Wesco International Inc (WCC) 2002 Q1 法說會逐字稿

This is Premiere Conferencing.

Please stand by, we're about to begin the day and welcome to this WESCO International Incorporated first quarter 2002 conference call.

This call is being recorded.

With us today from the company is the Treasurer and Director of Investor Relations, Mr. Dan Brailer.

Please, go ahead, sir.

Thank you. Good morning, ladies and gentlemen. Thank you for joining us for WESCO International's conference call to review the first quarter financial results.

My name is Dan Brailer and I'm the Treasurer and Director of Investor Relations at WESCO.

As you know, we changed the time of this conference by one hour to avoid conflicting with the earnings conference calls of the supplier in the electrical industry at 11 a.m.

This morning Mr. Haley, WESCO's Chairman and Chief Executive Officer and Mr. Van Oss, WESCO's Chief Financial Officer, will provide an overview of the earnings press release issued this morning.

Means to access this conference via web cast was disclosed in the press release and was posted on our corporate Web site. Replays of this conference call will be archived and available for replay through 4 p.m. Eastern Time, Wednesday, May 1.

Following the commentary of Mr. Haley and Mr. Van Oss, we will open the session to your questions.

This conference call may include forward-looking statements and, therefore, actual results may differ materially from expectations.

For additional information on WESCO International, please refer to the company's annual report on for the fiscal year-ended December 31, 2001, as well as other reports filed with the SEC.

In today's conference call, Mr. Haley and Mr. Van Oss will be discussing the financial results of the first quarter financial results.

I would now like to turn the conference call over to Steve Van Oss, Vice-President and Chief Financial Officer.

van oss: Thank you, Dan.

Good Morning and thank you for participating in our call.

I'd like to start the meeting with an overview of our results and recent capital market activities before going into the detailed review of performance in the quarter.

Our net income of $4.5 million before extraordinary item improvements of 29 percent or $1 million from last year on $119 million of lower sales. Earnings per share, at 10 cents, improved 3 cents from last year's first quarter and one penny from last year's fourth quarter.

From an operating perspective, gross profit margin percentages were comparable and SG&A costs were reduced. Lower interest costs resulting from improved working capital performance and lower interest rates, along with a lower effective tax rate resulting from various tax initiatives, combined with a favorable impact of FAS 142, goodwill and amortization also contributed to the increased earnings performance.

All of our internal business units continue to be profitable at the operating earnings level and, while there are specific branch locations which may be under performing or operating in a loss position, we do not anticipate taking any restructuring or special write-off charges as we work through defining performance improvement plans at these locations.

During the first quarter of this year, the company incurred an extraordinary charge, net of taxes, of $700,000 to write-off unamoritized costs relating to the revolving line of credit, which was replaced in March of this year.

In our fourth quarter conference call, we took some time , steps to access to capital markets and recent activities relating to the financing of the company.

Given the market's continued attention on liquidity and access to capital, I thought it would be appropriate to update you on actions taken since the fourth quarter, along with current initiatives being pursued.

As we discussed last quarter, WESCO has, since its inception as a stand alone company in 1994, dealt with operating in a highly leveraged structure. We are comfortable working our leveraged environment and have dealt with both rapidly rising and falling interest rates. Significant progress in reducing leverage was made during the time period of 1994 through mid-1998, at which time the company was re-capitalized and re-leveraged.

In the third quarter of 2001, the company issued an additional $100 million fin senior subordinated debt and utilized the proceeds to pay down revolving line of credit debt. Our capital structure at March 31 of this year consists of $149 million of shareholder equity and three of debt; mainly senior subordinated debt at $386 million and accounts receivable securitization program at $291 million, and a senior secured revolving line of credit at $124 million. Our all in average in cost-to-debt is currently under 6 percent. We continue to focus on de-leveraging and improving the liquidity position of the company and significant progress was made in the first quarter of 2002.

Given the uncertain economic environment, we initiated actions in the fourth quarter to replace our $258 million commercial senior secured revolving line of credit with a $290 million asset-backed revolving line of credit, which closed in March of 2002. This line of credit, which is based on the company's favorable asset structure, provides longer term, better liquidity, and increased flexibility for the company as it relates to acquisitions, potential share repurchases, as well as flexibility for various organizational structure changes conducive for tax planning and effective rate reduction strategies.

