Simpson Manufacturing Co Inc (SSD) 2008 Q4 法說會逐字稿

Good day, and welcome to the Simpson Manufacturing Company fourth-quarter 2008 earnings conference call. I would like to turn the meeting over to your Chairman, Mr. Barclay Simpson. Please go ahead, sir.

Thank you, and good morning, everybody, and thanks for joining our CFO, Mike Herbert and myself. Well, it wasn't a happy quarter or year, as far as our sales and profits go. The US economy, of course, is in the tank; and Western Europe, 15% of our sales last year, up from 13% in '07 also is in trouble. But, we have no control over these economies, so we're not spending time worrying about them or waiting for them to come back up.

Perhaps the worst part is that for the first time last year, we had to lay off quite a few people, some of whom had been with us for a number of years. Also, and unlike some other industries with which you may be familiar, our top people are making considerably less money than in the first few years of this century. They only make a lot of money when our branch -- when their branch -- when their particular branch makes a lot of money. And, of course, it's the same with everyone here at the home office.

But, regardless of what happens to the US economy, our goal is to become much more of an international company. We're looking hard for suitable acquisitions with products that will sell in other lands. Two German companies, Ahorn and Liebig, both of whom were acquired last year, are prime examples. Liebig makes mechanical anchors to metric standards, and has the European code approvals that enable us to start selling Anchor Systems products in Europe, as well as in Australia. Also, these products fit the Chinese market. And we will be manufacturing them in our new plant in Zhangjiagang later this year. I have no idea how close that is to the real pronunciation.

Ahorn, with operations in Germany, the Czech Republic and China, broadens our Quik Drive product line. And their new big drive tools and fasteners hit us in the commercial and industrial roofing and other applications. These products are marketed with the associated air nail gun and the compressor to make a complete package. ProTech, a leader in venting products for newer, higher efficiency condensing boilers and tankless water heaters, is based in Albany, New York. This acquisition gives Simpson Dura-Vent needed new products, as well as an East Coast warehouse.

Dura-Vent's sales, including ProTech in the fourth quarter -- that includes ProTech -- were up 16% over last year's and were profitable. However, SDV sales so far this year are down, so the ProTech acquisition really could be quite timely.

Our 2007 acquisition, Swan Secure, continues to do well with their sales being up last year, hardly a common occurrence for products that largely go into US housing. While their sales were only a bit more than 4% of SSD's total, it was a first class effort in a tough market by both Swan and Simpson Strong-Tie people. But early results this year show an even tougher market.

Just last month, we acquired DeckTools, a Florida-based company that develops and licenses deck design and estimation software. The software provides professional deck builders, home centers, and lumberyards a simple solution for designing decks, including specifications of our products, and estimating -- and also being able to estimate material and labor costs. It's a somewhat different direction that might lead to other markets.

Our Chinese operation, which we see as the center of a major part of our business in three to five years, is coming together. We now have active sales forces in Hong Kong, Beijing and Shanghai and just completed our 175,000 square foot plant in, once again, Zhangjiagang, which is 50 miles from Shanghai.

And also, we have strengthened our operation in another area in Poland, which is headquarters for our efforts to make Eastern Europe a significant part of our European revenues.

With our strong balance sheet, we continue to look hard for acquisitions, as well as develop new products internally, like just recently the moment frame. All of the information that I am getting both internally and externally says that recovery of the US market may be years away. If so, despite our efforts to increase our share with new products, it may take several years for our international efforts and acquisitions to generate enough sales and profits to substantially increase our sales and earnings, which happened for every single year since we went public in 1994, except for the last two years.

But, our people do know that their Company is not for sale. And this guy talking to you, who has a bit of an interest in Simpson Manufacturing, has never been more excited about our future. So, I'm happy to take any questions.

(Operator Instructions). Arnie Ursaner, CJS.

I was going to have some fun and say is your business for sale, but I figured you spoke to it in your prepared remarks anyway.

That is not going to change.

