Eagle Materials Inc (EXP) 2011 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing byand welcome to the financial results for second quarter 2011 conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct a question and answer session.

(Operator Instructions) I would like to remind you today's call is being recorded Thursday, October 28, 2010.

And now I have the pleasure to turn the call over to Mr.

Steve Rowley, CEO and President, Eagle Materials.

Mr.Rowley, you may begin.

Thank you and welcome to Eagle Materials conference call for second quarter fiscal year 2011.

Joining me today are Craig Kesler, our Chief Financial Officer, and Bob Stewart, Executive Vice President, Strategy, Corporate Development and Communications.

There will be a slide presentation made in connection with this call.

To access it, please go to www.eaglematerials.com and click on the link to the webcast.

Accessing the slides, please note that the first slide covers our cautionary disclosure regarding forward-looking statements made during this call.

These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call.

For further information, please refer to this disclosure, which is also included at the end of our press release.

Demand for -- (inaudible)

Mr.

Rowley?

Yes?

We don't hear the audio.

Hello?

Is that better?

Should I start over or just proceed?

Please proceed, sir.

Okay.

Thank you and welcome to Eagle Materials conference call for the second quarter fiscal year 2011.

Joining me today are Craig Kesler, our Chief Financial Officer and Bob Stewart, Executive Vice President, Strategy, Corporate Development and Communications.

There will be a slide presentation made in connection with this call.

To access it, please go to www.eaglematerials.com and click on the link to the webcast.

While you are accessing the slides, please note that the first slide covers our cautionary disclosures covering our forward-looking statements made during this call.

These statements are subject to risks and uncertainties that could cause results to differ from those discussed during the call.

For further information, please refer to this disclosure, which is also included at the end of our press release.

Demand for building materials and construction products remains at historic low levels.

In fact, it has continued to deteriorate, albeit at a much slower rate.

Remaining profitable through the cycle by reducing cost has been and remains our primary focus.

Our focus on having the lowest variable cost and lowest percentage of fixed cost to total operating cost gives us important competitive advantages in an environment of fewer sales opportunities like we see today.

In addition, we continue to improve our competitive position, even in this challenging environment, by investing in small cost reduction capital projects that have very high returns.

During the quarter we paid about $30 million in federal and state taxes involving tax years 2001 through 2006, related to our ongoing dispute with the IRS over the Republic acquisition.

We will file a lawsuit to recover this and previous payments, totaling approximately $100 million, as quickly as the bureaucratic process allows.

Wallboard and paperboard segment revenues increased 3% this quarter compared to a year ago, driven primarily by higher paperboard volumes and higher prices in both paperboard and wallboard.

Based on the current pace of wallboard shipments, we do not expect sales opportunities to increase significantly in the remainder of fiscal 2011.

We do anticipate strong continuing paper revenues because our paper mill remains sold out for the year in alternative paper grades with significant profit contributions.

The 2010 quarterly decrease in operating earnings for wallboard from a year ago and in wallboard and paperboard is primarily attributable to higher OCC costs and to mixed changes in paperboard sales, primarily lower gypsum liner sales.

The 7% decrease in our quarterly cement revenues primarily reflects a 7% decrease in cement prices on average across all of our regions.

Cement operating earnings were affected this quarter by the timing of $5 million in annual major maintenance costs.

In summary, Eagle ended the quarter profitable as a company and profitable in each business segment.

Eagle remains well positioned to weather the cycle.

Now, let me turn it over to Craig to comment on other aspects of financial progress made during this quarter.

Thanks, Steve.

Eagle's financial position continued to improve during the second quarter.

We generated positive free cash flow even after tax payments and had a positive change in our cash balance for the quarter.

We remain judicious with our capital spending and focus on cost reduction projects that further enhance our competitive position.

We expect full-year capital spending to be approximately $15 million.

Excluding the benefits associated with paying the IRS, our effective tax rate for the quarter was 21% and we expect our annual effective rate to be 25%.

This last slide reflects the continued deleveraging that has occurred at Eagle over the past several years, all during a very difficult period in the construction industry.

Our net debt to cap ratio improved to 38% at September 30, 2010.

Thank you for attending today's call.

Operator, we will now move to the question and answer session.

Thank you.

(Operator Instructions) And the first question comes from the line of Trey Grooms.

