Zurn Elkay Water Solutions Corp (ZWS) 2008 Q3 法說會逐字稿

Good day, everyone. And welcome to today's Rexnord LLC Third Quarter Earnings Results Conference Call. Today's call is being recorded.

At this time, for introductions, I would like to turn the call over to Mr. Todd Adams, Controller and Treasurer. Please go ahead, sir.

Good morning. Welcome to the Rexnord Investor Conference Call to discuss our fiscal 2008 third quarter financial results. My name is Todd Adams, controller and treasurer of Rexnord. With me this morning are Bob Hitt, Chief Executive Officer, and George Moore, Executive Vice-President and Chief Financial Officer of Rexnord.

During today's call, Bob will discuss the events of the quarter, and also provide additional commentary about the industries and end markets we serve. George will then discuss the financial results for the quarter. After this discussion, we will open up the call to your questions.

A replay of this call will be available for the period of one week, and the phone numbers for the replay can be found in the earnings release we filed on an 8K with the SEC yesterday, and is also posted on the Company's website at Rexnord.com.

Before we start, I'll refer everyone to our earnings release and Form 10Q filed yesterday regarding our view on forward-looking statements and risks. I'd also like to remind everyone that any forward-looking statements made on this call -- including future market conditions, future operating results and other plans -- represent management's best estimate as to what may occur in the future, and are intended to fall within the meaning of the Private Securities Litigation Reform Act of 1995.

Even though the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, they can give no assurance that its expectations will be attained.

Finally, our business is subject to various risks and uncertainties. So please refer to the risk factors outlined in our reports filed with the Securities and Exchange Commission.

Additionally within this call, we may use some non-GAAP measures such as adjusted EBITDA as an indication of underlying operating performance. The Rexnord definition of adjusted EBITDA starts with EBITDA as defined in the Company's credit agreement, and is defined as Earnings Before Interest, Taxes, Depreciation and Amortization -- with additional provisions for add-backs of certain restructuring expenses, other income and expense, LIFO income or expense, stock option expense, charges in gains associated with the Canal Street accident -- exclusive of recoveries under business interruption policies, and the impact of fair value accounting. And the corresponding amortization of the step-up of inventory required under purchase accounting.

Other companies in our industry may calculate EBITDA differently. EBITDA is not a measure of financial performance under Generally Accepted Accounting Principles, and should not be considered as an alternative to cash flow from operating activities, or as a measure of liquidity or an alternative to net income as indicators of operating performance, or any other measures of performance derived in accordance with GAAP.

Because EBITDA is calculated before recurring cash charges, including interest expense and taxes, and is not adjusted for capital expenditures or recurring cash requirements of the business, it should not be considered as a measure of discretionary cash available to invest in the growth of the business.

With that introduction, I'll turn the call over to Bob Hitt -- Chief Executive Officer of Rexnord.

Thank you, Todd.

Good morning and thank you all for joining us on the call, today. Yesterday as you know, we issued a press release outlining our third quarter fiscal 2008 financial results, which I'm hopeful everyone has had the opportunity to review.

As we review our performance in the third quarter and through the first nine months of fiscal 2008, there are two key things that I'd like to draw everyone's attention to. First, our core performance and fundamental execution across both platforms continues to improve. Consolidated core growth in the third quarter was 10.9%. The highest this fiscal year. And through the first nine months of fiscal 2008, consolidated core growth is 9.5%. That is after adjusting the prior year to add back the midpoint of the adverse impact the Canal Street accident had on sales.

Core growth in the power transmission platform in the third quarter was 11.1%, and 9.3% through the first nine months of fiscal '08. Again, this is adjusted to show the adverse impact from the Canal Street accident.

Core growth in the water management platform in the third quarter was 10.2%, and 10.1% through the first nine months of the fiscal year. I'm also pleased to report we've made excellent strides year-to-date on driving improvements in our overall quality, delivery and costs -- which is at the heart of our business system -- RBS.