As noted above, we incurred an extraordinary charge of $700,000 in conjunction with this transaction. We are now evaluating a $65 million to $75 million, 17, seven- to 15- year term deal real estate -backed mortgage financing to better match the longer term character of owned real estate and to lock in attractive fixed interest rates, as well as provide additional liquidity and flexibility for the company.

Now, I want to go over the, little more detail the results. Sales were $808 million for the first quarter and were down $119 million or 12.8 percent from the first quarter of last year, which, adjusted for seasonality, was the strongest sales quarter in 2001.

The decrease in sales resulted from lower -- from terrible branch sales reflecting the continued soft economic environment offset, somewhat, by acquired company sales.

We continue to be adversely affected by declining sales activity in a variety of industries. The decline experienced by the company in 2001 continued through the first quarter, although at a decelerating rate. With the exception of food processing, we saw weakness in the major industrial groups that are heavy users of electrical equipment and MRO products. Despite this, first quarter sales of our manufactured structures operation recovered from a deep industry decline and were up in the 20 to 25 percent range. Our international and utility operations posted gains between 5 and 10 percent, reflecting a significant decline in activity in the industrial manufacturing markets and their related capital projects, our industrial, construction and automation operations were down approximately 15 to 20 percent.

For the quarter, pricing negatively impacted sales $6 million to $7 million as power wire and cable, building wire and cable, and price indexes were down 2 to 9 percent from last year.

Overall, the total electrical price index for February was up two-tenths of a percent from the previous year.

Looking at our gross margin, the first quarter gross margin at 18 percent compares to 18 percent for the first quarter of 2001, and 17.3 percent for the fourth quarter of 2001, and 17.6 percent average for the year 2001.

Our sales mix for the quarter reflects a significant decline in sales to our higher gross margin industrial and automation customers, coupled with an increase in sales to our lower gross margin utility customers. Despite this mix, our billing margins increased by approximately 20 basis points over the first quarter of 2001 and 40 basis points over the first quarter of 2001.

Lower levels of supplier rebates and cash discounts somewhat negatively impacted the spread between billing margin and gross margin in comparing the first quarter of 2002 to the first quarter of 2001. SG&A spending for the quarter declined from last year's first quarter by $15 million or 11 percent, and by $2 million or 2 percent from the fourth quarter of 2001.

Due to low -- due to lower sales levels, SG&A expense rates at 15.1 percent increased by 40 basis points over the first quarter of 2001. Our SG&A dollars have been reduced systematically each quarter since the first quarter of 2001. The first quarter of 2001.

The first quarter of 2002 spending, at a $122 million compared to a $137 million in the first quarter of 2001, and into the average of the previous four quarters, of $129 million. This reduction was achieved through company wide cost reduction actions, with the primary impact coming from head count and related compensation and benefit programming expense reductions. Since March 2001, when our staff re-balancing programs were initiated, full-time head count was reduced by over six hundred and fifty people, or 10.5 percent over a one year period.

More than a hundred positions were eliminated during the first quarter of 2002. All severance related costs have been absorbed in related periods, and our employee productivity has improved significantly, as the reductions were achieved in an environment where activity levels, as measured by the number of orders processed, were down slightly. We will continue to take actions to reduce, and or rebound head count, as the economy and our performance dictates.

Moving now to earnings, our first quarter EBITDA of 23.6 million, or 2.9 percent of sales, decreased 6.7 million, in the first quarter of 2001, primarily as a result of reduced sales volume. First quarter net income, of $4.5 million before extraordinary items, improved 1 million over the first quarter of 2001 on a sales decrease of 12.8 percent. The improvement came from 4.6 million of reduced interest in other charges, 900,000 of lower taxes, this more than offset our lower operating earnings. The company incurred net of taxes of $700,000 charge, to write off unamoritized costs, relating to the revolving line of credit, which was replaced in March of this year.

Our interest expense and other costs of $12.4 million for the first quarter of 2002, compared to $17 million in the first quarter of 2001, and 13.6 million in the first quarter of 2001. The decreasing expense from last year, resulted from a decrease in interests rates, and lower average debts, outstanding during the quarter. What goods for the effective rate has averaged 40 percent over the last few years. We are working on a number of tax initiatives, and for the first quarter of 2002, the companies effective tax rate, was 25 percent, reflecting a FAS 109 rate adjustment. Given the impact of FAS 142, which is goodwill amoritization, and the establishment of Canadian finance company, and various state tax initiatives, the expected effective tax rate going forth for the company, is 36.7 percent.