Please proceed with the question.

Good afternoon, Steve and Craig.

Good afternoon.

My first question, Steve, is on the wallboard shipment, your wallboard shipments were down 15% in the quarter.

The industry data suggests that industry shipments were down about 10% in the quarter, which would imply that you guys lost a little bit of share in the quarter there on wallboard.

Can you give me some color on what is going on there?

Did something unusual happen in the quarter?

If you could just give us a little color there, please.

Sure.

Essentially, the small amount of difference is almost in the noise, Trey.

Shipments are getting so low in the wallboard industry, your opportunities overall.

You're just starting to deal with small numbers.

But, maybe even a little more importantly, American Gypsum, while their market share is down slightly, sequentially from the previous quarter, it's really because as a general rule we're purposely slow to react to volume losses until we understand the cause.

Number one, is it lower demand in the marketplace?

Has a specific customer had a major change in his customer base?

Or, have we simply been out maneuvered by a competitor?

Until we understand those factors, we always want to be a little slow to react as opposed to being over reactive.

So, but once we figure it out and we understand, we proactively react to the best interests of ourselves and our shareholders.

And so, that's the real reason, Trey.

I'm sorry, you said slow to react to price changes?

Well we're always --

You said volume, but I'm sure you meant price.

Yes, so what we do, is when we notice our sales are going down and our volumes are going down, there's always pricing pressure in a highly competitive business.

Sure.

Okay, so it doesn't matter where you are in that curve.

You're always going to be -- everybody always wants a lower price.

When all of the sudden you see your sales volumes dropping off, you need to understand the reason why those volumes are off before you react.

Okay, I understand.

Thanks for clearing that up.

I appreciate that.

Okay, that makes sense.

Can you, as far as on the price, can you talk a little bit, how the price of wallboard trended in the quarter?

And kind of, you typically give us an idea, kind of, where you were at the end of the quarter.

And also, with some of your competitors it sounds like they might be getting a little bit more competitive out there.

Just kind of, get a feel for what your thoughts were there kind of looking into the winter months?

Sure.

During -- prices continue to deteriorate this quarter.

I mean, they started at the front of the quarter at a pretty high number, probably at our highest number for the year, kind of the end of June timeframe.

But by the end of the quarter they had dropped to a point where we had gotten to a level where we'd given up about half of the spring increases.

So, when you look at where you started in February and what you went up in March and then in May and then we'd given about half of that up kind of through September.

Now I can tell you that it has continued to deteriorate since September and October.

We obviously -- we haven't finished the month yet, but I can tell you that pricing has continued to deteriorate this month.

Okay.

Thanks for that.

And if -- but, my math is right, if you gave about half of it back, that gets us in the $93 range at the end of the month then?

Somewhere around there?

That would be --That's a good assumption.

Okay.

And then my last question and then I'll get back into queue.

Steve, can you give us kind of your take on how inventory levels look at the distributor level now going into winter here?

We really -- that is hard for us to understand.

We don't get out and visit to every distributor.

So, that's our -- certainly, we know where our inventories are.

Our inventories are purposefully, give us a little bit of room, so that we are not up and down with our plants during the holiday period.

But it's very difficult for us to understand at any point where our customers' inventories are.

Okay.

Well, that's helpful.

Thanks a lot, Steve.

Thank you.

The following question comes from the line of Jack Kasprzak.

Please proceed with your question.

Thanks.

Good afternoon.

It looks like from the June quarter to the September quarter in wallboard, costs were maybe on a unit basis up some.

Is that the case and, if so, what was going on there?

Sure, Jack, this is Craig.

Costs sequentially were up about $6 in MSF and at least $5 of that, the vast majority of it, relates to just the volume issue, lower impact of lower volumes on our fixed cost.

Okay.

And with regard to cement pricing, I guess along the same lines as what you were just discussing with wallboard.

I mean, do you think we've seen the bottom in cement prices?

You seem to of made a more gradual deterioration in recent quarters but deterioration nevertheless.

Is that -- do you expect that to continue as well, through the winter months?

What are you seeing there?

Cement is not near as volatile, while we don't go down as rapidly as wallboard we also don't go up as rapidly.

But, the deterioration continues, although it is fairly slow and it is one off, first in one marketplace and then another.

