TriMas Corp (TRS) 2009 Q1 法說會逐字稿

Good day ladies and gentlemen and welcome to the TriMas first-quarter earnings conference call. At this time, all participants are in a listen-only mode.

Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today's conference, Sherry Lauderback. Miss Lauderback, you may begin.

Thank you. Thank you and welcome to the TriMas Corporation first-quarter 2009 earnings call. Participating on the call today are Dave Walthen, TriMas's President and CEO; and Mark Zeffiro, our Chief Financial Officer.

Also with us today is Bob Zalupski, our Vice President of Finance and Treasurer. Dave and Mark will review TriMas's first-quarter operating and financial results in addition to providing an update on our value creation initiative. After our prepared remarks, we will then open the call up to questions.

To facilitate this review of our results, we have provided a press release and a PowerPoint presentation on our Company website, www.trimascorp.com under the investor section. In addition, a replay of this call will be available later today by calling 866-219-1444 with an access code of 135-8212.

Before we get started, I would like to remind everyone that our comments today which are intended to supplement your understanding of TriMas may contain forward-looking statements that are inherently subject to a number of risks and uncertainties. We caution everyone to be guided in their analysis of TriMas by referring to our Form 10-K and Form 10-Q for a list of factors that could cause our results to differ from those anticipated in any such forward-looking statements.

Also, we undertake no obligation to publicly update or revise any forward-looking statement except as required by law. We would also direct your attention to our website where considerably more information may be found. At this point, I would like to take that turn the call over to Dave Walthen, TriMas President and CEO.

Thanks, Sherry, and good morning. I know we have a broad range of TriMas stakeholders on this call including suppliers, customers, employees, owners and others. Thanks for taking the time to join us and more importantly, thank you for all you do for us. These are difficult times for industrial companies. At TriMas, we are focused on more than just today but also on the long-term value we provide for all of you.

Now let me describe our agenda. I have some opening remarks about my time so far at TriMas and about our first quarter. And then Mark will provide more commentary on our first-quarter results including details by operating segment.

Mark will summarize our profit and working capital improvements and update you on some nice progress on our value creation activities that we showed you last quarter. I will then share with you the vision and strategic aspirations that we are using to drive our strategic planning process and close with a reminder of our TriMas priorities. Let's go to slide four.

At the end of April, I have been was TriMas 100 days and in addition to the efforts and actions needed to deal with this recession, we have implemented several new core operating processes to optimize TriMas's value on our ongoing basis. These processes are about having a cultural accountability, speed and performance.

Our business planning process includes our updated vision statement and key imperatives that I will share with you later in this presentation. We are currently finishing and reviewing our new strategic plan tied to implementing our vision for TriMas.

We will do people planning in third quarter to assure ourselves that we have the right skills and capabilities to implement the programs and projects in each division of TriMas. We have rolled out our new incentive system for over 100 key managers with metrics that balance revenue, earnings, turns, working capital, and new product performance for each division and for corporate.

And we have awarded stock options to the key managers that drive TriMas's overall performance and value creation. The result of this short and long-term incentive system is alignment of management objectives and incentives with key stakeholders desires.

We redesigned our quarterly operating reviews to be more forward looking with concentration on revenue, earnings, working capital and major programs. We have implemented an organization structure that has our division presidents who really run our operations and serve our customers day-to-day reporting directly to me and we have set [running] rules so that our division management knows which specific decisions that I want to be involved in while still allowing for autonomous decisions in the businesses to achieve agility and speed.

Going onto slide five, my summary of first quarter is that we are still in a difficult overall global recession. Our cost actions have allowed our businesses to hold gross profit percentage flat to Q4 of 2008 despite lower sales and our working capital actions have provided cash to deploy mostly for reducing our debt.

Every person at TriMas could tell you their own activities in attacking costs. And of course times like this remind us that no cost is truly fixed.

That said, it's one of my responsibilities for TriMas to constantly evaluate the correct balance between the short and the long term. We can always cut more cost, but we also intend to have a robust future.

We constantly seek the proper trade-offs to maximize TriMas's performance and value. Now Mark will provide perspective on TriMas's first quarter performance.

Thank you Dave and good morning. I will begin my comments regarding our first-quarter results on page seven of the presentation.