Gee, isn't that a shock? Want to start with the bad debt expense of $1.9 million, which obviously impacted your earnings in the quarter. You attribute it to a single customer. Is this customer out of business? Is there some chance of recovery? Could you maybe expand a little on that?

Yes, there's chance of recovery. However, it -- it doesn't look too good.

Okay. My second question relates to inventories, which I know you have a goal of having three to four months of inventory for all your customers, but your inventory numbers seem to be getting -- I don't want to say out of hand, but there's certainly a lot -- they are relatively high as a percent of trailing sales. And given your outlook, they're probably an even greater percentage of future sales. So several questions related to that. How much of that is finished goods versus raw material?

You mentioned in your prepared remarks that you think the price of steel could be hitting a bottom with some of that opportunistic purchases of steel and maybe have Mike speak to how you might want to work this down. Anymore you can expand on the growth in inventories relative to sales?

Well, our steel costs, as you heard me say before, one thing we are not going to do is run out of material and not be able to fill orders. So we go overboard and when the word was out that the steel mills were thinking about closing down some operations to keep demand equal to supply, we got a little concerned, and so we laid in a lot of steel at high prices. And we are still working with that steel. And so the cost of inventories is up all the way around. Now, we think that once we get rid of that steel, but it's going to take a little while, then our inventory costs will go down.

So, are you trying to say that the volume of steel you have has actually gone up a fair amount?

Well it did. It went up quite a little bit.

Mike, can you expand a little more, perhaps some details or facts around that, please?

We had not -- during 2008, we did not change our policy on procuring steel. We wanted to make sure we had enough for our customers. Then sales began to drop off. We have stopped purchasing steel the last few months. And so we have been eating into that inventory. So what you see on the financials is the cost of price of steel went up last year.

Okay. Final question for you, Barc. I'm sure you'll be asked by many of the analysts in multiple ways, things that will lead or question guidance, which I know you don't give. But I do have a different, more structural question. Your cash comp or performance-related comp is based on some kind of budgeting number you had going into the year. For years your Company wasn't impacted by cyclicality in the US. You were still expanding geographically and a lot of other ways. But that's no longer the case.

As you prepare your budgeted numbers and goals internally for a year like 2009, how do you guide or work with your managers in setting performance-related goals for the upcoming year?

That's a very good question, Arnie, because our people, of course, are making a lot less money than they did. But, you don't force any manager to set a goal that he doesn't think is reasonable and that he can make. So, they are ambitious, the goals, but they are reasonable. So they're not what they used to be three years ago, for instance.

However, and of course, the big unknown is we're putting every effort behind it, but the big unknown is how soon all these international relations and acquisitions are going to get us back into double-digit increases. And it's awfully hard to guess. Because right now, for instance, in China, we think that's going to be an absolutely major part of our future. But we are still figuring out what products to make there. That sales force has only been around for a year. So we've got a lot of unknowns, but overall, it looks great, but trying to be specific, very difficult.

Okay, thank you very much.

Garik Shmois, Longbow Research.

Just wanted to actually ask a guidance-related question. First off, on gross margins, they were up relative to last year. But I think they were a little bit disappointing related to your comments on the third-quarter call. Just if you could provide some visibility if you can on the direction of guidance of the gross margins going forward.

Mike?

Our gross margins will be lower. We have substantially reduced our factories' output. And so that overhead will not be absorbed, so we will have lower gross margins going forward for the, I expect for all of 2009.

And on pricing, just wondering if you could talk about -- and I know the price increases that you implemented back in September. Are those still holding? Or have you had to give back some of that right now?

We don't discuss that in public.

Okay. And I guess lastly on the M&A front, can you just talk a little bit more about what you are seeing there, valuations, and if you are seeing many more potential sellers coming to the market?

The challenge is we all have a high degree of self-worth. And so as we are out there looking for companies, we have not found a significant amount that have come down to the valuation that we would consider attractive, although we're dying to see more.

We're very careful. One of our major strengths in times like this are that we have a very strong balance sheet and we're not going to throw it away. However, we are looking harder than we ever have for acquisitions and this is all of the world.