Earnings per share for the quarter was 10 cents before extraordinary items, on that income of $4.5 million and compared to seven cents for the first quarter of 2001, and 9 cents for the fourth quarter of 2001. A share of 10 cents for the first quarter of 2002, includes the fast 142 impact, of not amortizing goodwill costs. The company reduced total debt, including accounts receivable securization program, and our accounts payable commitment, net of cash on hand, by $39million since year of 2001 and by $188 million by trailing 12-month basis, since the first quarter of 2001. Trailing 12 months free cash flow, including the accounts receivable securitization program, was $115 million. Free cash flow for the quarter, including accounts receivable securitization program, was negative at $60 million of cash usage, compared to free cash flow of $17 million in the first quarter of 2001.

Now, the primary contributor to the guard's usage was the reduction of accounts payable balance, as the company made improvements in reducing accounts receivable and inventory. We continue to make progress on our working capital initiatives, accounts receivable was down $24 million from yearend and inventory declined by $7 million.

Components of our net debt at the end of the quarter were revolver of $124 million and other of $386 million and accounts receivable securitization at $291 million, with cash on hand of $29 million. Capital expenditures for the first quarter of 2002 were approximately 1.5 million, versus 2.4 million for the comparable period in 2001. There were no shares repurchased during the quarter.

Now turn to our outlook, our expectation for 2002 economic activity, is for recent levels to continue, with adjustments for some seasonal improvements, of around 2 percent improvement, for the next one to two quarters. As sales for the first quarter came in a little lower than expected, we are now looking at sales levels for the year, to be down 3 to 5 percent, which reflects our belief that there will be a mild rebound in economic activity, later in the year. We expect to achieve further expansion on building margin, as company wide initiatives are continued in this important area, these gains will help offset the reduction of the supply and rebate and cash discounts, experienced last year. Gross margins for the year are expected to improve to the mid-18 percent range by year end, and average between eighteen and 18.2 percent for the year.

Payroll reductions and staff re-balancing remain a priority, along with dealing with increasing freight costs. For the year, we would expect the SG&A expense rate to average 14.4 to 14.6 percent, due to the negative leverage of lower sales.

Staff reductions totaling in excess of 50 positions, will likely occur during the second quarter. Working capital will change only slightly in the second quarter, as improvements and accounts receivable and inventory performance are expected to essentially offset increased working capital requirements, associated with higher forecast sales. We continue to remain sensitive to accounts receivable exposure, and will closely monitor and control open balances and adherence to accounts receivable terms.

Capital expenditures were 2002, are anticipated to be in the twelve to $15 million range, which would be in line with 2001 expenditures. Given anticipated sales, and operational improvements, our earning expectations for the year, are for 60 to 70 percent improvement over last year, or 70 to 75 cents per share, and this would include the impact of the FAS 142 change. At this point, I'm going to turn the program over to our chief executive officer, Roy Haley.

Good afternoon. Our financial management team has done an excellent job this quarter at managing our debt structure and providing significantly improved flexibility and access to capital. The average term of our debt has been extended, and we have sufficient available capacity to support future growth as the economy recovers. Under the terms of our agreements, we do not have any large scheduled debt repayments for the next five years. Our operating management team has also done a good job at adapting to lower levels of sales revenue, they have made systematic adjustments to our basic operating costs structure, in spite of the fact that order activity requiring processing, picking, packing, and shipping functions have declined by about, at a factor less than three percent. As sales have declined in the double digit range.

Our margin rates have been maintained, actually improved upon, even as the sales value and margin dollars per order, have declined. The bottom line is, that we are processing approximately 3 percent fewer orders, with the average order value declining by 8 to 10 percent. Customers are ordering frequently, but in smaller quantities. Systematic adjustments are being made to change our cost structure and get the level of sales and margin in balance, and we still have some work to do, to get properly adjusted here. The sales decline that we experienced, has been broad based, affecting virtually all geographies and product categories. This wide spread decline, in sales activity can also be seen in the results of major manufacturers, who sell to all market segments and channels.

In response to weak demand, we are putting much more emphasis on sales promotion, product and service lines expansions, and organizational adjustments that create increased emphasis on customer penetration. We will also continue to put considerable emphasis on our margin improvement and cost management programs.

We're encouraged by recent indications of increased manufacturing activity, although employment levels and capital expenditures continue to be in decline. Additionally, we are encouraged by increases in our construction and project related order backlogs, while recognizing that part of this improvement is a function of seasonal trends.

During the first quarter, we saw modest month-over-month improvements in our daily rate of sales and we expect this trend to continue.

