Baldor Electric Q3 2007 Earnings Call Transcript

Baldor Electric Co (BEZ)

Q3 2007 Earnings Call

October 26, 2007 11:00 am ET

Executives

Tracy Long - VP, Investor Relations

John McFarland - Chairman and CEO

Ron Tucker - President and COO

Analysts

Matthew Dellacroix - BNP Paribas

Jason Feldman - UBS

Steve Sanders - Stephens, Inc

Scott Graham - Bear Stearns

John Franzreb - Sidoti & Company

Lionel Jolivot - Banc of America

Dory Cunningham - Lehman Brothers

Tim Woods - McElroy & Woods

Ted Haag - ING Investment Management

Michael Christodolou - Inwood Capital

Satish Athavale - KSA Capital Partners

Tom Lamb - Weybosset Research

Tom Leach - Friedmans Wealth Capital

Allen Mitrani - Sylvan Lake Asset Management

Yilma Abebe - JP Morgan

Presentation

Operator

Good morning, ladies and gentlemen and welcome to Baldor Electric Company's Third Quarter 2007 Earnings Call. At this time all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Please note that this conference is being recorded.

At this time I would like to turn the conference over to Ms. Tracy Long, Baldor's Vice President of Investor Relations. Miss Long, please go ahead.

Tracy Long

Thank you, Christiana. Good morning, everybody and thanks for joining us today. On the call today we have John McFarland our Chairman and CEO and Ron Tucker, our President and COO. So, before we begin I'd like to remind everyone that some of the statements we make today may be forward-looking statements and those statements are not guarantees, and actual results could be materially different. So with that I'll turn the call over to John McFarland.

John McFarland

Thank you, Tracy. Good morning, everyone. Thank you for joining us this morning. We are pleased to report another solid quarter of sales and earnings at Baldor. Sales for the quarter were up 5% year-over-year, but were uneven during the quarter with August being flat while July and September were good. The strongest month of the quarter was September, which had a double-digit sales increase. Growth margins were 30% and operating margins remained at 14%, even though sales were 11 million less than the second quarter. This indicates that some of our cost reductions are starting to show up in the results.

Our OEM business continues to be strong, up 8%, distributor business was good in July and September, but up only 2% for the quarter. We were able to reduce our debt during the quarter by $33 million bringing our year-to-date total debt reduction to 158 million on place to reach our goal of 175 million for the year. Achieving our goal will save us $12 million in interest next year.

We were able to reduce some plant lead times during the quarter and will further reduce lead times this quarter. This helps our customers get more orders by having shorter lead times to their customers and helps us keep less inventory by being able to replace inventory that’s been sold more quickly. It also accords frees up cash for debt reduction.

Our international business in the quarter was solid, but up only 1%. Now this part of our business has turned up recently with recent billings and bookings increasing a strong double-digit rate. We see the same thing happening with some of our OEMs -- domestic OEM customers.

Going into the fourth quarter, we have completed our sales integration by establishing a Dodge sales force and a motor drives and generator sales force. This strategy gives us more sales people to serve our customers and more focus on sales growth. While we expect our total sales to be lower in the quarter, in the fourth quarter than the third quarter, which is the norm, we expect the year-over-year sales growth to be higher. Our motor product integration is ongoing and a new price sheet will be published in the first quarter of next year, sometime mid first quarter, which will reflect some product integration and product changes, as well as some needed pricing changes. At the beginning of October we had a fall price increase on the Dodge products.

In conclusion our sales continue to increase year-over-year. We continue to make progress on our integration and we're ahead of our targets. We expect to achieve our debt reduction for the year of a $175 million.

And we feel that the milestone we just completed integrating our two sales groups or actually separating the two sales groups into a Dodge sales group and in a motor sales group will really the help the customer service we provide and give us a more aggressive sales effort.

So with that we'll be going to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) And our first question will come from [Matthew Dellacroix] with BNP Paribas.

Matthew Dellacroix - BNP Paribas

Good morning.

Ron Tucker

Good morning.

John McFarland

Good morning, Matthew.

Matthew Dellacroix - BNP Paribas

Could you give us an update on the orders so far in the fourth quarter?

John McFarland

Well, for the first three weeks of the fourth quarter, the orders have continued at a good pace similar to the third quarter, overall third quarter. Not quite as strong as September. The September were very strong, but orders continue to be up year-over-year and apace similar to the third quarter.

Matthew Dellacroix - BNP Paribas

Great, thank you. And could you please give us an update on your main end markets, what are the changes compared to the first half of the year?

John McFarland

Okay. Well, the markets that -- let me give it to you in two segments. First, I'll talk about the markets that we serve, where we are seeing growth above the year-to-date average and that would be large air conditioning and heating equipment, mining machinery, conveyors, farm machinery, air and gas compressors. All are showing growth -- showed growth in the third quarter that was above our year-to-date average.

Other industries that are growing, but not growing in as quickly as they were earlier in the year would be oil field machinery, food processing machinery and some types of [chains]. The only major decline, that we are seeing are -- its not even a major decline, the only real decline in industry that we see is the machine tool business.

Matthew Dellacroix - BNP Paribas

All right. Thank you very much. And my last question will be about the drive business I know you made some changes with management and with new products. What's your view on the business going forward?

John McFarland

Well our view, we were disappointed with the drive business in the third quarter. We have made some changes in the products. We've added a lot of new products and during the quarter, we put a lot of effort to get our sales people trained and we were disappointed that we didn't start, that those didn't start selling faster than what they have, but its looks like in October we are beginning to see some the sales expectations we have for drive and we think going forward its not going to look as bad as it did in the quarter. We were really done a complete the evaluation now on the drives business to see what we need to do to really get in on board and get it growing with at a rate similar to the rest of the company.

Matthew Dellacroix - BNP Paribas

Thank you very much.

Operator

Our next question will come from Jason Feldman with UBS.

Jason Feldman - UBS

Good morning.

John McFarland

Hi, Jason.

Jason Feldman - UBS

Regarding the sales from distributors in OEMs, do you have any thoughts as to why are we so much weaker at distributors, where just some sort of inventory correction or something else happening?

John McFarland

I think that -- I don't really know why it was weak with distributors. My guess is that during the month of August there was an awful lot of talk about subprime loans and people going bankrupt and all the issues that surrounded that, and distributor’s order for inventory, and so they can stop their purchases from one day to the next unlike OEMs.

