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 InvestmentManagement
Michael Christodolou - Inwood Capital
Satish Athavale - KSA CapitalPartners
Tom Lamb - Weybosset Research
Tom Leach - Friedmans Wealth Capital
Allen Mitrani - Sylvan Lake AssetManagement
Yilma Abebe - JP Morgan
Baldor Electric Co (BEZ) Q3 2007 Earnings Call October 26, 2007 11:00 AM ET
Operator
Good morning, ladies and gentlemen and welcome to BaldorElectric Company's Third Quarter 2007 Earnings Call. At this time allparticipants are in a listen-only mode. Later, we will conduct aquestion-and-answer session. Please note that this conference is beingrecorded.
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 goahead.
Tracy Long
Thank you, Christiana. Good morning, everybody and thanksfor joining us today. On the call today we have John McFarland our Chairman andCEO and Ron Tucker, our President and COO. So, before we begin I'd like toremind everyone that some of the statements we make today may beforward-looking statements and those statements are not guarantees, and actualresults could be materially different. So with that I'll turn the call over toJohn McFarland.
John McFarland
Thank you, Tracy.Good morning, everyone. Thank you for joining us this morning. We are pleasedto report another solid quarter of sales and earnings at Baldor. Sales for thequarter were up 5% year-over-year, but were uneven during the quarter withAugust being flat while July and September were good. The strongest month ofthe quarter was September, which had a double-digit sales increase. Growthmargins were 30% and operating margins remained at 14%, even though sales were11 million less than the second quarter. This indicates that some of our costreductions are starting to show up in the results.
Our OEM business continues to be strong, up 8%, distributorbusiness was good in July and September, but up only 2% for the quarter. Wewere able to reduce our debt during the quarter by $33 million bringing ouryear-to-date total debt reduction to 158 million on place to reach our goal of175 million for the year. Achieving our goal will save us $12 million ininterest next year.
We were able to reduce some plant lead times during thequarter and will further reduce lead times this quarter. This helps ourcustomers get more orders by having shorter lead times to their customers andhelps us keep less inventory by being able to replace inventory that’s beensold more quickly. It also accords frees up cash for debt reduction.
Our international business in the quarter was solid, but uponly 1%. Now this part of our business has turned up recently with recentbillings and bookings increasing a strong double-digit rate. We see the samething happening with some of our OEMs -- domestic OEM customers.
Going into the fourth quarter, we have completed our salesintegration by establishing a Dodge sales force and a motor drives andgenerator sales force. This strategy gives us more sales people to serve ourcustomers and more focus on sales growth. While we expect our total sales to belower in the quarter, in the fourth quarter than the third quarter, which isthe norm, we expect the year-over-year sales growth to be higher. Our motorproduct integration is ongoing and a new price sheet will be published in thefirst quarter of next year, sometime mid first quarter, which will reflect someproduct integration and product changes, as well as some needed pricingchanges. At the beginning of October we had a fall price increase on the Dodgeproducts.
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 integratingour two sales groups or actually separating the two sales groups into a Dodgesales group and in a motor sales group will really the help the customerservice we provide and give us a more aggressive sales effort.
So with that we'll be going to take your questions.
Question-and-AnswerSession
Operator
(Operator Instructions) And our first question will comefrom [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 thefourth quarter?
John McFarland
Well, for the first three weeks of the fourth quarter, theorders have continued at a good pace similar to the third quarter, overallthird quarter. Not quite as strong as September. The September were verystrong, but orders continue to be up year-over-year and apace similar to thethird quarter.
Matthew Dellacroix - BNP Paribas
Great, thank you. And could you please give us an update onyour main end markets, what are the changes compared to the first half of theyear?
John McFarland
Okay. Well, the markets that -- let me give it to you in twosegments. First, I'll talk about the markets that we serve, where we are seeinggrowth above the year-to-date average and that would be large air conditioningand heating equipment, mining machinery, conveyors, farm machinery, air and gascompressors. All are showing growth -- showed growth in the third quarter thatwas above our year-to-date average.
Other industries that are growing, but not growing in asquickly as they were earlier in the year would be oil field machinery, foodprocessing machinery and some types of [chains]. The only major decline, thatwe are seeing are -- its not even a major decline, the only real decline inindustry that we see is the machine tool business.
Matthew Dellacroix - BNP Paribas
All right. Thank you very much. And my last question will beabout the drive business I know you made some changes with management and withnew products. What's your view on the business going forward?
John McFarland
Well our view, we were disappointed with the drive businessin the third quarter. We have made some changes in the products. We've added alot of new products and during the quarter, we put a lot of effort to get oursales people trained and we were disappointed that we didn't start, that thosedidn't start selling faster than what they have, but its looks like in Octoberwe are beginning to see some the sales expectations we have for drive and wethink going forward its not going to look as bad as it did in the quarter. Wewere really done a complete the evaluation now on the drives business to seewhat we need to do to really get in on board and get it growing with at a ratesimilar 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 haveany thoughts as to why are we so much weaker at distributors, where just somesort of inventory correction or something else happening?
John McFarland
I think that -- I don't really know why it was weak withdistributors. My guess is that during the month of August there was an awfullot of talk about subprime loans and people going bankrupt and all the issuesthat surrounded that, and distributor’s order for inventory, and so they canstop their purchases from one day to the next unlike OEMs.