In summary, we're taking appropriate corrective actions, we're protecting and improving our billing margin, costs are being reduced, and we are effectively managing our capital structure, debt management, and cash flow. On an overall basis, we believe that the actions we are taking are generating fundamental improvements in our business operations and we expect to show improving financial results as the recovery develops.

At this time, I would now like to open the call up for questions and answers.

Today's question and answer session will be conducted electronically. If you would like to ask a question, please press star followed by the digit one on your touch-tone telephone.

Again, that's star one if you would like to ask a question. We'll pause a moment to assemble our roster.

We'll go first to , CIBC World Markets.

Good afternoon.

Good afternoon.

Need a little more hand holding on through the margin forecasts. You know, you, you talked about doing, I guess, 18 to 18.2 for the year on the gross margin side, you know, but, you, I guess the big concern is that you're likely to have gross margins actually come down, at least in Q2 to Q3, as the construction season kicks in and that becomes a bigger part of the mix. So, isn't that, doesn't that suggest that you're going to see, have to see dramatically better gross margin improvements, at least at the billing side and then hope that the market turns for you to achieve that, that goal?

Actually, we're, we're tracking margin and costs, all different aspects of the operation, , and you're right that construction related margins are somewhat, will be reduced. But, we actually saw some of that reduction in the first quarter of this year and we don't expect to see any deterioration there, in fact, we expect to see that improve as the year goes along. Part of the, the, one other factor that affects how you look at the gross margins in the first quarter is that we are accruing the rebate levels at a lower rate than we were in the first quarter of last year because you'll follow first quarter last year was, for us, a strong start to the year and we had, that was reflected in the rate at which rebates were being approved. So, to some extent the margin improvements that we are achieving, again, are being masked by the lower level of rebates that we experienced at year end last year.

You would have accrued some of that for Q1 as well and still you saw, you know, even though you had a 20 basis point improvement to billing margin, you still came in flat year-over-year. But, in other aren't necessarily, you know, leading to, you know, better margins here.

Yes. , I think part of your question relates to a mixed issue and you're saying is the second quarter we should see a heavier mix of construction businesses, and you're wondering where the, you know, the gross margin direction's heading. We still, we feel comfortable at this 18 percent level. We're starting to see some preliminary signs, or earlier signs, in the industrial component of our business picking up at this point in time. So, there could be mixed, higher mix of some of the industrial activity, which carries a higher margin that should offset some of the construction business. But, you know, we've had our margin programs that was talked about and been across all facets of the business, so, we have been seeing billing margin improvements as well in those areas.

OK. And, then on the SG&A, I mean, can you give a little bit more details, I guess, relative to, you know, how much of the cost that you've been taking out have really sort of been permanent reductions to your, your cost base, versus how much of them just really have to do with a weak market? Because, you know, for all of this that we've seen, it seems like the SG&A is come down in absolute terms, certainly, but we have yet to really, yes, be able to get it to come down, yes, at greater rate than revenues, for instance, which suggests, you know, that maybe there's not a lot of easy costs to be taken out of there and I, I know that distribution is a variable cost model. So, I'm really wondering what's the real potential kick in an upturn?

There is somewhat of a lag effect on that, , when you take the folks out, when we get the heads out and take care of the separation agreements on that. We're absorbing those costs as we go through the quarter on that and, also, in the first quarter, there's a bit of a phenomenon there where we roll off when compared to the fourth quarter, our benefit costs are, are at a, the quarter low in the fourth quarter of the year as we gotten past, a certain percentage of the work force has gotten past the, the FICA limits and, so, we see that kick back end in the first quarter, as well as the management incentive pay outs all occur in the first quarter.

So we see a little bit extra load on the benefit cost that we won't see in SG&A going forward. It's about $2 million as it relates to that. But, there definitely is an activity level component of our SG&A and relates to our head count and we've done a pretty good job of reducing the head count. So I think you'll see that and you won't see a big step-function change probably in this business because it is activity-related and our order activity has been pretty steady.

You just accrue those bonuses and payments over the course of the year?

Now the bonuses we do accrue that throughout the year, but the and the payroll taxes we got.

This last thing, at you and, how much amoritization to shake off the books in this quarter?

First quarter of 2001 was at $2.8 million to $3 million of amoritization.

2001 did.

Yeah.

And then just use that as the equal number for 2002?

if you look at fourth quarter's liberal amoritization 2001 was about 3 to 3.1, so that would be a more comparable number for 2002.

