Gibraltar Industries Inc (ROCK) 2009 Q4 法說會逐字稿

Welcome to the Gibraltar Conference Call to discuss its Fourth Quarter 2009 results. My name is Regina and I'll be your operator today. At this time all participants are in listen-only mode. (Operator Instructions). We'll begin today's call with opening comments from Ken Houseknecht from Gibraltar's Investor Relations department. After the Company has concluded its presentation, we'll open the lines to your questions. At this point, I will turn the call over to Mr. Houseknecht. Mr. Houseknecht?

Thank you, Regina, and welcome to Gibraltar's fourth quarter 2009 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 website.

On our call this morning are Brian Lipke, our Chairman and CEO; Henning Kornbrekke, our President and COO; and Ken Smith, our CFO. Thanks for joining us.

At this point, I would like to turn the call over to Brian.

Thanks Ken. Good morning, everyone, and thanks for being on our call today. Before I turn the call over to Henning and Ken Smith, I want to recap our continued progress in a few key areas, which have positioned us for improving results as business volumes begin to rebound. I also want to discuss the recent sale of the manufacturing assets in our Processed Metal Products segment. And then, after Henning and Ken have finished their remarks, I'll make a few closing comments before opening the call to any questions that you may have.

In 2009, Gibraltar experienced its first annual loss since going public back in 1993, something that we have been working very hard to assure won't be repeated in 2010. These results are clearly a result of the unprecedented economic and market slowdowns. However, as part of our long standing commitment to be the most efficient global producer in our product lines, we've restructured the business including aggressively cutting costs, lowering our breakeven point, implementing a series of processes to substantially reduce working capital, preserve cash, pay down debt and strengthen our balance sheet.

Our accelerated efforts in 2009 were strategic in nature and built on the substantial progress we've made in recent years to lower our overall cost structure. Specifically, in the last two years, Gibraltar has closed 38% of its facilities, a great majority of which were distribution centers, a move which cut costs and protected manufacturing capacity without affecting customer service. We reduced employment by 37% and approximately 70% of those reductions are permanent and are directly related to facilities which were closed.

Working capital was reduced by $164 million or 47% through structural efficiency gains driven by the elimination of inventory and closed distribution facilities and tighter controls and improved processes at continuing operations. We also paid down $230 million or 47% of our debt, reducing our debt to its lowest level in nearly seven years. At December 31, 2009, Gibraltar had total debt of $257 million lowering its debt to cap ratio to 33%.

Earlier this month, we sold the majority of the manufacturing assets in our non-core Processed Metals segment. This sale finalized our exit from steel processing businesses and established us as a manufacturer and distributor of products for the building and industrial markets. This transition from steel processing included the sale of our steel strapping business in 2006, the 2007 sale of our Hubbell Steel business and the 2008 sale of our SCM powdered metal business. It also involved 21 acquisitions in the building and industrial markets over the last 12 years.

I also want to make note of the cash realized from our Processed Metals segment. As detailed in the press release, the aggregate cash being realized from this business is very important. We extracted cash from this business throughout 2008 and 2009 and coupled with the cash from the sale on February 1, 2010 and the subsequent liquidation of remaining assets, we will realize cash in excess of $95 million.

The proceeds from this liquidation have been and will continue to be used to reduce debt. Looking further ahead, we expect to deploy this capital to strengthen our product leadership positions in higher margin, higher growth building and industrial businesses, which we believe will generate higher and more consistent returns for our shareholders than Processed Metals was capable of delivering.

I also want to reiterate that our productive sales capacity following this sale and following our restructuring activities and prior to any acquisition activity is still in excess of $1.1 billion. With our new substantially reduced cost structure, we estimate our breakeven point to be in the range of $650 million.

We expect 2010 to be a better year favorable to 2009 and a return to profitability even with the projected very modest improvements in residential construction and repair and remodeling. The vast majority of all restructuring activities and costs are now behind us and we start 2010 with a stronger balance sheet, improved liquidity and a better alignment between raw material cost and selling prices compared to how we entered 2009.