And so, I think, that during August distributors gotcautious, quit buying, they seem to return in September and they are here inOctober. I think, also, the OEM business, the OEM business was pretty strong at8% increase during the quarter, and I think that's partly being driven by theinternational businesses, some of our domestic OEMs are having.
We've begun tracking, well we are selling in a way of 50hertz motors, all of which are going outside the United States and it lookslike that business is -- has really been picking up. So, that's probably partof 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 themonth of August.
Jason Feldman - UBS
Okay. And then on cash flow, obviously, you've said in therelease and part of it has to do with the with timing of interest payments, isthere any other significant reason why it was so much of a drop-off, was therea major working capital swing?
John McFarland
No. No, it was really -- it was almost currency related tothe timing of the interest payments.
Jason Feldman - UBS
Okay. And then last question is on the sales forcerealignment, were there any kind of material one-time costs associated withthat, that we shouldn't expect going forward? And also there is change in thestructure -- change either the structure of how you're paying them to firm upbecause you've some sales people who're employees, now they are showing asindependent reps, is kind of that mix change?
John McFarland
There were no real material costs associated with that, Imean the reminder cost, but nothing that what I would -- turn material. It doeschange our -- it puts about 60% of our total sales will now be wearable. Inother words 60% of our total sales will be through people who work strictly ona 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 wereconducted that way, and none of the Reliance sales were conducted that way. Sooverall, 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 withRobert W. Baird.
Mike Schneider - RobertW. 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 versusQ3. I am just curious how you reconcile that statement with the fact -- withyour prior statement that the orders have continued at a pace similar to thetotal third quarter and now they are strong in September, I am wondering ifthere is something I am missing in that reconciliation?
John McFarland
No, there is nothing missing, I mean, we only had a coupleof weeks into the fourth quarter, and we believe, based on our productionschedules and based on our backlogs and so forth that our sales will increasean 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 Octoberwould 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, ourOctober ends at the end of the week and we are having a good week, and I thinkOctober is going to be a good month. And but yes, what we believe will happenis that our third quarter sales growth was about 5% overall, we expect toexceed that in the fourth quarter.
Mike Schneider -Robert W. Baird
Okay. And then how much visibility do you have into thedistributor inventories and given the adjustment that this seems to haveoccurred in August, do you think they are at appropriate levels now?
John McFarland
We have a limited visibility to their inventories and webelieve that their inventories at the least, again it's a limited visibilityfrom what we've seen. The inventories were down a little bit, so we wouldexpect, but we've been told that there is probably going to be some rebuildingof inventories in the fourth quarter.
Mike Schneider -Robert W. Baird
Okay. And I apologize if I missed this. If you look at thedistribution business and drilldown into this skew level. Is there anything youcan discern from the size of the motors, as to what markets are stronger ormaybe which are weakest?
John McFarland
Not really. I would say that our business is strongest inlarge motors. But I would say that today our business is more consistent fromsmall 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 yourdisappointment. The sales efforts you've made, is it possible that they aresucceeding and this was just an indication of the economy I guess. Give us yourexperiences as to what drives, tell us about order trends and business momentumor is this indeed just a sales force issue?
John McFarland
Our drives are not like motors, in that in order to reallysell drives you have to do a lot of training, customers have to learn thesoftware of our drives, before they really can start to sell them. And ofcourse we also have to replace somebody in our customers' inventories. And lotof that work is being done and I think the fourth quarter drives business will webetter than the third quarter.
I am not sure that we have areally good handle on where we need to, what we need to do to get the drivesbusiness onto a growth track, similar to motors and similar or even similar to powertransmission products. We are evaluating that now and we spent last week in workingon 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 businessrolled 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 salesrecently, when I say recently, starting in September, have really shown a strongimprovement, but there is a lot of things going on with the internationalbusiness. We've have been combining the Dodge Reliance InternationalOrganization and the Baldor Organization. We pretty much got that all done. We'vebeen repositioning some of the inventories that have been in Europe.We've been moving those to, some of those to Asiaand to various places where Baldor had warehouses, Dodge, Reliance did not.
And we are going to put a lot more focus on the Dodgeproduct line internationally. The Dodge products are all metric, they are all,they really, they require many changes to be acceptable in the internationalmarketplace. Whereas in the motor business if you are going to sell motorsinternationally they are built to a different standard and they are a differentfrequency. So the Dodge business, we believe is an area that we can grow ourinternational business quite rapidly and we are extending those products --extending inventories of those products into the places where we're strongeston the Baldor side of the business.
Mike Schneider -Robert W. Baird
And how do you add distributors internationally? Is it amanner of just going out and ramp in the sales force to contact distributors oris 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 transmissionbusiness just not buying our products. So we have to go in there and convincesome of that they should be buying the Dodge products rather than, whateverthey are buying. In other areas like the Middle East, we really don't work asmuch through distributors; we worked direct a lot with the users, same as trueto some extent in Latin America and in Asia but -- it’s just really a matter ofgoing in and identifying who is in the marketplace selling the product, andgoing 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 youpotentially 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 ofgeographic distribution, is it pretty much where you wanted to be?
John McFarland
Well, we really think that the international business, it'saround $300 million now, and we really think that it can grow a lot faster thanour domestic business. We have little market share, if any, little measurablemarket share outside the United States. We are having very good success in Latin America where our sales organizations are combinedalready 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 asfast as we would like, and we are not -- I would say, not a hundred percentagealong with the integration in Europe as it is a little more difficult to do itquickly there, but no, there is a lot of places where we don't sell our productsthat we would ultimately like to. Our focus still, will be on a few selectplaces where there are big opportunities, and we are not going to try to focuson the entire world, a hundred different countries. We are going to reallyfocus on the areas where the biggest opportunities are.