And generally, it is in the larger, the bid projects, anything that is currently available to bid as opposed to on the day to day basis.

And so, it becomes an average of mix of who your customers are at any point in time.

But in general, you still see some nibbling around the edges, even in the general marketplace.

So, it appears that we have not quite seen the bottom yet, but we are kind of in an inflection point to where it is not nose diving.

Okay.

So, we have seen some prize letters out in some market places for January and the spring.

A lot of them are related to the fact that the industry is going to have to invest some capital and it varies from plant to plant, regarding some new environmental regulations.

And in addition, to the capital, it will increase operating costs and it really is plant specific and plant basis as to how you may be impacted.

Will you guys have to make any such investments to comply with those emission regulations?

Or, do you even know yet?

Well, it is too early for us to be highly definitive.

On a first glance basis it appears not be a major problem for Eagle's plants.

But there's, just costs associated with monitoring.

And to be in compliance, you have to monitor your stack and you have to buy the instruments to measure the emissions.

So, there's a certain amount of cost.

It is not a tremendous amount of cost.

I'm guessing for all of our plants installed it'll be somewhat less than $5 million.

But, you're going to have at least that cost and then if you do have an issue, you're going to have to mitigate it.

And that varies depending on what the issue is.

At first glance, it doesn't -- to appear to be a major problem, but we do have some minor things that we know we're going to have to mitigate.

Got it.

Also, can you give us an update on what is or is not going on with your Sacramento aggregates operation?

As far as, expansion, investing in the rail spur, or where are we there?

We continue to move ahead with permitting that project.

That hasn't slowed up at all.

Again, it's a bureaucratic process which sometimes it's frustrating.

But, we continue to make progress and we haven't slowed down at all, in that process.

What has slowed down is the opportunity in that market place.

Northern California remains very weak, particularly when you get a little bit inland.

Maybe the bay area is a little bit better but once you get into Sacramento and Sacrament south through the valley, construction in that part of the world is anemic at best.

Okay.

Great.

Thank's very much, Steve.

Thank you.

The following question comes from the line of Tadd -- Todd Vencil.

Please proceed with your question.

Thanks.

Afternoon, guys.

Hi, Todd.

So, to circle around on one of the earlier questions, you said you're deliberately slow to respond to lower volumes until you figure out, why you're seeing lower volumes.

Have you had any epiphanies with regard to, what looks like that little bit of share loss in the September quarter?

Yes, certainly we have.

Again, part of it is volume loss and you can see that.

Yes.

While we -- while we're down a certain percentage year over year or quarter over quarter, the market share is not down that much.

But, we did give up some market share.

And when we figured out the amount of market share that we gave up and where we gave it up, we reacted appropriately and are confident that we're gaining some volume back.

Any particular interesting geographic or other competitive insight that you'd want to share, as to where and what that might have been about?

I think that was kind of generally across the board.

Okay, okay.

And the cement price increase letters you mentioned, can you talk about the magnitude of the proposed increases?

Yes, they vary from, let's say, $5 to $7 depending on what market you are in.

There's -- But we do not have any market where you have all of the suppliers with a letter out.

So, generally, you don't have a lot of chance in any of these businesses unless you have complete industry support.

You think it's a little early to have all the letters out, or do you think that we're lacking support?

It depends on the timing.

I've always thought it's difficult to get price increases in the slower winter months, certainly in the northern part of the United States, and it makes more sense to go for a spring price increase.

So, we're a little early to see all letters for a spring price increase.

A little late to see all letters for a January price increase.

Got it.

And switching gears on -- in aggregate, prices look like they slid about 2.5% sequentially in the quarter.

Is there anything to say about that, or is mix a factor?

In general, that's really just mix.

Very, very low volumes anyway but, in general, that is just mix.

So, are you basically seeing stability then where you guys are in aggregate?

When we talk about the wash products, yes we are seeing stability with the wash products.

And in reality, that is a product that has a lot of value, but does not have a lot of working capital associated with inventory in it.

It just doesn't make sense to give something like that away when, you know in the future you'll be able to sell it, at a higher price.

Got it.

In the concrete business, much better average price than I was looking for.

Is anything going on there?

Again, I think that is the geographic mix primarily.

Okay.