Slight improvements in end market activity levels can produce meaningful gains in profitability as we saw in the middle two quarters of 2009. Modest gains in volume will be levered against a much lower cost structure and as volumes increase during 2010 and 2011 and into the future, we believe we have positioned the new restructured Gibraltar for record setting performance.

The actions taken since 2007 were not simply a reaction to prevailing economic conditions. Although we did cut cost in the short-term, but more importantly we're focused on repositioning the company to generate improved returns for our shareholders over the longer term.

Finally, as our end markets begin to show more signs of a sustainable recovery an operating environment that we hope will solidify later this year, we'll begin to step back into the acquisition arena.

With that backdrop, I'll turn the call over to Ken.

Thanks Brian. And I'll begin with slide number three which lists significant results from the actions taken and noted earlier by Brian. The cash generated has positioned Gibraltar with very good capitalization and equally important ample liquidity, which is approximately $100 million as of today.

Turning to slide number four, depicting our fourth quarter and 2009 results in more detail. Regarding the numbers on the slide, they do include the Processed Metals product segment as part of continuing operations for 2009 and prior periods. Although as Brian noted, the majority of this segment was sold subsequent to year-end as announced on February 1st.

Regarding revenues, fourth quarter demand was sluggish and unit volumes fell with weaker than expected business conditions in the building and industrial markets together with lower price realization on certain product lines. But in spite of significantly lower revenue, we reported a substantial improvement in fourth quarter operating income and earnings per share compared to the fourth quarter 2008, which was largely the result of our aggressive cost reduction actions and greater stability with commodity pricing.

For the full year operating income, much lower unit volumes coupled with the sale of higher priced inventory both of which more than offset our significant cost reductions. And free cash flow was exceptionally strong again in both the fourth quarter and the year with the largest source of cash coming from the reduction of working capital.

Moving ahead to slide five entitled net income and earnings per share, Henning will review the performance of both segments in a couple of minutes, so I'll discuss the other significant P&L differences. Our corporate expenses for the full year decreased. The largest reductions were in annual bonus compensation, a 50% reduction in staffing at our corporate office and spending reductions in discretionary programs.

Net interest expense also decreased. As mentioned earlier, the aggressive spending reductions and the outstanding free cash flow contributed to continuous debt reduction during these periods and therefore a lower interest expense.

Regarding our lower income tax expense for the 2009 period, the principal driver has been the much reduced level of profitability. The effective tax rate for 2009 was 33%, down from 37% in 2008. The nearly 400 basis point decrease was largely due to a portion of the intangible impairment not being deductible for tax purposes.

Turning to slide six, free cash flow, it was outstanding in 2009 at 14% of revenues. The lower customer demand in 2009, our need for working capital went down and you can see the nearly $100 million generated from that. We also reduced in 2009 our CapEx and suspended the cash dividend early in the year. By Q4 2009, we lowered our quarter's net working capital days to 69 days from 97 days in the fourth quarter of 2008. So faster turns also occurred, particularly with inventories.

Turning to slide number seven, we reduced our borrowing significantly in 2009 as we mentioned and ended the year with a reduced and very manageable debt-to-capital relationship. Although we do not show the debt levels at the end of the September 2009, at that date we had paid off our revolver and total borrowings included $200 million of sub debt and $58 million on a term loan.

During the fourth quarter 2009, we decided to borrow against the revolver and fully pay off the term note, since the revolver has a lower interest rate. As of December 31, 2009, total debt included $50 million outstanding on our revolver and $70 million of availability against it.

Our outstanding borrowings against the revolver are now lower than year end. Today we have $15 million borrowed on the revolver and the reductions since year end is principally due to the use of proceeds from the February 1 sale of the Processed Metals business all of which contributes to the company currently having $100 million of liquidity today.

Now, Henning will review our segments' results and discuss the current operating environment.

Thanks Ken. Even though our sales in the fourth quarter were down 25% compared to the prior year period, the result of the economic and end market conditions that Brian and Ken have described, we were able to increase our consolidated gross margins to 20%, primarily due to the efficiency gains we made in 2009. As a result of our much improved gross profit, we generated income from operations in the fourth quarter of 2009 compared to a loss in prior year.