Steve Sanders - Stephens,Inc
Okay. And then I think, you were pretty clear that the focuson the near term there is going to be on the dark side, as we think about themotors, sort of late 2008, 2009, is that when we would start to see someadditional 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 motorsfor a long time, and we are not going to remove any of that focus, but we aregoing to add the Dodge products. So sales people in the past, who have had onlymotors to sell now have all the Dodge products. I think that the area where wecan achieve the fastest growth, the quickest is with Dodge.
Steve Sanders - Stephens,Inc
Okay. And then I think you referenced a price increase onthe motor side in early'08. Is that correct?
John McFarland
Well, in early '08, we are going to be putting out a newcatalogue, and that catalogue will combine the Reliance and the Baldor productlines into a single product line. And at that time, we are going to be makingsome price changes in order to get the prices in line with each other, and wedo expect at that time to have a price increase, but at this point, we have notdecided how much price increase we’ll need. We are working through that nowwith our supplier to determine what -- where material costs are expected to benext year and that sort of thing. But, we'll be making that decision probably beforethe 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 theacquisition, I think in the last quarter you guys said, you would essentiallyget to the $30 million run rate by the end of next year. You made a comment inyour prepared remarks that you were starting to see something there. How shouldwe 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 couldprovide there?
John McFarland
I would say, just look at the linear kind of fashionprobably. There probably is not any real significant steps.
Steve Sanders - Stephens,Inc
Okay. And then just, John, generally on the manufacturingside, how did you respond during quarter to some of the slowing. I know, youguys had some inefficiencies associated with some facility consolidation andyou were working some overtime. So, I assume that on the margin you took offsome 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 certainplants. There are certain plants that a year ago we're challenged, we werereally challenged to make enough motors and we've been able to expand the opswithin those plants, so that we can make the necessary motors without so muchovertime, and without so much inefficiency. That's - specifically that'd be in thelarger motor plants.
In the smaller motor plants, we still are working someSaturdays to keep up for the demand and also to build some inventories. Ourinventory there are little bit lower on the motor side. We think, we can getmore business if we had a little more inventory, particularly in small motorsand we are working to increase the inventories and catch up. But we're stillworking too much overtime in small motors. But I think that will be taken careby the end of the year. And we expect to be able to reduce our lead times bythe end of the year. Reducing our lead times is really important to us, becausethis will help our customers to get more business. I mean one of our bigcompetitive advantage with Baldor for a long, long time, has been that we'vehad shorter lead times than everybody else. And that’s especially true now thatour customers have a bigger mix of international business because thatinternational business when you add long domestic lead time to it, it reallymakes a delivery to a customer in Europe or Asiareal long. So getting those lead times down is our focus. We've made somepretty good progress during the quarter. We've changed some, we're going to bechanging 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 ourbusiness 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 BearStearns.
Scott Graham - BearStearns
Good morning, John. Good morning, Ron.
John McFarland
Good morning, Scott.
Scott Graham - BearStearns
I've have couple of questions for you. Anyway of quantifyingthe impact of the temporary plant shut down during the quarter?
John McFarland
You mean the start of vacation at the Baldor - close theBaldor plants.
Scott Graham - BearStearns
Yeah. But didn't you also do to some streamlining in onefacility that you did a temporary closure as well or no?
John McFarland
No, we have -- in the first week of July, we have a vacationin all of the Baldor plants every year. Where we pay everybody and they don'tproduce -- they are not here to produce anything. So that has a financialimpact, has every third quarter for many, many years. We did have a little bitof added expense from the closing of the Madison plant, it was not closedcompletely until the end of July and we still aren't completely out of it, Ithink we are conducting a auction to get rid the last of the machinery thisweek. And so there is still a few cost related to that, but I am not sureexactly what the cost is related to the closing due.
Scott Graham - BearStearns
You are talking probably in the range of a couple of milliondollars anyway?
Ron Tucker
Yeah, but that's year-over-year that’s the same. So that'snot an issue.
John McFarland
Exactly year-over-year that’s not a change.
Scott Graham - BearStearns
Also quantify the product line, are these associated withthe Bradley drive lines, I think it was? What were those revenues last year?
John McFarland
Only on Bradley?
Scott Graham - BearStearns
Didn’t you, you abandoned or divested the small drivesproduct lines, if I'm not mistaken?
Ron Tucker
No, we haven't abandoned the small facility. The Reliancedrives products were made by Allen-Bradley, and they had small drives, and theyhave some very special drives, and they held the very special drives, held onto that and didn't sell it to us. They showed us only the standard drives andwe'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 haveessentially, excuse me, made all of our drivers on a go-forward basis, we aregoing to make some sizes and some sizes we’re going to buy. And so, because ofthat change it has required us to re-train all of our sales force, and so theyknow how to re-train customers and how to use their drives, and that’s part ofthe problem, but I'm making an excuse just on the drive business. We are justnot performing there like we should, and we are going to take steps to get thatinto a better performing position.
Scott Graham - BearStearns
Got you. Andmy last question is related to your production schedules for the fourthquarter, which in recent conversation between us, do you -- you arelooking forward to a pretty aggressive fourth quarter production schedule, hasanything changed?