Sales in the quarter were $203 million, a decline of 23% versus Q1 of 2008. Sales in all segments were negatively affected by the weak global economy and resulting lower demand levels.

In addition, sales were negatively impacted by $7.1 million due to the unfavorable impact of foreign exchange. As Dave mentioned, sales were slightly lower than expected but most notably in our energy products segment where we saw significant demand declines resulting from reductions in drilling levels and reduced turnaround activity at petrochemical refineries.

Despite our total Company sales decline of 23% during the first quarter, we expect our overall sales decline for 2009 to range from 15 to 20% as compared to our 2008 levels. Notwithstanding our aggressive cost savings initiatives, we experienced negative conversion in many of our businesses.

In addition to lower sales volumes which resulted in lower absorption of fixed costs, we also incurred sales of higher cost inventories which further impacted gross margin. Adjusted EBITDA, income and diluted earnings per share from continuing operations all declined compared to one year ago.

First quarter adjusted EBITDA decreased 18.8% to $29.9 million. Excluding the pretax impact of special items of $6.3 million, most notably cost associated with our CEO transition and the closure of our Mosinee manufacturing facility, adjusted EBITDA would've been relatively flat when compared to our first quarter of 2008.

The results include a $15.8 million gain on the retirement of debt in the first quarter. Free cash flow in the quarter increased significantly to $31.7 million compared to a use of cash of $9.1 million in Q1 of 2008. This improvement was due primarily to reductions in networking capital during the quarter and $20.6 million in net proceeds from the completed sale of Compac.

Despite this decline in sales and earnings levels, each of our segments was cash flow positive during the quarter. During the quarter, we deployed our capital prudently by using $16 million in available cash to retire $31.8 million face value of our senior subordinated notes.

Moving onto slide eight, as you are aware, the economic environment and financial markets have dramatically changed since the first quarter of 2008. Therefore, we thought it would be helpful to show the sequential change in our financial performance comparing the first quarter of 2009 to the fourth quarter of 2008.

Our cost reduction and leverage-related actions have had a positive effect on our results that should continue throughout 2009. Compared to the fourth quarter of 2008, we held gross profit percentage despite 5% lower sales.

We experienced a significant increase in free cash flow to the business sale proceeds and improvements in working capital. The decrease in working capital is primarily a result of reductions in inventory which is notable in that we typically experience an increase in working capital during our first quarter.

We also reduced total indebtedness by $45 million during the quarter as compared to an increase of about $[15] million during the first quarter of 2008. Our debt reduction actions including $22 million in open market purchases in April 2009 will reduce our annual interest expense by approximately $6 million. We continue to advance other initiatives to generate additional cash and remain focused on even further debt reduction across 2009.

Moving on to slide nine, I would like to briefly review the components of our total indebtedness at the end of Q1. As noted, we've reduced our total indebtedness including amounts outstanding under our receivable securitization facility by $45 million as compared to year-end and $88 million as compared to Q1 of 2008.

At March 31, 2009 we had debt of $575 million and funding under our receivables securitization facility of $10 million. Our leverage ratio was 4.02 times versus a covenant requirement of 5. In addition, we benefited from reduced interest costs resulting from lower interest rates and reduced borrowings overall.

As compared to the prior year, our weighted average cost of our credit facility borrowings decreased from 6.1% to 4.1%. We ended the quarter with $147 million of cash and aggregate availability under our revolving credit and receivables securitization facilities.

We continue to implement those actions necessary to reduce operating expenses, working capital, and capital expenditures and remain focused on cash flow and available liquidity during these uncertain times. We are relatively pleased to have exceeded our internal forecast for both cash flow and debt reduction during the quarter and maintain our commitment to delever the Company and ensure adequate liquidity for our future endeavors. I would like to move to slide 11 to discuss the first-quarter results of our business segments.

While we experienced (inaudible) declines across majority of the businesses, we completed several commercial initiatives during the quarter that I would like to highlight. Our new product initiatives led to the introduction of several new specialty dispensing product applications at the Rieke Packaging Systems business while monogram aerospace fasteners was awarded titanium screw business and additional fastener content on commercial airframes.

We also continued to gain share on our Cequent Consumer Products retail business. In regard to our geographic expansion initiatives, Lamons Gasket received its first customer order out of our new Rotterdam facility while aero engine received orders from a new international market.

