TriMas Corp (TRS) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the First Quarter Earnings 2005 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].

As a reminder, this conference is being recorded Tuesday, May 10, 2005. I would now like to turn the call over to Skip Autry, Chief Financial Officer of TriMas. Please go ahead sir.

Thank you and welcome to our First Quarter 2005 Conference Call. The President and CEO, Grant Beard and I will review TriMas’ first quarter performance. To facilitate the review, we have provided a press release and a PowerPoint Presentation on our Company website, trimascorp.com. After our prepared remarks, we will have a q-and-a session for the audience.

Also present with us today is TriMas’ Bob DeLucci [ph], our Vice President Finance and Treasurer and David Mosseller [ph], our Director of Finance for Operations. A replay of this call will be available later today by calling 800-633-8284 with the reservation number 21246376.

Please note that certain information on this call may be forward-looking and contain statements based on our current plans, expectations, assumptions, and environmental trends, which may affect the Company’s future operating results and financial position. Such statements involve risks and uncertainties which cannot be predicted or quantified and may cause future activities and operating results to differ materially from those discussed. These risks are more fully discussed in our filings with the SEC.

At this point, I would like to turn the call over to Grant Beard, our President and CEO.

Thank you Skip, and welcome to the TriMas 2005 First Quarter Earnings Call. On today’s call, we shall discuss our first quarter financial highlights, the operating highlights for the quarter. We’ll profile our financial performance review of the Company’s capitalization at the end of the quarter, and the review the remaining priorities and focus of the Company for the remainder of the year.

For those of you that are following along with our posted slide deck, I’d ask you to please turn to page 3 entitled “2005 First Quarter Financial Highlights”. TriMas had sales of $292.7 million in the quarter, representing an increase of $31.8 million or a 12.2% over the first quarter of 2004. Excluding steel surcharges recovered from customers, sales increased a solid 6.2% over the first quarter of ’04 on an organic basis.

With the exception of our Cequent Transportation Accessories group, each of our business segments had strong year-over-year revenue growth in the quarter reflecting our new product introduction initiatives, market share gains, and overall economic expansion.

When adjusted for recovery of steel prices, sales levels at Rieke, Cequent, Industrial Specialties and our Fastening Systems Group increased 10.4%, 1.9%, 15.0% and 3.5%, respectively, on a unit volume basis.

Our adjusted EBITDA within the quarter was $32.7 million, representing a $2.6 million or 8.6% increase over the first quarter of 2004.

The Company reported first quarter operating income of $23.2 million, an increase of $3.1 million over the operating income of the first quarter of 2004. The operating income reported in the quarter does include a negative gross margin impact of approximately $1.5 million due to steel cost increases not recovered from customers. However, expenses related to plant consolidation and restructuring activities did decrease by $3.9 million to $1.5 million in the quarter compared to $5.4 million expense in the first quarter of ’04, reflecting the conclusion of our Legacy activities.

While TriMas posted operating earnings growth, this growth was modified by pricing compression in our Cequent’s retail aftermarket business and from increases in non-steel material costs including plastic resins, energy, and freight.

Our first quarter net income was $2.5 million or $0.13 per share versus first quarter 2004 net income of $2.2 million or $0.11 per share. This represented an increase in reported net income of 13.1% in quarter-over-quarter.

Turning to the next slide, increased steel costs, while moderating did continue to challenge our operating margins within the quarter with their most direct impact on our Cequent and Fastening Systems businesses. As stated, unrecovered steel costs negatively impacted EBITDA within the quarter by approximately $1.5 million. Steel availability, however, is no longer an issue and pricing on steel is expected to be stable as we move into the second quarter of ’05.

TriMas believes it is currently recovering approximately 85% of steel cost increases from customers via pricing; however, as stated we were also challenged during the quarter with additional cost increases, including amounts paid for resins, energy, and freight. And these increases are not expected to retract as we walk through the quarter in front of us.

TriMas did end the first quarter with $813.4 million of combined debt and receivables securitization. This is compared to the $786 million we had at year-end, and the $792 million we had in the first quarter of 2004.