Per quarter.

Per quarter.

OK, thank you.

We'll go next to .

Hi, thank you.

I just had a question on the expense line here, there's one in line at a lower sequential in year-to-year that is in other expenses that line-item, and then also what are your that going forward?

The other expense is the accounts receivable securitization program, the discount. Which if you look at it, combine that with the total of the one above it interest expense, pull those two together, and the decrease is two factors: one, we have less outstanding on that program, and that interest rates follows commercial paper rates, which are very low, we're at about 2.4 percent on that component of financing.

OK, and you mentioned the construction backlog and the , I think you said something about it being seasonally higher. When you look at that year after year, what does that look like? I mean, obviously it's going to be up sequentially as the season kicks in, but what does that look like year to year?

Compared to this time a year ago, it's in the 10 to 15 percent range. Compared to last year at this time.

OK.

Now, what we saw throughout the year last year as far that turning downward, and at the last couple of fronts we've been seeing up-ticks in the level of backlog, which again, is somewhat expected due to seasonal see how strong that looks as we go forward.

And then on the 2002 guidance, just wondering what type of visibility you have on that number and I think you mentioned I'm sorry, but I think you mentioned something about seeing some stability and I'm just wondering if I look from the fourth quarter to the first quarter, many other investor-distributors and then companies saw sequential up-ticks and we went down pretty hard. Just wondering, where is the disconnect there and what level of visibility do you have going forward?

Our visibility relates a bit to our backlog. And we saw on a modest improvement on our daily sales rate, you know, February over January, March over February, and we do seasonal declines typically in the first quarter, but I'm not sure when we look across the landscape the other electrical manufacturers and distributors, my view on that they are pretty much down in line what we were down. So I'm not quite sure what you're getting at there. But our forecast, our guidance assumes that a similar level of activity, maybe plus five percent for seasonality in the next quarter or two then we are expecting a bit of a mild rebound to occur in the fourth quarter, but nothing dramatic.

And then, on the FAS 142 the year's, the amoritization number, could you also give us the after tax number. I don't know what part of that is tax-affected. So could you give us an after tax or an EPS impact?

The EPS impact would have been, comparing it to the first quarter of 2001, about 3.5 cents.

For the quarter, OK.

Yes.

And then, just finally, on these tax rate strategy that I wasn't sure what a couple of things that you went through pretty quickly there, could you talk about what those strategies are? You said something about finance company....

...We set up a Canadian finance company in the first quarter of this year that allow us to effect transfers of money between the US and Canada for our Canadian operations and and that's going to bring us a percent or two on the effective tax rate. We've got various sales tax initiatives that have been underway since the middle of last year that will pick up another point or two, and then with the FAS 142, the amoritization, for tax being closer now, that picked up about a point and a half on the effective tax rate. And then we had a 109 adjustment where we went through and re-evaluated deferred taxes and that's what gave us a bit of a boost in the first quarter of this year. So on a go-forward basis, the Canadian finance company and the 142 adjustment, and the sales tax initiative, should put us right around 36 to 37 percent effective tax rate for the rest of the year.

OK, thank you.

We'll go next to , J.P. Morgan

All right, thank you. Just some cleanup items here. Could you talk about your expectation for core sales are in the next quarter?

I think that they are in the highest counts for this year in the September time frame because we were negative 10.2 at that time. And talk about when you're looking at the growth is it part of that the services business or is mostly from straight through down in the economy.

Well, if you look at core through the next quarter or two, you're probably looking at a number that would be 8 to10 percent below last year. And as far as--we do expect to see our innovative supply services ramp up on that, we had a very strong first quarter of 2001 and then a very--one of the strongest quarters and on a sequential basis going from the fourth quarter last year to the first quarter this year, our innovative supply business was essentially flat. And I think that is a good indication, so expect to see some growth in that. But moreover the general economic activity in the latter part of the year should be providing the bulk of the sales gains.

And did you the or the inventory?

Yeah, the first quarter AR was down about $24 million, and about $7 million down in inventory.

From the fourth quarter?

From the fourth quarter, .

And if you look regional markets, is there any particular pattern that you're seeing from the U.S. economy or the Canadian?

We're not seeing dramatic changes, but we are seeing the Canadian economy is accelerating a bit, it tends to lag the U.S. economy by eight to 10 months and we're seeing some of that in Canada, certainly in the first quarter.