We will continue to focus capital deployment on profitable strategic growth initiatives in areas of specialty packaging, aerospace, energy, medical, and geographic expansion. Over the next few pages, beginning on slide 12, I will highlight segment performance for the first quarter of 2009.

While I review the results of each segment, many of the themes underlying these results will be similar. As noted earlier, we have experienced significant reductions in end market demand due to global recessionary forces.

This has led to declines in sales volumes across all of our businesses and resulted in negative leverage due to lower fixed cost absorption. In response, all of our segments have reduced SG&A expending levels with even more reductions to be expected and realized over the remainder of 2009.

Turning onto page 12, the first segment I would like to review is Packaging Systems. Sales for the first quarter were $30.3 million which represents a decrease of $10.7 million or 26% versus the first quarter of 2008.

Sales of industrial closure products decreased as a result of recessionary impact to the industrial economy and what we believe to be higher reduction than normal of the inventory in the marketplace. In addition, unfavorable currency exchange negatively impacted the sales approximate $2.9 million.

These declines were partially offset by increases in sales of the more consumer oriented specialty dispensing products and new product introductions. Adjusted EBITDA and operating profit declined in line with lower sales volumes and unfavorable currency exchange which were partially offset by reduced SG&A spending.

Moving to slide 13, sales in the Energy Products segment decreased 17.5%. In addition to facing challenging comparative performance levels from 2008, these businesses saw significant declines in end market demand.

Sales of specialty gasket and related fastening hardware decreased as a result of reduced production levels and turnaround activities at chemical conversion plants and refineries. Sales of engines and related products decreased due to reduction of drilling activity and deferred completion of previously drilled wells.

Gross margins were disproportionately impacted primarily as a result of sales of higher cost of inventory and lower absorption of fixed costs, partially offset by reductions in discretionary spending. Our specialty segment which is highlighted on slide 14 also experienced sales declines during the first quarter.

Higher sales in our defense business were more than offset by reduced demand in our industrial cylinder, precision cutting tools and specialty fittings businesses; primarily as a result of the current economic downturn since these businesses tend to track more in line with the GDP activity. Our aerospace fastener business showed good relative performance in Q1 2009 and was flat versus the year-ago period. Adjusted EBITDA and operating profit decreased due to lower sales levels, sales of higher cost of inventory and lower absorption of fixed costs and also still partially offset by SG&A spending reductions.

Turning on to slides 15 and 16, I would like to discuss the results of our RV and Trailer Products and Recreational Accessories segments together, which we collectively call Cequent. Sales in these two segments declined approximately 25.4% during the quarter as compared to the first quarter of 2008 due to the current economic environment and continued pressure on consumer discretionary spending and credit availability. Sales within RV and Trailer Products were also impacted by $3.8 million due to unfavorable currency exchange.

Adjusted EBITDA and operating profit in the quarter decreased in both of these segments due to the decline in sales and lower absorption of fixed costs which was partially offset by cost reductions achieved in the quarter. In addition, these segments incurred $3.3 million of costs associated with the planned closure and of the Mosinee, Wisconsin facility and other business restructuring actions.

Despite the declines in profitability, both RV Trailer Products and Recreational Accessories were cash flow positive for the quarter. We remain focused on aggressive reductions of fixed costs and the prudent deployment of capital consistent with the reality of Cequents end markets.

Continued pressure on the end market and the resultant impact on profitability has only accelerated our restructuring efforts to simplify business processes and consolidate facilities. Business activity and leadership will also be consolidated in this restructuring.

Our efforts will allow for continued market leadership and a stronger set of businesses upon end market recovery. At this time, I would like to devote some attention to our profit and working capital improvement initiatives which are summarized on slide 18.

In November 2008, we announced specific actions to achieve the first $6 million in cost savings. This goal was subsequently increased to $28 million in cost reductions to be realized in 2009.

We continue to identify additional cost savings opportunities as well as successfully execute on the actions we have already identified. We now feel confident that we have completed or specifically identified cost savings actions that will result in $30 million of savings in 2009.

We believe the Company is on plan to achieve these savings in 2009 and we continue to pursue additional fixed and variable cost savings actions. A key element of our profit improvement plan was announced during the first quarter of the Company's plan to close its Mosinee, Wisconsin facility which manufactures, trailer winches, jacks and couplers.