The approximate $27 million of increase in leverage from year end is due primarily to higher accounts receivable balances at quarter end as a direct result from increased sales during the quarter. The Company’s bank LTM EBITDA was $149.2 million which supports our lending ratios of 5.45 and 2.25 respectively. The Company’s leverage level did increase as expected due to our working capital investments within our after-market business units. These working capital levels will be significantly reduced within Cequent as we move through the second quarter.

Turning to the next slide, our Cequent Transportation Accessories Group saw first quarter sales increase $11.1 million to $140.6 million, or 8.6%, from the amounts reported in the first quarter of 2004. Excluding the impacts of steel, sales in the quarter increased 1.9% over the prior quarter on a unit basis.

Cequent did experience softer than expected demand for towing products in its wholesale distributor and installer markets due to adequate inventory levels held in these respective channels.

Significant competitive pricing pressures did impact margins across all channels, but most predominantly, especially within our retail channels.

Sales in Q1 of ‘04 were extremely strong as you remember as customers bought forward via steel-related price increases, and this does impact the q-over-q comparison performance. This Group’s adjusted EBITDA in the first quarter decreased $1.4 million to $16.9 million from the $18.3 million level in Q1 of 2004.

Quarterly operating profit was $12.3 million, or 8.7% of sales compared to the $13.8 million, 10.7% of sales in the first quarter of a year ago.

Coming through the quarter and into our selling season, our order fill performance has been excellent. We do see continued pricing pressure is expected as market demand remains flat, and we are experiencing continued competition from Southeast Asia in many of our product categories.

Cequent is aggressively implementing actions to address the challenges relating to earnings performance and we’ll talk about those a little later in the presentation, and is facing the potential of a softer than expected selling season.

Turning to the next slide, with our Rieke Packaging Systems Group, we had net sales for the quarter of $34.1 million, or up 12.2% compared to the first quarter of 2004. Our core product sales volume increased approximately 4%, while new specialty dispensing product revenues increased to $4.3 million in the quarter, or an increase of $1.7 million over those product levels in the first quarter of ’04.

Rieke launched 8 new pump dispensing products within first quarter of 2005 and expects continued momentum over the remainder of the year from our strategic specialty dispensing product initiatives.

Operating income for first quarter of ‘05 did increase $1.3 million to $7.3 million, 21.3% of sales from a level $6 million, or 19.6% of sales in the first quarter of ‘04.

Our order intake during the first quarter increased almost 20% compared to the first quarter of a year ago, and Rieke expects overall demand to remain solid as we work our way across 2005.

Turning to the next slide, within our Fastening Systems Group, our first quarter sales increased 14.2%, or $5.5 million to a level of $44.2 million in the first quarter. Excluding steel price increases recovered from customers, the year-over-year sales increase on a unit volume basis was about 3.5%.

Sales of industrial fastener products remained strong in the quarter as our Lake Erie Products Group was able to reduce its unshipped order backlog from approximately $7 million at year end to less than $2 million at the end of the quarter.

Sales of our aerospace fasteners in the quarter increased almost 9% compared to the prior year as strong industry plane build forecasts for 2006 and beyond continued to drive increased buying to replenish inventory levels at Airbus, Boeing, and their supply base.

Our order backlog within our monogram business at quarter end is $19 million, and this represents an all-time record.

Operating income for the quarter was $800,000. This represents a $2.4 million improvement from the operating loss in the first quarter of ‘04 of $1.6 million.

Our adjusted EBITDA in the quarter was $2.3 million compared to $100,000 in the quarter a year ago. Pricing realization is expected to lag underlying cost impact into the second quarter of this year. The Group expects to recover approximately 90% of increased steel costs via pricing and surcharges for the remainder of 2005.

For the quarter, incremental costs associated with Lake Erie Products’ restructuring activities decreased $1.8 million between years as the consolidation of our Lakewood facility has been essentially completed.

Manufacturing levels have reached targeted production levels at our Frankfort and Wood Dale facilities, and now the primary focus within our industrial fastener business is revenue growth with the restructuring and replotting firmly behind us.

