

Steel did rise dramatically in the first part of this year.

First half of the year, so it is a period comparison.

Right now it has flattened off in the third quarter.

Anything on -- I didn't look. Change between raw materials or the finished goods?

I'm sorry, I really don't understand your question.

I mean, the finished goods part of your inventory, pretty much up in line with the total inventories?

I don't have that data in front of me.

That's okay. Couple others. Your largest customer -- you were up 4%, which is pretty good, because their sales were down about 4%. But you continue to do it with a newer other big-box stores. What is going on there? Are you adding, are you improving with the two smaller stores or are you going or are you going to different newer customers? What is going on that you keep on growing about three times as much as the newer ones?

I think as time goes on, why we get the better relationships with that particular industry, and I think that merchandising that we're working better together on merchandising, and I think that shows.

What percent right now is the largest store as opposed to the rest of the total?

The largest store? I have no idea.

I mean the largest, your largest chain.

Oh, you mean the largest like Home Depot?

Largest Home Depot total.

Home Depot is about 9.5% of our total sales.

And the total is -- how much was the total sales?

Beg your pardon?

How much is the total sales?

We do not disclose that.

If it's more than 10%, which it was at one time, we have to disclose it.

I see that. Okay.

Otherwise we don't.

Do you have any -- do you have any with Home Depot I mean any exclusivity situations, them being so important to you that you can't offer some product -- you have to offer different product to the competitors?

No, we don't.

All right. I was always wondering about that. I think that basically covers it. And the gross margins improvement you say is basically the lower raw material costs sequentially?

Well, there were a whole bunch of reasons why the gross margin was so high, but as you've heard, that we don't think it's going to stay there.

Excellent job. So thank you very much.

You're welcome.

And it looks like our next question comes from the line of Barry Vogel from Barry Vogel & Associates.

I've heard of him.

Mike, I forgot to ask you, what was the operating profit of your different segments, and I just want to make sure I have the right sales figures for connector products and venting products.

The income from operations for connector products was $35.310 million. Venting products, $1.777 million.

And were the sales figures $192.400 million for connectors and $27.400 million for venting?

Correct.

Out of that $27.400 million, how much was from acquisitions or was it practically nothing?

I do not have that number.

Thank you very much.

And our next question comes from the line of Scott Macke of aAd Capital.

Yes, sir.

Thank you for taking my questions and congratulations, I guess, just continuing to navigate a very challenging environment, well done. You mentioned, Barclay, perhaps a little bit of a pre-buy in September. I didn't know if you could -- or when I say pre-buy, customers buying ahead of price increases. If you could walk over quarter by quarter and year over year sales by month to get a feel for the magnitude of what that potential customer pre-buy ahead of price increases might have been or how that might have affected sales in September?

I'm sorry. I don't have it split month by month.

Do you have a general feel or magnitude?

Well, just generally the pre-buy, the price increase went in September 1st, so you can figure out when the pre-buying was.

Okay. And so even after that, even after that price increase in September, then it sounds like customer demands remained solid and you got the benefit of price increases.

Well, no, we are seeing now in the start here of the fourth quarter the demand is down.

Okay. Thank you. And a final question. If I think about steel costs and I appreciate the comments or the help just in trying to understand gross margin going forward, you guys have been buying inventory ahead of higher steel costs. I didn't know if you could help us a little bit with I guess lead times or that inventory turn? I mean, the products you are shipping in October, I mean, is there an average month during which that steel was actually purchased? In other words, are October shipments generally coming from, say, April steel purchases on average, or is it more fluid than that, more recent than that?

Right now our steel buyer is just not buying ahead. We aren't. Because too hard to predict it. So in the past it varies all over the lot at one time why our buyer thinks that prices are going to go up and get some information from our suppliers and buys ahead of time. The next time the other way around. It really varies. One time we make a little extra money and the next time we lose. Usually we lose a little because we can't get the price increase in there. We don't just put out a notice that our prices are going up. Our sales force goes out, talks to all our customers, finds out what they're thinking, and then we finally come up with numbers that we put in the price increase. We don't do it just like that.

I see. Maybe if I ask another way. If I think about sales in the fourth quarter, are those going to reflect -- will those immediately reflect the lower cost of steel that maybe has been experienced more recently, or is there still some higher cost relatively higher cost steel inventory that has yet to come through?

There is still some relatively higher cost inventory of steel that is going to come through. We [buy] our raw materials on weighted average basis and so as the rest of that steel comes into the system that is also going to also affect our margins. And after the slowing economy you need to be very cautious of what our margins will be in Q4 and Q1.

Okay. Thank you. That is helpful, and again I appreciate your time, and congratulations.

Thank you.

Our next question comes from the line of Patrick Kirksey of Perimeter Capital Management, please go ahead.

Yes, sir. Patrick, are you there?

I'm sorry. Good morning, gentlemen.

Good morning.

I apologize for that. Most of my questions have already been answered. I just wanted to follow up real quick on the inventory. Have you guys ever had to write off inventory in the past?

Oh, yes.

Just given the high inventory levels currently and the demand forecast going forward, do you have any concerns about the inventory, or do you feel like that it is not going to run into any obsolescence charges?

No, we have no more concern about they than we always have. You watch it all the time and try to figure out what's going to happen. It isn't any different.

Texas was pretty strong. Do you think that's from the hurricane repair work?