The planned closure is expected to be completed by the end of the third quarter in 2009. The production of the Mosinee plant operation will be absorbed into lower cost manufacturing facilities or included in the Company's expanded strategic sourcing initiatives.

During the first quarter of 2009, the Company recorded cash and non-cash charges of $3.3 million and $0.5 million respectively related to the profit improvement plan. In addition to aggressively reducing fixed costs throughout the businesses, the Company continues to focus on productivity and working capital improvements to maximize cash flow.

The productivity projects include but are not limited to lean initiatives and manufacturing process improvements, (inaudible) downs, move to a lower cost manufacturing environment and outsourcing initiatives. The Company is committed to reducing its investment in working capital during 2009 and is focused on improving turns in all of its businesses.

The Company will also continue to adjust inventory levels consistent with end market demand and will concentrate on further improving receivables and payable ratios. As of March 31, the Company improved operating working capital by $21.7 million in comparison to March 31, 2008 levels and we currently believe we will reduce working capital by $28 million as of the end for a year on year comparative basis.

The Company expects that planned reductions in working capital will result in a significant source of cash for the Company for the remainder of 2009. These are just a point in time assessment of our profit and working capital improvement initiatives and we are committed to finding and implementing more cost reduction actions. Please turn to page 19 for an update on our value creation opportunities.

During our March 10 call, it was related to our fourth-quarter earnings, we provided you with some insights into our value creation opportunities. While cost savings remain critical, we also recognized there are other activities and actions that create value.

For example, we have launched efforts to better ensure, negotiate and track price actions; however, we have experienced pricing pressure in many of our markets both due to the client and material costs and recessionary forces our customers are facing. While we have experienced challenges on the pricing action front, we believe we realized improvements related to most of the other opportunities identified on this page.

We have already increased our profit improvement plan to $30 million and taken action to reduce our debt service costs by at least $6 million in 2009 as we continue to reduce our outstanding indebtedness. As noted on the previous slide, we now have plans to reduce our working capital levels by $28 million in 2009.

While we continue to be prudent in deployment of capital to support our business initiatives, we still have discretionary spending levels to address which could represent an additional $5 million to $7 million in reduction.

Lastly we continue our efforts to monetize our non-core assets. While this effort is slow given the current economic environment, we will continue to pursue the sale of those assets which are not core to longer-term needs of TriMas.

In summary, we believe we have significant opportunity to improve upon our original free cash flow estimate of 40 to $45 million for 2009. Collectively, these results -- these efforts have resulted in a targeted minimum cushion with respect to our leverage ratio of at least 44 times throughout 2009.

That concludes my comments for the first-quarter financial results and profitability and cash flow initiatives. Now Dave will summarize our aspirations and priorities for TriMas resulting from our strategic planning process. Dave?

Thanks Mark. I want to shift gears now to the longer-term.

I mentioned that we are currently wrapping up our 2009 strategic plan. As shown on slide 20, this process always starts with our vision of who we are and how we operate.

We provide engineered and applied products that customers in growing markets need and value. This is about how and where we spend our resources.

We build and run (inaudible) businesses that provide high returns on capital and have sustainable technical advantage. Agility is a skill that really differentiates well-run businesses at all times and especially in a recession.

Our operating principles are about doing what it takes to be the best cost producer, to have sustainable technical advantage, competing with cycle time, using a well-focused process for allocating resources to achieve the best strategic and operating return, gaining advantage of TriMas's size and most importantly doing the right things for our people.

I'm sure that you know by now that I believe in metrics and we have set specific operating and strategic goals for TriMas and for each division. Each division's management team has developed the strategic programs and operations projects that they need to meet these goals.

Mark and I have traveled to and met with each division's management team had agreed on the programs and projects that we will implement during the next several years to advance TriMas towards our strategic aspirations which I have listed on page 21. We have programs to achieve double-digit top and bottom-line growth, the top lines through organic programs and some careful bolt-on acquisitions and the bottom line through specific projects for productivity.

We have projects that deliver ongoing total cost productivity of above 3% and we aspire to 5%. We will invest the savings generated by these programs to grow TriMas.