John McFarland
No it hasn’t. Actually we -- ourproduction schedules are set right now through Thanksgiving and there aresimilar -- they would look similar to the third quarter production schedules.We are going to be working some Saturdays in our two largest plants, but infact, we are going to be working this, let’s say, we are not working thisSaturday or working the following Saturday November 3rd in our two largestplants, and we're probably going to work some Saturdays in December. So, no, wehaven't backed off of our production schedules in any way.
Scott Graham - BearStearns
All right. Thank you.
Operator
And our next question will comefrom 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 mentionedin your comments that you need to displace some competition in the drivesbusiness, can you just refresh my memory what the competition is like and howhard or easy that will be?
John McFarland
Well, when we say displace sometop 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 drivesbusiness. We are working right now to get them trained; we had a group in thisweek, in fact, here in Fort Smithfor training. We are working to get them trained in the new products that wehave, and it's a matter of going out of length in the business and a lot of thebusiness is at customers where we do a lot of motor business or a lot of Dodgebusiness. So we are not customers that we have to go and learn, and becomeacquainted with their customers. They are customers that where we are alreadyimportant suppliers, and I think we will be able to show you progress on thatin the next couple of months.
John Franzreb -Sidoti & Company
Is there a quality perception out there or is the marketjust 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 certainlybeen 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 especiallywith -- 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 toimprove 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 thatmostly based on the strength that you're seeing in the large motor market or isit more based on the -- what you referenced before as the kind of therestocking that might take place in the smaller motor market. On which side thescale is kind of way weight towards?
John McFarland
Well, the fastest growth right now that we are having in themotor market is in larger motors, medium and larger motors and in highefficiency motors of all sizes. And, but I would say that the small motormarket, now we define it up to 50 in horsepower is good as well. I mean overallthe motor business is solid from small motors to large motors but its best inmedium and large motors and high efficiency motors.
John Franzreb -Sidoti & Company
And can you just remind me, do you have similar shut down inDecember that you had in July?
John McFarland
We have a -- I don't like the word shut down because thatsounds 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 andNew Years. And that really depends on how busy we are and what's the status ofour orders and that sort of thing, what are our customers need. And at thispoint, 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 beeninefficient to operate for just a couple of days. But if we need the motors forthe customers, we'll work. We'll make that decision around the first ofDecember.
John Franzreb -Sidoti & Company
Okay great. Thanks a lot John.
Operator
And our next question will come from Lionel Jolivot withBanc of America.
Lionel Jolivot - Bancof America
Thank you. Can you just tell me if you've seen any changesin the competitive environment recently and I'm particularly interested to seewhat happened recent in August when a lot of the distributors all kind ofslowed down, did you see then - but if you -- was everybody behaving rationallyin terms of pricing in the market or are you see starting several of yourcompetitors are basically coming down a little bit on pricing to maintain orgain back some of their volumes?
John McFarland
Well, I don't know -- if I were to answer yes to thequestion, is everybody acting rationally in the market? But I didn't, we didn’tsee anything unusual in August with respect to competition, and we haven't seenany, I don't think we've seen any, at least I am not aware of any irrationalprice competition but I would say our competitive landscape is about like ithas been. I believe, going forward though, we are in a much better positionfrom a competitive point of view and that we've have got a much stronger salesforce focused on motors, a larger number of people, are calling on our existingcustomers and going after our competitor's customers.
Lionel Jolivot - Bancof America
Okay and in the past you've said that you were committed topaying on debt and I mean, you've paid on quite a bit of debt this year andyour leverage is probably going to be a little bit soft at times at the end of this year. But are you startingto feel for the year, bit more comfortable with acquisition at this point orare you still focused on your balance sheet in just getting the most of theintegration with the two businesses you’ve acquired?
John McFarland
We are really focused on operating our business and puttingthe best together as the way we described at Baldor, Dodge and Relianceintegrating the companies, and that's not to say that it’s some greatacquisition came along. We certainly look at it, but right now our focus is onthe task at hand, which is putting these businesses together realizing the costsavings that are out there, and realizing the opportunities to get morebusiness as a result of the added strengths in product line and sales force thatwe have.
Lionel Jolivot - Bancof America
Okay. Great. Thank you very much.
Operator
And our next question will come from Thomson Sarah with LehmanBrothers.
Dory Cunningham -Lehman Brothers
Hi. Good morning. This is [Dory Cunningham] for Thomson. Justa couple of quick questions and I know you’ve touched upon on some of them. Buton the working capital front, can you provide a little more color about what'sgoing on there, it looks you guys were end users of cash this quarter. And alsokind of looking into the fourth quarter of next quarter, what should we beexpecting?
John McFarland
There was a little bit of use of cash and the workingcapital was at prior level primary with receivables and that's -- I think itwas 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 workingcapital to be pretty much of a bullish nature. I think, while we are going totry to build some inventory, we do have several days of holidays at the end ofthe quarter, so that will draw that inventory back down. So I know, we don’tanticipate a large increase in inventory.
Dory Cunningham -Lehman Brothers
Okay. Great. And then, I know youtalked a little bit, but this is well, but I was hoping if you can provide someadditional color specifically on the business environment. What should take ona business outlook, are you seeing any weakness among any of your customers orsuppliers, and just trying to kind of gauge and get a general sense of whatyour perspective is?
John McFarland
We're positive on it, I mean -- ifyou look back over the last four quarters, business has slowed down a littlebit from where it was a year ago, but we're positive on the fourth quarter andthen as far out as we see right now, we see continued sales growth, and so Iwould say, generally, I mean we're very positive on business at present.
