Barrick Mining Corp (B) 2008 Q3 法說會逐字稿

Good day ladies and gentlemen, and welcome to the Barnes Group Inc. third-quarter 2008 earnings conference call. My name is Katy and I will be your coordinator for today. At this time all participants will be in a listen-only mode. We will be conducting a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). I would like to now turn the call over to your host for today, Mr. Brian Koppy, Director of Investor Relations and Communications. Please proceed.

Good morning and thank you for joining Barnes Group's third-quarter 2008 earnings call and webcast. This is Brian Koppy, Director of Investor Relations and Communications for Barnes Group, and with me this morning are Barnes Group's President and CEO, Greg Milzcik; and Acting Chief Financial Officer and Vice President and Controller, Frank Boyle.

I want to remind everyone that certain statements we make on today's call, both during the opening remarks and during the question-and-answer session, maybe forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the financial statements. We encourage everyone to consider these risks and uncertainties that are described in our periodic filings with the Securities and Exchange Commission, which are available through the Investor Relations section of our corporate website at bginc.com.

Our press release was issued this morning, and we hope you had a chance to review it. We will begin today's call with brief opening statements by Greg and then open the call up to answer your questions. Now let me turn the call over to Greg.

Good morning and thank you for joining us today. This morning we released our third quarter results, which reflect both the progress we have made in improving a number of our businesses as well as the challenges that lie ahead as market conditions remain in flux. Sales were down approximately 6% in the quarter, driven by the slowing economy and changing industry dynamics within the aerospace market. However, net income improved 5% in the quarter, which we achieved through a focus on productivity and lean enterprise programs which aided our efforts to control costs.

Clearly, the macroeconomic pressures in the US and abroad have made their away into our business, as we have seen in our recent top line results and short-term reductions or deferrals in key market sectors. We believe we can navigate through these disruptions without deviation from the long-term objectives we have set out to achieve as a company.

Over time we have built a company with strong global diversification and a significantly differentiated business. Barnes Group's diverse and global end markets are our greatest strength during these dynamic times. When combined with our liquidity position and overall balance sheet strength, we remain comfortable that we can operate in these turbulent markets while remain focused on executing the necessary strategic objectives to secure Barnes Group's market leadership position for the future.

A driving force behind our long-term success will be our favorable outlook for the aerospace sector. We remain cautious of the effect airline deferred maintenance and capacity cuts will have. We are confident the disruption that the Boeing strike had will be resolved and that strong industry fundamentals will prevail.

I want to take a moment to further comment on the Boeing strike, which essentially halted half the world's large commercial aircraft production. The adverse effect was not simply with suppliers doing business directly with Boeing, but also with tier suppliers such as Barnes Group. While we have been managing the Boeing 787 production slide throughout the year, the strike and its impact during the third quarter as well as the beginning of our fourth quarter adversely affected our business.

Roughly one-third of Barnes Aerospace's revenues are related to Boeing aircraft. Clearly, the strike is short-term in nature, and for the most part we have seen backlog deferred rather than canceled. It is unclear what the lasting effects will be on production-related delays. Therefore, we have acted quickly with prudent measures to implement workforce reductions, cost containment and cost reduction actions during the third and early part of the fourth quarter to weather this difficult environment.

Similar to prior distresses in the aerospace industry, we're confident Barnes Group's aerospace business will emerge a stronger, leaner and more efficient producer of complex components and assemblies.

Turning to the industrial manufacturing end markets, third quarter results for Barnes Industrial benefited from our businesses outside North America, which have provided upside for the business as the North American economy slowed. Our European strategic business units, SBUs, generated sales and operating profit improvement over the prior year as their high-quality products continued to be in demand throughout their diverse end markets. The North American manufacturing industry has been in decline since last year but had only experienced moderate declines until recently. The largest industrial slowdown has been within the transportation end market. The North American transportation unit production was down approximately 17% in the third quarter. Adding to the adverse impact of declining production has been the move toward the manufacture of smaller vehicles as gas prices rise.

While we have made strides in reducing our exposure to the transportation market, we are not able to mitigate fully the adverse effects of the sharp declines during the past quarter. Similar to the steps we implemented in aerospace, we initiated workforce reductions, cost containment and cost reduction actions during the third and early part of the fourth quarter. Pricing discipline and productivity improvements will further strengthen the business.