Both our fastening SBU’s at Lake Erie Products and Monogram expect continued momentum as they work across the remainder of 2005.

Turning to the next slide, within our Industrial Specialties Group of Companies, we had net sales in the first quarter of $73.8 million, an increase of 18.4% compared to the same period a year ago. This was driven by new product introductions, market share gains and economic expansion, especially in our oil refinery business. Excluding the impact of steel, year-over-year sales within the Group increased approximately 15%.

Within our units, Lamons had a record quarter of sales and benefited from significant oil refinery “turnaround” activity with major customers such as Exxon, Dow, BP and Citgo.

Sales at our Arrow’s Engine Company increased some 56% versus the year ago period as we continued to benefit from high levels of drilling activity in the U.S. and Canada and beyond and this is supported by high commodity prices in both oil and natural gas.

Our Compac business saw sales in the quarter to be flat year-over-year, and this was attributable to really a slowdown in the commercial building market.

Our Norris Cylinder Company saw sales increase 14.2% after adjusted for steel over the prior quarter period with a strong backlog of activity coming into the second quarter. And our Precision Tool Company is beginning to see real growth in its strategic initiative of selling into specialty medical applications. Revenue within the Company was up 12.8% in the quarter as compared to Q1 of ‘04. The Group’s operating income for the quarter increased 10.7% to $8.5 million from the $7.7 million level a year ago. Its adjusted EBITDA for the quarter was $10.4 million compared to $9.5 in the period a year ago.

For the quarter, incremental costs associated with facility consolidation and other restructuring activities decreased $600,000 between years as the move into Compac’s new facility was essentially complete and all other Legacy restructuring activities are now behind us.

Compac did complete the sale of its former Netcong, New Jersey facility within the quarter. The Group as a whole does expect continued momentum again as it works its way across 2005.

Turning to the next slide, Skip will profile our financial performance within the quarter.

Thank you Grant. Before I summarize the financial performance of our first quarter, let me highlight a few points. As Grant mentioned, first quarter sales in all of our segments increased over prior year. Sales increases after removing pricing related to higher steel costs were about 2% in Cequent Transportation Accessories, a little over 10% at Rieke, 3.5% at Fastening Systems, and 15% across our Industrial Specialties businesses.

Operating profits and adjusted EBITDA increased in line with the sales increases at Rieke, FSG, and ISG. At Cequent profits declined primarily due to lower margins in our retail channel. We believe that situation will improve as we continue to push for pricing increases in that channel and continue to source more of the products that we sell in that channel offshore.

As you can see, corporate expenses have leveled off in the $20 million to $23 million range on a full-year run rate basis. Restructuring costs decreased below $2 million in the quarter compared with over $5 million a year ago. This amount was reduced from last year’s presentation by about $2 million to conform the data to SEC requirements.

Turning to page 10, debt increased as expected in the quarter. This increase is due to the quarter-over-quarter, prior quarter increase in sales and related receivables, offset somewhat by a minor decrease in inventory. Bank LTM EBITDA stood at $149.2 million yielding a 5.45 leverage ratio versus the covenant of 5.5 times.

At this point, I’d like to ask Grant to wrap up our prepared comments.

Thank you Skip. Turning to page 11 entitled “TriMas Corporation - 2005 Focus and Priorities”, in the first quarter of ‘05, TriMas did achieve substantial year-over-year sales and earnings growth within our Rieke Packaging Systems, Fastening Systems and Industrial Specialties business segments. If you think about TriMas as 14 individual SBUs, 12 of our 14 businesses we believe are exceptionally well-positioned to maintain this positive sales and earnings growth as we move through the remainder of ‘05.

That said, our Cequent Transportation Accessories Group does have potential earnings challenges within its Towing Products and Consumer Products businesses given the following considerations; we have seen coming through the first quarter and I guess see looking forward flat market conditions at best for our Towing Products unit. Competitive pricing pressures, especially in retail are not expected to abate. Recovery of material price increases within this channel has been very difficult, and because of the increase in material prices, this channel is moving faster than expected to support price versus Legacy-branded quality. Material cost inflation, steel and plastic, steel we do not expect to continue to rise, but we’re not seeing, we’re expecting great retreat and plastic has moderated, but is certainly up year-over-year.

