Gibraltar Industries Inc (ROCK) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to the Gibraltar conference call to discuss its fourth-quarter 2008 results. At this time, all participants are in listen-only mode.

We will begin today's call with opening comments from Ken Houseknecht from Gibraltar's Investor Relations Department. After the Company has concluded its presentation, we will open the line to your questions. (Operator Instructions).

At this point, I will turn the call over to Mr. Ken Houseknecht. Please proceed.

Thank you, Damali, and welcome to Gibraltar's fourth-quarter 2008 conference call. Before we begin, I want to remind you that this call contains forward-looking statements about future financial results. Our actual results may differ materially as a result of factors over which Gibraltar has no control. These factors are detailed in the Company's 10-K, which can be viewed on Gibraltar's website at www.gibraltar1.com.

If you did not receive the news release on our fourth-quarter results, you can get a copy on our website. A set of the presentation slides that we will be referring to during this call is also available on our site.

On our call this morning are Brian Lipke, our Chairman and CEO; Henning Kornbrekke, our President and COO; and Ken Smith, our CFO. Thank you for joining us. At this point, I would like to turn the call over to Brian. Brian?

Thank you, Ken. Good morning, everyone, and thanks for being on our call this morning. I am going to focus my comments on two areas. First, I will provide an overview of our fourth-quarter and 2008 results. And then to set the stage for a more in-depth review of our financial and operational results from Ken Smith and Henning, I am going to comment on our strategy and its impact on our short- and longer-term results. And then following their presentations, I will provide some wrap-up comments before opening the call to any questions that any of you may have.

I don't think I need to say this, but I will anyhow. These are clearly unprecedented times in the economy of the United States, and for that matter, around the world. Gibraltar had a solid year in 2008 in spite of the most difficult financial and economic conditions in decades. We've been feeling the effects of this slowdown since the fourth quarter of 2006, which worsened during 2007 and again in 2008, and then worsened dramatically in early November.

In spite of this, for the full year, Gibraltar generated top-line growth, a double-digit increase in earnings per share, reduced working capital, significantly paid down debt and continued to streamline and consolidate operations, while refining our business portfolio.

The double-digit increases in sales and earnings achieved through the first nine months of 2008, including significant margin expansion, had Gibraltar on a path for what could have been record profitability had the volume levels achieved in the first three quarters carried over to the fourth quarter. I only point this out to show how our aggressive actions to streamline our operations as part of our longer-term strategy to be the low-cost provider of our products are paying off, even in depressed economic conditions. I think that bodes well for our longer-term outlook.

As you know, business conditions deteriorated sharply in the last two months of the year, and as the downturn in both the automotive and housing markets worsened, the fourth-quarter auto build fell by 27%, and housing starts came down by 42%. The collapse of the credit market led to a sudden and severe slowdown in previously strong areas, like the commercial building, architectural and industrial markets, both in the United States and in several countries around the world where Gibraltar has operations. This situation was further complicated by an unprecedented drop in commodity raw material prices in the final three months of the year.

So together, all of this made for an extremely difficult operating environment in the fourth quarter, sharply lowering our unit volumes, which was reflected in much lower sales and, of course, lower earnings.

During the first three quarters of 2008, in spite of further deterioration in the auto and housing markets, weakness that continued from 2007, Gibraltar was able to generate near-record EPS. I think this is a clear indication of the leveraging of our lower cost structure, driven by the actions that we took during 2007 and 2008.

These results also allowed our stock price through the first nine months of the year to surpass the performance of several markets, the Dow Jones Industrial Average, NASDAQ, the Russell 2000 and the S&P Small Cap 600, to name a few. Our operating performance also allowed Gibraltar's stock to outperform these indexes on a full-year basis, as well.

While the structural changes to our business are helping in the short run, more importantly, they are part of our long-term strategy to position Gibraltar as the low-cost provider of and marketshare leader in niche product areas that individually or collectively offer the opportunity for margin enhancement and sales growth over the long term. We believe our strategy is sound and it will deliver solid operating and share price performance gains when the economy eventually begins to strengthen.