And finally, just thinking, kind of big picture, I mean, -- I think hearing some -- hearing a fair number of stories of distress player, particularly on the private side, although there are certainly some public companies that want for cash right now, are you guys seeing any pickup in opportunities to look at assets?

We are.

And of course, this goes beyond that, really as you go downstream it -- there are more and more people requiring maybe, a little bit of help as far as receivables.

And that's something that, in this environment, we really send the bird dogs out and watch it very closely.

We try to be -- we try to understand the marketplace and our customers and understand what is available.

But, it doesn't take too much, if you are not watching it, to get in big trouble in receivables in this kind of environment.

So, that's something that we're very cognizant of and we watch very closely.

Great.

Thanks a bunch, guys.

Thank you.

The following question comes from the line of Kathryn Thompson.

Please proceed.

Hi, thank you very much.

First, I just want to clarify, you mentioned it earlier, but you wanted to clarify what your volume expectations for the remainder of the year are for wallboard?

And what does this imply for an annualized run rate for the industry?

Well I -- at best we're going to be plus or minus $17 billion this year, so down about $1 billion from last year.

And that's -- and currently, the run rate is less than that if you project it.

It's a little hard to do, because of some seasonality, although I do not know if there is a lot of seasonality left in homebuilding.

And so, this would apply, the decline in volumes for the remainder of the calendar year, at least?

That is correct.

Okay.

It seems like it would be in the low to mid single-digit decline?

Yes.

Okay.

Earlier you talked about some market share losses.

But, I didn't quite -- I do not know if you really quite clarified why you lost the market share and what you did to respond?

Could you clarify that for us?

So, first, when you see volume -- so, with the housing credit, volumes picked up in the spring.

And then all of the sudden when the opportunity starts coming down, you don't know whether it is somebody out maneuvering you or whether it's an issue that -- the pie is shrinking, or it might be some one offs specific with one of your major customers who has had a change in his customer base.

So, it takes a while to figure that out.

But --

So, which of the categories is -- was that?

A little bit of both.

I mean, primarily, the markets, the market kept shrinking.

But in addition, there was at least one, if not a couple, competitors that got very aggressive and maybe reacted quicker than we would react.

And -- But it takes us a while to understand that.

But, in this business, in this highly competitive business, with this excess capacity, you don't want to be the first one, or you don't want to be the first one to react.

You want to find out what's going on.

Once you do, there's -- we'll react appropriately and meet pricing as needed to American Gypsum and Eagle's best interest and our shareholders' best interest.

And so, for the competitor's side, was it more price driven or was there a new product or anything that impacted competition?

I think it was really price, I'll be quite honest with you.

I think again the competitors saw volumes coming down and they reacted with price.

Okay.

Speaking of new products, what are your thoughts on the new USG lightweight wallboard product?

Currently, we don't think it is a big factor.

We know it's in some big boxes.

We do -- It hasn't impacted our share of the big boxes.

But, currently, that product is predominantly being sold through the big boxes.

It has not impacted us as far as our share of the -- of volume through the big boxes.

Okay.

Any thoughts on moving to cement segments?

Any thoughts from a geographic standpoint about demand in the quarter and looking forward?

And any update on your oil grade or the -- your cement that goes to the petro industry and how that demand stands?

So, really, the one bright spot, we really do have a couple of bright spots, but one bright spot is the demand for oil services products because the oil companies continue to explore.

The oil service companies continue to drill and we continue to supply materials to help those endeavors.

And so, that has been very helpful for us, certainly out of our Texas plant and out of our Laramie plant, and we're enjoying that.

As far, as the rest of the opportunities, I would say in general, the market has continued to deteriorate.

The demand for construction materials remains very weak.

And we do not see it clearly in the backlog, we talk to our customers, remains weak, as far, as they can see.

And maybe that is six months out, but the next six months out, don't look much better than they currently are today.

So, that would imply also, just continued volume declines for the remainder of the calendar year?

Yes, and your typical winter declines in the northern climate.

Yes, and it's on a seasonal basis, you're going to see that, but just on a year over year comp, you're going to see yearly declines.

In general, yes.

You also just --

But, sometimes winters vary.

So, it depends on how harsh the winter or how mild the winter.

Okay.

All right.

It's helpful.

Earlier you also mentioned you're seeing more acquisition opportunities.

Which business segment, really?

I mean you've -- you operate in wallboard, cement and aggregates, or is it something unrelated?