Sure. Very good. Thanks for your time.

Alan Robinson, Royal Bank of Canada.

Could you comment, Barclay, on volume comparisons between the fourth quarter of '08 and '07? I'm trying to get an idea of the extent to which price increases affected your sales comparisons during the quarter.

We don't go into that. You'll have to make your own guess.

Okay, okay. In terms of -- I'm trying to get a feel for sort of longer-term trends, obviously. What kind of contributions did the acquisitions make to results during the quarter?

Very little except ProTech with Dura-Vent. They made a relative -- quite a large contribution. But, generally, it takes a year or two to integrate an acquisition. There are all kinds of problems there with people and products and figuring out just how we can put it together to the biggest benefit. So, it takes a little time. I think this year, the latter part of the year, we should now start to have some positive effects from people like Ahorn and Liebig.

Are you experiencing any cultural issues there at all with the integration of those European acquisitions?

No.

Okay, everything is going well there.

It's actually -- no. No, we aren't. It's surprising. And also in China, people ask me, well don't you have a lot of trouble there with the government or something like that? And actually, getting the okays to build that plant there and getting it built were easier than it is here in the states.

Okay.

They want us. We give jobs to Chinese.

Sure. Very good. Let's hope that continues. In terms of steel cost -- input costs, when do you think you will be able to take advantage of the lower prevailing steel prices we have now? And can you just give us an idea of how you approach steel ordering? To what extent you employ longer-term contracts and to what extent it's a sort of at the moment purchasing decision?

Well, it's much more of an at the moment purchasing decision. But backing it up is the strong belief that you don't build a company by running out of product. So we go overboard to make sure we have all the materials and the people not to run out of products so that our customers go somewhere else.

So, you are thinking all the time. We have very good relations with steel mills, and probably about as good as anybody has. When we make a contract, we follow through on it and we pay our bills on time. So we think we find out about things probably as soon as other people do. But, but, so often, it's like trying to figure out the stock market. You just can't do it. So you don't take a chance. You lay it in, which is why our inventories are so high.

Okay. And finally, could you give us an idea, Barclay, please, as to the performance across your five domestic territories, California, West, Midwest, South/Southeast and Northeast?

Yes. Well, let's see. Would you like it for the quarter or the year?

Oh, for the quarter, please.

All right. For the quarter, California was down 24%. Down to -- and this is -- for the wrong reason, it's a plus. We are constantly working and it's been happening over the years. We start out at 100% in California. And now we're down to 18.2%. That, overall, is (multiple speakers)

As a share. Okay.

Be less dependent on one thing. And the West was down 29%, and that puts it at 15.9% of the total. The Midwest was only down 4.8%. And that, we got some new business there. And that's now 11.4% of our total. And the South/Southeast was down 15.7%. That's 18.6% of our total. That's the first time I believe that one of the areas is greater than California. And then we have the Northeast, which was up 5.9%, up to 14.6%. And that total domestic was 78.7%.

Now this is in the quarter. In the quarter, for the first time, Europe went down also, 17%. Those economies just aren't too healthy.

Down 17% in the quarter? Okay, thank you.

Yes, and it's now 13.7% of our total sales.

Okay, thank you. That's very useful. One last question for Mike, if I may. Mike, do you have any figures on cash flow from operations for the quarter and CapEx? And also, possibly, what your CapEx plans are for the full year?

Sure. For 2008, we spent approximately $16.6 million on capital. 2009, we have a plan right now of $13.5 million.

Okay.

And cash from operations for the year is $52.7 million.

$52.7 million. Okay. Thank you very much. That's all.

(Operator Instructions). Barry Vogel, Barry Vogel & Associates.

A couple of questions to you, Barclay, and then I have a few for Mike. Barclay, the home center business as a total, what was the change versus the fourth quarter last year? And what was the change --?

Just one second. Okay. I want the total home center business. I've got it here. There we are. Okay, in the quarter, home centers were down 17.4%.