We'll continue to bring all tools to bear on improving our balance sheet and our leverage. This whole structured process tying together planning, metrics, (inaudible) reviews and incentives is a cultural revolution for TriMas that doesn't happen overnight but is fully achievable.

I will close with a reminder of TriMas's key priorities on page 22. We commit ourselves to constant operating profit improvement through our out best cost producer strategy.

We continuously improve our balance sheet so that we have the horsepower to deploy capital towards our key growth platforms. These priorities are straightforward, easy to communicate and we have installed processes to keep us focused on achieving them.

We intend to emerge from this recession leaner, faster, and stronger. Now we are glad to take your questions.

(Operator Instructions) Tom Klamka, Credit Suisse.

Maybe a big-picture question. The economy and your end markets have been under pressure for almost a year now and TriMas has maybe surprised to -- the upside in your earnings have been relatively flat year-over-year through the fourth quarter. And this quarter, all the segments got hit pretty hard, not just Cequent. What happened in Q1 that you didn't see in your earlier quarters, the last two or three quarters?

Well, Tom, if you were to look at the performance throughout the year in 2008, what we saw was really robust performance in our earnings in our energy segments that had a very positive mix aspect for the Company at large. That was able to really compensate for the Cequent end markets being down double digit.

What we have seen is a slowing of some of those other industrial end markets which hadn't been as affected throughout 2008. And we saw that effect start to begin in Q4 of 2009 going forward most notably and very obviously in Q1 of 2009.

It's also generally true that we have seen inventory strip out in the channels. I know everybody has seen that.

We can kind of watch in our businesses depending on where they are in the cycle and see that. That really hit starting in late fourth quarter and recently. There's a limit to that but we start seeing the inventory strip-out go on.

On the energy side, your view of Lamons in the past has been it's aftermarket, it's repair, should hold up much better than the aero side and then better than the rest of your business. What was the extent of the sales and profitability downturn at Lamons and was that greater than expected?

Actually if you look at the relative performance within the energy segment, the relative reduction quarter should be year on year, would be equivalently spread between both our aero business and our Lamons business.

There's been more plant chemical and processing plant mothballing than I think any previous forecast would have said as opposed to doing rebuilds when they are off-line. Again that will come back but we've definitely seen -- you can track the big guys, the Dows and that sort of thing and realize they've just plain taken plants off-line.

Does the extent -- does the extent of your earnings declines at the other subsidiaries outside Cequent point out cost issues there too? I think the majority of your cost improvement plan was really targeted at Cequent. But given the newer low level of revenues, does that highlight the need for more cost actions at the rest of the businesses?

I think a whole bunch of other division presidents would take exception to that. Even though it may not show yet, we have been intense in all of the businesses.

You are right. We started with Cequent. That was earlier and most obvious and we saw the biggest swings there.

But no, we saw that we had to get real serious about it in January and we have been. It takes a little while for it all to show and kick in. But I will share that I'm actually concerned.

I've always got to be concerned about how deep do you cut and do you turn the lights off every place and that sort of thing. So we're trying to walk a line. That said, we have been pretty intense in all the businesses.

Tom, just to add a little more color to that, if you look back to slide 18, you can see the fact that when we first talked to everybody about it in November, our first cut really was a Cequent-only reduction.

And as we made our way across our discussions here, you can see the additional activities that have been non-Cequent related. So your point is correct in the sense that have we considered cost reductions in other segments other than the Cequent set of businesses and the answer is yes and we continue to focus on all costs in all businesses to ensure that we are deploying that capital both from just a working capital as well as cost perspective prudently.

Just last question, on packaging business, what is the split currently between industrial end markets and consumer? Can you just talk about the relative performance of those two segments?

Yes, the industrial closures business is nearly two-thirds of the segment revenue and that is really where we saw the drop, nearly $10 million of decline there. I will give you the numbers on packaging.

The specialty dispensing business which is a little more than one-third, lots of new product introductions. It stayed a little more robust and actually increased in sales by a couple of million dollars.

Then you put the exchange impact that a cost us about $3 million and that gives us the total reduction. So two-thirds, a little less than two-thirds industrial down, one-third the dispensing and that's where all of our efforts in new products have been and that has shown okay.

I'm not -- I won't say I'm optimistic about the rest of the year but I do know -- I do track our new product programs and how they roll out and going forward there is a lot of good things hitting across all the business from a product standpoint. You don't just shut down everything in a recession. You've got to get careful about it. But in this business and in all of them, we've got some good [months] coming.