Dory Cunningham -Lehman Brothers
Are you hearing anything from anyof your suppliers or your customers that would be just otherwise?
John McFarland
I've spent more time with ourcustomers than I have with our suppliers, but our customers are quiteoptimistic about business right now. So no, I'm not hearing anything fromeither of those groups that would say that -- we are headed for a big slowdownin business.
Dory Cunningham -Lehman Brothers
Okay, great. Thank you very much.
John McFarland
You're welcome.
Operator
And our next question will comefrom [McElroy & Woods, Alex Epstein]
Tim Woods - McElroy & Woods
This is actually [Tim Woods fromMcElroy & Woods]. Hi, John, you’ve touched on a number of questionsregarding the integration that’s being going, and well going on and keeping upsome progress and on target, but making integrations of these size are nevereasy, can you maybe just talk about some of the issues you've had with theintegration, and I think you mentioned Europe in particular to Steve in aquestion there?
John McFarland
Well, I would certainly agree with you that integrationslike these are not easy, but I think we're moving along through the integrationat a pace and a little bit in excess of what we expected. We are getting alongwith the people; we’ve got a good strategy that's laid out. We've gotmanagement team that has got into this strategy and working everyday tointegrate it. We've not seen, we've not had any big major hurdles that slowedus down or anything that we really -- and we haven't seen anything that wedidn't expect. And I don't want to make it sound like its really easy but weare not have any big major problems. I mean we -- I would say that the biggestissues that I personally have is the frustration with the time it takes to getsome of the things done. But once as we get our computer systems integrated, Ithink we can move quickly to realize a lot of things that we see hasopportunities out there that are hard to get to right now without theintegrated computer system.
Tim Woods - McElroy & Woods
And do you feel that the transition period, has thatresulted in anyway in a loss of business because of any transition to newcomputer systems?
John McFarland
I don't think we've lost any business I mean I have spent aawful lot of my time working on sales and involved in sales at my backgroundand I'm not aware of any appreciable amount of business that we've lost as aresult of this acquisitions and I have talked to the major customers that wehave at least once since the acquisition, many other more than that and I'venot getting a sense that we are losing any business as a result of theacquisition. In fact I think the opposite is true, we got the opportunity topickup a lot of business and now that we are little better organized in salesand from this point moving forward.
Tim Woods - McElroy & Woods
Sure and then do you think, you had mentioned out to yourspecially it's really in sales but do you think integration is taken up moretime of yours than thought it was going to?
John McFarland
I don't know if I am a specialistin sales. I'd like to be considered a specialist in sales. I'd I think that'd besomething to be proud of. Now, only integration has been a lot of fun, its beenreal energizing for all of us. It's something that we put a lot of energy towork on and I will say the whole management group and lot of other people atBaldor, Dodge, and Reliance are working hard to make to really realize theopportunities that we have as a single company, versus two companies competingwith each other. And there are -- I think we all jump out, we are excited aboutthe opportunities every morning and we do whatever it takes to get the jobdone. I think the most rewarding part of it has been for me at least has been tobind the people from the Reliance Dodge I think they really embraced the ideasand that's been a real positive.
Tim Woods - McElroy & Woods
Great result. Well, thank youvery much for that.
Operator
And our next question will comefrom ING Investment Management, Ted Haag.
Ted Haag - ING Investment Management
Hi, It Ted Haag of ING. Just acouple of quick questions. Could you break out on a same-store sales basis kindof what's has been going on sales wide between Reliance and Baldor so I'll geta little bit of better understanding with regards to organic growth?
John McFarland
No our growth overall was about5% during the quarter, it was broken out by product is as we showed in thepress release. We don’t break it out between Reliance and Baldor, and thereason we don't is that when we signed the papers we became a single companyand we want everybody in the company to feel like they work for Baldor ElectricCompany and that they are not on one side or the other, that we are a singlecompany 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 usagegoing 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 areanticipating and paying some additional debt down this quarter. And in fact we'vealready 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 ofSeptember?
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 exactlyis, so it’s not much.
Ted Haag - ING Investment Management
Okay. And last question, I may have missed it, backlog iswhere in Q3 for you guys?
John McFarland
We also don't publish any backlog information, but ourbacklog 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 Christodolouwith Inwood Capital.
Michael Christodolou- Inwood Capital
Good morning, John just to clarify, you’ve talked about aprice increase in your prepared statements, but that was -- you haven't takenanything yet right, you were just referring there to the prospective priceincrease on the Dodge product?
John McFarland
We had a price increase on the 1st of October onthe Dodge products, and we will, most likely, have a price increase on themotor 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 takethat other one in your thought as you would do in conjunction with combiningthe products and the catalog?
John McFarland
Yes, we will be issuing a new catalog, we publish a catalogof the items that we start, that we carrion inventory and stock at Baldor, andthere was a similar catalog published by Reliance, and we are combining thosetwo things and we are rationalizing some of the products determining whether ornot we want to carry both the products that was Reliance product and the Baldorproduct. All of that's have been worked on now, and the pricing would berationalized at the same time. And we hope to issue that price sheet some timein February. And with that we, since we are issuing a new pricing, we willprobably have a price increase. The one, we've been concerned about the priceof copper which has been, has remained above $2.50 now for quite a while, andso well that's not an immediate issue for us, it is in the longer term, so wewill 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 Relianceproduct and an old Baldor product, is it safe to say that you are not going toclose that gap by lowering one price down to another?