Overall unit volume weakness began to manifest itself in March with a little pressure on our EBITDA, which is why our leverage ratios moved up a little bit higher than we expected. We continue to see that weakness as we moved across April as compared to prior selling seasons. And while the selling season can’t be called, it’s way too early for that, we do have some measured concern, which is going to drive us into proactive action. So therefore, in reaction to the potential of a softer expected selling season, Cequent is implementing the following; we have initiated in the quarter that we’re in about 10% salaried headcount reductions. We have looked to lower production levels in our factories, and really look to sell off of stock and build to order as we work very diligently to bring down our working capital levels.

Within the retail channels especially, we do have certain product families that we are negotiating for additional price relief as we speak. We will put sort of extra, if you will, discipline around discretionary spending as this group of Companies works its way through ’05. We will continue to shrink our fixed cost base and utilize our high-quality, low-cost manufacturing basis, and we will continue to increase our import levels of certain accessory product lines. This group is expecting to double its import levels year-over-year compared to ’04.

Turning the page, our key initiatives within TriMas at a macro level continue to be working capital reductions that is most focused in our after-market group, and increase free cash flow. Our free cash flow will positively be impacted by much lower investment levels in ’05 in CapEx and really a dramatic reduction in nonrecurring activity within ’05. These two certainly will aid in driving substantial debt reduction as we move towards year end.

SG&A costs are being flexed across TriMas consistent with demand in our end customer markets. This again is primarily the focus within our Cequent Group. All discretionary spend is on hold with capital spending required to be approved by Skip and myself.

The focus needs and will be measured actions in managing earnings disappointments volatility, it is important to put in context that 12 of our 14 businesses are showing strong year-over-year momentum, and we want to make sure that our leaning is focused appropriately where we have our performance issues. We think in our after-market businesses, we have targeted about $10 million of additional fixed cost reduction. I think it’s important to understand that those reductions are in large part available because of the Legacy restructuring investments we’ve made over the last couple of years that now have positioned us to remove duplicate SG&A costs within this group. We’re just seeking to accelerate some of those things as we move through the quarter to protect ourselves in the event that we have a little bit more softness than expected. If we don’t have softness, we’ll just get that much more pull-through.

That said, we will continue to drive the earnings expansion and debt reduction in combination with customer satisfaction and sales growth across all of our SBUs.

That does conclude our formal remarks, and Skip and I would like to now open the forum to questions and answers to the extent that we have them. Moderator, could you open up the forum please?

  [Operator Instructions]. Thomas Klamka [ph], Credit Suisse First Boston.

Good morning. Can you go back to see when Grant -- and a couple of things I guess. The softness that you’re seeing, can you talk about -- is that obviously versus last year because last year was strong. But what are retail sales doing? And do you see this softness because there are inventories out there, or do you see the softness because retail sell-through is expected to be slow?

Okay, you’ve got a few questions here. I think Tom in context of the total group being up over 2 percentage year-over-year I think is in large part a reflection of a buy-forward activity that we saw in the first quarter of last year. So I think the comparison is a little bit moderated because of that fact.

That said, coming into March we saw softer than expected demand really everywhere except retail. Retail in a way regretfully is posting reasonably strong demand. It’s just our least profitable channel that we participate in, and where we’re seeing softness is in the installer and wholesale distributor markets that service marine, light industrial, trailer, the towable market in RV has not been quite as strong as anticipated and the like. Now we think from looking at inventory levels walking back, so year-over-year-over-multiple-year that the demand has been moderated, not share loss, and that the inventory levels out in the field, we’ve already sold are not at historical highs, so there isn’t a big glut of inventory sitting out there. But the demand isn’t quite matching the early order season, so we are not getting that reload.