So to sum up my comments quickly, in spite of the severity and the length of the downturn, which is now in its fourth year from the auto and housing markets, we continue to make progress streamlining and improving Gibraltar's operating efficiency, which has strengthened our ability to successfully weather this slowdown. More importantly, this sets the stage for marked improvements in our results when economic and end market conditions begin to improve, as we lever a lower cost structure against improving volumes.

I just need to take one quick minute here. I want to publicly thank and congratulate the 3000 men and women on the Gibraltar team for their excellent work in this very, extraordinarily difficult market that we are in today.

That concludes my opening comments. At this point, I will turn the call over to Ken Smith for a financial overview.

Thank you, Brian, and I will begin with slide number 3, which looks at key categories of Gibraltar's fourth quarter, as well as full-year 2008 results.

The P&L amounts shown on this slide are Gibraltar's continuing operations, which means that the divestiture of our SCM copper powder business in early October 2008 has been removed and reclassified to discontinued operations. The full-year 2008 compares very favorably to '07, with revenue growth and expansion of margins and EPS. However, as Brian noted, 2008 was comprised of two very different periods.

One period was the first nine months of '08. Although there were challenging end-market conditions for the third successive year in residential housing and automotive, we had excellent results in the first nine months of '08, well above expectations and favorable to 2007, which resulted from the incremental effect of accretive acquisitions made in '07, higher price realization, the resiliency of certain end markets, such as commercial construction and industrial markets, the savings from previous consolidations, plus 2008 cost actions. Plus, our deleveraging, coupled with falling interest rates, yielded lower interest expense.

The second period of 2008 was the fourth quarter, with an operating loss. In October, we began to feel some of the effects from the financial markets and related credit freeze. The economy further decelerated, and essentially every end market we serve slowed down. Starting in early November, customer orders slowed dramatically, including minimal order levels from automotive OEMs and their suppliers. And we had some one-time costs, such as a $3 million increase to our accounts receivable reserve for a bankrupt customer, which was a Tier 2 auto supplier. All of these factors in the fourth quarter certainly curtailed our full-year 2008 financial results.

Speaking more specifically about the fourth quarter, both the segments' revenue decreased, and each was essentially down by double digits as compared to the fourth quarter '07, largely both volume-related. Our fourth-quarter '08 operating income was severely compressed, due significantly to the lower unit volumes, as well as lower price realization on certain product lines.

For the year, we still generated an increase in sales, benefiting from the increase of our '07 acquisitions that were added to our Building Products Segment, which provided incremental sales of $73 million in 2008.

And as previously cited, we achieved a double-digit increase in earnings per share from continuing operations for the year, with strong results in the first three quarters more than offsetting the slowdown at year-end.

Free cash flow at 7% of sales was very solid performance in '08, which was primarily driven by increased profitability as compared to '07.

I'm now going to move to slide number 4, net income and earnings per share. Henning will review the performance of each segment in a couple minutes, so I'll discuss the other significant P&L differences, starting with corporate expenses, which decreased in the fourth quarter as a result of reductions in variable incentive compensation, insurance programs and professional fees.

For the full-year 2008, corporate expenses rose, largely due to higher variable incentive compensation, based on the 25% year-over-year earnings per share improvement and a 20-day decrease in our working capital investment, as well as a -- corporate expenses for the year also had a $1 million non-cash charge in Q3 to write off some software no longer in use.

The decreases in our net interest expense for the quarter and year resulted from lower average borrowings as we delevered by nearly 30% during 2008, and lower average interest rates as compared to the prior-year periods.

Income tax expense increased for the full year 2008 due to higher pretax earnings, but mitigated by a 2008 effective tax rate that was 240 basis points lower than the prior year. The lower tax rate in '08 stemmed from a decrease in our overall state taxes rate and some discrete adjustments made during the year.