John McFarland
We are going to look at each situation, I mean, there ismore than a thousand motors that we’ll look at, and so each individualsituation is going to be slightly different, but no, we would not expect tocome out or hide rather than a hit.
Michael Christodolou- Inwood Capital
But, with reference with just closing that gap, I mean, justbroadly speaking, for preponderance of these thousand products or so, is itsafe to assume that there was a pricing gap, and that was either olderReliance, was maybe a tad less efficient in pushing their suppliers, or justbecause they had a lower positioning in the market with their old standalonesales force?
John McFarland
Overall we were competing with each other and overall ourpricing was pretty similar, so this won't result in any big changes in anegative 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 thecustomers to understand than it will be, it would give us a chance to producesome ratings in our volume. They are about probably realizing some savings inmanufacturing and this make things easier for the customers to understand.
Michael Christodolou- Inwood Capital
Understood. And the price increase that you determinedinternally you are saying in December. Does the customer and distributors firstgoing to hear about this in February or how might, just your commenting thatyou're going to have a price increase kind of manifest self into customer anddealer behavior. Could you see some purchases in December that pullout of thefirst quarter or would you expect to see a number of purchasers in the firstquarter pullout of the second quarter. How could that play out?
John McFarland
But, we will most likely announce the amount of the priceincrease 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 issome pre-buying, it won't be in this year. That would be in the last couple ofweeks before the effectiveness of the price increase. And its usually is notmore than just a few million dollars, so it usually that and it'll all becontained within the quarter.
Michael Christodolou- Inwood Capital
So the channel -- the fourth quarter channel restockingphenomena 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 theyneed to restock because their business is -- they need the product and stock totake care of their current business conditions.
Michael Christodolou- Inwood Capital
Few more question, if I may? With respect to the dealers, Iknow you had indicated a year ago at the time of announcing the acquisitionthat there was a lot of commonality among dealers, some commonality, but not alot. And, how has that played out. I know that the comment was, you should keepa majority of them, but that you'll will loose some. How has that played outand could the loss of any particular dealers over the last several months maybebe contributing to the weakness that you've seen in dealers, just on the marginhere in the last quarter?
John McFarland
I'm really not familiar with any distributors that we'velost. I think that we have probably lost a few orders over the last six monthsbecause our inventories have been -- pretty largely been working hard torebuilt those inventories, so with that doesn't occur going forward. But Idon’t believe we've lost any distributors. I'm not aware of any, and I'll staypretty 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 Dodgesales force and motor sales force. The strategy we tested it with our customersand they agreed it was a good strategy. We've executed exactly as we told themback at the beginning of the acquisition, and so I think we've done a good joband 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 respectto the synergies, you said and the $30 million savings goal and the timeframefor 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 millionbecause, I know that about six months ago in New York, you were only threemonths into it, and you made the comment that in purchasing for example, youwere hoping to get $2 million in a particular area, but it was really $3million and in payroll that was a $1.5 million so -- you were $4.5 million intothe $30 million after just three months, and I didn't know if there were anyother kind of quantifications or just descriptions you could offer us in termsof your confidence factor or to help us frankly get ahead of your $130 millionand think that it could be 40 some day?
John McFarland
We haven’t quantified it further than that, but I think thefact that we've moved the 30 million run rate up from the third or second yearshould be an indication.
Michael Christodolou- Inwood Capital
Okay. And in terms of just those opportunities, John you'dindicated that there were three or four, again this was six months ago, therewere three or four other opportunities in the synergy area that could be $2million to $4 million in charge, and that there were hundreds of other smallersavings of 50,000 to a few 100,000, is that still kind of the opportunitiesthat you are working with?
John McFarland
We've identified a number of opportunities for savings, somesmall, some large. We are working on all of them and trying to achieve them asquickly as we can. As Rob said, we do believe that our initial thoughts will beachieved by the end of the second year, and that's really all we are going tosay about the cost savings.
But, you know, we are not just working on the cost savingseither. 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 aregoing to get while we thought we would get. And, in fact, we are probably goingto get more than we thought we were going to get. But equally important isincreasing our sales, and I don't want to underestimate the power of the salesstructure that we've created, and where we are headed with that. That also willhelp us to get a lot of additional business, and so those two things workingtogether, I think, it’s really to make us a strong and successful powerfulcompany two, three years out.
Michael Christodolou- Inwood Capital
Understood. Well, thank your for the time andcongratulations on all the progress on the last year?
John McFarland
Thank you.
Operator
And our next question will come from Satish Athavale with KSACapital Partners.
Satish Athavale - KSA Capital Partners
Good morning.
John McFarland
Good morning, Satish.
Satish Athavale - KSA Capital Partners
How are you? Ron, a quickquestion, 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 envelopecalculations are correct, excluding the Dodge and Reliance product lines the basebusiness probably had flat-to-down margins year-over-year. Can you comment orjust clarify how your base business did?
Ron Tucker
Well, you know, we don't breakthat out, and if you go back to markets, it's really difficult at this pointwith the immigration activities if I want to make the comment about the basebusiness, I really couldn't, but if you look at the third quarter compared tosecond quarter, you had all the sales, you had less sales, you had a vacationof summer players, and we were able to maintain the operating and the growthmargins at about the same level.