Now if you look at these businesses over the last 2 decades, our guys will tell you that it’s way too early to call the season after you sort of work your way through April. But we, given our leverage and given where we find ourselves, we want to make sure that we’re proactive in exercising down continued to build, to drive our working capital levels that we own down and flex out across appropriately. And if the demand does show itself coming across May and June, then we’ll be in a good position. I don’t know if I’m answering your question. You had a couple in there.

Yes, and I guess it actually seems then like your end market demand at the installers is actually down, which is I guess probably worse I guess this makes your inventory floating around.

Yes, and it’s very hard to see because it is so early, and if you look at the statistics of boat inventories and RV inventories and what not, those and selling distribution points do have fairly high inventory levels, whether demand will come in and start to move that, we’ll see. That’s what our channel partners expected. They still expect that, so there is a reasonable amount of optimism out there. We’re not seeing it in the demand. You can have all the optimism that you want, but we’re not seeing it in the demand, so we’re flexing down.

Is this sort of like an early indicator of the impact of higher gas prices on Cequent?

It could be in part. I mean gas didn’t seem to affect us at all last year, but I suppose at some level when you think of the discretion around trailering a boat or trailering a towable RV, I mean gas at these pricing levels must have some impact around the margin. I feel like the sector, I think the demographics are great, but it’s got to be a factor. But I think we’re going to have a much clearer view when we’re on our next call because we are sort of walking into the heart of the selling season.

And the EBITDA at Cequent, even with I guess a 2% reseal revenue increase it’s still sealed down, is that purely pricing that’s driving that down there, or what else is going on there? Is that mix at the retail side?

Tom as I stated in the pitch, it’s primarily if you look at our retail business, it’s price realization in that business. So and we don’t cross Cequent. We have a number of businesses that are not seeing the kind of price compression as we are seeing in the retail channel. But it’s primarily in retail.

Okay, and what actually is, you talk about some Asian competition there and other price competition in the retail channel. What actually are you seeing, who is coming in? Who is being more aggressive on the pricing?

Well, I think what we’ve seen is there was such a magnitudinal move in steel last year, I mean it’s not [inaudible], and that created margin compression in all of our channels in terms of what the channel partners make. I think the most sophisticated of the buyers, guys like Wal-Mart have started to vote on driving price versus Legacy-quality brand, and the big bucks retail guys who have been the most impressive to seek alternatives and most of those alternatives are in the form of sort of under-engineered, or lesser-engineered products from Southeast Asia.

Now we can participate in that and buying and reselling is half of what we do in the retail channel, and that by itself is not necessarily a bad business model. But the ability to regain the movement we had in underlying material is a very difficult task. So you’ve got a channel partner wanting to get their margin back, and not allowing us price increases and then bringing in lesser quality alternatives to park on their shelves to try to get their margins up. So that steady, never-ending beat of the Asian alternative was there. I think it’s been magnified and accelerated a little bit by an anomaly of steel though. And I think statistically margin we can sort of see where it is and what’s happening.

And you’re doing some importing now in that business you said?

Yes, we over the last couple of years, we have really changed and these would be directional numbers, but we have probably gone from importing about $10 million 3 years ago to about $75 million this year.

And what are the margins like on that product versus your manufactured product?

In aggregate, they’re probably a little lower. We have exceptions either way, but probably a little bit lower.

Okay, and then one question, and I’ll let you take somebody else. The on your slide, I think it’s slide 9 where you have the segment profitability, Skip last year you had $5.4 million in restructuring costs and $1.5 million this year. Can you allocate that by sector because I think a lot of that was probably Cequent and Fastening, so we’re probably not looking at apples-to-apples numbers here.

Yes, if you were to look at it last year, Tom well over half of the non-recurring spend was at Fastening Systems. We had virtually none at Rieke, and we had about $1 million each at Cequent and ISG. So the 5 kind of breaks down 3/1/1.

Okay, and then the $1.5 million this year?

It’s almost all at SFG as we wrap up the move from Lakewood down to Frankfurt.

Right, okay thank you.

Michael Rolnik [ph], Deutsche Bank.

Yes, on the revolver how much can you join in for working capital? What’s the peak on the revolver for working capital?