Barnes Distribution continued to focus on improving service, deliveries and executing on its operating strategy during the quarter. Sales per employee were up 9% and operating profit was up 157%. Barnes Distribution North America once again achieved double-digit operating margins for the quarter. We continue to make progress in our global sourcing effort, which provided beneficial savings to our customers while improving our financial results. In addition, we reduced distribution costs by approximately 13% from a year ago, increased the efficiency of our inventory levels and maintained strong customer order fill rate levels, all significant accomplishments considering the challenging environment.

Our commitment to continuous improvement is reinforced by a stable level of sales personnel during the quarter, which, as you recall previously, experienced a significant amount of disruption in the first half of the year. Favorable North American results at Barnes Distribution were offset by underperformance in the European business. Our new management team in Europe is rigorously working on improving operational performance, is considering steps to stabilize the business and decisively position it for long-term, sustainable, profitable growth.

Turning now to our balance sheet, our balance sheet remains strong. During the quarter operating activities generated $43 million of cash flow and our total cash balance on hand is $25.6 million. Cash flow generated along with our solid credit facilities is more than adequate for the Company's anticipated requirements.

I would also mention that, while we did not repurchase any shares during the third quarter, we were active in the market in the past few weeks and repurchased 1.2 million shares at an average price of approximately $13 per share, pursuant to a 10b5-1 repurchase program. While share repurchases are not our main focus for the use of cash, we do believe we have flexibility in our capital position, and we will continue to prudently evaluate all of our options.

As the global economies are expected to continue to weaken, we are aggressively reducing costs and streamlining our operations. We believe the prospective benefits will greatly outweigh the near-term expenditures, which may negatively impact near-term operating profits. Going forward, Barnes Group will have a more diversified business with greater aerospace and general industrial sales and less transportation exposure. The Company will have robust global logistics service business as Barnes Distribution Europe strengthens and grows and precision component manufacturing capabilities improve through greater customer and end market diversification.

Actions taken over the past year combined with those in progress today are focused on creating a more successful organization for the long term. We are positioning the Company as a market leader in a very challenging environment. We are taking steps to address the downside risk in certain markets while still investing for growth in end markets that should outperform the economy. Reorganization activities have been implemented to ensure superior performance in 2009 and provide the impetus to achieve the earnings growth we expect to deliver to our stockholders.

As far as our projections for the future, our market positions across many product and customer markets provide favorable long-term prospects, though current events are distorting our near term view of the balance of 2008. The energy shock, housing collapse and financial crisis have reached a point where they are affecting all aspects of the economy in some manner. Additionally, the added impact on our short-term outlook from the disruption caused by the Boeing strike creates additional uncertainty in our outlook.

We expect 2009 to be a challenging year, given the unsettled economy and credit environments coupled with the headwinds from a strengthening US dollar. While we believe market conditions have become more difficult over the past 90 days, we feel the Company is well positioned, given the focused execution of our business model and our increasingly diversified end markets and geographies. As you saw in our previous news release, we have discontinued our specific detailed earnings guidance, given the uncertainty in the marketplace today. We are not managing our business for the short-term, and we are assessing near-term actions to secure a long-term position. I'm extremely confident we will emerge from these unprecedented times as a stronger, more focused Company.

We remain confident in the underlying strength of our Company and our ability to execute on our commitment to deliver long-term, sustainable stockholder value.

Now I'd like to turn the call back to Brian.

Thank you, Greg. We will now open the call to your questions. Operator, first question, please?

(OPERATOR INSTRUCTIONS) Christopher Glynn, Oppenheimer.

Just wondering about your comments on Boeing creating ongoing uncertainty. Talk about what that means with the strike now done.

Well, keep in mind, Chris, that the strike isn't done yet. They are voting tomorrow, and we are assuming that that will be accepted by the union. Then we have to look at a rescheduling of all the schedules both with the tiers as well as Boeing have not announced their scheduling, although the CFO stated the other day that there would be at minimum a 1-to-1 movement of the schedule. In other words, for every day of the strike, there will be a push-out of one day, which is what we anticipated internally, and that is that there is going to be no attempt to recover these aircraft in the current period.

With that, until the schedules are re-established with the tiers as well as with Boeing, as well as the acceptance of the strike, we don't have real good visibility on what is going to occur in the OR side of the business.

Just on the announcement for some facilities and cost improvement on the OE side, you just put up a record OM on a lighter revenue quarter at Aerospace on OE issues that you described as temporary, so --.