And so, I think, that during August distributors got cautious, quit buying, they seem to return in September and they are here in October. I think, also, the OEM business, the OEM business was pretty strong at 8% increase during the quarter, and I think that's partly being driven by the international businesses, some of our domestic OEMs are having.

We've begun tracking, well we are selling in a way of 50 hertz motors, all of which are going outside the United States and it looks like that business is -- has really been picking up. So, that's probably part of the reason that the OEM business looks so much better than the distributor, and I think part of the distributor issue was just conservative, I mean, in the month of August.

Jason Feldman - UBS

Okay. And then on cash flow, obviously, you've said in the release and part of it has to do with the with timing of interest payments, is there any other significant reason why it was so much of a drop-off, was there a major working capital swing?

John McFarland

No. No, it was really -- it was almost currency related to the timing of the interest payments.

Jason Feldman - UBS

Okay. And then last question is on the sales force realignment, were there any kind of material one-time costs associated with that, that we shouldn't expect going forward? And also there is change in the structure -- change either the structure of how you're paying them to firm up because you've some sales people who're employees, now they are showing as independent reps, is kind of that mix change?

John McFarland

There were no real material costs associated with that, I mean the reminder cost, but nothing that what I would -- turn material. It does change our -- it puts about 60% of our total sales will now be wearable. In other words 60% of our total sales will be through people who work strictly on a commission.

Jason Feldman - UBS

Okay. And so that’s up from what it was before?

John McFarland

Yes. Prior to the acquisition, a 100% of Baldor sales were conducted that way, and none of the Reliance sales were conducted that way. So overall, it makes it a larger amount that’s wearable.

Jason Feldman - UBS

Got it. Okay. Thank you.

Operator

And our next question will come from Mike Schneider with Robert W. Baird.

Mike Schneider - Robert W. Baird

Good morning.

John McFarland

Good morning, Mike.

Tracy Long

Hi, Mike.

Mike Schneider - Robert W. Baird

Just a couple of bouncing around questions, I apologize, first just on the Q4 comments that the growth rate should improve in Q4 versus Q3. I am just curious how you reconcile that statement with the fact -- with your prior statement that the orders have continued at a pace similar to the total third quarter and now they are strong in September, I am wondering if there is something I am missing in that reconciliation?

John McFarland

No, there is nothing missing, I mean, we only had a couple of weeks into the fourth quarter, and we believe, based on our production schedules and based on our backlogs and so forth that our sales will increase an amount greater than 5%, which was the increase in the third quarter.

Mike Schneider - Robert W. Baird

So orders, at least during October -- well, beyond October would have to accelerate to some extent to hit that faster growth rate?

John McFarland

Well depending on how we close out this week, I mean, our October ends at the end of the week and we are having a good week, and I think October is going to be a good month. And but yes, what we believe will happen is that our third quarter sales growth was about 5% overall, we expect to exceed that in the fourth quarter.

Mike Schneider - Robert W. Baird

Okay. And then how much visibility do you have into the distributor inventories and given the adjustment that this seems to have occurred in August, do you think they are at appropriate levels now?

John McFarland

We have a limited visibility to their inventories and we believe that their inventories at the least, again it's a limited visibility from what we've seen. The inventories were down a little bit, so we would expect, but we've been told that there is probably going to be some rebuilding of inventories in the fourth quarter.

Mike Schneider - Robert W. Baird

Okay. And I apologize if I missed this. If you look at the distribution business and drilldown into this skew level. Is there anything you can discern from the size of the motors, as to what markets are stronger or maybe which are weakest?

John McFarland

Not really. I would say that our business is strongest in large motors. But I would say that today our business is more consistent from small to large than it was earlier in the year. Earlier in the year, there was -- the large motor business was much better than the small motor business. Today, they are more similar in growth, but it is still better in large motors.

Mike Schneider - Robert W. Baird

Okay. And just the drives business, you expressed your disappointment. The sales efforts you've made, is it possible that they are succeeding and this was just an indication of the economy I guess. Give us your experiences as to what drives, tell us about order trends and business momentum or is this indeed just a sales force issue?

John McFarland

Our drives are not like motors, in that in order to really sell drives you have to do a lot of training, customers have to learn the software of our drives, before they really can start to sell them. And of course we also have to replace somebody in our customers' inventories. And lot of that work is being done and I think the fourth quarter drives business will we better than the third quarter.

I am not sure that we have a really good handle on where we need to, what we need to do to get the drives business onto a growth track, similar to motors and similar or even similar to power transmission products. We are evaluating that now and we spent last week in working on that and some other issues and we are going to fix the drives business.

Mike Schneider - Robert W. Baird

Okay. And then final question, just a more strategic question. Internationally now you got Reliance business rolled in. What are the new or different efforts that will be deployed in 2008, to try and ramp international sales and your presence?

John McFarland

Okay. Our international sales recently, when I say recently, starting in September, have really shown a strong improvement, but there is a lot of things going on with the international business. We've have been combining the Dodge Reliance International Organization and the Baldor Organization. We pretty much got that all done. We've been repositioning some of the inventories that have been in Europe. We've been moving those to, some of those to Asia and to various places where Baldor had warehouses, Dodge, Reliance did not.

And we are going to put a lot more focus on the Dodge product line internationally. The Dodge products are all metric, they are all, they really, they require many changes to be acceptable in the international marketplace. Whereas in the motor business if you are going to sell motors internationally they are built to a different standard and they are a different frequency. So the Dodge business, we believe is an area that we can grow our international business quite rapidly and we are extending those products -- extending inventories of those products into the places where we're strongest on the Baldor side of the business.

Mike Schneider - Robert W. Baird

And how do you add distributors internationally? Is it a manner of just going out and ramp in the sales force to contact distributors or is there a product gap?

John Mcfarland

Well, it really differs by country, and some countries like Australia, we have good distributors most of which are already in the power transmission business just not buying our products. So we have to go in there and convince some of that they should be buying the Dodge products rather than, whatever they are buying. In other areas like the Middle East, we really don't work as much through distributors; we worked direct a lot with the users, same as true to some extent in Latin America and in Asia but -- it’s just really a matter of going in and identifying who is in the marketplace selling the product, and going in and convincing them to sell our rather than someone else’s.

Mike Schneider - Robert W. Baird

Okay. Thank you, again.

Operator

And our next question will come from Steve Sanders.

Steve Sanders - Stephens, Inc

Good morning.

Ron Tucker

Hello Steve

John McFarland

Hi Steve

Steve Sanders - Stephens, Inc

Follow-up on international sales force, it sounds like you potentially completed the integration there as well, is that correct?