Well, there really isn’t a peak per se for working capital. We still have, I mean today probably in the $30 million to $40 million range in terms of availability in terms of the revolver.

And you said earlier that you were going to generally cash at a working capital. Do you have a sense of how much of a source that’ll be this year, the pay down debt?

Yes, I mean it’s all related to obviously future sales levels. So we typically wouldn’t give a number, but we believe that debt will be reduced substantially by the end of the year.

Do you have a range of what sort of level you’re talking about?

We haven’t traditionally given out that kind of data.

Will all of the free cash be used for debt reduction?

Yes it will, yes. As Grant indicated, we have been on a journey over the past couple of years to integrate and rationalize a number of businesses, and those activities in the main are done. And so we would by virtue of not having to make those investments, we would free up more cash flow for debt reduction.

Okay, thank you .

[OPERATOR INSTRUCTIONS].

Paul Carney [ph], Fountain Capital Management.

Thank you, good morning. I just wanted to find out when does the covenant step down again?

We’re at 5.5 through the second quarter, and then we begin to step down to 5.25 and then to 5.0 by year-end.

Okay, you had mentioned that you had seen in the Compac business some softness in the commercial building market. If you could expand on that a little bit more, kind of give us some idea of what you’re seeing there.

Sure, Compac is a market leader in a facing product that holds insulation, so if you can picture a roll of insulation that shiny paper that holds the fiberglass in place, that’s what we make. Our biggest market user, so we sell to people like Circantese [ph] and Kanopf [ph] and what not is for applications in new commercial buildings. So while the commercial building investment world is sort of hot and there’s a lot of retroing going on, we sell mostly into new construction and we’re basically flat year-over-year. And we sort of expected that last year, and we seem to get a little bit higher unit volume than expected. I have a feeling that was more share than organic growth. So I don’t know if I’m answering your question.

We also make facings for residential which are doing quite well, but sort of 70% of our revenue I think is aimed at the commercial construction business.

Okay, in the Cequent business, I assume some of that or most of it would be related somehow to the SUV sales and light truck sales in general. But you’ve talked in the past about the products that you have for cross-over vehicles, if you could talk a little bit about how those products are doing relative to maybe the more traditional Cequent products. Are they gaining acceptance in the retail channel? Are they gaining shelf space within the retailers and maybe even the wholesalers that they pass through to their end users. Talk a little bit about the possibilities.

You’ve got to sort of dissect Cequent, so I mean a big part of our business is selling components to people that make trailers, and so it’s not on the vehicle but it’s the towable that’s connected to the vehicle. And that market is RV towable, marine is our biggest segment for RV, it’s where we are strategically growing. In sort of light, medium trailers it might be a lawn maintenance guy. So that really has nothing to do with what’s pulling the trailer.

The towing business which by and large is sold to an installer in effect, it doesn’t care what vehicle it goes on. The move away from these big SUVs frankly is a good thing for us because there was a continued factory-installed towing assembly being put on big pickup trucks and big SUVs. And as we move, as the Big Three and the Japanese Big Three have moved to cross-over vehicles, that they are not putting that type weight on a factory-installed basis on the vehicle. So in effect, we are getting reclamation of a car part that was starting to shrink on us, we’re sort of getting it back. It’s way too early for me to give you statistics because this trend is only a couple of years old. But the short answer is our unit volume issues right now have nothing to do with car builds or parts. A parts trend actually is favorable in our opinion to us. So it has everything to do with the consumer flowing down its purchases of the things that you’re towing. Are you with me?

Yep.

And only about 20% thereabouts of our volume actually goes through something that you would consider retail. Retail is where we are having the most battle at the moment from a pricing perspective and from a margin perspective, but the other 80% of our revenue is being sold to a two-step distributor or an installer that you pull your call up to and he’ll put a bike rack on it for you or sell it to somebody else.

Okay thanks.

Amy Levin, Shingling [ph] Capital.

