2001 Annual Seminar &
Alternate Year Exhibition
The Fairmont Hotel, San
Francisco, California
State of the Industry
Address
John A. Viniello, President
April 19, 2001
Thank
you, Tom, and good morning to all of you. What a wonderful turnout. Probably
one of the largest ever at an NFSA convention.
Before I begin today’s remarks, I, too, would like to extend my personal
congratulations to Rich Sullivan and his family on a most deserving award. Rich
has been a stalwart at NFSA for long before I got there and probably had one of
the toughest jobs in the Association. But now he will have chance to enjoy the
fruits of his labor and on behalf of not only myself, but also our staff - Rich
thanks, it’s been a great run.
And
now I would also like to read to Rich a letter that we received from a
gentlemen many of you will remember.
He’s 89 years old and he lives in South Carolina and I usually speak to
him from time to time. Incidentally, the letter was written on March 17th
that ironically was St. Patrick’s Day and it’s addressed to Rich Sullivan.
Here’s what it says: “Dear Rich: On this day of your retirement I thought I
should write and tell you I have many fond memories of us working together. But one stands out. When my son Dick told me
that he worked with someone that could be helpful, that he was a sharp Irishman
and would fit in, Dick arranged this and in a month’s time you had a job for
the rest of your life with the Association.
Helping make my job easy. Thanks
for all the memories and the good job you have done. Enjoy your retirement and
God Bless you and your family. Take care, the other Irishman, Ray Casey.
I
would also like to take this opportunity to recognize certain people who have
joined with us. You will note that
during the induction into the NFSA Sprinkler Hall of Fame, the name Paul
Kauffman was mentioned. I remember Paul
when I first came into the industry and he was always a strong supporter of
NFSA activities.
I’d like to recognize his nephew, John Kauffman III . I know John is with us, John take a
bow. And also we are delighted to have
with us 4 previous winners of the Golden Sprinkler Award. I would like to recognize 3 of them, Frank
Fee III, Ray Kenz and Joe Wiginton.
Guys take a bow. Thank you.
Then
there is a very special person that has joined with us this year. In fact, he was the first Chairman that I
served with when I was elected President back in 1984. You could always count on this man for being
very generous with his time and very wise with his counsel. I know that he served for many years as a
member of the Board of Directors and the Labor Relations Negotiating Committee
and brought a great deal of thoughtful perspective into the whole negotiating
process. He has been retired now for a
number of years, and although we do see him from time to time it’s wonderful to
have him and his wife Mary Ann back with us.
Let’s have a great round of applause for Dick Boulanger. Dick take a bow.
I
would also like to recognize a young man whose Father is no longer with us. I
worked with his Dad very closely when I was with the Grinnell Company back in
the early 80’s. He was a long-time member of the NFSA and I know that this
location, the Fairmont in San Francisco was one of his favorite places. Let’s have a nice warm round of applause and
welcome for the son of Bob Gray, Chris Gray from Fire Spec. Chris, take a bow.
I
would also like to introduce a gentleman who has traveled from North of the
border to be with us, a regular at the NFSA conventions, the President of the
Canadian Automatic Fire Sprinkler Association, Mr. John Galt. John, take a bow.
And
now we would like to make a very special announcement. Many of you know that
some 14 years ago the Canadian Automatic Sprinkler Association and the National
Fire Sprinkler Association began a golf competition between the 2 countries
that has become known as “The Sprinkler Cup”.
The
idea was fostered by a gentleman who many of you know. He served with distinction as CASA’s
President for many years before his retirement in 1990. But really, the idea of the competition
between the 2 countries started with Bill Clark. Our first event took place
back in 1987 at the Loew’s Ventana Canyon Resort and each year the competition
rotates between North of the border and the United States. Bill Clark has made
a tremendous contribution to the sprinkler industry. And it was thought following this past competition that perhaps
he should be given recognition for his efforts. He attended a dinner of the American Team and made some comments
that touched the hearts of many of our players. Barry Waterman wrote a letter to John Galt, President, and made
what we think is an excellent suggestion.
In
golf we have the Ryder Cup, in hockey, we have the Stanley Cup, and in tennis,
we have the Davis Cup. Well from this day forward the International Golf
Competition between the United States and Canada will be forever known as the
Clark Cup in honor of Bill Clark the former President of the Canadian Automatic
Sprinkler Association whose idea it was. Bill, stand up and take a bow.
And
now, as has been tradition let’s take a look into our economic crystal ball and
see where we are from 6 months after the State of the Industry we gave in
Aruba. As I indicated back in October I
did not paint a particularly rosy picture of the current economic state of our
industry.
The
recent turmoil that we have been experiencing in the equity markets as well as
almost hysterical reaction on the part of the global marketplace has been
significant. . . and nothing has taken place within the last 180 days that
causes me to change our economic outlook.