John McFarland

That's right.

Steve Sanders - Stephens, Inc

Okay. And so is it the right size, and in terms of geographic distribution, is it pretty much where you wanted to be?

John McFarland

Well, we really think that the international business, it's around $300 million now, and we really think that it can grow a lot faster than our domestic business. We have little market share, if any, little measurable market share outside the United States. We are having very good success in Latin America where our sales organizations are combined already and really doing well.

We are having real good success in certain areas Singapore, Australia doing well, Europe is the one area where we are not just growing as fast as we would like, and we are not -- I would say, not a hundred percentage along with the integration in Europe as it is a little more difficult to do it quickly there, but no, there is a lot of places where we don't sell our products that we would ultimately like to. Our focus still, will be on a few select places where there are big opportunities, and we are not going to try to focus on the entire world, a hundred different countries. We are going to really focus on the areas where the biggest opportunities are.

Steve Sanders - Stephens, Inc

Okay. And then I think, you were pretty clear that the focus on the near term there is going to be on the dark side, as we think about the motors, sort of late 2008, 2009, is that when we would start to see some additional focus on the motor side internationally?

John McFarland

We are not going to take any focus away from motors, I mean, the Baldor sales people internationally have been focused entirely on motors for a long time, and we are not going to remove any of that focus, but we are going to add the Dodge products. So sales people in the past, who have had only motors to sell now have all the Dodge products. I think that the area where we can achieve the fastest growth, the quickest is with Dodge.

Steve Sanders - Stephens, Inc

Okay. And then I think you referenced a price increase on the motor side in early'08. Is that correct?

John McFarland

Well, in early '08, we are going to be putting out a new catalogue, and that catalogue will combine the Reliance and the Baldor product lines into a single product line. And at that time, we are going to be making some price changes in order to get the prices in line with each other, and we do expect at that time to have a price increase, but at this point, we have not decided how much price increase we’ll need. We are working through that now with our supplier to determine what -- where material costs are expected to be next year and that sort of thing. But, we'll be making that decision probably before the December 1st, so we can get it announced for the February timeframe.

Steve Sanders - Stephens, Inc

Okay. And then on the cost savings related to the acquisition, I think in the last quarter you guys said, you would essentially get to the $30 million run rate by the end of next year. You made a comment in your prepared remarks that you were starting to see something there. How should we think about getting to the $30 million over the next four quarters or so? Are they fairly linear or we are going to see some steps? Any help you could provide there?

John McFarland

I would say, just look at the linear kind of fashion probably. There probably is not any real significant steps.

Steve Sanders - Stephens, Inc

Okay. And then just, John, generally on the manufacturing side, how did you respond during quarter to some of the slowing. I know, you guys had some inefficiencies associated with some facility consolidation and you were working some overtime. So, I assume that on the margin you took off some of the additional production, you're ringing out some of inefficiencies. Do you feel pretty good about how you are running there?

John McFarland

Well, I feel good about how we are running in certain plants. There are certain plants that a year ago we're challenged, we were really challenged to make enough motors and we've been able to expand the ops within those plants, so that we can make the necessary motors without so much overtime, and without so much inefficiency. That's - specifically that'd be in the larger motor plants.

In the smaller motor plants, we still are working some Saturdays to keep up for the demand and also to build some inventories. Our inventory there are little bit lower on the motor side. We think, we can get more business if we had a little more inventory, particularly in small motors and we are working to increase the inventories and catch up. But we're still working too much overtime in small motors. But I think that will be taken care by the end of the year. And we expect to be able to reduce our lead times by the end of the year. Reducing our lead times is really important to us, because this will help our customers to get more business. I mean one of our big competitive advantage with Baldor for a long, long time, has been that we've had shorter lead times than everybody else. And that’s especially true now that our customers have a bigger mix of international business because that international business when you add long domestic lead time to it, it really makes a delivery to a customer in Europe or Asia real long. So getting those lead times down is our focus. We've made some pretty good progress during the quarter. We've changed some, we're going to be changing to reducing some lead times further in November and then again in December. And we think that will help us to get more business, but to also operate our business more efficiently.

Steve Sanders - Stephens, Inc

Okay. Thanks a lot.

John McFarland

Thank you, Steve.

Operator

And our next question will come from Scott Graham with Bear Stearns.

Scott Graham - Bear Stearns

Good morning, John. Good morning, Ron.

John McFarland

Good morning, Scott.

Scott Graham - Bear Stearns

I've have couple of questions for you. Anyway of quantifying the impact of the temporary plant shut down during the quarter?

John McFarland

You mean the start of vacation at the Baldor - close the Baldor plants.

Scott Graham - Bear Stearns

Yeah. But didn't you also do to some streamlining in one facility that you did a temporary closure as well or no?

John McFarland

No, we have -- in the first week of July, we have a vacation in all of the Baldor plants every year. Where we pay everybody and they don't produce -- they are not here to produce anything. So that has a financial impact, has every third quarter for many, many years. We did have a little bit of added expense from the closing of the Madison plant, it was not closed completely until the end of July and we still aren't completely out of it, I think we are conducting a auction to get rid the last of the machinery this week. And so there is still a few cost related to that, but I am not sure exactly what the cost is related to the closing due.

Scott Graham - Bear Stearns

You are talking probably in the range of a couple of million dollars anyway?

Ron Tucker

Yeah, but that's year-over-year that’s the same. So that's not an issue.

John McFarland

Exactly year-over-year that’s not a change.

Scott Graham - Bear Stearns

Also quantify the product line, are these associated with the Bradley drive lines, I think it was? What were those revenues last year?

John McFarland

Only on Bradley?

Scott Graham - Bear Stearns

Didn’t you, you abandoned or divested the small drives product lines, if I'm not mistaken?

Ron Tucker

No, we haven't abandoned the small facility. The Reliance drives products were made by Allen-Bradley, and they had small drives, and they have some very special drives, and they held the very special drives, held on to that and didn't sell it to us. They showed us only the standard drives and we've been moving away from the Allen-Bradley standard drives towards the Baldor standard drives and some drives that we purchased.

So whereas in the past, we have essentially, excuse me, made all of our drivers on a go-forward basis, we are going to make some sizes and some sizes we’re going to buy. And so, because of that change it has required us to re-train all of our sales force, and so they know how to re-train customers and how to use their drives, and that’s part of the problem, but I'm making an excuse just on the drive business. We are just not performing there like we should, and we are going to take steps to get that into a better performing position.