Looking first at our Building and Industrial Products segment on slide eight, you can see that fourth quarter sales were down 28%, result of reduced year end buying patterns by customers looking to reduce inventory by year end, weakening conditions in the industrial, international markets and adverse weather conditions across much of the country compared to the fourth quarter of 2008.

In spite of significantly lower activity levels, the 2009 fourth quarter gross margin increased to 20.2%, up 790 basis points and the operating margin improved by 340 basis points to 4% compared to the fourth quarter of 2008.

Our aggressive cost reduction initiatives, improved operating efficiencies, favorable product mix and better alignment between inventory costs and product pricing were the key drivers of the margin improvements.

Moving on to slide nine, the Processed Metals product segment had a sales decrease of 14% in the fourth quarter compared to Q4 2008, but turned in higher gross and operating margins in 2009 as the North American order production strengthened in the final three months of 2009 and selling prices came into better alignment with raw material costs later in the year. Despite a steady improvement through 2009, this business turned in a full year loss.

Now let's turn to slide ten. We sold the majority of the Processed Metals products business on February 1, 2010 and beginning thereafter that business will be reported as a discontinued operation in Gibraltar's future financial statements. We thought it important though to show you a pro-forma presentation of our 2009 results, both fourth quarter and full year, with only our Building and Industrial businesses remaining in continuing operations.

The steps we've taken to restructure our Gibraltar portfolio allows us to focus our resources and capital on those areas which we believe will produce the highest returns for our shareholders, our Building and Industrial Products businesses. We have a number of continuing initiatives to improve the operational efficiency and profitability of our Building and Industrial Products business, where more than 80% of our sales come from products having leading market share, which position us for higher levels of performance as end market demand begins to rebound.

At this point, I'll offer a few comments on current business conditions with slide 11 as a backdrop. In spite of unexpected weakness in the fourth quarter, we believe that the economy and their end markets are on the front end of a recovery. We see the first quarter reflecting a similar environment and challenges to what we faced during the fourth quarter. Sales will improve in the first quarter with the improvement continuing throughout the year.

Some of our businesses are experiencing increasing sales in the repair and remodeling market. Coupled with expected seasonal increase in demand, we are anticipating a return to profitability in the second and third quarters and for the full year.

Based on market studies we have seen, we are expecting a 2010 increase in housing starts as the gradual recovery begins from the historic and unsustainably low levels reached last year. Continued population growth that as a demographic continue to present favorable long-term trends. Because we have lowered the cost structure of all our businesses that sell into this market, even slight increases in demand are expected to translate into significant performance improvements. We anticipate that the non-residential building industrial architectural markets, which remained strong until late 2008, will continue to contract in 2010, but the slowdown will lessen in the year ahead.

By category leading product positions and our participation in markets that are fairing better in the down turn, like energy and infrastructure, will help offset the impact of lower demand. We'll also benefit from greater stability and material pricing in the year ahead and the permanent structural changes we have embedded throughout Gibraltar. We will keep inventory levels low. Our remaining businesses where raw material cost as a percentage of selling prices are significantly lower, further reduces our exposure to large swings in material pricing.

While the structural changes to our business are helping in the short run even though many of our efficiency gains have been massed by the unprecedented volume declines in our end markets. More importantly, they are part of a long-term strategy to position Gibraltar as the low cost provider and market share leader in product areas that individually or collectively offer the opportunity for margin enhancement and sales growth over time.

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

Thanks Henning. In spite of the worst economic and market conditions in decades and although not visible on the bottom line, Gibraltar did make measurable performance progress in 2009. We carefully restructured our business, aggressively cut costs and significantly lowered our breakeven point. We implemented a number of actions to substantially strengthen our balance sheet and improved the performance characteristics and growth profile of our company. And now after the recent sale of Processed Metal Products segment, we are a single focused company.