Moving to slide 5, our free cash flow was very solid at 2.4 times net income, or 7% of sales. We generated, as you can see, more cash from increased profitability. Not quite as much cash was generated from working capital and discontinued operations as compared to '07. Nonetheless, working capital days at just under 80 days at the end of December '08 is the Company's lowest level achieved so far, and we are continuing efforts to drive that number lower.

Now let's turn to slide 6, the balance sheet, where the use of free cash flow can be shown. Total debt in 2008 was reduced by $132 million for the whole year, and in the fourth quarter alone, $72 million. And for the last 15 months, down $200 million, significantly lowering our debt to capitalization over those same time periods.

Although not shown on slide 6, our leverage ratio also decreased steadily during 2008 to 3 times as of December 31, '08, well within our loan covenant of a maximum 4.25 times trailing EBITDA.

So it's a good picture here on our financial condition. Looking ahead, we are expecting to comply with our loan covenants in 2009. We have been instituting a number of measures to help comply with two key covenants, leverage ratio and interest coverage. Actions being taken include further working capital reductions, more selective CapEx spending, additional reductions in our cost structure, including SG&A expenses, along with a suspension of our quarterly dividend to further reduce our indebtedness.

At this point, Henning will review the performance of our two segments, discuss current business conditions, as well as outlining steps we are taking to optimize our performance.

Thanks, Ken. As a result of the sharp and sudden deterioration in the economy during the fourth quarter, our companywide gross margin of 11.9% for the fourth quarter 2008 was a reduction of 3.9 percentage points from the fourth quarter of 2007, and our operating margin decreased to a loss of 3.1%.

For each segment's performance, let's turn first to slide 7, our Building Products segment, where there was a fourth-quarter sales decline, which is directly tied to the effect of the deepening slowdown in the new-build housing market and the downturn in the commercial building, architectural, industrial and international markets, all of which had been resilient through the first nine months of the year.

The fourth-quarter gross margin in this segment was 13%, a decrease of 490 basis points from the fourth quarter of 2007. For the full year 2008, revenues in the Building Products segment rose, primarily from the incremental effect of acquisitions in 2007, which offset unit volume declines at our businesses selling to the retail and new-build housing markets.

The margins were hurt by much lower unit volumes and the FIFO effect on margins in some of our product lines, as material costs and product pricing declined. For the year, our operating income and margins were relatively flat in spite of the market turbulence and volatility, a result of our improved efficiency and relentless cost reduction activities.

Turning now to slide 8, our Processed Metal segment had a very solid year with a very tough fourth quarter. The fourth-quarter decreases were primarily the result of unit volume declines resulting from the 27% drop in fourth-quarter auto production. The fourth-quarter gross margin was 7.4%, a decrease of 70 basis points from 2007.

This segment's fourth-quarter operating margin was the result of steep unit volume declines and the unfavorable FIFO impact I just discussed. It was worsened by a nearly $3 million charge for an automotive-related customer, a Tier 2 supplier, that filed for chapter 11 in December.

For the full year 2008, sales in this segment were down, primarily the result of a lower North American auto build, which was down 18% compared to 2007. Nonetheless, its improved operating income and 7.2% operating margin were due to savings from the 2007 consolidation of Strip Steel businesses from three facilities into two, other cost reduction activities and better alignment between material costs and selling prices.

Now to slide 9, which provides a recap of our recent divestiture. On October 9, we issued a news release announcing the signing of a definitive agreement to sell our powder metals business, SCM Metal Products. We closed on this transaction on November 5, 2008. While SCM had been a good business, it did not fit the strategic direction that our Company is moving in. The sale of SCM reinforces our focus on long-term strategic objectives.

At this point, I'll offer a few comments on current business conditions and refer to slide number 10. Due to the high level of uncertainty in the general economy and the related effects on residential construction and North American automakers, we are not providing numerical guidance for 2009. We will continue to control our spending throughout 2009 to ensure that our costs are appropriate for existing sales volumes.