Scott Graham - Bear Stearns

Got you. And my last question is related to your production schedules for the fourth quarter, which in recent conversation between us, do you -- you are looking forward to a pretty aggressive fourth quarter production schedule, has anything changed?

John McFarland

No it hasn’t. Actually we -- our production schedules are set right now through Thanksgiving and there are similar -- they would look similar to the third quarter production schedules. We are going to be working some Saturdays in our two largest plants, but in fact, we are going to be working this, let’s say, we are not working this Saturday or working the following Saturday November 3rd in our two largest plants, and we're probably going to work some Saturdays in December. So, no, we haven't backed off of our production schedules in any way.

Scott Graham - Bear Stearns

All right. Thank you.

Operator

And our next question will come from Sidoti & Company, John Franzreb.

John Franzreb - Sidoti & Company

Good morning, everybody.

John McFarland

Hello, John.

Tracy Long

Hi, John.

John Franzreb - Sidoti & Company

Could you just -- you mentioned in your comments that you need to displace some competition in the drives business, can you just refresh my memory what the competition is like and how hard or easy that will be?

John McFarland

Well, when we say displace some top competition, in other words we have to win the orders over our competitors, you know, we have a much larger sales force than anybody else in the drives business. We are working right now to get them trained; we had a group in this week, in fact, here in Fort Smith for training. We are working to get them trained in the new products that we have, and it's a matter of going out of length in the business and a lot of the business is at customers where we do a lot of motor business or a lot of Dodge business. So we are not customers that we have to go and learn, and become acquainted with their customers. They are customers that where we are already important suppliers, and I think we will be able to show you progress on that in the next couple of months.

John Franzreb - Sidoti & Company

Is there a quality perception out there or is the market just generally weak for drives; can you help me with that John?

John McFarland

Its' really -- I don't think there is a quality perception, and it's really hard to determine whether the market is weak. It's certainly been weak for us. But whether it is for other people, I just don't really know. I don't get any information. They wouldn’t allow me to answer that question, but I think there are good opportunities in the drives business and especially with -- when you look at the growth we are having in high efficiency motors, more than twice what the overall motor business is growing. Another way to improve the efficiency is by applying adjustable speed drives to those motors. We've got be more effective at doing that.

John Franzreb - Sidoti & Company

Okay. The improving sales trends expectations in Q4, is that mostly based on the strength that you're seeing in the large motor market or is it more based on the -- what you referenced before as the kind of the restocking that might take place in the smaller motor market. On which side the scale is kind of way weight towards?

John McFarland

Well, the fastest growth right now that we are having in the motor market is in larger motors, medium and larger motors and in high efficiency motors of all sizes. And, but I would say that the small motor market, now we define it up to 50 in horsepower is good as well. I mean overall the motor business is solid from small motors to large motors but its best in medium and large motors and high efficiency motors.

John Franzreb - Sidoti & Company

And can you just remind me, do you have similar shut down in December that you had in July?

John McFarland

We have a -- I don't like the word shut down because that sounds permanent. We have a vacation for our employees, the Thanksgiving.

John Franzreb - Sidoti & Company

Okay

John McFarland

For three days and we sometimes close between Christmas and New Years. And that really depends on how busy we are and what's the status of our orders and that sort of thing, what are our customers need. And at this point, we've not decided whether we will close between Christmas and New Years. We like to close then, because it's only a couple of days, it kind of been inefficient to operate for just a couple of days. But if we need the motors for the customers, we'll work. We'll make that decision around the first of December.

John Franzreb - Sidoti & Company

Okay great. Thanks a lot John.

Operator

And our next question will come from Lionel Jolivot with Banc of America.

Lionel Jolivot - Banc of America

Thank you. Can you just tell me if you've seen any changes in the competitive environment recently and I'm particularly interested to see what happened recent in August when a lot of the distributors all kind of slowed down, did you see then - but if you -- was everybody behaving rationally in terms of pricing in the market or are you see starting several of your competitors are basically coming down a little bit on pricing to maintain or gain back some of their volumes?

John McFarland

Well, I don't know -- if I were to answer yes to the question, is everybody acting rationally in the market? But I didn't, we didn’t see anything unusual in August with respect to competition, and we haven't seen any, I don't think we've seen any, at least I am not aware of any irrational price competition but I would say our competitive landscape is about like it has been. I believe, going forward though, we are in a much better position from a competitive point of view and that we've have got a much stronger sales force focused on motors, a larger number of people, are calling on our existing customers and going after our competitor's customers.

Lionel Jolivot - Banc of America

Okay and in the past you've said that you were committed to paying on debt and I mean, you've paid on quite a bit of debt this year and your leverage is probably going to be a little bit soft at times at the end of this year. But are you starting to feel for the year, bit more comfortable with acquisition at this point or are you still focused on your balance sheet in just getting the most of the integration with the two businesses you’ve acquired?

John McFarland

We are really focused on operating our business and putting the best together as the way we described at Baldor, Dodge and Reliance integrating the companies, and that's not to say that it’s some great acquisition came along. We certainly look at it, but right now our focus is on the task at hand, which is putting these businesses together realizing the cost savings that are out there, and realizing the opportunities to get more business as a result of the added strengths in product line and sales force that we have.

Lionel Jolivot - Banc of America

Okay. Great. Thank you very much.

Operator

And our next question will come from Thomson Sarah with Lehman Brothers.

Dory Cunningham - Lehman Brothers

Hi. Good morning. This is [Dory Cunningham] for Thomson. Just a couple of quick questions and I know you’ve touched upon on some of them. But on the working capital front, can you provide a little more color about what's going on there, it looks you guys were end users of cash this quarter. And also kind of looking into the fourth quarter of next quarter, what should we be expecting?

John McFarland

There was a little bit of use of cash and the working capital was at prior level primary with receivables and that's -- I think it was up over last year by about half of the day and DSO, something like that. So, and then looking in the fourth quarter, I think you probably see working capital to be pretty much of a bullish nature. I think, while we are going to try to build some inventory, we do have several days of holidays at the end of the quarter, so that will draw that inventory back down. So I know, we don’t anticipate a large increase in inventory.

Dory Cunningham - Lehman Brothers

Okay. Great. And then, I know you talked a little bit, but this is well, but I was hoping if you can provide some additional color specifically on the business environment. What should take on a business outlook, are you seeing any weakness among any of your customers or suppliers, and just trying to kind of gauge and get a general sense of what your perspective is?