Hi, thanks. I just want to focus on the covenant for a minute. Going through the second quarter, I have that as traditionally a user of cash due to the working capital and your covenant was pretty tight in the first quarter. Are you concerned about hitting that covenant in the second quarter, and have you actually talked to the banks yet?

Amy at this point we see no reason that we can’t make the second quarter covenant. We haven’t spoken with the banks yet, but as Grant said the season is too soon to call. Obviously, the EBITDA in the quarter gives us an ability to have more debt. But at this point, we don’t, we believe we can make it, but I mean that’s all I can say.

I mean this is sort of a good news/bad news thing. Given our pre-built in the season, we are coming in to the season sort of with our bullets ready so we are really shipping from stock and moderating our consumption of cash via builds. So far, so good.

Okay, and then just on the, you pulled the F-1 filing. I’m just curious if that’s something if you think if the market returned you would proceed with again, or there may be a change in strategy and you’d think about maybe some asset sales out of your divisions?

Well, I would suggest that the market hasn’t been all that friendly in our registration with the little sale, and if we’re going to reload, we’re going to have to sort of start from the beginning anyway. A priority of management and ownership is to present this Company through a float at some point, but the market has to be ready and the Company has to be ready with all of its cylinders, not just 12 or 14 sort of going. So we haven’t changed our strategic direction or our desire.

Okay, and then also you talked about in your prepared remarks other cost increases away from steel. I was wondering if you could help me with maybe the magnitude of those, what they are and how much did that hurt you in the quarter?

Well Amy, it’s really hard to get that all corralled because it shows up in so many different places. But we’ve noticed a gross margin decline related to steel, I’ll call it 200 to 300 basis points on a percentage basis, and all else including cost increases and pricing compression in our retail channel gets us to about the same level of gross margin decline.

So the all other really, the biggest drivers have been plastic resins, which is predominantly impacting Rieke. Freight is up, you must see this in your other companies and that’s directly attributable to gas, but we are a significant freight user given our shipping of stock characteristics. I guess those would be the 3 drivers. We can get you a little bit of math offline if you need more data.

Okay, great, and then just lastly on this Cequent, you outlined a bunch of actions you were planning on taking. How does restructuring cost or cash cost implemented those actions?

Modest, one of the things that we are, would be doing anyway as we’ve made these great investments across the last couple of years and if you recall we booked 10 individual companies and sort of formatted them into 5 operating SBUs. So we are now starting to extract duplicate costs in SG&A that are really hard to get out because we had systemic issues or geographic issues or what not. So you won’t be able to see the cash investments because they will be very modest. But the take-outs we believe can be substantial. We would have been doing these things over the course of ’05 and into ’05 whether the market was robust or soft but to the extent that we see a little softness, we’re going to move forward right now, and many of the things that I’ve talked about have already happened.

Okay, would you be willing to give a number maybe on how much you think you can save from all these programs?

Grant already indicated that we’re looking at a $10 million reduction across Cequent’s fixed cost base. So that would include SG&A, etc.

Okay, great. Thank you very much.

Tom Klamka, Credit Suisse First Boston.

Your press release shows interest expense at 18, which probably includes some non-cash charges and all. What’s the actual cash interest run rate here?

It’s about 17.7 Tom.

Okay, and I guess if you looked then at sort of cash flow generation potential for the year, your interest then is somewhere around 68, you’re still paying some moderate taxes, it look like $5 million or $6 million a year and a couple million in restructuring costs. CapEx is low 30s?

I think it’ll be lower than that Tom. I’d go into the low 20s.

Oh really, you can cut it back that far?

Well I think you know traditionally a big user of CapEx has been Cequent, and as we resize and take a look at capacity in that business in combination with sourcing, I think we can cut back CapEx quite a bit.

Okay, so if you just forget about projections and all that, if you just say EBITDA say is slack going forward, real cash EBITDA, not bank EBITDA, with those cash uses you’re maybe $30 million of free cash flow [indiscernible] for the year, which is a big number, but I guess in terms of 800 it wouldn’t be significant I guess in my book. Are you looking for a larger cash flow generation than that for the year?

Yes, larger than 30.

And working capital I guess is the other place you can get it from.