We see the first quarter as being very challenging, with only marginally better earnings than what we generated in the fourth quarter of 2008. We are expecting an operating loss in the first quarter as results will continue to reflect the extremely difficult global economic environment. We are anticipating a return to profitability in the second quarter, aided by an expected increase in seasonal demand, although sales are likely to be unfavorable when compared to the sales in the second quarter of 2008.

We continue our aggressive efforts to maximize liquidity, pay down debt, and reduce costs, which included reducing our employment level by 28% from September of 2007 to February 15 of 2009. And we will take additional actions if market conditions warrant.

Through our team's focus and tenacity, 2008 results were 25% better than 2007. However, the challenges of the fourth quarter remain, a lackluster economy and depressed building and automotive markets. Improvements in market conditions is not expected until the third or fourth quarter of 2009.

We remain focused on a number of steps to optimize our results through operational excellence, tight expense control, decreased working capital and aggressive marketing. Our progress in each of these areas has strengthened our ability to successfully operate in this slowdown and has enhanced our core margins, provided a platform for growth and established a stable basis for improved shareholder value.

At this point, I will turn the call back over to Brian.

Thanks, Henning. As we make our way through these difficult economic conditions, our strategic focus remains unchanged. We are positioning Gibraltar as the low-cost provider and market share leader in niche product areas that individually or collectively offer the opportunity for margin enhancement and sales growth over time.

We have good people running our businesses, and we further strengthened our team in 2008. We are continuing to embed the processes and systems that are essential to running a larger and more complex business with improved controls and greater efficiencies. We are focused on generating progressive improvements in all of our businesses, carefully managing our assets, maximizing our cash flow to pay down debt and help fund growth, while continuing to transform Gibraltar into a company that produces higher and more consistent margins and better returns on capital.

In short, we are focused on getting through these difficult times by making changes to our business that will help us weather the current economic storm and prepare us for a return to record-setting performance in the future.

We will now open the call up to any questions that any of you may have.

(Operator Instructions) Mike Cox, Piper Jaffray.

Good morning, gentlemen, and nice job weathering through a tough economic backdrop. My first question is on the debt level. I know you touched on this in the prepared remarks, but as you sort of stress test the '09 outlook, where do you kind of see some of these leverage ratios maybe peaking out? And do you see the potential risk of bumping up against the debt covenants?

Well, one of the big variables in answering that question specifically is demand levels. As we all know, as we look across the headlines and most industries, including manufacturers, the demand outlook is not very certain for very far into the future. And so that kind of being my opening answer to the question.

But if we -- and we do expect some gradual improvement in demand. And as we flexed our expected financial performance, we would have less cushion as we approach most notably September, where it may be the tightest. But it's a lot of runway between now and then, and many of the actions that Brian and Henning described, we're acting on and have acted on to help us ensure passage and stay [with the plan].

To answer your question, I think, more directly, we have stress-tested with volume decreases as much as 30%, and we still comply with the covenants that we have. So that should give you some confidence that even with significant decreases in volume, we are still running the Company within the covenant compliances that we do have.

Okay, that's great. And that is down 30% for the full year?

Yes.

Oh, wow. Okay. That's great. And working capital in 2009, it sounds like you are doing a lot to take more out. Is that correct, and should we see that as a source of cash in 2009, and maybe directionally cash flow from operations in '09 compared to '08?

We are looking at working capital decreasing. I think we have a realistic target of 70 days. Ken talked on it. We had 77 days, which is down from 98 days the previous year. We think the 70 days is realistic; we have a set of internal targets that are even more aggressive than that. I think we would all comfortably say that we will hit those targets.

Okay, great.

One thing I will add to that, too. We have slightly altered our management incentive compensation plan, particularly for the division operators, which includes a substantial portion of their incentive tied to achieving working capital targets. So there is a reason for them, not only because it's the right thing to do, but also because it would be financially the right thing for them to do as well.

Okay, that makes sense. And my last question, if I could. You have made a lot of facility consolidations and rationalizations over the past two years. Anything that is planned at this point, or is that something that you are just going to continue to monitor through 2009? And at what point do you feel like you start cutting into muscle, I guess, in terms of closing facilities?