We end the most difficult year in our history, stronger and better positioned than we began it. I want to thank and acknowledge the people on the Gibraltar team for generating progressive improvements in all of our businesses and setting in place a firm foundation for new levels of performance and success while working under very difficult conditions.

We believe our current manufacturing capacity will support $1.1 billion of sales, which provides ample opportunity to grow as the markets we serve continue to improve. We are continuing to find ways to optimize the efficiency and output of our current operations. And while our focus is still on preserving cash, closely managing expenses and de-levering the balance sheet, we will reenter the acquisition marketplace as our end markets continue to show more signs of a sustainable recovery.

We believe our strategy is sound and will deliver solid operating performance improvements and growth in shareholder value as the economy strengthens in 2010 and future years.

With that, we will open the call to any questions that any of you may have.

(Operator Instructions). Your first question comes from the line of Peter Lisnic with Robert W. Baird. And your line is open sir.

Good morning, this is Josh Chan filling in for Pete. As you guys look at your end markets in the Building Products segment, new residential, repair, remodel and commercial. How much did sales decline in each and then where was the unexpected weakness that you saw?

We generally don't break it down in any of the financial information that we disclose. But I think it's fair to say that commercial is where we saw the most significant weakness and in the retail area was I think going both to the new and repair and remodel markets with many of our major end customers taking the normal action that they take although possibly this year to a greater extent to reduce inventories before their fiscal year ends. We saw a fairly substantial reduction there as well.

Okay. And then I was wondering also if you could talk a little bit about pricing also in Building Products. It sounds like it was a modest positive in the third quarter and then somewhat stable in the fourth. How did pricing exactly trend through '09 and then what do you expect for 2010?

I think in 2010 and we are assuming at this particular point that our material pricing is going to be somewhat stable in following the trends that have been forecasted. We see our pricing very much in line with those trends. We tend to price very competitively in the marketplace. We will continue to do that. Our focus primarily is reducing our cost to manufacture and cost to distribute products. We delivered a very competitive role and as Brian noted in his comments and I did as well, we are intent in staying competitive on a global basis in all our product lines.

The big difference for 2010 compared to 2009 of course is the fact that because of the rapid escalation of steel pricing during 2008, we entered 2009 with a high priced inventory in a declining raw material cost environment. This year we are not entering it with a high priced inventory and it does not appear to be a declining raw material cost environment. So those are big factors and why we are optimistic about improved performance in 2010 over 2009.

And don't forget, the biggest contributor to that issue that Brian just described was our Processed Metals group, which is no longer in the mix.

Okay. And then finally if I look at your adjusted SG&A level for this quarter, it seems higher than the other quarters of the year, but sales were the lowest. So are you spending ahead of better expected demand or are there some unusual items in there this quarter?

In there it is -- we instituted a revised long-term equity compensation program in the second half of 2009 that moves us to performance shares and as opposed to time vesting equity awards previously. So that new program ties us to how our stock price performs against a peer group of not nearly a dozen companies and we had an uptick of small performance to that that we didn't have before.

We are just complying with the latest SEC reporting requirements and that really moved unfortunately a lot of expenses forward that normally would not be there. So I guess we are saying -- Ken has said the same thing, it's a one-time occurrence.

Okay. Is there a way to quantify the approximate impact of that?

I think those are at -- about $900,000.

About a million.

Alright, thanks for your time.

I think we should point out that how that plan works is there is no guarantee that that expense will actually ever be taken. It will be driven over the next three years in our stock price performance against the set of peer companies. If we underperform, that expense that was taken in this quarter might not be paid out, but yet we had to account for it as if it was. So what we've done here is make a move that we believe is the best practice today relative to executive compensation where a larger percentage of equity compensation is now performance based as opposed to simply time based. In other words, if you are here under the old system, you got the grant. Now it's based on achieving set performance criteria in order to get it. Unfortunately, though, you have to account for it as if you already got it when you haven't.

Your next question comes from the line of Robert Kelly with Sidoti & Company.

Gentlemen, good morning.

Good morning.

Good morning.