Satish Athavale - KSA Capital Partners
Okay. And then maybe if I switchgears, interest expense was slightly above the expectations for the quarter. Itwasn't much above, but it was higher than what was indicated. So going intofourth quarter in next year what should we expect for the interest expense?
While we -- as we said our goalis to be $135 million in debt reduction this year, and we talked about anothercalls 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 tothe 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 fromWeybosset Research, Tom Lamb.
Tom Lamb - Weybosset Research
Yes. I’ll just ask the question in one moment. Hi, I wantedto ask about your efforts in foreign countries. South America, you mentionedwas looking pretty good, and that some of the things that distinguish Baldorhere in North America, fast delivery, good service, good turnaround time andtime back and I think, can you do that in Latin America or China and do youhave 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 internationallythat we have domestically, nor to our international competitors have thecompetitive advantages domestically here that they would have in their countryof 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 wedo intend to have local inventories and we do expect we -- our strategy is tospecialize on a certain part of our product line in each country that we go into. To have local inventories is to have good access to information throughtrained people in our sales offices and through our electronic information. Andhave quick deliveries on a certain part of our product line.
In China, where we think there are some big opportunities forus in the long-term, we are currently building a manufacturing plant that willallow to make motors there sometime, probably in the last half of next year andonce we are doing some manufacturing in China, I think we can develop in thatmarket a lot of the same advantages we have here with short lead time at themotors and some of the things that are competitive advantages for usdomestically. Now that's an excellent question.
Tom Lamb - WeybossetResearch
How expensive is it to kick in a country A and decide thatyou are going to offer product X to them and keep the inventories on hand. Imean, is this going to require a lot of upfront expense to stock theinventories, 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 ofupfront expense, it does require some inventories, but we've got most of theinventories anyway in the U.S.,so it really requires a lot of other things that we go into a market to sellare things that we are selling in the U.S. already. And so we alreadyhave 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 - WeybossetResearch
And if a customer in a foreign country wants a particulartype of motor, I know you customize things very quickly. Are you going to havethat ability abroad?
John McFarland
Well, today, we are do it in our U.S. plants and we ship tothe customer and this is one of the reasons that's so important that wecontinue to bring down our lead times, our lead times over the last couple ofyears, because of demand have lengthened a little bit and we're really focusedon 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. Andonce we get our lead time for custom products at two weeks, then adding a fourweek shipping time to a two week production time , makes this prettycompetitive to just about anybody else in the motor business on a global basis.
Tom Lamb - WeybossetResearch
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 withFriedmans Wealth Capital]. Mr Leech your line is open.
Tom Leach - FriedmansWealth Capital
Yes hello. Thank you very much for taking my call. I firstgot a quick question on accounting, do you account for revenue to distributionon sell-in or sellout?
John McFarland
I read the news in Canada's when we shipped a motor toa distributor. The distributors are not part of our company. They areindependent businesses. And so, we’ve recognized revenue when we shipped, whenthey ordered the motor and we shipped it to them, we recognized the revenue atthat time.
Tom Leach - FriedmansWealth Capital
Okay. Good. Second, question was on 50 hertz motors youmentioned earlier, the growth rate there was much more robust than the standardbusiness. What type of growth are you seeing in the 50 hertz motor, and anyother color you can give on it?
John McFarland
It's about double what our standard motor business is, andit's been building particularly in the last couple of months.
Tom Leach - FriedmansWealth Capital
So typically, the 50 hertz have grown about 10%, is thatwhat you are saying?
John McFarland
Yeah, little over double what the -- a little over doublewhat the motor business overall is growing.
Tom Leach - FriedmansWealth Capital
And what percentage of your motor business is 50 hertz?
John McFarland
Well, our overall international business is about 15%. Andif you look at industrial products in the United States, it's generally about15% of most industrial companies sales are exported. So, I really haven'tfigured 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’tfigure it out, but I think our overall business, of all of the motors that weproduced, I think about 15% of them are exported.
Tom Leach - FriedmansWealth Capital
And the last question, you also mentioned that the Large ACbusiness was good for you too. You said, you had a high robust category orhigher end of growth or whatever? Can you explain what's going on there? Everthought that would have been, is more fear a little bit?
John McFarland
We really haven't seen any big easy than the large motorbusiness. A lot of the large motors that we make go into the oil and gasindustry. 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 Albertaup in Canada.Our large motor business has been solid; continues to be and doesn’t look likeanything is going to change that near-term.
Tom Leach - FriedmansWealth Capital
Super. Thank you very much.
John McFarland
Thank you, Tom.
Tom Leach - FriedmansWealth Capital
Bye, bye.
John McFarland
Bye, bye, Tom.
Operator
Our next question will come from Sylvan Lake AssetManagement, 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 pressrelease when you talked about – in a chart, because you don’t give us pro formanumbers, but you're saying that the fourth quarter will be, obviously, on adollar base lower as it always is, but I wanted to understand when you said theweight of sales growth in the fourth quarter will be slightly higher than theweight of sales growth in the third. You're talking year-over-year salesgrowth, of course, right?
John McFarland
That’s right, Allen. In the third quarter our year-over-yearsales growth was about 5%, kind of believe that in the fourth quarter it'll bea little bit more than that.
Allen Mitrani -Sylvan Lake Asset Management
Right, but I don’t have the comparisons – it’s hard to getapples-to-apple given the divestitures and the things that happened, so whenyou said year-over-year sales growth, you weren't talking about the 126% or soversus Baldor's old numbers, were you?