I think it's something Brian mentioned earlier. It is a way of life for us. We intend to be and in many cases are a low-cost producer on a global basis. We have been consolidating facilities for, I think, probably four or five years. We will continue to do that. We are in the process now of finalizing some of the closings that we had started at the back end of 2008. I think we are comfortable with the size that we have right now. We can operate within the revenue limits that we've talked about earlier.

Is there more? There is probably less that we can close going forward, given the size of our Company. And I think we're really posturing as the markets do return, and Brian talked about that, for growth. We've always been a growth company; we will continue to be a growth company. And we've found good ways of optimizing the facilities that we do have.

Let me just add, too, that when we look at the number of facilities that have been closed, a lot of those were more regional distribution centers than manufacturing centers. As we look at our productive capacity today, we believe that easily we can get to $1.6 billion, $1.7 billion in sales with the existing footprint that we have today.

So we have not cut into the productive output capacity of the Company. We've simply streamlined our ability to manufacture and put our products in the hands of our customers.

If you remember several years ago, one of the key focuses that we had talked about, it was to reduce our distribution costs. And we have been working very hard on that, and that is where a lot of these consolidation efforts have been focused.

It's probably fair to say that a lot of the volume increases we've gotten, we have gotten through efficiency, not by adding capacity. We've gotten ourselves to be more efficient. So we have never been focused on building more capacity rather than making the capacity we had more efficient, and that is really where we've gained the advantage.

Let me put it just a little differently. From '07 -- sorry -- the end of '06 through now, we've got 25 fewer facilities, we've got 1000 fewer employees, and yet we generated more sales in '08 than we did in any of the previous years.

So that, I hope, is an indication not only of our ability to continue to manufacture at higher levels, but also how much more efficient we have made this business in the last couple of years, although unfortunately, a lot of that efficiency has been masked by substantial volume declines.

And I think just to finish up on this point, many of our facilities today are running on a one-shift basis and some are running on shortened weeks, as well. So we've got a lot of available capacity. We haven't limited our upside, but we have very strategically gone through a consolidation effort that has yielded what we think will be, not only in the short term aid our ability to weather this downturn, but in the long term, as we start to pick up volume, we should see a real positive leveraging impact of this lower cost structure on that additional volume.

Okay. That's very helpful. Keep up the nice work, guys.

Brett Levy, Jefferies & Company.

You mentioned the 70 days on the working capital front. Can you put a dollar amount around that and when you expect to realize that in terms of debt reduction or cash generated?

I think it generates 60 -- our controller is telling us $50 million.

$50 million to $60 million. I think it's 60.

$50 million to $60 million. And again, we do intend to apply that to reducing our debt hurdles.

Over what time frame?

During the next 12 months.

Yes.

All right. And then in terms of the tightest of your covenants, what are they, and where is availability sort of as of today, or as recently as you can tell us?

Well, there's a leverage ratio that the covenant itself is a maximum of 4.25. At the end of '08, we were at 3.0. There's a second covenant for interest coverage, which has a minimum of 2.75. And at the end of '08, we were a little over four times, so well over the minimum.

And so, we are taking both the profitability measures that we described in our remarks to help us on the EBITDA portion of those equations, as well as we've got some further balance sheet asset reductions that we've talked about, particularly working capital and CapEx investments, that can advantage us as well on reducing debt during this period coming up.

Last question, is those covenants are on an LTM basis? And also, is there any room in your -- or allowability in your bank agreement to buy back bonds, I supposed, and are you at all inclined to do so?

Those EBITDA numbers in our covenants are the last 12 months, so they are trailing year. And repayment or retiring bonds that are currently trading below par, there is a protocol in our loan agreements that says that we have to apply debt reduction first to the revolver and then to term notes before we get to the subordinated notes.

Unfortunately, because that would be a pretty attractive use of capital at this point.