If you could for Building Products, the price and volumes trends year-on-year for 4Q and 2009?

Could you repeat that please?

What was price, what was volume for 4Q Building Products year-over-year as well as 2009?

We are checking some numbers here to see if we can get you that.

Volume was down 17% and price was down 11%.

That's for 4Q?

Fourth quarter.

Got it. And then for the full year?

Volume was down 20%, price is off 10%.

Okay, got it. All right, thank you. Corporate expense, your corporate line jumped significantly 4Q compared to 3Q about $3 million, what was the driver there?

Well, part of it was this change in our equity compensation program that we talked about, plus we had our external audit year fees are recorded when the effort is put forth by the auditors. So we had a sequential emphasis on the audit effort in the fourth quarter compared to what was performed by them in the third quarter. And we also had some one-time reductions in the third quarter that did not repeat.

Okay. So what sort of run rate should we expect for the corporate line in 2010, closer to what we saw in 4Q or what we saw in like the earlier part of this year, '09?

The earlier part of 2009.

Okay. So $4 million to $5 million in that range?

I think and as I think we all talked to and I know Brian did, I did, and I think Ken did, we focus heavily on reducing our expenses, we are also focused heavily in reducing SG&A. We know our corporate expenses we like to keep not much more than 2% of sales.

Okay, understood.

We were a little higher than that, but the reason that the percent was higher is because our sales have dropped off so much. But we're looking at that very carefully; our objectives are still the same.

Okay. As far as Processed Metals, in the release you talked about the $95 million cumulative cash, did you offload some debt as well with the sale of Processed Metals?

Yes we did.

So that was incremental to that 95?

Yes.

Okay. And then the remaining assets, what do we -- is that real estate, is that equipment?

It's primarily real estates and receivables.

The biggest part is receivables. On real estate, we have one building --.

Yeah, we have one building.

That's valued at $2.7 million or something like that and $23 million on receivables --.

Okay, great.

Of which we've already collected about half in the last three weeks since the sale.

Okay. And then just as far as repair and remodel, the home centers are saying for 2010 low single-digit growth, is that kind of your expectation for repair and remodel market?

Yeah, they are talking 2.5% to 3% for us. I think we've seen a little bit more than that and the reason why I say that they are talking total sales growth for the total store. If you go inside of their stores, you'll find the areas that we participate have had growth higher than that. Our growth in our area and they are saying they are probably in the 5% to 6% category.

Okay. Thanks very much.

(Inaudible) is the total store. We don't participate in total store, but the departments we do participate in have seen better growth last year and we anticipate better growth this year.

They talk lawn and garden and washers and driers and all kinds of appliances, yeah. With the repair and remodel, a big part of repair and remodel is repair and even if houses aren't being sold, people have to maintain the house that they are living in.

People are going to fix their leaking roof for instance and we participate in that thing. We do anticipate the higher sales and in fact we did see that going through 2009.

Your next question comes from the line of Mark Parr with KeyBanc Capital Markets.

Great, thanks very much.

Good morning Mark.

Good morning.

Good morning. I just wanted to get back in on this. I think I missed some of the comments on the SG&A outlook. Are you talking about a $4 million to $5 million increase in '10 versus '09?

No, we are not.

Okay. Do you think is there a chance SG&A could be down from '10 from '09?

Yes, we do.

All right. And I guess looking at the $6 million upside sequentially in SG&A in the fourth quarter from the third, you had $1 million which was a non-cash accrual for this stock-based compensation plan?

Right.

And then there was what a couple of million dollars of Sarbanes--Oxley related external audit fees?

Well, the sequential rise was only $2 million.

Okay. And then what was the other $3 million of sequential upside in SG&A?

I think we had of the $2 million, it was $900,000 on equity comp, there was I think $200,000 or $300,000 on the audit fee of incremental compared to what we had in the third quarter.

Yeah.

And I am not sure what we had in the rest of it.

But it just looked like a big sequential upside given the weak seasonal year end from a revenue standpoint I guess?