And your largest customer, what were they down?

Beg your pardon?

The largest customer, what were they down?

We don't have any customer now who is over 10% of our sales, so we don't have to discuss that.

You don't have to, but how about giving us some transparency?

I'll give you a little bit, yes. Our largest customer in -- let's see -- what happened to that sheet that had our largest customer on it? There we are. There we are. In the quarter, that's Home Depot, of course and still is. And they were down 15.6%.

Now, do you have the yearly change of those two items?

I beg your pardon?

Do you have the yearly numbers? The total home center --?

Yes. Yes. In the year, Home Depot was down 4.8%, which is considerably better than the economy. And a percent of total Company sales was 9.3%.

And your entire home center business, what was it down for the year?

The entire home center business for the year was down just 5%. And it was up as a percentage of total from 17.1% to 17.8%.

Is that the total Company sales?

And we kind of think that home center business this year will increase as a percentage of our total sales because they don't necessarily depend on housing.

Right. And could you give us the change in the quarter for Strong-Wall sales and Anchor(ing) System sales?

In the quarter?

Yes, the change in the quarter versus last year.

Okay. Well, the shear walls were down in the quarter 40%.

Wow. And --

Well, you know, that's housing.

I know. And Anchor(ing) Systems, what were they down?

Anchor Systems were up 3.1% for the quarter.

Okay. I have a few questions for Mike. First of all, the connector products' operating income for the quarter?

Income from operations for connector is $3.3 million.

Does that include the impairment charge?

Yes.

So, plus $2.9 million. And venting products' operating profits in the quarter?

$1.2 million.

How much?

$1.2 million.

Okay. Were there any other items that affected the operating profits, you know, in that other category?

We have the goodwill charge and we had the one customer with the bad debt.

Okay. So wait a minute. The goodwill charge, I know, and the bad debt is $1.9 million. Okay. And as far as capital -- I'm sorry, depreciation and amortization next year, Mike, what is your best guess?

$28 million.

And your tax rate next year, what's your best guess?

Between 30% and -- I'm sorry, between 39% and 40%.

Now I wanted to ask you a question going back to this steel thing. I agree with the prior questioner that your inventories seem a bit out of hand, even though I know you always like to have enough steel so you don't run out of steel. But I was surprised that your gross margin was as good as it was given the drop in revenues, and I'm comparing that to last year and also the third quarter. Could you tell us in general terms what the FIFO effect of steel prices were on your fourth-quarter margins?

Well, our steel is based on weighted average. We did as the year -- and as I said earlier, as the year went on, the price of steel did increase. That did have an impact on our steel. I do not have the specific numbers for the quarter. Overall though, we are decreasing our pounds of steel on hand, both in the fourth quarter and also into Q1.

But it's going to take a little while.

Right. Is there any reason to believe that given the fact that steel prices have dropped and are not -- in terms of the cost to the customer, and that has nothing to do with the spreads, that's strictly the cost to the customer -- that you may have a more deleterious effect because of your inventory accounting in 2009 versus 2008?

Our inventory is based on net realizable value, and so assuming we are -- our customers know that we've increased prices very slowly, because we carry so much inventory, and so they appreciate that. And they also know that when the price does drop, they understand that we cannot drop our prices [after] the cost of the inventory we maintain for them. And so at this time, we do not believe we are going to have any impact on net realizable value, but we cannot predict the future.

Okay, and as far as the status of that property that's been for sale, can you give us an update?

The property is still for sale. We've had some interest on it recently. We have not concluded anything. The environmental problem that we had on that property, we believe, is going to be resolved in the month of February, and positively for us, and so we should be able to move forward on that.

Barry, you have some interest in buying it?

Perhaps. And one other question for you, Mike, the SG&A expense, it seemed extremely high in the fourth quarter, at $45 million, given the fact that revenues were way down. Can you give us color on that? I mean that stood out -- when you do the margins analysis and you look at the revenue drops, it was 30% of revenues.