Agreed. Thanks very much, guys.

Tim Hayes, Davenport & Company.

Good morning. Just a couple questions. Can you quantify the FIFO hit in Q4?

Yes, we can. Our controller's looking through his chart. I have a number in the back of my head, but let me just confirm it.

Okay, I can ask my next one if you'd like.

Sure.

The $3 million write-down for the Accounts Receivable in Processed Metals, was that all in COGS, or does any of that go down below the COGS line?

It is recorded in SG&A expense.

So all in SG&A?

Yes.

All right. And what about -- looking at the '09, what is your guidance or outlook for corporate expense? And then on CapEx, can you -- we have, I think, $20 million or so for maintenance thereabouts. Any room to take that lower?

We are looking at reducing our SG&A to a percentage we think is appropriate for us to remain a low-cost competitor. You will hear this a lot on a worldwide basis.

We believe that -- our target has always been 10%. Right now, with the reduced revenues, it is probably pushing into the mid-12s. We believe that 11 would be appropriate, even on reduced revenues. So we do have that target.

Okay, and then for CapEx.

For CapEx, we are not going to delay any projects that are critical to the business. We have a number of systems projects which are going forward. Internally, we are looking at CapEx at probably approximately about 50% of depreciation. Our depreciation is about $27 million a year.

So in other words, in answer to your question directly, we are going to be pushing CapEx below that $20 million number that you had thrown out.

Obviously, the arithmetic tells you, we're looking at 14 or 15.

Sure, sure. Okay, that -- and then if you had that LIFO figure -- or FIFO figure, please.

He's still running his calculator.

Okay. Well, anytime --.

Before we finish Q&A, we will answer that.

That's fine. Thanks.

Peter Lisnic, Robert W. Baird.

Good morning, gentlemen. Do you mind talking about what you are seeing in the end markets? Obviously, the numbers on [resi], we can all pretty much look at. But just kind of what's happening in your industrial end markets and the non-residential construction markets, what you've seen over the past couple of months, starting in the fourth quarter, and what the outlook there looks like for '09.

I think the industrial markets that we participate in tend to be fairly resilient. I think they are more reacting to what the rest of the economy. Our folks are pushing hard in those markets. I think that they are going to be fairly stable as we go through the year. Of course, with the general economies, more money can be put back into infrastructure, which will encourage a number of the products that we do participate in in that particular arena.

The building market, of course, is the lowest that we've ever seen it. I saw a number of 530 units at the end of December. Although as you go around the country, there are segments of the country that actually are starting to see improvements in both remodel and new housing starts. Clearly is not Phoenix, it's not south Florida and it is not Las Vegas. But there are other parts of the country that are starting to anticipate pickups, and we are starting to see some of that in some of our businesses.

It's interesting, the business where we do have very strong market share, they've done fairly well during the year, with only modest declines in unit volume. And they've continued to move in that same direction.

Great on that. And then just in terms of some of the fiscal stimulus that is coming down the pipe, how optimistic are you that that helps this year or next, and any sort of quantification in terms of magnitude?

We probably don't believe it helps very much this year. We think some of what the markets are going through are starting to now -- to improve. But I think it's a natural improvement. It has sort of hit a floor. Things are starting to stabilize a little bit. I think they will continue to stabilize during the year, and that's what the economists are indicating as well.

I think the stimulus, you'll start to see some money into infrastructure. We don't think it will start to be visible until the third or fourth quarter. It's going to help us to some extent of course.

One area you did comment on was auto, and the projections for this year for auto are down substantially from where they were for last year. Interestingly enough, from what I understand, the build rate for this year is estimated to be less than the number of cars that end up going to the scrap heap each year.

So I guess in a perverse way, that tells me that some time, we are going to start to see a pick up there.

Does that have any bearing on what you might do with Processed Metals in terms of looking at the return profile of the business over the long haul there?

I think you are going to see the return profiles in that business improve substantially. Even if you look at the results we had from '08, you can see the improvement in operating margin, even in the much lower unit volumes.