Yes, exactly.

So I'm not sure why the need for these OE actions on the cost side, especially where you just added capacity.

We haven't closed any facilities at all. We've restructured workforce as far as the work week and things of that nature for temporary basis. Where there were excess capacity and then the overall manpower, we did have some reductions, but it was all anticipated and based on what we expect for schedules. But we still haven't finalized everything.

Okay, so certain peculiar areas of your OE business?

That's a good way to put it.

You had mentioned some streamlining efforts might negatively impact near-term operating results. I'll assume that's somewhat across the segments. Correct me if I'm wrong, but will you break out restructuring charges, or will those just be eaten in the segments?

No. If and when we incur those charges, we will definitely provide detail behind those. As far as the financial statements, obviously we can't do that. But from an MD&A perspective, from a press release perspective, we will definitely break those out.

Okay. And lastly, at Barnes Industrial, still showing some European growth, it sounds like, within the overall more intense volume declines, and hard to imagine Europe hanging on. So what sort of [decrimental] operating margins would we think this business runs at?

Well, first of all, keep in mind some of the products we have in our European operation, such as our nitrogen gas products, have a global market output. In other words, we have demand from China, we have demand from North America, Europe, et cetera. And that has been very robust, so we don't necessarily rely on Europe alone on some of these product lines.

But at the same time, we do expect Barnes Distribution Europe -- we are looking at a variety of different directions there. There is a little bit of softening there, but I don't think it's as dramatic as what we've seen in the North American transportation market.

And just at Barnes Industrial, the margin sensitivity to volumes?

Well, we haven't given margin guidance for next year and for the balance of this year.

Just structurally?

I think that would be hard to dissect and to give you that information right now without knowing what the end markets are doing because we do have a variety of different products within that segment. We will -- as soon as practical, we will provide those guidances, as soon as things are settled down a little bit.

Peter Lisnic, Robert Baird.

It's actually John Haushalter on for Pete. With the re-segmentation that you guys announced that you are going to be implementing with going to two segments, could you just talk about the benefits to your actual operating costs that that could bring about?

Sure. First of all, the primary reason for the realignment was to really drive our business efficiency and the way we were looking at the businesses along the lines of precision components, which is primarily a manufacturing business that has a lot of cost-driven factors to it with a differentiated process while all the manufacturing operations support is value selling, where there's value proposition involved in that business.

We do expect some savings, but we have not announced that. I think that's a secondary effect. The primary effect is to allow the individual strategic business units within the individual segments to act more responsibly to the customers.

Okay. And with that, I guess from our perspective, will you continue to be reporting results by end market, just so we have an idea of how aerospace is doing within the new reporting and all that?

We'll report by segments, but we'll give some color to the end markets. In fact, I think that will add more clarity because we'll help define the end market that are driving the results more clearly.

Okay. Switching gears, just the aerospace margin being up, is a fair amount of that just mix with kind of the [VOE] side actually being a little bit softer and then aftermarket being good?

And then, for looking at '09, with aftermarket being flat this quarter and this being the first quarter, that really -- plants kind of went out of service in September. What is your outlook for the aftermarket for '09?

First, your first assumption is exactly right. Obviously, the aftermarket business has a higher return on sales, and therefore a lowering of the original equipment sales base will have that effect of increasing the margin. The second thing is, it is a short-cycle business when you look at the aftermarket side of the business. We do anticipate some deferred maintenance in the business, based on just the general economic conditions. That's a common reaction of the airlines, as well as the number of aircraft coming out of the fleet. I look at that as a secondary effect because most of those aircraft are aging aircraft that are even outside of our core product lines, which are typically more fuel-efficient aircraft types.

So we do expect some softening in the aftermarket. But I don't think it's going to be dramatic.

So not -- I mean, relative -- you are comparing it with like the past downturn in 2001, nothing like that?

No. I wouldn't forecast that. In fact, if you look at -- Airbus had an announcement that they were going to reduce the increase for next year, but they're not reducing the number of aircraft. Boeing has not rescheduled yet. But I expect the growth rate of the two primes, Airbus and Boeing, to moderate somewhat, but not decline.

Edward Marshall, Sidoti & Company.

We know that the aftermarket drove the operating margins at the Aerospace segment. But this is despite a lower revenue base and therefore lower absorption rate. So my question is that, is the new level sustainable as the revenues come back and the absorption rate goes up here?