I think there was a lot of issues that we cleaned up at year end which is usually the case. Some of them were for one-time expenses that happened to move into the fourth quarter, but we don't anticipate that continuing through the next year quite the opposite actually.

Fourth quarter is not a run rate quarterly level.

It's not an indicator of what's in front. We had finished a lot of the details, a lot of the positioning we had gone through and again it's more than anything else, a catch up of all the expenses. So, you will see the run rate in 2010 will be as I indicated about on target.

Okay. All right, one other thing. Brian, just as a suggestion, seeing as how you are essentially becoming a single reporting segment company as you move into 2010 and you got about a 60/40 split or 70/30 split between residential and commercial. I'd just encourage you to think about maybe breaking -- at least giving us a little better insight in terms of the relative performances against those two end markets if you can?

I think Mark that we would say that it's really not residential and commercial. It's really Building Products and Industrial Products and we'll be very specific and I think you will see the strategy unveil as you go through 2010 of what is an Industrial Product and what is a Building Product. Inside of the Building Product there is a split between residential and commercial, but that's -- primarily on the building product side. If you look at our business today, we are probably about 60% building and 40% industrial and we will be clear as we go through the year just what's in those two categories.

Mark, just to give you -- to clarify a little bit, I think when everybody thinks of commercial, they think of office buildings. That's not where we are. Where we are and we call it industrial is we sell things like bar grading as a simple example. It's the stuff that you walk on in a factory environment to the oil and gas business, to the water purification business, to sewage treatment plants and facilities of that nature along with infrastructure for bridges and roads and --

We sell a large volume of industrial stair treads and a lot of different applications and Brian had mentioned a few of them. We also get into some industrial door openings. So we've got a fairly broad -- we've not talked about it in the past, but we will going forward talk about the spread and where the product alignments are. So you will get very comfortable with it I am sure.

Alright. So, Henning, looking at the mix for '09 and those two relative to your entire segment you said 40%?

Is industrial.

Is industrial. What you characterize or categorize as industrial? And then the 60% that's Building Products, how would the split there be between residential and commercial?

About 70% is residential and about 30% is what we call commercial. Commercial, and it can go both ways. We are the largest supplier of metal lath. Metal lath is used both in commercial and residential buildings and again the split there is about 70/30.

Okay.

On what we call the residential.

On the residential side, okay. Just one other thing if I could?

One other point here, on the residential there is a split in that with new build representing only about 40% of the sales and the other 60 --

It's actually been higher than that, Brian. I think we are close to 80% on rebuilds.

On repair and remodel --.

On repair and remodel, and only 20%, 25% on new activity.

Alright. You would look for that mix to improve as the new construction bounces off of this cyclical trough?

Sure.

That would, yeah I could certainly.

More like 60/40, but I think the good news is that it's always been more repair and remodel because that's more consistent than new build.

I mean the business that we have that really participate in the repair and remodel and we look at them regularly. If their sales are off, but they're not off that much, they are off on an order of just the magnitude 7%, 8% and they've remained in those patterns where the other businesses that are directly on the new are off considerably 60%, 70% from their high point. But that's -- I mean again as we go forward and now we are more focused as Brian had said in the Industrial and the Building Products, we will be providing more information. It gives you a much better picture on what we really are.

Okay. And so we look for that beginning with the first quarter 10-Q?

Yes.

Okay, terrific. And then just from a housekeeping standpoint, do you have any guidance you can give for the tax rate for 2010 and for interest expense?

Tax rate, Mark, will probably be around 37%, 38%.

Okay.

I think our interest is going to be less than 3%. We are running about 3% of sales right now and again it's going to depend on our sales level, but I think right now we are about 3.2% and our target is more or like 2.5%. As we pay down debt, we would very much like to get it back to 2%.

Okay. And then I guess, I am sorry to keep doing this, but you've been through this multi-year cost reduction process. You've clearly had some cost reduction activity that unfolded over the course of 2009. Can you quantify the change in '10 versus '09 in terms of the cost reduction? How much incremental can flow through as the stuff at the tail end of '09 works through into 2010?

You mean how much benefit is left in 2010?