John McFarland
No, no. We were talking about on a comparable basis, if wetake the proforma numbers you have trouble getting to. We're saying that in thethird quarter, our sales on a comparable basis grew about 5%, not by 126%, butby 5%, but in the fourth quarter we expect them to grow a little bit more fromthat on a comparable basis.
Ron Tucker
And now, if you look at the press release, I mean you canlook at the paragraph talking about this list between the product groups andcome up to about a 5% growth rate on an…
Allen Mitrani -Sylvan Lake Asset Management
Okay. Also typically Baldor sales going back, but when itwas 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 alittle faster in the fourth quarter than we did in the third and we are quiteexcited about our fourth quarter.
Allen Mitrani - SylvanLake Asset Management
Okay. And then you spent, it says you spend $23.5 million inCapEx year-to-date. That implies that third quarter CapEx was less than $5million. Can you just give us a sense of where the full year CapEx is going tobe, is this a timing issue in terms of your spend or you are going tounderspend CapEx?
Ron Tucker
It will be in a lower 37. It will be more loaded in thefourth quarter.
Allen Mitrani -Sylvan Lake Asset Management
So you are going to spend something like $13 million or $14million 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 backendloaded?
John McFarland
Part of it due to the nature of the projects and again someof that we'll see -- we've talked about investing in the [rives] business and apiece of that will go to Dodge.
Allen Mitrani -Sylvan Lake Asset Management
Okay. And then two questions if I can. If you could talkabout Dodge, with the new sales force obviously there will be somedislocations. Hopefully you can get through those quickly, but can you justtalk about what kind of jumpstart you think you can get from a salesperspective, given that it's the highest margin business that you have? Justtalk little bit and give us some examples that are under penetration of Dodgeand 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 backto prior to the acquisition and up until the 1st of October, we had roughly 125people representing Dodge and Reliance motors and when you talk to those peopleand ask them how much time do you spent on motors versus Dodge most of themtold me about 65% on motors and 35% on Dodge. So going forward we'll havearound 90, I think 95 sales people in the field calling on customers that willspend a 100% of their time on Dodge and we believe that will allow --- again itgives us -- more people give us a lot more time to work with our distributorsand help them. Going out to get business for our products and so I don't thinkit's going to have I don't think when we were report our fourth quarter numbersits going to jump out at you, but it is going to be a steady building ofeffectiveness in the sales organization and I believe next year you will beable to see it.
Allen Mitrani -Sylvan Lake Asset Management
Okay. Do you have sense Ron about where CapEx and D&Aare going to be this coming year?
Ron Tucker
I think we are just saying our long-term capital we have $40million 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 perquarter?
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 firstquarter you didn’t have the full business. And then lastly just to comment onthe comment on the statement here that you said you are going to earn yourenvironmental comments. Can you tell us how it is that you are going to cutyour electricity consumption by 20%, and I guess reduce the waste from yourplants by certain amount? And just talk to us about the savings that you canget from that?
John McFarland
Well, we are going to do there is whole lot of things thatwe are going to do. In some cases we are going to relight some of the plantsthat have insufficient lighting. In some cases -- we've always used highefficiency motors but the motors we make today for example compared to themotors that might have been installed in our plants 20 years ago, our currentmotors are better. Are high in efficiency and so we are probably going tochange the motors. We will be adding adjustable speed drives in some of the airconditioning applications where they don’t exist. We are putting in motiondetectors to turn lights off when people are in the rooms or in warehouses, inthe aisles. There is a the whole variety of things that we are going to do, towork on I'd like because some of this will require some capital but thepaybacks generally are pretty good right now for those kind of thing. Withrespect to landfill waste you start by taking an inventory of what your landfillwaste is, we are going to be working on that. We've got somebody dedicated towork on all of these things. Water, we currently have some opportunities torecycle water that we were not recycling water or so we are going to probablylooking at making some investments for recycling of water in certain areas. Sothere is a whole variety of things that, to work on and when we put our goalsout internally we ask for everybody's ideas and we've gotten literary 100s ofideas back from people on where we are being wasteful and where we might beable to conserve, we are working through those issues now. I think we can dothis, we at Baldor priority acquisition a few years ago, we made a lot ofprogress reducing our electricity consumption, and we believe we’ve reduced ourelectricity consumptions by more than a million kilowatt hours per year. Andso, but so, there is a -- now we've got twice as many plants. So we've got alot of places to look for savings and the savings are several million dollarsonce we've accomplished our goal.
Allen Mitrani - SylvanLake 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 youaddressed it already, can you comment on the demand for power transmissionproducts and in the September quarter versus the June quarter. Also if you cancomment 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 beengood, I mean, a similar run rate to the overall quarter, third quarter. TheSeptember, really the third quarter was pretty similar to the second quarterwhen you consider that we’ve sold our business in June, and once you take thosesales out, the run rate was pretty similar in our third quarter to the secondquarter when you consider that we sold a business right in June and when onceyou take those sales out, the run rate was pretty similar in the third quarterto the second quarter. The best month of the six months has been September froman incoming order rate and a shipping rate.
Yilma Abebe - JP Morgan
Thank you
Operator
At this time, there appears to be no further questions inthe queue.
John McFarland
Okay well, thank you very much for being on our call thismorning, we feel very good about where we are with respect to the integrationafter only eight months of owning the Reliance business. We are looking forwardto a solid fourth quarter and we are quite excited about really all theopportunities 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 tothank everyone for your participation and have a wonderful day.
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