We are working very aggressively as a company to make sure that all our costs are in line going forward with this new -- with the current economic environment, so I would expect that to drop as we move forward.

Okay, any more questions?

We've never seen the 30% SG&A expense.

It's a tough economic environment.

All right, so you have taken steps to lower that number?

Yes, we have and we're going to continue. We have more steps on the way.

Okay. Barclay, I have a question about Europe. Can you give us some color on the UK, Germany and France in the fourth quarter in terms of sales?

Well. Yes. The UK is the one that is in the biggest trouble, as I guess I don't have to tell anybody on this call. It was down 46% in the quarter.

Wow. And how about Germany and France?

Germany was up 21% -- 22 -- 21.6%. France, for the first time was down, but only 7.2%.

All right, so, basically, Germany and France are doing fairly well under these conditions.

Well, Germany is doing relatively, quite, well. And I got to say that part of that reason is that we had -- we weren't doing a particularly good job in Germany. As late as last year, we had to get some new people integrated and we had to do a whole bunch of things, which our manager did. And now, they're starting to pay off. So, if you have a poor base to compare with, it helps.

One more question for Mike. What was the net effect of China last year on your earnings per share?

Well, the net effect of China was practically nil. It hurt us some, of course. We're just spending money. But that's -- you know, Barry, that's going to go on for a while.

Thank you very much. Keep on -- good luck to you.

Thanks. We're not waiting for good luck.

I know. I know.

We're going to make it.

Thank you.

Steve Chercover, D.A. Davidson.

First question. Do you have any product that might benefit from an infrastructure spend? Perhaps it comes from the new big drive fasteners?

Our anchoring products will help in the infrastructure spend because they're used in roads and bridges. On the big drive products, that is primarily used for securing male roofing. And so we're going to -- we're launching their product. Since we've acquired Ahorn, we've been reworking that and getting it ready for a worldwide launch. And we're launching that -- the first country in Australia, in April.

Secondly, with respect to the goodwill impairment, can you tell us which acquisitions were behind that?

That was Furfix; that was acquired in 1999.

So it's called Furfix?

Furfix, with an F. F-U-R-F-I-X, I believe.

Got it. Thanks. And then, finally, this might be minutiae, but the plant in China, I thought it was going to be 100,000 square feet. 175,000, you said?

Yes. It's always been that.

I must have wrote it down wrong.

Or maybe I didn't make it clear.

I just thought maybe somehow the opportunity got even bigger, but as I said, minutiae. Okay, thanks. Good luck in '09.

Robert Kelly, Sidoti.

Just a question on -- Mike was just talking about how you are aggressively going to attack SG&A. What steps are you looking at to get that budget lower? If you can share that with us.

We are reducing spending across all the Company. We are reducing headcount across all the Company. Barclay talked in his speech about the number of -- we've had to lay off a significant number of people in the US, including in the factories. That number has been over 500 in the last 13 months. So we're looking at every single thing we can.

Okay. On the inventories, it was asked -- I'm just going to try one more time. Can you break out units versus price, as far as the increase year on year in 4Q '08?

No, we don't go into that.

Okay. As far as pricing, and I know some people had asked about that, given that dynamic steel inventory, steel moves. When was the last price increase that you had and do you expect more to flow through in '09?

Once again, we just don't like to talk about that.

Did you have one in the second half of '08?

Yes.

Okay. China begins to ramp up during this year. Can you share more with us what you plan on selling? Has there been any more developments there?

Well, as yet, I think it's going to take most of this year for us to really get an idea as to what products are going to sell there. And sure, we have some ideas right now because the sales force is where we get them. And we're spread out now with salespeople all over China, as well as the rest of Asia.

But, as yet, there isn't information yet that makes -- that we're sure of. I think by midyear, that we should know a lot more. And when you ask that question in the last half of the year, I should be able to give you a much better answer. I'm sorry I can't right now.

Fair enough, fair enough. And then just finally, Mike had talked about, you start to cut back production, I'm assuming to thin out inventories at your customer and distributor levels. When did that start? Is it a 1Q '09 event? Was it late in 4Q? Just maybe some help there.