Yeah, relative to '09, yes.

I think in 2010 we will see the full benefit of all the reductions. Many of them were implemented in '09 half year, et cetera. So we should see the full benefit. With the volumes that we are thinking about at this point, we would see gross margin improvements on the high end of close to 5% and the mid range close to 2.5%.

Okay, terrific. Okay, thanks.

And Mark the other way to look at it, we figure that our breakeven point now is somewhere in the range of $650 million which talks a lot about the kind of cost we've taken out of the business.

Your next question comes from the line of Jamie Sullivan with RBC Capital Markets.

Good morning. It's Mike Salinsky filling in for Jamie this morning.

Good morning.

Right. I have few questions for you. I noticed you had mentioned some of your retail partners were taking some actions to control their inventories at the end of their fiscal years. With some of those big guys, their fiscal years don't end until January. Did you see any additional -- have you seen any additional activity on that through January of 2010 or did it get any better or worse during that time?

They typically do. They squeeze pretty tight right through the fourth quarter and to the end of January and then they start relooking at their requirements which they have done. We have had meetings with them and looking at their sales activity and fortunately our areas did fairly well. So they've already started to start to place orders as we get into 2010.

Great. And speaking of orders on some of your non-retail products, things that might be more customized, are you seeing an increase in quoting activity? Are people asking for more and more ideas about products that they can buy from you?

Yeah, we have. I think that's some of the good news why we feel optimistic about 2010. A lot of businesses ran their backlogs down to zero, but we now see the backlog starting to build and a lot of the backlogs are related to those custom orders that you just referred to.

In the industrial space.

In industrial, yeah.

Could you sort of remind us -- is there a substantial margin difference between customized orders and things shipped to retail partners?

I think there is a better margin when we are making something to their specification.

Okay, great. Just to change gears, was there any FX effect in your fourth quarter sales numbers that was substantial?

No.

No. Okay, great. Then as far as I know you had mentioned your commodity prices and the prices that you charge to your customers were aligning going forward. There is -- obviously, there is going to be -- there is a potential for some instability there. Have you seen with the elimination of processed metals from your business portfolio, have you seen -- is that going to be a little bit more under control going forward or -- ?

Absolutely. We've done studies on our material costs as a percent of sales and I think we are very encouraged as we go into 2010.

You have to keep in mind too with the processed metals business, particularly the remaining piece that we sold, raw material costs as a percentage of sales were the highest by a wide margin of all of our businesses. And as a result of that, when raw material cost represents such a large percentage of selling price, any swings in raw material cost create great volatility. The other side of that promise, if raw material costs fall in that business it's generally quick. The customers are quick to demand the decrease and many times you are giving the decrease in selling price before you have lowered your inventory cost and that's different than in the building products world.

Yeah, in the world that Brian referred to, in most cases we run indexes with our customers and unfortunately some of the indexes were 30-day indexes and that's an issue we had certainly in '09 that clearly will not be part of 2010's landscape for Gibraltar.

That's why I mentioned in my prepared comments earlier that we will be able to generate not only better margins, but hopefully more consistent margins, absent the processed metals volatility.

Got it. All excellent points of course. Just one quick last one. With respect to the seasonality of your building and industrials businesses, do you expect to have a little bit more smooth sales going forward on a quarter-to-quarter basis or do you still expect to see a late fourth quarter, early first quarter sort of trough every year?

Well usually building products comes out slow in the year and then starts to pick up as the weather improves and people get into the build cycles. Typically March is the beginning of that. I think that will prevail.

Industrial products will tend to be flatter during the year and since industrial products will have more weighting in the total mix that we have currently, we would expect that to help level off. In fact, in a normal market, usually the industrial products will tend to be a little stronger in the front part of the year historically.

And we are not in a normal market yet, I think, we are starting to return and believe that we are. We are in the front end of it which we've indicated. And I think as that happens you will see that I think that flattening as we go forward.

So, in the retail de-stocking and inventory control initiatives, is that the only factor affecting sort of first quarter sales and results or are you still seeing lot of the weakness elsewhere?