We do have some good programs and some nice wins last year in our integrated supply area that we think will help offset some that, but Canada is definitely seeing some slowdown compared to where they were last year. But regionally, in the U.S., I don't see that's either plus or minus to any noticeable degree.

And are there national account programs of any meaningful size being on by the end of the quarter?

Yes, we've had substantial one a number customer commitment, we expect to see those begin to show some positive effects as the year goes along, there's really nothing to speak of, but then in the first quarter. But just to give you a flavor for this, in Canada Molson Breweries and a company called SN-TEC were major new innovative supply programs in the U.S., and other parts of the world, supply arena significant expansions were negotiated with Pfizer and with UTC and Eton Corporation and major programs established with Kodak and Raytheon, and as I say, most of that activity in the quarter was to get through the negotiation and agreement stages and we are just now in the third preliminary status of starting to implement those programs right now.

In terms of electrical and national accounts, some big wins with companies like Pepsico, Scotts the lawn care and fertilizer people. Tyson Foods, which acquired IBP and IBP was a major existing customer with WESCO and now we will be expanding that considerably to include the Tyson operations.

I think last time we talked about some major auction oriented negotiations that had been going on. One of those was with Ford Motor Company and that has been resolved successfully in the quarter and we expect to significantly increase the amount of business that we do with Ford. Textron is also a new electrical national account customer, as is Shell Services. That's the gas station and refining operations, Shell .

So, there has been a very substantial amount of new customer activity that we expect will lead to additional business in the second, third and fourth quarters. The biggest part of that though, as these things ramp up and go through the year, will be seen really incrementally as the year goes along.

While I'm on that subject, we also have a considerable amount of activity that is in advanced stages with additional companies and these types of programs and we expect to see some of those turn into a major new contract as well. So, from the standpoint of the customer acceptance and selection process, we continue to be recognized and rewarded with opportunities for major new business.

Our challenge has been in this regard, that the industrial business has been considerably weaker, as you all now and additionally the maintenance and construction project activity that goes along with certain manufacturing industries is down even more. So, to some extent part of our instruction to climb is a direct relationship to the cut back in capital spending in the industrial accounts. They were having to make that up with increases in the more frequent orders or dollar values of day-to-day maintenance and operating supplies. But, having said all of that, I think we clearly are positioned for significant improvement as these companies, types of companies, go forward expanding their operations.

OK, thank you.

We'll go next to , Goldman Sachs.

OK, hi.

Could you, first of all, walk us through how interest rate expense will be changing with respect to the new revolver and the other financings?

Sure, , on the new revolver, would first be identical to what we had under the previous revolver. The LIBOR and the spread are identical on that. So, we'll continue to see in the first quarter of 2002, type of expenses interest. The only change would be as relates, if there are any up-ticks in LIBOR rates or the overall Fed rates that would lose. It would probably see about a one month lag before we install that into our interest rates. That takes care of the revolver. The other thing that we did last year was the issuance of the $100 million of senior subordinated notes. Those went out at a coupon rate of 9 1/8 percent and we did a series of that took that from fixed rate to variable rate. And those are currently running at about six to six and quarter percent and those are based on, again on, spreads to LIBOR. So to the extend that the interest rate environment is relatively flat, we wouldn't expect it to be any significant rate changes.

Now the next of our debt relates to our accounts receivable securitization program and will be up for renewal at the end of the second quarter and we would expect to see a slight up-tick in that cost. Maybe by as much as 10 or 15 basis points. But no dramatic changes given a relatively stable interest rate environment.

OK. You mentioned that integrated supplies has been running flat.

Yes.

OK and that there should be some kind of uptake up in the second quarter in that business?

Yes, we expect that.

Sequentially from the first quarter? OK. On another subject, you said that the food processing market was soft and running smooth short of the businesses?

No the foods, that's really the only area that has not gone to a soft stage of completion be good for us we've had a lot of success in food process IT, and others like that we see the activity pretty strong there continuing.

OK

The one bright spot.

And the said manufactured structures were up 20 percent?

Yeah.

OK, that's, that has been a pretty soar spot for you over the past year or so, what's going on there?

It's really a product expansion move, and as we have additional product offering and broaden the base in, throughout the industry. We continue to be very well represented in the total market segment but the real gross has come from additional products.

OK. I've go back and

Well go next to , Midwest Research:

Hi, I think my questions are along the same line, I had to step out earlier when you were talking about some of the end market, subcategorizes of the business. I think I caught that international and utility were down 5 percent to 10 percent and that industrial construction on , I didn't catch the comment there. If you could review that detail .