It was late in the fourth quarter.

Right. Okay, great. Thanks, guys.

Also to add something on the China facility, we moved our Canadian factory to China. That was shipped in three pieces. One piece has arrived. The other two pieces of shipments of the equipment, one is above to arrive and the other one is about two months away. We significantly built up our anchor systems inventory across the United States and Canada to make sure that we would have enough product for our customers during that move and as we brought that new plant up.

China strikes me as predominately an anchor market, at least as you get going?

Well, it is right now but you have read about earthquakes there. So we think that given a little time and when they get some really tough codes in -- and if they put in a building code, you can bet it will be enforced. And I think that given two or three years, I would be surprised if structural connectors aren't a major part of our sales there.

Excellent. Thanks, guys.

Keith Johnson, Morgan Keegan.

Just have a few questions here. I guess maybe starting off with Dura-Vent. The last couple quarters, it's been profitable. A big change from what you guys experienced in the first half of 2008. And I think you talked a little bit about the seasonality of the products, pellet vents, those type of things -- chimney lines. As we look into 2009, can we expect a continuation in this type of profitability or there are some other circumstances we need to watch out for?

It looks like a tough year. I think -- it looks like a tough year all around, because unless you are seeing things different than what we are, there's not going to be any flip around.

Yes, it still looks -- it looks challenging. And now in Dura-Vent, you guys had expenses in 2008 related I guess to Vicksburg production decisions. How much were those? Or how much did that affect the year's performance?

Well, it had some effect, all right. How much do you think it had, Mike?

There was a couple million dollars in charges.

Okay, mostly in the first half of the year?

No, we went through -- I would say it affected the whole year because it was a phased move.

Okay.

You have to remember on Dura-Vent, it's a cyclical and a seasonal business.

Right.

And one of the challenges they also have besides the economy is that with the price of heating, gas and oil being so low, that will also have an impact on 2009.

So I guess all the lines in Vicksburg are coming back or shut down at this point?

That's correct.

Okay.

We have a small warehouse operation filling up back there as we market that building for sale.

Okay. A little bit on the SG&A aspect, I guess. The $1.9 million bad debt expense hit that category. It looked like you guys talked about personnel or administrative personnel expense is about $2 million or so above, maybe on a year-over-year basis in the fourth quarter? I wasn't sure what was driving that.

Primarily the acquisitions we had done.

Okay. Were there any type of severance related -- I know you guys talked about a lot of having to make hard decisions on the employee base as far as severance-related charges, any of those type of numbers rolling through your SG&A accounts in the fourth quarter or for the year?

Yes, but not any significant amount at all.

Okay. Professional fees, looked like that kind of keeps hanging around, being up on a year-over-year basis. I guess partly related to your acquisition line? Do you expect that to continue?

Yes, I do.

Okay.

And also with the change in accounting rules that we have to expense our due diligence fees with our lawyers and our accountants that help us with those.

Okay. When I look at, I guess, on a sequential basis going from the third quarter to the fourth quarter, gross margins looked like they dropped by round numbers 500 basis points. Could you break that out between the hit that you took related to the price of steel coming out of inventory, and also, maybe, the effect of operating rates that you may have seen as you came across the last three months or four months (multiple speakers)?

I'm sorry. We really don't go into that kind of detail.

On the operating rate side?

Well, we're not going to talk about our cost of materials and how they've changed and how they've changed things.

Okay. You made the comment I guess earlier that because of the way steel prices move, you guys are working inventory down and your weighted average cost of steel still is partly dealing with higher costs (multiple speakers).

It's still high.

At what rate do you think you will work through that if I look out into the first half of '09?

Well, if you could tell us exactly what our sales are going to be, I'd give you a better answer.

I'll be right back to you after the call with that.

It's -- on the revenue line, big drop in connectors. I guess probably the worst year-over-year decline so far in this housing cycle. A lot happened in the fourth quarter. Was there an additional pullback at your customers do you think just because of the vast amount of uncertainty out there in the market?