I think the biggest factor and we don't how to quantify it was the weather. The weather in US has been the worst that we have ever seen. That's certainly affecting January, February. As we speak, we are bracing for another storm in the Northeast where they are talking up to 2 feet of snow. So that does have impact on building products, and usually delays the spring build-up and we are seeing that we know in this first quarter.

We are watching that storm right now. Thanks guys.

Okay, thank you.

(Operator Instructions). The next question comes from (technical difficulty).

Hello, can you hear me?

Sure, we can hear you. We couldn't hear the operator.

Okay. Sorry, the operator was coming through kind of quiet there. So with the sale of the processed metals segment, can you give us an update on what your sales capacity for the new footprint of the company is? I think before you --

(Inaudible) footprint. Yeah, we have done a lot of different studies. Brian had commented that we can do at least the 1.1 billion. Based on 80% utilization, is the recent study we did, we can actually going to 1.4 billion with the, let's call it the manufacturing footprint and distribution footprint that we currently have. So, you can see that we can almost double the current volume that we have, unit volume, through the businesses that we currently are running.

What is your current utilization?

Our current utilization is down around 40%, 45%. Most almost all of the businesses are running a single shift five days a week. Some of them do less than that, some run four days a week on single shift. Typical utilization for most businesses and ours is the same, we run it on six days, two shifts.

Okay. And as far as -- with the excess cash that you guys have, I think you mentioned that you are looking at reducing debt. There is about 58 million or so left in the term loan I think as of the last quarter. Is that the primary focus for you guys as far as reducing debt?

I think in the short-term and Brian mentioned that, we are looking at reducing debt. Brian also mentioned that we're looking very closely at growth opportunities for Gibraltar as we go forward.

Ken commented though that, as of today, our availability is $100 million versus where it was at quarter end, primarily due to the asset sale and the collection of receivables related to the Processed Metals business. But yes, the answer is still the same. We are just starting from a little better point but the focus is still on managing cash very carefully and paying down debt as much as we can to build up as big a war chest as we can so that when we get comfortable that the economy has in fact stabilized, is on a positive trend. We will then begin to step back into the acquisition arena. And I should point out, we haven't stepped out of it. We are still very actively reviewing strategic candidates and bolt-on acquisitions at this point in time, but we are not quite ready to step back into the arena just yet but we are watching all the companies that we have on our radar screen very closely.

All right. Thanks. And going to the first quarter, I am not really asking for guidance here, but the excess free cash flow covenant, it looks like you guys pro forma the sale are sort of right around that level required to prepay some of the term loan. Do you suspect that you may hit that in the first quarter?

In my prepared remarks, we said that we in the fourth quarter of '09 paid-off the term note.

Sorry, I didn't hear that, didn't catch up.

We did so by borrowing against the revolver because the revolver had a lower interest rate. And at the end of December '09, we had the $50 million outstanding on the revolver that's now reduced down to $15 million borrowing against debt.

Got it. All right. Sorry about that. Thank you. And, what is --

And we will be comfortably above our fixed charge covenant.

Okay, perfect. What is that maintenance CapEx now with the sale of processed metals?

Well, it's probably $8 million to $9 million but we do have some incremental ERP installations that we are continuing to install this year. So, CapEx this year will probably be in the $15 million range.

All right. Thanks very much guys.

Ladies and gentlemen, this concludes the question and answer portion of the call. I would now like to turn the call back over to Mr. Lipke for closing remarks.

We completed 2009 in one of the most difficult operating environments that I have ever experienced in my career and Henning is a little older than I am and he said it's the most difficult he has ever experienced as well. We've worked very hard though in spite of our bottom line performance to position the company to be able to return to generate improved returns and that will, we are optimistic, create better shareholder returns over the long term.

We thank you for your patience and understanding through this period. And, I can tell you we are intently focused on making sure that 2010 is a return to profitability. Thanks for participating in the call today.

Ladies and gentlemen, this concludes our presentation today. Thank you for your participation. You may now disconnect. Have a wonderful day.