[Perez Shaw], Princeton Advisory.

Can you give some color on the backlog that you're carrying in different segments of the business at this point?

You know, I've been here long enough now to be getting a pulse of the businesses. I think we have said this before. Generally this is not a backlog kind of a set of businesses.

The aircraft fasteners, our Monogram business, sees backlog because the military builders and the commercial builders, they are scheduled out for years in the future and we are very high share on certain pieces of all that. And so we see backlog and so there's multiple millions of backlog in that business in the commercial segment.

The rest of them, you know, I have got to tell you. I don't just talk cycle time because -- for fun. It's -- we have entered a time of fast responses and if you can turn it around and get it to somebody, you get the order and if not you don't.

Again, if you talked with the people running the businesses day to day, they are seeing orders that have real fast shipment expectations on them. There just plain isn't backlog out there. We work hard on being the fast one that can fill those orders.

You mentioned in your press release I guess some color on the guidance on the revenues where you said the overall sales decline to be about 15 to 20% in 2009. Is There like a similar guidance regarding your earnings or EBITDA that you could share with us?

Not now. We watch revenue. We have a high focus on cash and what can we do with our debt and all that. That's really where we're telling you that we're putting our efforts and therefore making sure we have a cushion.

The other aspect associated with that is the available liquidity under our covenants. That should help you understand kind of where we are expecting the cash flow the business to be.

Matt (inaudible) Barclays.

Could you just give us some color on free cash flow for the year? I know you're talking about generating cash. And more specifically for the quarter, I know you included $20 million of proceeds from the sale of some non-core assets. What was cash from operations per GAAP for the first quarter?

The cash flow that we saw year on year was basically let's call it $40 million, 20 of it related to the proceeds on the sale, the rest of it related to predominately operating-related activities. As for the full year, we haven't given specific guidance on that. But with everything that we have seen with regards to our initiatives and the like, we firmly expect to exceed with a high degree of certainty the 40 to $45 million that we have put out there for everyone.

We put two green arrows on the chart that we reproduced from last time on purpose. Again, we're in a recession and we will operate to that level but we will certainly maximize that measurement.

Understood. Just on the leverage covenant, I know you've talked about having built in sort of 0.4 turn sort of cushion throughout the balance of the year.

Could you just help us get a little more comfortable with that? Given the earnings in Q1 if that were to keep pace throughout the rest of the year, still seems like it could get relatively tight there. I mean is the assumption that earnings kind of builds from here in Q1 and that gets you comfortable with that cushion? Just anything you can provide around that would be helpful.

That's a great question. We do expect earnings to be better than Q1 earnings throughout the rest of the year. Obviously we had -- if you look at bank versus reported EBITDA, obviously there's add-backs associated with our restructuring activities that are contemplated there.

But the cost reduction actions should also start to be much more heavily realized come Q2 and Q3 and probably most impactful in Q4 across the year. So that 28 to $30 million that we just discussed in the presentation will start to show its head very, very noticeably in the coming quarters.

So we don't expect a huge bounce-back with regards to end markets and we are planning around that to ensure that we protect the cup and deal with these uncertainties around our top line. With that said, we've been focused on cash. We are also focused on our ability to rip out cost to protect that relative liquidity.

That's very helpful. Just to confirm, so the topline guidance down 15 to 20% is still in effect? Is that correct?

That is correct.

Sort of a more technical question on the covenant. Is it a net leverage covenant? Or if it gets close, you actually have to apply that cash to pay down term loan debt?

I'll defer that to Bob Zalipski, our Treasurer.

It's not a net covenant and you know our practice at quarter-end is to maximize debt reduction with paydown of both revolving facilities and/or more permanent facilities with all available cash.

And if I may squeeze one more in, just on the buybacks of the 9 7/8 notes, can you tell us where you are as far as your ability to continue that throughout this year relative to your covenants?

Within Q1, we retired the $31.8 million space with $16 million worth of cash and you also see in our Q in a subsequent event, another $22 million space that we retired at a little more than $11 million in cash. Our view is that given our covenant ratios in the credit agreement under which we operate, we have another $75 million worth of cash yet that we -- up to $75 million worth of cash that we can deploy towards a reduction -- if you will, the paydown or the retirement of that debt.