And that was driven, to a large extent, by the fact that we consolidated three full plants down into two last year, and that gave us -- clearly it gave us a boost in our operating performance there. So we think we've got that business on a much better platform than --.

Than it's ever been on.

Than it's ever been on.

And that is where the investments we made on the system's side is really proving its worth.

Okay, and if I could switch gears really quickly. Just in terms of the leverage ratio, reading through the bank agreement, sometimes it's hard to decipher what sort of add-backs you get or what add-backs the bank gives you in terms of calculating EBITDA. Do you mind maybe taking us through what the add-backs are that you would be able to put through the EBITDA number relative to the covenant calc?

If -- we have non-cash restructuring charges. So if we exit a facility and we are now going to market it for sale and we've got to take a $1 million write-down on the cost basis to market, that $1 million would be an add-back.

Do you know the number for the trailing 12 month EBITDA number, what the add-back was for the fourth quarter?

I think it was around a couple million dollars.

Okay, all right. And then when you do that 30% volume shock to stress test the covenants, what sort of decremental margin are you assuming?

We are looking to (inaudible) -- to leveraging our gross margin, we are taking the gross margin down fairly aggressively. So it is not a best-case scenario. I think it is a realistic scenario. We've taken the gross margin down. We do that -- in fact, we took it down to 12%.

12%. Okay, that is very helpful. Thank you very much for your time.

We are trying to manage -- because of the lack of visibility, we are trying to make assumptions based on very conservative if not pessimistic outlooks, and then direct our actions internally to make sure we can withstand those. Now hopefully, it won't be as bad as these projections are, but our thought is that we can't take the chance.

No, it is not easy, so good job on trying to adapt to a very difficult environment.

Thank you.

The answer to one of the previous questions about the FIFO effect on the fourth quarter, it is an estimated decrease on the operating margin of about 500 basis points, and on EPS, about $0.25 to $0.26.

Jamie Sullivan, RBC Capital Markets.

It's [Mike Schluski] here in for Jamie today. Most of my questions have been answered, so I will just give you one or two of the ones that are left.

With respect to the pricing atmosphere, I know that a lot of the products that you guys produce are only produced by you. But to the extent that you have competitors in some of your products, you are finding people are wanting to sell at any price and is that affecting your ability to get pricing levels to be stable year-over-year?

No, we don't find -- and I think the reason is there has been a lot of material volatility during the year. It has been tough to get materials. I think that has sort of kept people from trying to buy their way into the market. I think people are focusing on restructuring. We don't see a lot. We haven't seen much of it in '08, where pricing was taken down to unprecedented levels just to get the business. That hasn't been the case. And we see very little of it so far in '09, although it is early.

One of the reasons that our strategy calls for us to be the marketshare leader in niche products, the more dominant we can make our market share, the less vulnerable we are to that. And when we consider that we are capable of manufacturing and distributing our products on a nationwide basis, and we do that with many of our products, it makes it pretty difficult for a regional guy to come in and try to get a little piece of business simply by cutting the price.

The thing I would add, when you think about that, we are very competitively priced in all our products. We don't think we are taking unreasonable margins in anything that we sell. We've always taken a realistic view. So one would say in our product lines, we are hard to compete with. Again, we have very aggressive pricing. We supply optimal value to our customers. I think our customers agree with that.

We don't give competitors much room to get underneath us. It gets back to our philosophy of being a low-cost producer. We provide good values to our customers. I think they recognize that. And the bottom line is there is not much room for competitors to get underneath us.

Got it. Got it. Is there any pushback from any of the major retailers that --?

No, we work very closely with our large customers. I think we've had good relations with them. And again, we exhibit the same philosophy with them. We try to provide optimal value. We take the view that it has to sell through the stores, and we have to make sure our customers are competitive. And we work closely with them in making sure they are.

Okay. All right. And one other thing, kind of housekeeping. Do you plan to release different -- more revised quarterlies that will take out the SCM powder metals numbers for the first three quarters of 2008, just so we can kind of compare and do our forecasts year-over-year?