I don't think that's necessarily sustainable. I think that you will have a dilution of the return on sales simply because the lower margins on the OE work.

But generally, too, the military business is lower margin; isn't that right? And that drove the OEM side of the business in this particular quarter. Am I wrong in that assumption?

Well, a little bit. But I don't think it had that dramatic of an effect.

What's the sales breakdown in Europe on the Distribution segment between Europe and North America?

Hold on just a moment.

If you look at Barnes Distribution North America, they are probably running about $90 million or so, and Europe should be the remainder of that, Barnes Distribution Europe.

Okay, so margins in North America distribution -- they were double-digit, but do you know --what's that number? Can you give that to us?

No, we have not disclosed that. But I will also comment that that's an impressive feat. That is something that has been strived for for almost two years now, and it's really a tribute to the efforts of the team out in the field. I can't say enough good things about that.

I think another very important factor is the stabilization of the workforce. Our attrition rate is basically neutralized from -- to normal levels, and I think that from this point on, we're going to be looking more at investing in sales training as well as hiring. And I think that that will take some time, but we had a stated objective, not necessarily a sales growth but a margin improvement, and we were going to allow some sales to [attrit] accordingly. So I think that the results in Barnes Distribution North America are extraordinary.

Well, how bad is Europe, then? Has it deteriorated from the second quarter, from the third quarter -- or rather in the third quarter, from the second quarter?

I'll make a couple comments on Distribution. First of all, we put a very strong management team in place, and we have been working through the summer and into the fall on working out planning. We are evaluating, currently, multiple options that will give us a step function change for 2009. But we have not completed the planning, we have not executed or completed any program at all yet. So it's hard for us to disclose anything. But I am very confident in the management team.

Is this going to be something similar to the Project Catalyst that was in North American?

We modeled it on Catalyst, but it's not a perfect model, simply because there's differences in the regional delivery process, as well as the general geographic market.

So my follow-up to that then would be, do you think it's as easy to perform in the project -- something similar to Project Catalyst in Europe than it was in North America? And I don't say it was easy, because I know it was a long-term thing, you know.

Yes.

I'm not (multiple speakers) I don't want to discredit you.

No. I can't say enough good things about the work that people did in North America, and it was absolutely painful. There's no doubt about that. I think that it's complicated in Europe basically because we have multiple methods, channels to market, and I think that the geographic differences in the different countries make it for a more interesting planning process. But the general, I think that it would work pretty well.

And the one-year turnaround that we saw on Project Catalyst is probably too aggressive to assume that that's going to happen in Europe?

I would not comment on that until we finish our planning process. I would also mention, it was more than a year with Catalyst, if you look at the pre-planning that went into that as well.

Okay. Is it more front-loaded or back-loaded that the improvements actually happen?

Sorry, until we finish the decision-making process and evaluate our options, I can't really go there yet.

I appreciate that, that's fine. Thank you, guys, very much.

Fred Buonocore, CJS Securities.

Just following along on the European Distribution discussion, is actually divesting that business -- are you considering measures that might be that extreme?

We are not going to comment on anything that we're planning now. We're looking at our options in order to make sure that we are driving the business long-term, and that's what we really have in our mind. We have done a pretty thorough evaluation of the business over there, and I think there's a lot of good aspects to the European business. I think that we have a variety of different sets of work that we have to complete before we can finish up the planning process, but we do expect it to be done some time in the fourth quarter.

Great, got it. Not to beat a dead horse on this, but can you outline just the persisting issues that you are seeing in that business? Is part of it a pickup from customers, or is it really (multiple speakers) --?

No. What's interesting is, if you look at the sales, sales have actually held up fairly nicely over the past year. It has been more around the integration process and the costs of the integration as well as some disruptions of sales force in Europe.

Got it. And then, in terms of the industrial business, clearly, transportation has been the big difficult spot and you are kind of stuck in a position that was a good place to be a year or more ago, when larger vehicles, which I guess are your sweet spot --

That was a couple years ago. But -- it's amazing how time flies.

Yes, it seems like just yesterday, exactly. Is there an opportunity for you to shift towards making components for smaller vehicles and broaden your product line there, or is that even a desirable mix change for you?

It actually has a negative effect, and the negative effect is, for example, in engine valves springs, V-8 engines have two to four valve springs per cylinder, while shifting to smaller cars, you may end up with the additional valve springs because of the more fuel-efficient nature of multiple valve operation. You typically have four or six cylinders. So you actually have a negative trend when fuel efficiency goes up.