Well, there's always opportunities in things unrelated, but we are seeing things in the cement, wallboard segment, really downstream primarily.

And we're not big downstream players.

And not currently -- and then sometimes we do like the aggregates business, although sometimes it's bundled with other things, it's not just a pure aggregate supply.

Okay.

Any thoughts on Lafarge and their wallboard operations in the US?

We don't.

The answer to that is, we really don't know what their plans are.

Okay, great.

Listen, thank you, so much.

Yes.

Thank you.

The following question comes from the line of Garik Shmois.

Please proceed with the question.

Hi.

Thank you.

I was wondering, Steve, if you could walk us around your various cement plants and talk about how volumes trended during the quarter?

Certainly the JV performed well on a year-over-year basis.

But, is there any material difference within the wholly-owned facilities off of the year over year performance in the quarter?

No.

It is just difficult in every market.

Currently, the market that's been the most difficult for us and remains, as we've talked about, is California.

And so, we supply into Northern California from our plant and Northern Nevada.

So, we also have the aggregates and ready mix in Northern California.

We're not in Florida, but if I was in Florida, I would tell you the same thing.

Those are difficult markets.

Those are ground zero of the housing crisis and they're problems.

So we're a little bit better in the mountain region, and a little bit better in the Chicago region, but opportunities remain difficult in both of those markets, as well.

Okay.

And can you talk a little bit about visibility in cement, it sounds like it's still very weak?

But, if we look back a year ago, safety will have expired and there's a delay in passing a continuing resolution.

We don't face exactly the same headwinds, although there's still uncertainties with respect to government spending for next year.

But, can you talk about how you see visibility from your level looking out to 2011, as it compares to where you sat a year ago at this time?

Is it any better than it was, worse, about the same?

So, the visibility is, there is still some money unspent.

I think about maybe half of the money has been spent so far, as far as the stimulus.

But, the backlogs are weak.

And so, it's just going to be stretched out, the rest of the money that's going to be spent.

And those jobs are extremely competitive.

And the fact that they're being stretched out, they're competitive not for one year they're competitive for multiple years.

So you're going to have to commit to very low, minimal margins for many years if you chase that business.

Okay.

And two more questions left, more housekeeping than anything.

Are there any maintenance expenses, if it's not facilities, in the third quarter that we should be aware of?

No.

We finished most of our major maintenance in the second quarter.

And while we have minor maintenance in some of the plants, no major maintenance is planned for the third quarter.

Okay.

And just looking at the interest expense, it came down, but then you also had the lower tax.

How much -- how should we be thinking about the interest expense going forward?

Was that related to the benefit that you mentioned in the prepared remarks and in the press release?

If you can help us, and this is a question for Craig.

Sure, I would be happy to.

About $1.5 million was the adjustment from pretax basis that ran through interest expense.

So your point -- at a run rate of about $4.6 million for the remain -- next two quarters, third and fourth quarter.

Okay.

And was the rest --.

That would be on a quarterly basis.

Okay, and was the rest on the tax line?

That's right.

The rest came through the provision.

As I mentioned, the -- excluding that one-time issue, we would have had a 21% provision for the quarter.

Okay, got it.

Thank you very much.

Thank you.

The following question comes from the line of Mike Betts.

Please proceed with your question.

Yes, thank you very much.

My first question is just a follow-up really on this plant maintenance in the cement business.

The $5 million that occurred in this quarter, can you just remind me -- I mean, I presume, last year the same maintenance occurred.

Was that spread out more evenly around, or through the year?

Was that the issue and, if it was, was it bunched in any particular quarter?

And then probably more fundamentally, Steve, I think Georgia-Pacific recently announced a closure of some wallboard capacity.

Do you expect this to be the start of another round of closures or do you think that that was a one-off?

So, the maintenance is -- that just depends on what quarter it hits.

We do the same amount of maintenance generally every year.

I think maybe, last year as we were looking at the environment we may have spread it out a little bit more.

But, typically that is not the way we like to run these facilities.

We'll typically take a two-week outage and from A to Z tear the equipment down, rebuild it properly and put it back in good working order, as if like new or better condition.

And this year we -- after we'd done that for a year and said well, rather than nibble at it one quarter to the next, we end up not operating as efficiently as we normally would.