Right.

If you talk in terms of say inventory turns, what are you looking at getting to I guess in big-picture terms?

Well Tom our inventory turns very dramatically by business. In our retail chain we have fewer turns; in our WD market we have higher turns. But I mean we have stated for some time that we believe that our working capital investment is too high. We’ve talked about in the past that number being$20 million to $25 million. Now whether that ends up being the amount is dependent obviously on sales. But Grant already did mention that we’re rationing back production, so we would expect inventory to go down this year.

Right, and traditionally I think someone mentioned you would build inventory from Q1 to Q2. I would guess this year it should be going the other way given that inventory already is too high.

Well, we’ve already, Q1 versus year-end inventory is down a little bit.

Right and that’s continuing into Q2?

Yep.

Okay, cash flow this way, I mean you may generate some cash flow out of this, some free cash flow and some working capital reductions. Given the direction of debt over the last year, and sort of flatness in earnings your leverage now is close to 6 times on a real EBITDA basis. How else are you looking Grant at sort of running the Company? The IPO I guess if formally off the table now. When you look at the level of leverage, and what you see going across your various businesses, how do you feel about the leverage, and more importantly what can you do about the leverage going forward?

Well, I think the IPO is not off the table. I think it’s just pushed out in time. I think that we have too much debt and I think the refinement of our working capital level, I don’t want to sound like a broken record, are there. I mean we as a Company carry too much raw, and we’re trying to teach our businesses how to live not with 30 days of inventory, but much lesser. I think on the working capital side of finished goods, on the after-market it did balloon, whether the $25 million level, you could argue that historically it could even be a little bit less than those targets.

So we also have Tom, especially in the amalgamation of creating the Cequent Group, we have a group of companies that have somewhere around $105 million of in-place cash fixed costs. We think that is way too high, and we think that we can relieve, I’ve put a target out to you already, we think that we can relieve the operating level within the Company that particular group and not create a whole bunch of one-time cash investment which is sort of our natural evolution of weaning these businesses down. So I think that the inherent EBITDA of this Company can be much greater than we have presented, and we’re working on it. So I think the prospect of sort of selling out or liquidating a property is not necessarily at the forefront because I think that we’ve got across most of our businesses great momentum, and we continued to believe basketed -- if that’s a word -- as a public entity they probably can garner us more value.

That said, we’ll continue to contemplate what’s in the best use for our shareholders of their value. I don’t know if I’m answering your question or not. It’s discipline across the balance sheet and exercising out really fixed costs. And that balance between strategically building and now having to tactically manage it. Our number one priority is to get this debt level down.

And Tom, you know that we’ve evolved from a restructuring mode to what I would call a mode of continuous improvement. And we talk about Cequent having roughly $100 million in fixed costs. We’re looking at headcount reductions that I don’t want to give you a number, but they’re substantial and they would yield a pretty substantial cost reduction kind of in line with what we’ve been telling you.

And that $10 million number, is that something, is part of that already reflected in the Cequent numbers or is none of it reflected? And over what time period can you get that?

Not reflected and we’re working through the quarter at hand to harvest the majority of those in place, my guess in Q2 or Q3 with most of that expansion coming at the back-end of the year and coming into ’06. And it isn’t that we’re doing anything really different that planned. If you think about it, I mean we’ve bought all of these little companies and we really did the manufacturing of footprints first, and now we’re sort of working our way through the SG&A side of our businesses. It’s been augmented because of some pressure and some pricing pressure. Nonetheless, it was always there and it was always, it’s going to be extracted. So not a lot of disruption, not a lot of performance risk in our opinion, this is why we’ve been working so hard to get our unit scalable so we could exercise these things out.

Okay, thank you.

Mr. Beard there are no further questions at this time. I will now turn the call back to you. Please continue with your presentation or closing remarks.

Okay, thank you Operator. That will conclude both the formal remarks and the q-and-a for our first quarter earnings call. I would like to thank all of you for y our time and attention and continued support, and we look forward to talking to you as we move across the second quarter. Thank you.

Ladies and gentlemen that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.