I think the real interesting component to this whole transportation side is how well our profitability has held up compared to years past, simply because we have done such a good job of shifting away from the transportation end market and buffering our business with international operations and with things outside the transportation industry.

Right. And then, just throughout your businesses, as raw material costs have come down in certain areas, like copper and so forth, have you begun to see any benefit on that side of things?

First of all, there's usually somewhat of a delay both up and down, and it's a different marketplace than basic steel, for example. We use very little basic steel; it's usually things like high-strength valve spring wire, which is a specialized product that operates under a different commodity group. And, there are certainly going to be some pressures, downward pressures on commodity prices in that area. But we haven't seen the dramatic moves that we were pushing for.

Right, so that might be something that could help Q4 or possibly into early '09?

Well, we are certainly hoping. It is a very small number of organizations out there that provide this product, so it is not as broad-based and opportunistic as a basic steel.

I see. And then finally, on foreign exchange, that has clearly become a headwind to the extent the dollar continues to strengthen. Do you have strategies in place to mitigate that potential headwind, or not at this point?

No. I would say at this point in time, just like when we had the tailwinds, we had to ride with it. When it comes to the balance sheet, we definitely take hedging positions on any currency exposures that we have. As far as trying to forecast the future and trying to put in hedges, or let's say, for future -- for revenue, it's a very difficult thing for us to do and it leaves us, in our opinion, with too much exposure. And I'm talking about P&L exposure.

And so we would probably not go on the offensive, as far as that's concerned. And keep in mind that, at the end of the day, while we did get some nice tailwind on the sales line, the bottom-line impact of the exchange, while it was favorable, the magnification was not nearly as much because it's just the margin that falls through. And depending on the business, it will depend on the size of that margin. And so right now, no, we don't have any plans.

Matt Summerville, KeyBanc.

First, just a European distribution again, Greg, we have been talking now for several quarters about trying to stabilize that business. And it appears that perhaps it might actually have gotten a little worse. I guess I'm wondering, what has changed over the last couple of quarters, and why up to this point have you not been able to stabilize it?

That's a great question, and the first is, the new management team just went in place within those last two quarters, and I think we have done a pretty good job going around and surveying the issues and identifying all our options. As I mentioned earlier, during the fourth quarter we'll complete measuring those options and complete our planning process. I think that the management team has done a very thorough job of coming up with the items that could make a step function change going into 2009, though.

Okay. When I look at distribution North America versus Europe, can you give us some color about how the top line in those geographies performed during the quarter?

We just made that.

We just mentioned it.

I apologize.

Matt, the revenues were clearly down in both North America and in Europe. As we mentioned earlier, the focus has continued to be on profitable growth and profitable sales. So we are still working through that process.

In other words, some of it was expected. I think the softening of the market in general, though, amplified that.

Okay. With respect -- I'm really trying to understand the reason for the change in reporting in a couple of ways. First, how exactly are we going to get more detail out of less segments? And then, I guess, why now for this change? If this is theoretically the way the Company should be running, why wasn't this change made earlier? And I want to make sure I have this right. You are basically splitting the Aerospace business into OEM and aftermarket, and you're putting Distribution with aftermarket and Industrial with OEM. I guess I'm just trying to find where there might be possible synergies here.

I'll start from the beginning. First of all, 10 years ago we had a fairly simple business model. We had Associated Spring, Barnes Aerospace and Bowman Distribution. And the business models were fairly straightforward and clean.

Over the years we have grown the businesses, we have diversified through acquisition and the like to where we develop strategic business units within these groups. What we're doing is essentially eliminating the group structure and aligning them along the processes and end markets.

If you look at -- take, for example, Aerospace aftermarket and Aerospace OE, you have different technologies involved, you have different end markets. The way you go to market, one is more cost-based, the other one is more value-based. So there's definitely differences in these businesses. The way they are aligned is along those lines.

If you look at the precision components, it's all primarily manufacturing and primarily all based on a cost approach where it's build-to-print manufacturing with concurrent engineering. While you look at the manufacturing operations support, it's much more of a value-based sell. So channels to market are different, the selling proposition is different. And I think that that more closely aligns itself.

So the main synergies on the cost side -- are we talking about realigning manufacturing, closing facilities, putting facilities together? Or, is this more --

No.