I think that's true.

Do you think some of that may have come back a little bit as we look -- I know '09 is going to be tough and I'm talking about a turnaround. But as conditions stabilize, albeit at a lower rate, do you think maybe some of the customers would change their order habits?

Well, that certainly is a possibility but not likely.

Okay.

Not from what we are hearing.

Okay. So when we looked back at the first quarter of '08, when you guys saw I guess about a 13% or 14% year-over-year decline in revenue, the second quarter of '08 kind of bounced back, still down, but not near as bad. Trying to get a feel for, do you think there's a shift going on maybe early ordering in the third quarter that hurt you in the fourth quarter, we come up to a better environment in the first quarter of '09?

No.

Okay. So early ordering didn't really -- wasn't really a factor in the shift?

No, it hasn't. The feeling in the community of builders is really -- is negative as we've ever seen.

Okay. Okay. I appreciate it. Good luck.

Mike Cancelleri, Mont Pelerin Capital.

Most of my questions have been answered. Just a follow-up on the bad debt expense. That was just from one customer at this point, the single customer and the increase in the quarter?

Yes.

And, do you see others on the horizon that could fall to the same fate? Have you got any preliminary word on that?

Well, of course. The way the market is, right now and what we're hearing from our customers and everybody generally, and I'm sure you are reading all this, it just doesn't look positive in the near future, this year; looks like it might be a very tough year. So we are, of course, concentrating on other areas. And we are looking harder than ever for acquisitions because we certainly can't count on the US market turning around in the short run or even in two or three years.

Is the difficulty from the customer coming from one segment of your business versus another? Or is it spread across?

It's spread across, although housing is the worst.

The housing is the worst. Okay.

And Mike, the legal and the professional fees, that's mainly acquisition-related, the increase there on the quarter?

That's correct.

All right. Thank you, gentlemen.

(Operator Instructions). [Mark Traster], FAS Advisors.

Most of my questions were just handled by the last caller, but I will ask one more follow-up on that. So the $1 million in the legal fees, is that expected to come back down coming into this year? Or should I continue to see that in the next quarter or two?

And then secondly, on the administrative personnel expense related to the acquisitions, are you far enough along in the acquisition integration that that's going to be the new run rate? Or is that still expected to come down?

On the acquisitions, we are always looking for efficiencies in merging the operations together. So that is why we are making some -- we are merging some of those operations together. Hopefully, we will have additional acquisitions this year, which will keep that number, maybe it will go up a little bit higher, but we'll have to see. Can't predict that future. Sorry, what was the second question?

I was asking about the legal and professional fees as well. Is that something that's going to start coming down in the next quarter or two, X, if you have any acquisitions, I'm assuming?

Well, the acquisitions -- with the change of accounting rules and having to expense those fees for 2009 and then we go after more and more companies, that number could increase. We have budgeted a couple million dollars for that number this year. Again, I think it's going to come up if we find the companies or don't find the companies, and how much we spend doing the due diligence. But I would expect that number to increase a little bit this year.

Okay, thanks, guys.

Arnie Ursaner, CJS.

Three quick follow-up questions. The $1.9 million bad debt charge, is that a retailer or a builder?

Oh, no, it's a distributor.

Okay.

We don't sell builders directly.

Okay. A domestic distributor?

Yes.

Okay. The second question is a clarification. Mike, I think you spoke to gross margin, and the way you worded it was lower for '09. But the question I had from a clarification point of view is, is it lower than the 35% or so you had in the current quarter or the 37.3% you had for the year? Lower than which?

Both.

Okay. And final question for you, Barc, last year, you had your first analyst day. And I was wondering if you are giving or have given thought to a follow-on analyst day this spring?

Yes. May the 18th.

We'll see you then.

Okay. I will look forward to it.

Thank you very much.

It appears that we have no further questions in the queue at this time.

Okay, thank you.

This does conclude today's teleconference. Thank you for your participation. You may disconnect at any time and have a wonderful day.