So you've used what, like 27 I guess thus far and you can go up to 75?

Yes, sir.

Jack Hain, Barrington Research Associates, Inc.

I was going through your slide presentation here and I see that you referred to Compac as a non-core business. I was wondering if there are other businesses within the portfolio that you feel are non-core and sort of just trying to gauge your attitude on further asset sales should conditions worsen.

I wouldn't want to answer it, as we don't provide that kind of information. But I will share with you that we of course rank our businesses from absolute top of the list and on down and there are some that we would consider doing something with.

That said, it just doesn't feel to me like it's time to do that. We aren't in a situation where we would have to and of course, multiples and all that sort of thing nowadays.

So I can't tell you much more than it could happen if conditions came together that said this was an attractive thing to do. But we are not looking to do that. There are non-core assets like pieces of property that we've exited and things like that that are clearly on the list to dispose of.

Okay and just taking a closer look at the Cequent businesses, this is sort of a softball question, I guess. What is it going to take to get the consumer back to those markets? What sort of macroeconomic indicators are you guys looking at and directionally how do you think those businesses are going to trend through the rest of this year?

We certainly watch our order rates for sure and we watch what's going on in the builders of RVs and that sort of thing. But the builders of RVs aren't a big deal for us. We're more of an aftermarket company.

I will share with you that the business that puts product on the shelf at the big-box retailers and (inaudible) business is -- via capturing more shelf space actually has pretty good looking year-over-year comparisons. I wouldn't call that market though. I would call that getting shelf space via products.

I do think that -- I am always convinced that in times like this, the big full-line suppliers like us are attractive to customers because they are out looking for fewer -- having fewer vendors and all that kind of thing. That's kind of a roundabout answer to say I don't know what the indicator would be.

I guess I could tell you though that this is a seasonal time for us. All over the country, the sun's out and people are getting their product -- getting their boat out or whatever and they need something and our order rates reflect that. We have been worried that we wouldn't see the normal seasonal uptick that would be coming about now and our order rates say it is occurring right now, just at a lower set level than it was in previous years.

Jordan Hollander, Jefferies & Company.

Just a couple of questions. First one, just to confirm that the free cash flow number, that 40 to 45, that is exclusive of any asset sales? That doesn't include the Compac or anything else?

That's correct.

Back to the revenue guidance of down 15 to 20, how do you see that playing out on quarter basis? You were down 23 in the first quarter, second quarter guessing somewhat weak. Is that a built-in pickup in the back half of the year?

No, if you run the math and if you just do a comparison to last year, fourth quarter gets to be a lot easier year-over-year comparison obviously just from a math standpoint. We are not running as if were going to see an upswing. We're not running as if we're going to see an upswing. We've -- we're just not running like we see any kind of a bounce up in the economy.

Basically it's stabilization where you are at, kind of just taking costs out of the business (multiple speakers)

I would love it if it comes up, but we can't count on it.

Just a question on the special charges of $6.75 million. Where does come out of on the income statement? Is that all out of SG&A or is it split between COGS as well?

It's split between the two. It's more heavily weighted in SG&A.

Okay and as far as the debt buyback in the second quarter, that cash -- is that mostly working capital generation or where did you see that cash flow in April?

Yes, it was cash [basically] from operations. That's correct.

Do you have any ability -- can you guys borrow on the revolver to buy back bonds?

That is a source of cash for us, yes.

(inaudible) Patel, Jeffries and Company.

Just a quick housekeeping item. Tax rate going into next couple quarters here?

Consistent at the 36, 37%. That's what we are expecting.

And then CapEx still around 6 to $7 million for the full year?

That's too low a number. I think we showed 20.6. Somebody help me with the exact number.

It's just a little more than $20 million.

Okay, okay.

You may have been looking at a quarter number there.

I think that's it for me. Thank you.

You bet.

I'm showing no further questions at this time.

All right. Well again, we appreciate all that you do for us. Tough times, but I'm convinced we're doing the right things and I'll repeat it. We're going to come through this recession leaner, stronger and faster than we have ever been.

So again, thanks again.

Ladies and gentlemen, this concludes today's presentation. Thank you for your participation and you may now disconnect. Everyone have a wonderful day.