-- a corporate G&A sort of --?

A big part of this corporate G&A, we eliminated basically a layer. And by doing that, we make the business more efficient. The businesses, from the strategic business unit perspective, are aligned along their processes and their end markets.

Okay. With respect to the 10b5-1, would it be your intention to resume that after reporting here?

Well, it's all dependent. We're going to weigh our options, and then we'll make a decision as time goes on. It's not our primary goal, but at the same time, when you're trading at book value and you have the outlook I think our business has, it didn't make any sense not to.

Alright. My next question predominantly, I guess, relates to Distribution. Are you finding that your customers are having credit issues at this point?

I haven't gotten that feedback, but that's not to say -- we have so many customers that I'm sure some of them are, but we have not had that. In our pulse meetings that we do weekly, we have not had that feedback.

(OPERATOR INSTRUCTIONS). Dan Goldberg, RBC.

A quick question on financials. I noticed sales were down $23 million, inventory was up $27 million, in rough terms. Could you talk about that a little bit?

What two points in time are we referring to? As far as the inventory is concerned?

Right, exactly. (multiple speakers) year over year.

Are you talking year over year?

Right, year over year on sales, inventory right now.

Right. The main -- if you look more recently, inventories have been coming down. In other words, if you look from June to September, inventories are heading in the right direction. As you go back to a year ago, we had specific issues that we were addressing in inventories. One related to a new business that we had entered into where we needed to do a significant buy of finished product. We had some strike protection that we were doing at that time, and in addition to that we were doing -- at that time, commodity prices were heading in the wrong direction, so that we were buying ahead. Now we have to start working that down because the majority of those issues are no longer applicable, but it does take time to work that down.

So if you look more recently, you'll see that the inventory is heading in the right direction.

Okay, but still more work to go?

Oh, absolutely. One of our main focuses right now is generating cash, and that's one area that we definitely have the opportunity of generating additional cash, is both in -- in all components of working capital, just not inventory.

Okay, thank you, I appreciate it.

Christopher Glynn, Oppenheimer.

Just a question on the cash flow running at a somewhat lower percentage of net income year-to-date. I'm just wondering -- anything structural about the RSPs, including maybe payments subsequent to the initial upfront cash when you win the deal, or other parts of the business, why we shouldn't think of you or use 100% free cash flow net income as a benchmark?

As you look at the cash flow for the quarter, I think you've got to look at two components. If you look at what I'll call operating cash flow, which was fairly strong at $43 million, if you look year over year, but if you look at the two main uses of cash, it's the investments in capital, which ran around $16 million. And that was largely invested in Aerospace.

And the other one was, we spent $22 million on our last RSP payment. So as you go out into the fourth-quarter and to next year, we have no more RSP payments. And, in addition to that, we are watching CapEx very carefully so that those two components of cash usage should -- well, will come down, particularly in the case of RSPs, and should come down as far as CapEx is concerned.

And, are RSP payments done permanently?

I will comment there. We will continue to pursue RSPs and do RSPs when they make financial sense for both parties,

But we have none on the table right now.

Right. But for the existing ones, is the net income and the cash flow in that one for one?

We haven't dissected the RSPs out to that point. I think the basic question of net income and --

It depends -- it's highly -- free cash flow and net income, when you try to correlate the two, it's highly dependent, in my opinion, on which way your working capital is going. And in a downturn, you should be seeing reductions in working capital, which in fact could give you higher cash flow. But a lot of it depends on which way the net income heads in the near-term.

Okay, thanks again for the help.

Edward Marshall, Sidoti & Company.

You mentioned that there were currency benefits in the quarter, and that they are muted through the margin. But, there is a slight benefit that you did say that there was. Can you tell me, in both the Distribution and the Industrial segments, separately, what that small benefit was for each segment?

I can't tell you on the bottom line, but I believe that we disclosed in the press release that in the case of Distribution the impact on sales was $1.1 million, which is a very relatively small number. And in the case of Industrial, it was $3.7 million. So you could just tell, off of that, even if you have margin flow-through, there's just not a lot of impact there.

Right, but in previous quarters, they were -- that was a better, or a larger benefit. And if we see the headwinds on the currency going forward, I'm just kind of getting a ratio maybe to the operating margin that we could see.

We don't disclose that.

I see. Okay, thank you very much.

Holden Lewis, BB&T.