So, this year we said we're going to go back to running these plants the appropriate way to run them.

Even though you're going to have plenty of inventory opportunities to do some maintenance.

But, when you thoroughly maintain a plant once a year on an annual basis, that's when you minimize your cost, operating costs.

So, we just changed our cycle back around to the way we've always maintained our plants.

As far as, gypsum wallboard plant closures, goodness, with the capacity we have now we need a lot of capacity closures.

Can I speak for anybody else?

Absolutely not.

So, I am not sure where we're going.

But, we clearly know that structurally there's an issue with wallboard capacity in the US.

We understand that and we know that there's a problem.

And that problem is irrespective of anyone's view on a housing recovery.

Even the most robust view of the housing recovery right now still leaves us with a lot of excess wallboard capacity and primarily east of the Mississippi.

So, with that said, that means there's going to be a highly competitive marketplace for many years to come.

Both in the wallboard business, as well as the wallboard distribution business.

We can't control the market but we can control costs and we are going to continue to drive costs down.

So, regardless of what happens, we know we are the most competitive player in the industry.

Just remind me, because I think you've given this kind of guidance in the past.

So, let's -- if we assume a selling price of $90, just to do a round number or whatever number you want within that range.

What sort of percentage of wallboard capacity in the US would be carrying cash losses at that sort of price?

It is very difficult for us to come up with those numbers.

We have shown some analysis in the past with other public companies, but anybody can take the public data available and come to whatever conclusion you want to.

You have to realize that some numbers include paper costs where our paper is a stand-alone business and we operate (audio interference) and some people have downstream integration.

And when you have downstream integration, you really never know what the sales price is internal.

Those are hard numbers to come up with, but we know that at the end of the day we always end up still making a little bit of money when our competitors are not.

Okay.

Thank you, very much.

Thank you.

And the following question comes from the line of Michael Corelli.

Please proceed with your question.

Hi, I had a question about the impact of the IRS situation.

I was a little confused, Craig, because you had said the tax would have been 21%.

And it looks like if you use a 21% rate on your pretax numbers you get almost a $2.2 million tax, in taxes and you recognize about $700,000 which would indicate there was about $1.5 million in the taxes.

And then that would indicate there was $1 million on the interest expense.

So, I think you just said the opposite, so if you could clarify that for me.

Your math is correct.

The million for the interest would be after-tax.

So, pretax it was $1.5 million impact to the interest expense line.

Okay.

Great.

Thank you.

Yes.

Thank you.

The following question comes from the line of Brent Feldman.

Please proceed with the question.

Hi.

Good afternoon.

I was hoping to get your expectations for paperboard pricing coming into the second half of the year.

It's really -- that a function of the OCC prices for us.

In all of the businesses we own, currently OCC prices are much higher than they were a year ago.

So, if there isn't a big change in OCC, we don't see prices changing much sequentially quarter to quarter.

Okay.

And then just a follow into a previous question.

Obviously, you are seeing some growth in your cement joint venture.

Should I conclude that, that 13% growth you saw year-over-year is principally related to oil services or is there something else involved there?

Part of it was the -- the biggest part of that is we had some associated with the housing credit.

There was a little jump in activity in Texas.

So, we had to be able to supply the needs of all our customers.

We remain sold out at this plant and we have plenty of opportunities to do that.

And still -- and we're still not supplying our downstream integration 100%.

So, we have the opportunity to actually grow volume even beyond this.

However, we prefer to let our downstream companies also be competitive and not only to buy from us, but also to buy from our competitors.

Okay.

Thank you.

Thank you.

The following question comes from the line of John Baugh, please proceed with the question.

Good afternoon, Steve, Craig.

My question is on wallboard as we sit today.

I guess this is for the industry and I don't think you'd be a lot different.

But, if we broke the demand into four buckets between residential, commercial, and then remodel and new construction, what roughly would be the percentages going into each bucket?

Those numbers -- so, the repair/remodel is hard to come by.

The housing is fairly easy to come by, but I still think we're not too far off, about 50% of it being residential construction.

And every time we see a little movement in new home starts, we see the impact of that.

And it still feels like we are in the 50% range.

And then the repair and remodel is just a guess.

And because -- just because wallboard gets sold to a big box, it's hard to tell whether it is repair and remodel or whether it really is some type of new construction.