The international utility were actually up 5 percent to 10 percent, .

Up 5 percent to 10 percent. OK, thank you. And then the other segments?

We had the other our manufactured structures operations was up in the 20 percent to 25 percent range. And then the industrial construction and automation operations were down in the 15 percent to 20 percent range.

OK. And then have you mentioned what the acquisitions contributed in the quarter?

The acquisitions was relatively a small change we, the only one of a, that would be on a non-comparative basis was our acquisition of earning, industries last March, so we would add two additional months of earning in the gross numbers of about $10 million or so.

OK. And so from here on out we're even?

We're becoming -- on a, yeah, comfortable basis.

OK, thank you.

Again, if you would like to ask a question, please press star followed by the digit one. We'll go next to , Credit Suisse First Boston.

Hi, a couple of quick questions. Obviously the first quarter was a tough quarter especially construction market. You of the markets, is it safe to safe to say that they've kind of bottomed out? And if anything, I mean, I know, there really doesn't seem to much near-term up-tick, but I mean at least no further deterioration either.

That's our view on, certainly on the industrial markets. We see that has flatten out over the fourth quarter and the first period and with additional business that we expect to start seeing flow through our system, we would expect to see that show improvement.

One of the things that you have to factor into our business is that employment levels in manufacturing is still in a decline although approaching a point of being stabilized and that has a big impact on our business just in terms of the number of people working. Even though production and output are up, the employment level continues to be down and as you've noticed in the last several weeks, there's been additional major cut backs announced by a variety of manufacturing as well as service firms. So we're constantly trying to adjust and monitor to the level of activity on our customers sites.

And then capital spending is a big driver for us. Even in the industrial market. There's quite a lot of special project work that's ongoing in the large number of companies and to the extent that companies are restraining capital spending, that has an adverse affect in terms of our total business.

Now having said that, I mention that we have seen the declines begin to level out and start moving positives and we would expect to continue to see that going forward.

. There is just another question. You had mentioned that, I guess, on 12/31 that the debt, the net debt had declined about $39 million. Is that what you said earlier?

Actually, we're taking a look at the net debt as well as our accounts payable commitments. We've had some movement as others have in balancing payable and receivables, cash flows and in flows and out flows. So what I've tried to do with that would show you a component of looking at our total debt net of cash, plus accounts payable. Look at the of that between the fourth quarter of last year of the first quarter. And that's where that $40 million, $39 million reduction comes from.

Right.

If you look at a trailing 12-month basis, it's about $190 million, but when the comes out, you'll look and see the straight cash flow calculation will show a cash usage for the first quarter.

And Phil or Bill, I mean, with net debt I guess as of 3/31 was that about, including the AR, was that about I guess $765 million or something or ...

It was right around $800 million.

It was right around $800 million, and it and the year end around more or closer to $700 million or ...

Well, OK, what you've got in here is a difference -- if you're taking the cash out of there you'd be for 7 -- 70 number you talked about and the year end would have been around $700 million.

OK, so it's about a 70 -- is kind of a normal increase in net debt or is it seasonal.

No. I would not say that's normal. What that reflects is the industry as I've said matching cash in flows and out flows between payable and receivable. We had some fairly aggressive push on payable in the fourth quarter of the last year.

Got it. And I guess, lastly, On the revolver $ 190 million at the base -- with a $124 million gone -- is, do you have the remainder available or is that limited by a borrowing basis.

It's limited by a borrowing base we go through and calculate that on a monthly basis and the borrowing base is about $190 to $200 million. So we got a significant amount of availability under that.

OK. Thank you very much.

Again, that's star, one if you'd like to ask a question.

We'll go next to Holden Bullis, CIBC World Markets.

Hi, John, can you qualify a little bit, I mean how much is national accounts now as in the total mix -- how much is the integrated supply in the total mix and versus last year?

Oh, is the national accounts and integrated supply are similar size components of our business and they are both in the 10 percent to 15 percent range.

In total, OK.

In total ...

Each?

Each are 10 percent to 15 percent of total sales and they've not changed dramatically, they would actually grown, have grown slightly in total business mix because they have held up better than the rest of the segments.

OK. And the growth that you project going forward is a lot of that -- the incremental growth coming from, you know the expected pick up in the national, in the universal then all of these national accounts that you are signing as you start to do that, I mean a lot of the growth that you are expecting coming from this source or is it just general industrial stuff?

We expect a significant component coming out of national accounts and integrated supply and then a kind of a raising of the water level across all the economic activity.