As I'm thinking about 2009 -- and understand you are not going to give guidance -- we're obviously going to have revenue and margin headwinds just from under-absorption. That's pretty clear you're seeing that now. But I'm just trying to get a sense of what you think the offsets are going to be. I guess one of the questions is this re-segmentation that you are going through. What do you think that the cost-benefit is of taking out that layer, and when do you expect to recognize that? Do you have a sense of order of magnitude?

Well, first of all, I think that we are recognizing that we have some headwinds going into next year and we are assessing a whole slew of options in order to control our costs and aggressively pursue those. We'll have a much clearer idea of what we're able to achieve, and as soon as we have completed that, we will probably, sometime after the first of the year, look at re-establishing that. But we have to complete our planning process before we do it. The fact is that, I think that there's a lot of opportunity. I think that this business is in relatively good shape. Our balance sheet, I think, if you look at the aerospace sector, is -- even if things decline a little bit, it will be a flat year over year; for the market as a whole, I'm saying.

And I think that we have a very good team in place that are paying close attention. So I think that there's a lot of things besides the market segmentation that we're looking at in order to improve our cost structure.

Okay. Do you have sort of -- have you been able to put a number to the re-segmentation, in particular?

Well, we haven't, basically, internally, but we haven't released that because I think it wouldn't provide as much information as the investor would need in order to make a complete decision because of all the other components that are involved in it that we haven't announced yet or haven't completed the planning process yet.

Okay. But what we can expect in Q4 is to hear not only maybe that, but also it seems you're pretty clear to -- in Europe, in Distribution -- are pretty clear to putting in a framework for a reorganization there. But it also sounds like, in the Industrial business, you are also looking at maybe taking some big swings, whether that's addressing headcount or production facilities or what have you. But it sounds like in Q4, we are probably looking towards hearing about a bunch of different initiatives, and that those are probably going to have charges that bleed into the first half of '09. Is that the way to look at how this progresses?

It all depends on the final outcome, but potentially yes.

Okay, thank you.

(OPERATOR INSTRUCTIONS) Matt Summerville, KeyBanc.

Just a couple of other follow-ups. First, on the Industrial segment, I think you mentioned that the nitrogen gas business -- I'm not sure if it was just relegated to the European export portion or just more globally -- has held up thus far. Is that still true in the fourth quarter? And if so, what do you think is driving that?

Well, first of all, we only have one point in time, and that's October. And the final numbers aren't in, so it's hard to assess that. We do get weekly pulse meetings. I see nothing that's shocking me.

I think that the reason that it's twofold in the Nitrogen Gas Products portion, first is, they still export out to growing areas of the global economy, and the second is they provide a replacement or a technical obsolescence for mechanical spring systems used in the tool and die industry. So, even if the market doesn't grow, there's actually the technical obsolescence side of it that improves the performance of the end product. I think that helps them.

Okay. With respect to acquisitions, Greg, just curious as to how you're thinking about that right now.

Well, first of all, we've seen some acquisitions withdrawn from the market by the seller. Second, we've seen the multiples come down. In Q3, we did withdraw from a large acquisition. When we weighed the risk-reward calculation for a large acquisition, it didn't make sense at this time.

Okay, and then just one last question. I think it was three or four weeks ago you put out the press release talking about the Boeing strike and how you're suspending your guidance as a result. If the Boeing strike essentially ends over the weekend, would you anticipate putting guidance back out there?

Not just yet. There are two components to that memo we issued a couple of weeks ago. One was the transportation end market as well as Boeing, although Boeing was the primary reason for the fuzziness of the outlook. But until Boeing re-establishes their schedules and sends that out to the tiers, and those tiers feed it to us, I think that we would be hard-pressed to come up with an accurate schedule. We have no idea of the inventory levels or the philosophy that have been at a wide variety of our customers that stand between us and Boeing. So that would be difficult.

The second thing is, in order to give you guidance that is helpful to the shareholder, we would have to have completed and made decisions on all the various planning that we are doing right now for the cost control, as well as assessing various other costs. So it would be very difficult for us to do it in the short-term.

At this time, there are no further questions in queue. I would now like to turn the call back over to Mr. Brian Koppy for closing remarks.

Thank you very much. As always, if there are any additional questions about any matters discussed this morning, please feel free to contact me. Once again, thank you for joining us today.

Thank you for joining today's conference. That concludes the presentation. You may now disconnect, and have a wonderful day.