The other end-- The other thing that's hard to tell is a lot of repair and remodel goes into upgrading offices when one tenant moves out and the next tenant moves in.

I do not think there is a lot of that occurring.

But -- So, those numbers are just always just hard to stay on top of and it is a guess at best.

When it comes to commercial, in general, commercial is weak.

However, there is some institutional demand and that's associated with generally, medical or hospitals or some government-type work.

Be it on some type of a base whether it be an Army base or an Air Force base, et cetera.

So, we're -- everybody is chasing the institutional-type jobs, but those things are becoming slower and slower and fewer and fewer.

And so, that in general, commercial and institutional in general, seems to be less and less of an opportunity.

Is the new construction on the commercial side including all the institutional stuff, has that bottomed from your viewpoint, or can you tell, or are we still, to some degree, working off backlog of stuff that got approved and built and started a long, long time ago before financing dried up?

I think it is continuing to bottom.

We have not hit bottom yet.

Okay.

And then -- So, I guess looking forward, you basically threw in the towel on demand through March, it sounds like, for wallboard.

I guess part of that's seasonal.

Obviously, we have a window into the new starts -- home starts being so weak.

But, it implies the remodel's going to remain difficult as well.

I don't want to put words in your mouth, but that's what I am hearing.

Do I hear that correct?

Yes, you do.

Okay, thank you so much.

Good luck.

Thank you.

The following question coming from the line of William Cram.

Please proceed with your question.

Yes, just a quick question.

I just want to get some clarification because, I'm not sure I fully understand the tax assessment situation.

So, is it, do I understand it correctly that you have $100 million that you've been assessed by the IRS in total and now you're in the process where you have to go back to the IRS to try to get a refund?

Do you expect to get all of that, half of it, a quarter of it?

I mean, can you walk me through that in a little more detail?

The way the system is structured is if you want to go to, and there's a dispute, and if we chose to go to tax court, we'd keep our money and we would not have to, have the cash flow go out.

Then you'd go to tax court and resolve it one way or another.

We don't think that's the best venue for this to be resolved.

And so, we've chosen to go to District Court.

When you go to District Court, you have to pay the tax and sue to get the money back.

So, we're in that process as we speak.

Okay, so you paid in total through this process, a $100 million and now you will go back through the courts trying to recover all or some of that, depending on, however it works out?

That's correct.

And do you know, typically, timing on these types of lawsuits?

I mean, are we talking a year, two years, less or more?

Obviously it depends on the backlog and the court that you're in.

Here we think it's one to two years for District Court.

So, it's one to two years and then it's a question of either party can appeal that.

And you're going to have a similar timeline for an appeal.

Okay, so it's most likely a couple of years before you'll see any potential cash coming back from this?

That's correct.

Okay.

Thank you.

Thank you.

And we do have one more question coming from the line of Justin Russell.

Please proceed with the question.

Yes, thanks.

One more question on the tax deal.

Was it $100 million you paid or $128 million including the 29.5 from this quarter?

Well, what we paid in -- we' have paid in the deposit earlier, let's say $70 million and with the additional $30 million now we have $100 million in total that we'll sue to get back.

And now, when you put it into deposit, that's to avoid something called hot interest.

And--

Yes.

Okay?

And so, -- but the answer is it's $100 million total that we will be suing to get back.

Got it.

And as far as on the balance sheet, it looked like I guess $29 million rolled off of noncurrent liabilities.

Was that the tax payment?

And then, is there anything, which I assume there's not, on the balance sheet for any expected recovery on the tax situation?

You're correct in the assumption that it was booked in other long-term liabilities and that was reduced by the approximately $30 million.

But, there's nothing booked on the balance sheet for recovery.

Got it.

And then, where do things stand on expectations of any sort of a new revolver?

It looks like it expires in less than 12 months?

Sure, our bank facility with an outstanding balance of $10 million matures in June of '11.

We believe that the -- our cash flows from operations provide us with sufficient liquidity.

The current market conditions provide us an opportunity to refinance the bank credit facility well before the maturity date.

Alright, that's all I have.

Thanks.

Thank you.

We have no more questions at this time, Mr.

Rowley.

Thank you, very much.

Thank you.

Ladies and gentlemen, that does conclude our call for today.

We thank you for your participation and ask that you please disconnect your lines.