John McFarland

We're positive on it, I mean -- if you look back over the last four quarters, business has slowed down a little bit from where it was a year ago, but we're positive on the fourth quarter and then as far out as we see right now, we see continued sales growth, and so I would say, generally, I mean we're very positive on business at present.

Dory Cunningham - Lehman Brothers

Are you hearing anything from any of your suppliers or your customers that would be just otherwise?

John McFarland

I've spent more time with our customers than I have with our suppliers, but our customers are quite optimistic about business right now. So no, I'm not hearing anything from either of those groups that would say that -- we are headed for a big slowdown in business.

Dory Cunningham - Lehman Brothers

Okay, great. Thank you very much.

John McFarland

You're welcome.

Operator

And our next question will come from [McElroy & Woods, Alex Epstein]

Tim Woods - McElroy & Woods

This is actually [Tim Woods from McElroy & Woods]. Hi, John, you’ve touched on a number of questions regarding the integration that’s being going, and well going on and keeping up some progress and on target, but making integrations of these size are never easy, can you maybe just talk about some of the issues you've had with the integration, and I think you mentioned Europe in particular to Steve in a question there?

John McFarland

Well, I would certainly agree with you that integrations like these are not easy, but I think we're moving along through the integration at a pace and a little bit in excess of what we expected. We are getting along with the people; we’ve got a good strategy that's laid out. We've got management team that has got into this strategy and working everyday to integrate it. We've not seen, we've not had any big major hurdles that slowed us down or anything that we really -- and we haven't seen anything that we didn't expect. And I don't want to make it sound like its really easy but we are not have any big major problems. I mean we -- I would say that the biggest issues that I personally have is the frustration with the time it takes to get some of the things done. But once as we get our computer systems integrated, I think we can move quickly to realize a lot of things that we see has opportunities out there that are hard to get to right now without the integrated computer system.

Tim Woods - McElroy & Woods

And do you feel that the transition period, has that resulted in anyway in a loss of business because of any transition to new computer systems?

John McFarland

I don't think we've lost any business I mean I have spent a awful lot of my time working on sales and involved in sales at my background and I'm not aware of any appreciable amount of business that we've lost as a result of this acquisitions and I have talked to the major customers that we have at least once since the acquisition, many other more than that and I've not getting a sense that we are losing any business as a result of the acquisition. In fact I think the opposite is true, we got the opportunity to pickup a lot of business and now that we are little better organized in sales and from this point moving forward.

Tim Woods - McElroy & Woods

Sure and then do you think, you had mentioned out to your specially it's really in sales but do you think integration is taken up more time of yours than thought it was going to?

John McFarland

I don't know if I am a specialist in sales. I'd like to be considered a specialist in sales. I'd I think that'd be something to be proud of. Now, only integration has been a lot of fun, its been real energizing for all of us. It's something that we put a lot of energy to work on and I will say the whole management group and lot of other people at Baldor, Dodge, and Reliance are working hard to make to really realize the opportunities that we have as a single company, versus two companies competing with each other. And there are -- I think we all jump out, we are excited about the opportunities every morning and we do whatever it takes to get the job done. I think the most rewarding part of it has been for me at least has been to bind the people from the Reliance Dodge I think they really embraced the ideas and that's been a real positive.

Tim Woods - McElroy & Woods

Great result. Well, thank you very much for that.

Operator

And our next question will come from ING Investment Management, Ted Haag.

Ted Haag - ING Investment Management

Hi, It Ted Haag of ING. Just a couple of quick questions. Could you break out on a same-store sales basis kind of what's has been going on sales wide between Reliance and Baldor so I'll get a little bit of better understanding with regards to organic growth?

John McFarland

No our growth overall was about 5% during the quarter, it was broken out by product is as we showed in the press release. We don’t break it out between Reliance and Baldor, and the reason we don't is that when we signed the papers we became a single company and we want everybody in the company to feel like they work for Baldor Electric Company and that they are not on one side or the other, that we are a single company and so we are not, we don’t break that out.

Ted Haag - ING Investment Management

That's fine. Can you comment with regard to revolver usage going through Q4 if any, and where your Letters of Credit stand at this point?

John McFarland

We don't anticipate any revolver usage. Again, we are anticipating and paying some additional debt down this quarter. And in fact we've already paid some debt down this month. So, we expect to pay some more.

Ted Haag - ING Investment Management

As far as Letters of Credits standing at the end of September?

John McFarland

That's not an issue.

Ted Haag - ING Investment Management

No, I mean, could you quantify what that is for me?

John McFarland

It's a new one, No, I am not sure what the amount exactly is, so it’s not much.

Ted Haag - ING Investment Management

Okay. And last question, I may have missed it, backlog is where in Q3 for you guys?

John McFarland

We also don't publish any backlog information, but our backlog has not changed depreciably from the last quarter.

Ted Haag - ING Investment Management

Okay. Great, thank you.

Operator

And our next question will come from Michael Christodolou with Inwood Capital.

Michael Christodolou - Inwood Capital

Good morning, John just to clarify, you’ve talked about a price increase in your prepared statements, but that was -- you haven't taken anything yet right, you were just referring there to the prospective price increase on the Dodge product?

John McFarland

We had a price increase on the 1^st of October on the Dodge products, and we will, most likely, have a price increase on the motor products in the middle of the first quarter of 2008.

Michael Christodolou - Inwood Capital

What was the price increase in October?

John McFarland

About 4%.

Michael Christodolou - Inwood Capital

4% okay. And right in the first quarter, when you will take that other one in your thought as you would do in conjunction with combining the products and the catalog?

John McFarland

Yes, we will be issuing a new catalog, we publish a catalog of the items that we start, that we carrion inventory and stock at Baldor, and there was a similar catalog published by Reliance, and we are combining those two things and we are rationalizing some of the products determining whether or not we want to carry both the products that was Reliance product and the Baldor product. All of that's have been worked on now, and the pricing would be rationalized at the same time. And we hope to issue that price sheet some time in February. And with that we, since we are issuing a new pricing, we will probably have a price increase. The one, we've been concerned about the price of copper which has been, has remained above $2.50 now for quite a while, and so well that's not an immediate issue for us, it is in the longer term, so we will have to adjust to that in the early part of '08.

Michael Christodolou - Inwood Capital

And in terms of closing a gap between an older Reliance product and an old Baldor product, is it safe to say that you are not going to close that gap by lowering one price down to another?