In a word, our industry is headed for some stormy economic waters. What I would like to do this morning is to
outline for you some of the reasons for our concern and what NFSA is doing in
an effort to soften any slowdown in business activity.
We
have had a full decade of uninterrupted growth and business conditions for our
industry have been strong all over the country. As the general economy begins to
unravel we will begin to see that the slowing of economic growth will affect
some regions more than others. (These areas will also demonstrate a slowdown in
nonresidential construction which will ultimately affect our industry.) So, while I am speaking in general terms, we
can translate what’s being said for the sprinkler industry. Remember we always lag in an economic
slowdown. We are going to do this as
best we can by regions.
Those
areas which are most likely to be affected by the downturn in the general
economy are the Mid-Atlantic states, the North Central states, which would
include Michigan, Wisconsin and Minnesota among them. More consolidation in the auto industry is probable and Chrysler
is expected to cut almost a ¼ of a million jobs over the next several years.
In
the South Central states, Virginia, Georgia,
Kentucky and Tennessee and this is primarily due to a fundamental weakness in
manufacturing, technology and financial services. In a recent report from the
Federal Reserve Board District Banks it was noted that weaknesses in commercial
construction activity in regions served by Cleveland, Atlanta, St. Louis and
the Kansas City District Banks. More space has become available for sublet as
high internet and high-tech firms have closed or reduced operations.
The
Mid-West due to its manufacturing orientations is also likely to be affected by
the current downturn in economic conditions.
High
energy prices will help the energy producing areas of the Southwest - Houston,
New Orleans and parts of Oklahoma. However, the textile and apparel dependent
areas of the Southwest will suffer through a manufacturing slowdown.
The
Mountain states should pace economic growth nationally as resource producing
industries and generally affordable housing will continue to attract new job
seekers. Technology centers in this
region such as Denver and Salt Lake City may suffer a bit from the technology
slowdown.
The
Pacific states should continue to perform reasonably well. However, it’s not a
surprise to those of you who live in California that energy problems continue
to present risks for the state’s economy.
The
Pacific Northwest which has benefited in the past from low energy costs could
also be damaged by higher costs of energy and shortages. The employment outlook for the balance of
this year favors the Western regions with some
solid pockets in the South.
Economic
conditions in the South are schizophrenic.
Weaker consumer confidence levels will dampen consumer spending which in
effect could have an impact on the Florida tourism industry. Overall, however, the South should remain
fairly strong.
Let’s
take a look at what architects are doing. According to the American Institute
of Architects, business conditions at architectural firms continue to soften in
recent months. More firms reported a
decline in billings than reported an increase.
While there still remains inquiries for new projects, they are coming in
much more slowly than in previous months.
Here is an interesting fact. For
every 3 firms that reported an increase in inquiries for new projects in
February of this year, 2 firms reported declines. Both of these indicators are significantly weaker than at the
same period last year. While the
reported billings decline for architectural firms, conditions are a bit weaker
in the Coastal regions, the Midwest and the South. It should be noted, however, that residential firms continue to
report healthy business conditions while firms concentrating in the
institutional sectors are generally reporting slowdowns.
In
addition to overall decline in billing being experienced by architects and the
slower growth of inquiries for new projects, many firms are seeing other
evidence of slowing business conditions. Specifically, almost 2/3 of the
architectural firms surveyed indicated that the most common evidence of decline
was in project backlogs. Planned
projects being delayed, deferred or cancelled and growing receivables were also
cited as a common condition. Many
active projects are being delayed and more competition for projects were
mentioned somewhat less frequently.
Many
economists are predicting a soft landing.
Our biggest concern is that major cutbacks by businesses both in capital
investment and hiring in response to weak earnings could transform a soft
landing into a hard one. Most
significantly, a sharp reduction in payrolls will not only result in reduced
household disposable income but it will also have the leveraged effect on
consumer confidence, home values and possibly the equity markets, all of which
have been major contributors to the strength of consumer spending in recent
years.
On
the up side, historically, recessions have occurred in an environment in which
private sector fundamentals are seriously impaired and when Government policy
makers have run out of policy options to stimulate the economy. This does not appear to be the case at the
present time. The large Federal Government
surplus will allow some fiscal stimulus.
What
is the FEDS Response??? The Federal
Reserve Board continues to lower interest rates to deal with the economic
slowdown. This in turn bodes well for
the housing market in that a 50 basis points reduction in interest rates can
have an effect of reducing a mortgage by almost $2,000 per year allowing more
people into the housing market.
Although
the unemployment rate has been creeping up in recent months it still stands at
a very acceptable 4.2% which is very good by historical standards.
In
terms of our industry, we naturally lag the general economy and while backlogs
appear to be relatively strong, my discussions with contractors, manufacturers
and suppliers leave us to the unmistakable conclusion that new bookings are not
replacing backlog at the same rate. The
3rd and 4th quarters of this year and the 1st
and 2nd quarters of 2002 should begin to see some significant
slowdown in our industry. General contractors and construction managers are
working on very thin margins.