I understand that building codes in some areas of Texas are now stronger. By stronger I mean they're being enforced, more than perhaps in the past, and so Texas has run past Florida, although Florida -- our Texas branch also has Florida.

Okay. Well, great, thanks a lot, gentlemen.

And it looks like our next question today comes from the line of Robert Kelley, please go ahead, sir.

Hi, Bob.

How are you doing. Just a couple follow-ons. It says in your release that the inventory increase is mostly due to the raw material increases. Are finished goods flat, slightly up year on year? And how do we read into that as far as finished goods?

About the same level as last year.

Okay. Great. As far as buying steel, you purchase on spot, correct, not contract?

Well, we purchase all kinds of ways.

Okay.

Sometimes our steel buyer will have information ahead of time to a price increase in which case we'll pour it in. Or the other way around. So it varies.

So basically if steel moves down it benefits Simpson. Correct?

If it goes down, well, it all depends how much it goes down. If it goes down much, we are going to lower our prices. That, of course, hasn't happened in quite a while.

That's good. And then if you could , maybe just -- if there was accretion from the Liebig and ProTech in the quarter, what that

No, we don't have that.

Okay.

Not yet. Next year we'll have them integrated and be able to figure it out much better and give you a decent answer.

Thanks, Barclay.

Next question looks like it will be a follow up from Alan Robinson from RBC, please go ahead.

Mike, in your press release you discussed the increase in your G&A costs, and mentioned higher professional costs, and about debt provisions. So how much of the increase would you say was one-time in nature in term of your G&A costs during the quarter?

We had two failed acquisitions we spent approximately $700,000 on. The bad debt I'm not going to predict for the future. And especially in the economy as it comes up in the future, so that -- the one big event was two failed acquisitions.

Okay. Okay. And so in terms of a go-forward quarterly G&A run rate, you would be looking presumably somewhere around the $24 million to $24.5 million rate? On a quarterly basis?

I don't have that exact number in front of me, I'm sorry. If you check our press release, less about $700,000, that is a good number.

Okay. Is there any specific seasonality in your G&A run rate? I noticed your fourth quarter of '07 rate was a significant decline sequentially. Will we see a similar pattern this year?

We have have cash profit sharing and our company (inaudible) and that will also impact what we pay for our employees.

Okay. Thank you.

And our next question today comes from the line of Jim Wilson from JMP Securities, please go ahead.

Hello, Jim.

Good morning, Barclay. I was just wondering, I wanted to get your thoughts on Asia -- so both what you've been seeing so far of late in terms of general conditions, and what you think if it's going to follow the world into a slow-down, are you going to look to maybe be a little more aggressive to try to penetrate the Asian market through acquisitions or anything else?

Well, Asia is really exciting. We see it as the wave of the future, and as you have heard, we're spending a great deal of money there, and it's just going to cost us for probably two or three years until it starts to pay off. Like we have a 15-person sales office in Beijing, and it takes any salesperson a while to figure out just what the market is, who the customers are going to be, how we're going to approach them, what products we're going to make there in this new plant that we're building. But Asia is a major part of our future, and we're not sparing any expense that will hasten our entry and our entry in some power into that market. It's going to take a while. It took us a while in Europe. And at least in China we don't have as much variety of peoples and languages and so forth as we had in Europe, and the market is much bigger, much bigger. And they also have natural problems. So we are sure that it's a major part of our future, and we are putting a large effort into it, and that will continue. But right now it isn't significant, the sales as yet are not significant.

And anything you've seen, I mean, even post-Olympics that your folks have seen there in slow-down or slow-down construction that you can comment on?

No, no slow-down.

Thanks a lot.

Okay.

Our next question comes from Garik Shmois from Longbow Research.

Yes, sir.

Quick question on acquisitions, there weren't any in the quarter, but it seems like two didn't work out. Just are you seeing anything here over the last one to two months, maybe, of maybe more potential sellers coming to you? Can you just talk about the acquisition environment right now with the economic environment?

Well, it just generally it seems like there should be more coming out, but we're not -- at the moment we're always looking at several acquisitions. But like recently I haven't seen -- I haven't heard of any real increase in the number that makes sense to us. Have you, Mike?

No, I have not, either.

Okay. Thanks a lot. Good luck.

But we think that will come, and that's why we have such a strong balance sheet, which is a little bit unusual these days.

Sure is. Thanks a lot.

And looks like our next question comes from the line of Gary Lenhoff of Iron Works Capital Management.

Yes, sir.

My question is related to acquisitions, can you comment are the two acquisitions that failed, did they permanently failed or is there something that would come back there?

No, we just didn't buy them. One is permanently failed and that's a large piece of that. And the other one may come back in the next couple of years, but.

Appreciate it. Thank you.

Looks like our next question is a follow-up question from the line of Barry Vogel from Barry Vogel and Associates.

I've heard of him.

Mike, small question, can you tell us what the overall costs of your China expansion is going to be for this year per share?

I do not have that number. It is not going to be significant.

You had talked about $0.01 a quarter in several times in the past, is that a probable number?

That is probable. We intend to open a Shanghai sales office in the fourth quarter and continue to look for other investments in that part of the world, and we continue to invest there.

All right. Thank you very much.

And at this time, Mr. Simpson, I am showing that there are no further questions.

Okay. Thank you very much.

This does conclude your teleconference. You may disconnect at any time.