John McFarland

We are going to look at each situation, I mean, there is more than a thousand motors that we’ll look at, and so each individual situation is going to be slightly different, but no, we would not expect to come out or hide rather than a hit.

Michael Christodolou - Inwood Capital

But, with reference with just closing that gap, I mean, just broadly speaking, for preponderance of these thousand products or so, is it safe to assume that there was a pricing gap, and that was either older Reliance, was maybe a tad less efficient in pushing their suppliers, or just because they had a lower positioning in the market with their old standalone sales force?

John McFarland

Overall we were competing with each other and overall our pricing was pretty similar, so this won't result in any big changes in a negative way or in a positive way.

Michael Christodolou - Inwood Capital

Got it.

John McFarland

It just means, it will just be a lot more easier for the customers to understand than it will be, it would give us a chance to produce some ratings in our volume. They are about probably realizing some savings in manufacturing and this make things easier for the customers to understand.

Michael Christodolou - Inwood Capital

Understood. And the price increase that you determined internally you are saying in December. Does the customer and distributors first going to hear about this in February or how might, just your commenting that you're going to have a price increase kind of manifest self into customer and dealer behavior. Could you see some purchases in December that pullout of the first quarter or would you expect to see a number of purchasers in the first quarter pullout of the second quarter. How could that play out?

John McFarland

But, we will most likely announce the amount of the price increase in December and then the price increase will probably be effective, say for the March 1st, or perhaps the middle of February. And there usually is some pre-buying, it won't be in this year. That would be in the last couple of weeks before the effectiveness of the price increase. And its usually is not more than just a few million dollars, so it usually that and it'll all be contained within the quarter.

Michael Christodolou - Inwood Capital

So the channel -- the fourth quarter channel restocking phenomena that you cited earlier, it's generally totally unrelated?

John McFarland

That's right.

Michael Christodolou - Inwood Capital

Okay.

John McFarland

The large distributors that we talked to recently, said they need to restock because their business is -- they need the product and stock to take care of their current business conditions.

Michael Christodolou - Inwood Capital

Few more question, if I may? With respect to the dealers, I know you had indicated a year ago at the time of announcing the acquisition that there was a lot of commonality among dealers, some commonality, but not a lot. And, how has that played out. I know that the comment was, you should keep a majority of them, but that you'll will loose some. How has that played out and could the loss of any particular dealers over the last several months maybe be contributing to the weakness that you've seen in dealers, just on the margin here in the last quarter?

John McFarland

I'm really not familiar with any distributors that we've lost. I think that we have probably lost a few orders over the last six months because our inventories have been -- pretty largely been working hard to rebuilt those inventories, so with that doesn't occur going forward. But I don’t believe we've lost any distributors. I'm not aware of any, and I'll stay pretty close to it.

Michael Christodolou - Inwood Capital

So that's actually better than your expectations a year ago.

John McFarland

I think we had a very effective strategy in creating a Dodge sales force and motor sales force. The strategy we tested it with our customers and they agreed it was a good strategy. We've executed exactly as we told them back at the beginning of the acquisition, and so I think we've done a good job and we've not lost any customers as a result of it.

Michael Christodolou - Inwood Capital

Very good. And just a last line of question in with respect to the synergies, you said and the $30 million savings goal and the timeframe for doing that and you've kind of conveyed that it will be kind of a linear realization. And with all that said, have you quantified where you stand in the $30 million because, I know that about six months ago in New York, you were only three months into it, and you made the comment that in purchasing for example, you were hoping to get $2 million in a particular area, but it was really $3 million and in payroll that was a $1.5 million so -- you were $4.5 million into the $30 million after just three months, and I didn't know if there were any other kind of quantifications or just descriptions you could offer us in terms of your confidence factor or to help us frankly get ahead of your $130 million and think that it could be 40 some day?

John McFarland

We haven’t quantified it further than that, but I think the fact that we've moved the 30 million run rate up from the third or second year should be an indication.

Michael Christodolou - Inwood Capital

Okay. And in terms of just those opportunities, John you'd indicated that there were three or four, again this was six months ago, there were three or four other opportunities in the synergy area that could be $2 million to $4 million in charge, and that there were hundreds of other smaller savings of 50,000 to a few 100,000, is that still kind of the opportunities that you are working with?

John McFarland

We've identified a number of opportunities for savings, some small, some large. We are working on all of them and trying to achieve them as quickly as we can. As Rob said, we do believe that our initial thoughts will be achieved by the end of the second year, and that's really all we are going to say about the cost savings.

But, you know, we are not just working on the cost savings either. I'll still make the point that the cost savings are important to us, and a lot of people who are working on them, and we are going to do our, we are going to get while we thought we would get. And, in fact, we are probably going to get more than we thought we were going to get. But equally important is increasing our sales, and I don't want to underestimate the power of the sales structure that we've created, and where we are headed with that. That also will help us to get a lot of additional business, and so those two things working together, I think, it’s really to make us a strong and successful powerful company two, three years out.

Michael Christodolou - Inwood Capital

Understood. Well, thank your for the time and congratulations on all the progress on the last year?

John McFarland

Thank you.

Operator

And our next question will come from Satish Athavale with KSA Capital Partners.

Satish Athavale - KSA Capital Partners

Good morning.

John McFarland

Good morning, Satish.

Satish Athavale - KSA Capital Partners

How are you? Ron, a quick question, while you were reported operating profits were up year-over-year, they were down slightly sequentially from the second quarter?

Ron Tucker

Right.

Satish Athavale - KSA Capital Partners

And if my back of the envelope calculations are correct, excluding the Dodge and Reliance product lines the base business probably had flat-to-down margins year-over-year. Can you comment or just clarify how your base business did?

Ron Tucker

Well, you know, we don't break that out, and if you go back to markets, it's really difficult at this point with the immigration activities if I want to make the comment about the base business, I really couldn't, but if you look at the third quarter compared to second quarter, you had all the sales, you had less sales, you had a vacation of summer players, and we were able to maintain the operating and the growth margins at about the same level.

Satish Athavale - KSA Capital Partners

Okay. And then maybe if I switch gears, interest expense was slightly above the expectations for the quarter. It wasn't much above, but it was higher than what was indicated. So going into fourth quarter in next year what should we expect for the interest expense?

While we -- as we said our goal is to be $135 million in debt reduction this year, and we talked about another calls target of another $100 million to $120 million next year. And that again, it will depend next year on the timing of the debt paid out, but we will go in to the year with probably $125 million less in debt that we started the -- starting this year with.