For
many years change orders reaped a monetary reward for subcontractors. Those days are fast coming to an end. Analyze your backlogs. Are you replacing your backlogs with new
business, at a rate that will sustain you through any downturn. Now is the time to hunker down. There is nothing un-American about making a
profit. Don’t take work simply to churn
dollars and remember volume kills and profit thrills.
Given
the volatility in the equity markets we will be planning some time in the Fall
of this year another seminar similar to the one which was conducted in November
of last year on “Dimensioning the Sprinkler Market.” We will provide you with ample time as to when this online
program will be taking place.
Many
of you picked up copies of an economic survey, one for contractors and the
other for manufacturers when you registered.
Please complete this form and return it to any member of the staff so we
can begin to get a sense of what is actually taking place in our market.
Now
what is NFSA’s response? We have said on a number of occasions that the time that
a Trade Association is needed most by its members is when there is an economic
downturn. The long-term debt on our
existing building is approximately 1 million dollars. Our mortgage rate, which
was negotiated 5 years ago, is 100 basis points below prime with a 25 year
term. In addition, our present tenant
pays us rent which easily handles the debt service on our building.
NFSA
is very aggressive in hiring new people.
We recently employed a new Regional Manager, Ray Lonabaugh for the
Mid-Atlantic States and are presently conducting interviews to replace Phil
Saunders who is retiring as Regional Manager for the Great Plains States. Our only open area is the Southeast and we
are hopeful to have that appointment filled sometime this summer. We are also
finalizing interviews for a Director of Membership which was the recommendation
of NFSA’s Long Range Planning Committee.
Take
advantage of NFSA’s training and education initiatives – On-line seminars,
Technician Training, Sprinkler Advantage Program and our Contractor
Professional Development initiatives, particularly the Foreman and Supervisory
Training. These programs can pay dividends for your company. Don Donath, NFSA’s
Director of Training and Education can be contacted on NFSA’s web site and you can
register over the Internet for any of these programs. The Foreman and Supervisory Training with Mike Friedman as the
Instructor is a Five Star program and for those companies who have taken this
program, they have given it very high marks. Mike just completed a program for
Wayne Automatic Fire Sprinklers, Inc in Florida.
I
know both Wayne and Clark Gey are in the audience and in a moment I would like
them to stand and for those of you who have any questions, please see them and
they can tell you why this focused program for our industry is really paying
off like a “slot machine” for companies that have taken advantage of this
initiative. Wayne, Clark, please take a bow.
A
major initiative of NFSA for the balance of this year and into next is in the
area of residential and retrofit. We
are seeking support from our industry and are working very closely with
legislative groups at the state and national levels to seek the passage of laws
which will require dormitories, fraternities and sororities which are not
protected with sprinklers to be so.
Many of you remember the Seton Hall fire, which claimed the lives of 3
students. The only legislation that is
enacted is in the State of New Jersey. This year, 9 Bills have been introduced
at the State and Federal level that ultimately could translate into
requirements for sprinklering of student housing. We need to get behind these initiatives. Federal legislation has
been introduced which will make matching funds available for colleges and
universities to provide fire sprinklers in student housing. I encourage all of you to visit our web site
www.nfsa.org to look for the very latest
information concerning these Federal and State initiatives.
I
would also encourage all of you to subscribe to Campus Firewatch, a publication
published by Ed Comeau, which is probably one of the most definitive monthly
periodicals on the present status of fire safety in student housing in the
world. Ed Comeau can be reached at his
web site www.campsusfirewatch.com,
and for $139 per year every member of the sprinkler industry should
subscribe. His weekly update as well
as his commitment to making student housing fire safe needs the support of our
industry.
In
addition, NFPA is working on a new Building Code NFPA 5000. You will learn more
about this on Saturday morning from Art Cote.
Both NFPA 5000 and the new International Building promise strong
sprinkler requirements when adopted at the state and local level.
NFSA
will continue to work with the Home Fire Sprinkler Coalition. NFSA spearheaded an effort to double this
year’s commitment from the founding members of the coalition from $50,000 a
year to $100,000 a year.
Your
Association will be aggressive. Your
Association will continue to create market opportunities, and I promise you,
our industry will weather this economic downturn.
And
so, Ladies and Gentlemen, in concluding this year’s State of the Industry
Address, I must say that it is an historic meeting in that we are coming to an
end of an era, and we can look back with pride on the traditions that have been
established and the work that has been accomplished by your Association.
But
another legend in the sprinkler industry has decided to pass into the sunset.
And so, in closing, as a testimony to Rich, I would like to end on this
thought. If we can see further in this industry, it is because we stand on the
rungs of a ladder built by those who came before us. Rich Sullivan helped build that ladder.
Ladies
and Gentlemen, it’s always a pleasure.
Thank You.