If you send me your e-mail address to KWSmith@Gibraltar1.com, I think we have those splits.

Great. Thanks so much.

Tim Hayes, Davenport & Company.

A couple more questions. On that FIFO range that you gave, was that sequential or year-over-year?

That was sequential.

That's what I thought. And then finally, what was the D&A in Q4 for Processed Metals?

Hold on and we will dig that out. Do you have a subsequent question while we are --?

No, I do not.

We will provide the answer before we finish Q&A.

Okay, thank you.

(Operator Instructions) Marty Pollack, NWQ Investment Management.

Your forecast clearly does seem to want to paint a worst-case scenario. The 30% decline you're projecting --

We didn't say we were projecting a 30% decline. We said that we stress-tested the Company up to a 30% decline. We are not forecasting a 30% decline at all.

I apologize, you're right. I didn't mean to say that. But okay, with regard to that stress testing and not violating the covenants, I'm just wondering, where does SCM -- in terms of the SCM, if you exclude those revenues, is that --?

SCM is not in any of the testing we've done. That is discontinued operations. It has been taken out of everything we do.

So effectively on that stress testing, it would be organic year-over-year.

That is just continuing operations.

Okay. Just wondering with regard to the two business segments, the greatest potential for, let's say, successfully being able to maintain profitability -- or I should say mitigating the loss, is that in the process side where you could have the biggest swing in terms of that business? It seems that the costs here probably will come down, so that -- just if you would, describe the segments. Where could you find the best support in terms of --?

I think we are very comfortable with the support we are getting in Building Products. It is by far the largest segment probably; it represents 75% to 80% of our sales in 2009. We've taken a number of steps in both segments to substantially reduce the operating characteristics to run those businesses. So we don't feel overly exposed in either one of them.

One is obviously a process-driven business. We can tell you that we are down to 1.5 plants as we run, so we've already made some additional changes in that to streamline its costs. We've made the same kind of changes in our Building Products segment. I would tell you we are comfortable on both ends. We don't believe that we have any significant mitigating cost structure issues on either one of the segments.

With regard to, again, to deal with being able to have a backstop on those covenants despite a 30% decline, I'm just wondering, what kind of implied decremental margin are you really expecting in a sense to be able to weather that?

Again, two questions over there. We've stress tested it with margins that get extremely low, but that is not what we are expecting. So I want to make that clear. We haven't given any guidance. We did indicate that we thought we would have a loss in the first quarter. We also indicated that we would have -- we'd be profitable in the second quarter.

We are still, at this particular point, telling you very clearly we believe that we will comply with the covenants. I think generally one can put the numbers together to certainly understand what our EBITDA would look like in those instances.

Okay. Thank you.

Just to answer two other questions that were previously posed. One was on the quarterly splits in 2008 that would be on a continuing ops basis without SCM. We will be filing our 10-K this afternoon -- we are expecting to. And there is a schedule in the back of it that at least shows the consolidated company by quarter without SCM, that total up to the consolidated full-year totals on a continuing basis.

And then the second question was asked, in the fourth quarter '08, how much D&A was in our Processed Metals segment. That was 1.3 million out of a total D&A in the fourth quarter of 8.1 million.

Since you have no further questions, I would now like to turn the call back over to Mr. Lipke for closing remarks. Please proceed.

Thank you. Clearly these are unprecedented and very difficult times. I can tell you the entire management team and every member of the organization is focused on providing the best results that we possibly can in this very difficult environment. While we've taken a lot of aggressive actions over the course of 2007 and 2008, I can tell you that we are far from done, and we are going to continue to react to this environment as conditions warrant.

We are doing everything that is in line with our long-term strategy of being the low-cost producer, and I think that ends up positioning us well for both 2009 and weathering this storm, as well as a positive outlook as volumes begin to return, maybe later this year or in 2010.

Thank you all for your continued support, and we look forward to talking with you again at the end of next quarter.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day.