Satish Athavale - KSA Capital Partners

Okay, good. Thank you.

John McFarland

You are welcome.

Operator

Your next question will come from Weybosset Research, Tom Lamb.

Tom Lamb - Weybosset Research

Yes. I’ll just ask the question in one moment. Hi, I wanted to ask about your efforts in foreign countries. South America, you mentioned was looking pretty good, and that some of the things that distinguish Baldor here in North America, fast delivery, good service, good turnaround time and time back and I think, can you do that in Latin America or China and do you have a same competitive advantages abroad that you have here domestically.

John McFarland

That's a very good question, and the answer to that is, today we do not have all of the same competitive advantages internationally that we have domestically, nor to our international competitors have the competitive advantages domestically here that they would have in their country of origin. But we do feel that the competitive advantages we have in the United States, would be they competitive advantages in foreign markets. And for that reason we do intend to have local inventories and we do expect we -- our strategy is to specialize on a certain part of our product line in each country that we go in to. To have local inventories is to have good access to information through trained people in our sales offices and through our electronic information. And have quick deliveries on a certain part of our product line.

In China, where we think there are some big opportunities for us in the long-term, we are currently building a manufacturing plant that will allow to make motors there sometime, probably in the last half of next year and once we are doing some manufacturing in China, I think we can develop in that market a lot of the same advantages we have here with short lead time at the motors and some of the things that are competitive advantages for us domestically. Now that's an excellent question.

Tom Lamb - Weybosset Research

How expensive is it to kick in a country A and decide that you are going to offer product X to them and keep the inventories on hand. I mean, is this going to require a lot of upfront expense to stock the inventories, build to plan, all things that are necessary to get set up?

John McFarland

If A requires some -- and it doesn't require a lot of upfront expense, it does require some inventories, but we've got most of the inventories anyway in the U.S., so it really requires a lot of other things that we go into a market to sell are things that we are selling in the U.S. already. And so we already have the inventories and we just move to sell out them to a foreign location. So there is some investment in inventory but not a lot of expense. No.

Tom Lamb - Weybosset Research

And if a customer in a foreign country wants a particular type of motor, I know you customize things very quickly. Are you going to have that ability abroad?

John McFarland

Well, today, we are do it in our U.S. plants and we ship to the customer and this is one of the reasons that's so important that we continue to bring down our lead times, our lead times over the last couple of years, because of demand have lengthened a little bit and we're really focused on bringing those down now and we brought them down, some in the third quarter, we may do some more in the fourth quarter and get them back to two weeks. And once we get our lead time for custom products at two weeks, then adding a four week shipping time to a two week production time , makes this pretty competitive to just about anybody else in the motor business on a global basis.

Tom Lamb - Weybosset Research

Very good, thanks. And congratulations for a job well done

John McFarland

Thank you very much

Operator

And our next question will come from [Tom Leach with Friedmans Wealth Capital]. Mr Leech your line is open.

Tom Leach - Friedmans Wealth Capital

Yes hello. Thank you very much for taking my call. I first got a quick question on accounting, do you account for revenue to distribution on sell-in or sellout?

John McFarland

I read the news in Canada's when we shipped a motor to a distributor. The distributors are not part of our company. They are independent businesses. And so, we’ve recognized revenue when we shipped, when they ordered the motor and we shipped it to them, we recognized the revenue at that time.

Tom Leach - Friedmans Wealth Capital

Okay. Good. Second, question was on 50 hertz motors you mentioned earlier, the growth rate there was much more robust than the standard business. What type of growth are you seeing in the 50 hertz motor, and any other color you can give on it?

John McFarland

It's about double what our standard motor business is, and it's been building particularly in the last couple of months.

Tom Leach - Friedmans Wealth Capital

So typically, the 50 hertz have grown about 10%, is that what you are saying?

John McFarland

Yeah, little over double what the -- a little over double what the motor business overall is growing.

Tom Leach - Friedmans Wealth Capital

And what percentage of your motor business is 50 hertz?

John McFarland

Well, our overall international business is about 15%. And if you look at industrial products in the United States, it's generally about 15% of most industrial companies sales are exported. So, I really haven't figured out what the 50 cycle is, in some motors that we've sell don't require, don't have to be 50 cycle to be sold in foreign countries. So I really can’t figure it out, but I think our overall business, of all of the motors that we produced, I think about 15% of them are exported.

Tom Leach - Friedmans Wealth Capital

And the last question, you also mentioned that the Large AC business was good for you too. You said, you had a high robust category or higher end of growth or whatever? Can you explain what's going on there? Ever thought that would have been, is more fear a little bit?

John McFarland

We really haven't seen any big easy than the large motor business. A lot of the large motors that we make go into the oil and gas industry. There are a lot of big investments. We've done a lot of orders for, for example, for the tar sands area or the oil sands area at Alberta up in Canada. Our large motor business has been solid; continues to be and doesn’t look like anything is going to change that near-term.

Tom Leach - Friedmans Wealth Capital

Super. Thank you very much.

John McFarland

Thank you, Tom.

Tom Leach - Friedmans Wealth Capital

Bye, bye.

John McFarland

Bye, bye, Tom.

Operator

Our next question will come from Sylvan Lake Asset Management, Allen Mitrani.

Allen Mitrani - Sylvan Lake Asset Management

Hi, thank you.

John McFarland

Hello, Allen.

Allen Mitrani - Sylvan Lake Asset Management

Hi. How you guys are doing?

Ron Tucker

Great.

Allen Mitrani - Sylvan Lake Asset Management

Okay. I just wanted to understand the comment in the press release when you talked about – in a chart, because you don’t give us pro forma numbers, but you're saying that the fourth quarter will be, obviously, on a dollar base lower as it always is, but I wanted to understand when you said the weight of sales growth in the fourth quarter will be slightly higher than the weight of sales growth in the third. You're talking year-over-year sales growth, of course, right?

John McFarland

That’s right, Allen. In the third quarter our year-over-year sales growth was about 5%, kind of believe that in the fourth quarter it'll be a little bit more than that.

Allen Mitrani - Sylvan Lake Asset Management

Right, but I don’t have the comparisons – it’s hard to get apples-to-apple given the divestitures and the things that happened, so when you said year-over-year sales growth, you weren't talking about the 126% or so versus Baldor's old numbers, were you?