Another factor to consider here is, in the past we've not had a national account marketing organization focused on contractor industry. And the reason for that is that industry tended to be more local and/or regional but with the development of what is sometimes characterized as the roll up firms and the contractor business. That now is treated like, or needs to be treated like national account customers and we have special teams assigned and we have been awarded a first status with a number of these firms. And improvement in that area will be comparable to the kind of improvement we expect to see in the industrial national accounts of integrated supply.

OK. Can you refresh our memories. What is the relative profitability on the gross and the operating claim if that grows in the mix?

Interestingly, if you look down at the operating income for our various business segments and types of business. Even though the gross margins will vary, the operating income is very comparable across different segments and the reason for that is simply the effort that we put into adjusting cost structures differently for our different kinds of business. For example, in the utility market segment it is historically, it is considerably lower in the generation of the gross margin percentage. But we've been successful in adjusting the cost structure in that particular focused market. And part of the reasons for that is that it's a specifically identified market with a relatively well defined population of customers, the order sizes and quantities are generally larger and we achieve efficiencies in that segment that are greater than efficiencies on a larger base of smaller accounts or a larger base which has smaller orders. So, in answer to your question, the operating income generally is comparable across all of the markets that we serve even though gross profit will differ.

OK. Do you guys plan on since you have all the income statement and cash flow or the balance sheet cash flow, there. Do you guys planning the future on just publishing those alone with the P&L?

It depends on the timing on that. The -- we don't get a final sign off on the balance sheet until virtually the day before and it's a bit of a challenge to get that out. But that's something we're working towards doing.

OK. Thanks.

And we have a follow-up from , Goldman Sachs.

Hey, hi. One of the things that you mentioned during the conference call was that, while your order numbers haven't really contracted, the size of the orders have significantly, have become significantly smaller. That your customers are ordering smaller lots as least as frequently if not more so. Now, and your inventories have come down as well. How are you pushing that back to your suppliers and are they able to cope? And how are they coping with the challenge?

Well, most of that is an internal operation for this year, because we have the inventory through our distribution centers and our branches. It's a matter of our -- inside customer service and our warehouse dealing with more frequent, smaller orders. And we still, we've adjusted somewhat our purchasing patterns with our suppliers, but not in a major way.

Oh.

But to your point, , as we have been reducing inventory, which we to sell during that last year, and we expect to see some continued modest reductions in inventory on a going-forward basis, that has the impact of reducing sale levels of manufacturers that we work with. A good part of that adjustment was achieved last year, and as we go forward this year, we're really more in a fine-tuning mode as opposed to any kind of large-scale revisions.

OK. Have you been seeing any change in the company lead times or product availability or anything that would suggest that the manufacturing cutbacks that have taken place at your suppliers is having an effect on your ability to get product in house?

We're not seeing that be a particular problem that is anything new. It seems that there's always a glitch somewhere in some companies, something that causes aberrations. But at this stage, we don't see any trend lines that affect lead times. In fact, if it's anything, they continue to be improving as certain companies get a better handle on their supply chain activities.

OK. Thanks.

We have another follow-up from , Credit Suisse First Boston.

Hi, I'm sorry. One last quick question. I mean, I kind of just did a back-of-the-envelope, based upon, I guess, a 70 to 75 percent EPS range. Does that reflect back to about $110?

Could you repeat that question, Jeff? You were breaking up a little bit.

Sorry about that. The 70 to 75 percent EPS range -- does that reflect about $115 million in EBITDA, or -- you know, that's kind of what I'm coming out with real quick.

You mean the improvement over 2001?

So I'm saying with EPS growth of...

Of 70 to 75 cents?

Yeah, does that come back to about $115 million EBITDA, is that too low, or...?

Did you say $115, or $150?

$115.

No, $115 is...

Too low?

Yeah. On an EBITDA basis, would be more in the line of about the 130.

Got it. Thank you very much.

OK.

There appears to be no further questions at this time. I would like to turn the call back over to Mr. Brailer for any additional or closing remarks.

Again, I want to thank you for participating in our call. As we've indicated, we think we're doing a lot of things right. We think the business is showing fundamental improvements in basic operations and we believe that we're doing the right things to prepare the business to be -- show improved results as to recovery develops.

Again, we thank you for your interest and support and we look forward to seeing you soon.

Have a good day.

Bye.

That concludes today's conference, we do appreciate your participation.

You may now disconnect.

Thank you.

END