John McFarland

No, no. We were talking about on a comparable basis, if we take the proforma numbers you have trouble getting to. We're saying that in the third quarter, our sales on a comparable basis grew about 5%, not by 126%, but by 5%, but in the fourth quarter we expect them to grow a little bit more from that on a comparable basis.

Ron Tucker

And now, if you look at the press release, I mean you can look at the paragraph talking about this list between the product groups and come up to about a 5% growth rate on an…

Allen Mitrani - Sylvan Lake Asset Management

Okay. Also typically Baldor sales going back, but when it was standalone Baldor, would dropped about somewhere between 4% and roughly 5% quarter-to-quarter. Is that about a fair enough drop to use?

John McFarland

You have to figure that on your own.

Allen Mitrani - Sylvan Lake Asset Management

Okay.

John McFarland

We can't comment on that but we think that we will grow a little faster in the fourth quarter than we did in the third and we are quite excited about our fourth quarter.

Allen Mitrani - Sylvan Lake Asset Management

Okay. And then you spent, it says you spend $23.5 million in CapEx year-to-date. That implies that third quarter CapEx was less than $5 million. Can you just give us a sense of where the full year CapEx is going to be, is this a timing issue in terms of your spend or you are going to underspend CapEx?

Ron Tucker

It will be in a lower 37. It will be more loaded in the fourth quarter.

Allen Mitrani - Sylvan Lake Asset Management

So you are going to spend something like $13 million or $14 million in the fourth quarter?

Ron Tucker

That's correct.

Allen Mitrani - Sylvan Lake Asset Management

Where's the extra money going and why was it all backend loaded?

John McFarland

Part of it due to the nature of the projects and again some of that we'll see -- we've talked about investing in the [rives] business and a piece of that will go to Dodge.

Allen Mitrani - Sylvan Lake Asset Management

Okay. And then two questions if I can. If you could talk about Dodge, with the new sales force obviously there will be some dislocations. Hopefully you can get through those quickly, but can you just talk about what kind of jumpstart you think you can get from a sales perspective, given that it's the highest margin business that you have? Just talk little bit and give us some examples that are under penetration of Dodge and what the opportunity is and how quickly can you realize that?

John McFarland

Well I think there was a lot of opportunity if you go back to prior to the acquisition and up until the 1st of October, we had roughly 125 people representing Dodge and Reliance motors and when you talk to those people and ask them how much time do you spent on motors versus Dodge most of them told me about 65% on motors and 35% on Dodge. So going forward we'll have around 90, I think 95 sales people in the field calling on customers that will spend a 100% of their time on Dodge and we believe that will allow --- again it gives us -- more people give us a lot more time to work with our distributors and help them. Going out to get business for our products and so I don't think it's going to have I don't think when we were report our fourth quarter numbers its going to jump out at you, but it is going to be a steady building of effectiveness in the sales organization and I believe next year you will be able to see it.

Allen Mitrani - Sylvan Lake Asset Management

Okay. Do you have sense Ron about where CapEx and D&A are going to be this coming year?

Ron Tucker

I think we are just saying our long-term capital we have $40 million next year investment and depreciation will be similar to this year.

Allen Mitrani - Sylvan Lake Asset Management

Okay. And your similar meaning that $19 million run rate per quarter?

Ron Tucker

Yeah, our run rate of 19 that's right.

Allen Mitrani - Sylvan Lake Asset Management

Okay. Just because it goes roughly because in the first quarter you didn’t have the full business. And then lastly just to comment on the comment on the statement here that you said you are going to earn your environmental comments. Can you tell us how it is that you are going to cut your electricity consumption by 20%, and I guess reduce the waste from your plants by certain amount? And just talk to us about the savings that you can get from that?

John McFarland

Well, we are going to do there is whole lot of things that we are going to do. In some cases we are going to relight some of the plants that have insufficient lighting. In some cases -- we've always used high efficiency motors but the motors we make today for example compared to the motors that might have been installed in our plants 20 years ago, our current motors are better. Are high in efficiency and so we are probably going to change the motors. We will be adding adjustable speed drives in some of the air conditioning applications where they don’t exist. We are putting in motion detectors to turn lights off when people are in the rooms or in warehouses, in the aisles. There is a the whole variety of things that we are going to do, to work on I'd like because some of this will require some capital but the paybacks generally are pretty good right now for those kind of thing. With respect to landfill waste you start by taking an inventory of what your landfill waste is, we are going to be working on that. We've got somebody dedicated to work on all of these things. Water, we currently have some opportunities to recycle water that we were not recycling water or so we are going to probably looking at making some investments for recycling of water in certain areas. So there is a whole variety of things that, to work on and when we put our goals out internally we ask for everybody's ideas and we've gotten literary 100s of ideas back from people on where we are being wasteful and where we might be able to conserve, we are working through those issues now. I think we can do this, we at Baldor priority acquisition a few years ago, we made a lot of progress reducing our electricity consumption, and we believe we’ve reduced our electricity consumptions by more than a million kilowatt hours per year. And so, but so, there is a -- now we've got twice as many plants. So we've got a lot of places to look for savings and the savings are several million dollars once we've accomplished our goal.

Allen Mitrani - Sylvan Lake Asset Management

Thank you.

Operator

And our final question will come from Yilma Abebe with JP Morgan.

Yilma Abebe - JP Morgan

Thank you, one question for me, I apologies, if you addressed it already, can you comment on the demand for power transmission products and in the September quarter versus the June quarter. Also if you can comment in terms of what you are seeing in the demand side first couple weeks, I love this quarter. Thanks.

John McFarland

Well, the first couple of weeks of this quarter have been good, I mean, a similar run rate to the overall quarter, third quarter. The September, really the third quarter was pretty similar to the second quarter when you consider that we’ve sold our business in June, and once you take those sales out, the run rate was pretty similar in our third quarter to the second quarter when you consider that we sold a business right in June and when once you take those sales out, the run rate was pretty similar in the third quarter to the second quarter. The best month of the six months has been September from an incoming order rate and a shipping rate.

Yilma Abebe - JP Morgan

Thank you

Operator

At this time, there appears to be no further questions in the queue.

John McFarland

Okay well, thank you very much for being on our call this morning, we feel very good about where we are with respect to the integration after only eight months of owning the Reliance business. We are looking forward to a solid fourth quarter and we are quite excited about really all the opportunities that we see, putting these companies together, So then again, thank you for being on our call this morning.

Operator

That does conclude our teleconference for today. We like to thank everyone for your participation and have a wonderful day.

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