As an example, in our power transmission platform, over the past nine months we've driven our on-time delivery percentage to our customers want date to approximately 95% on a consistent basis, by growing sales and reducing working capital.

We have made great progress, but there's still so much to improve on. We're not even close to reaching our full potential, and that fact is what provides us such optimism going forward.

The second key theme is the strategic repositioning of the Company we've done over the past couple of years. Positions Rexnord to outperform the market. Some examples to highlight are a few of the things we've done to reposition the business.

Today, we have a substantial portion of the PT business focused in the key growth end markets of mining, energy, aerospace and cement. A substantial difference from five years ago. This penetration and focus has been through a combination of driving internal organic growth and also as a result of our acquisition of Falk in 2005.

Next, we've added the water management platform to our acquisition of Zurn, last year. This gives us additional scale and diversity of end markets, which is primarily commercial construction. This is a business that's grown on a compounded basis, at approximately 11% over the past 17 years. All organically -- driven primarily towards consistently developing new innovative products in the industry.

The growth we've posted in the water management platform this year of 10.2% in the quarter and 10.1% in the year-to-date has been in a market where commercial construction, square footage put in place, was down 2% in calendar '07.

We've also recently added to this platform with our acquisition of GA Industries, last week. An acquisition that gives us additional penetration into a key end-market of water and wastewater treatment. Finally and perhaps most importantly, we're five years into this journey of implementing our business system -- RBS -- and we continue to have the opportunity to improve productivity through eliminating waste and further improving our financial performance.

Overall, I'm pleased with our performance. I like how we're positioned strategically, but I'm even more excited about the future. I'll provide some additional thoughts when I wrap up. But first, I will provide some brief color on the quarter, itself.

In the third quarter, the sales grew approximately 59% from last year's third quarter, with PT sales growing at 18% to 334 million. The prior-year third quarter accident on Canal Street adversely impacted, as I mentioned earlier -- approximately 15 to 20 million in sales. Adjusting to eliminate the midpoint of the impact, sales grew by 11.1% in the quarter.

Water management third quarter sales of 115 million. On a pro forma basis, just over 10% growth in the quarter, compared to prior year. And on orders, as we exit the quarter, our consolidated order backlog sits at approximately 479 million. That's up 55 million or 13% from March.

And our power transmission backlog at the end of the quarter was approximately 457 million. An increase of 13% from March -- and up 20% from a year-ago December.

Now regarding the economic environment and its impact on Rexnord. We continue to see decent market conditions throughout both platforms in the third quarter. In the power transmission platform, our diversity with both customers and markets is clearly paying off as is the sizeable presence we have in the markets I mentioned earlier of mining, energy, aerospace and cement.

Within water management, commercial construction put in place is down slightly year-over-year, and while exposure to residential construction is relatively small, it continues to be down. And we're not anticipating recovery in the next year.

As we exit the third quarter and look ahead to the fourth quarter of the fiscal year, I would characterize the majority of our end markets are relatively healthy. And the overall industrial economy is somewhat fragile. But we should continue to see growth at lower rates than we're currently running. This is where our strong backlog, replacement and repair nature of our products -- and the highly engineered and specification-driven nature of our product portfolios should be a competitive advantage for Rexnord.

Now let me turn my comments over to a broad economic indicator. First on the power transmission side. If we look at the Institute of Supply Manufacturers -- the PMI [inaudible] to 48.4, as many of you probably know, in December -- showing the industrial economy contracted for the first time in any meaningful way since early '03.

However, ISM released the PMI data for January showing that the index had bounced back to 50.7 -- indicating the industrial economy is still growing. Regardless of whether it's 48 to 50, it highlights the recent unpredictability in the data, month to month, that we have to watch.

In December, US industrial output grew by 1.5% year-over-year, and 1.1% after adjusting for manufacturing output only. December's capacity utilization was 81.4% -- down slightly from September, and relatively flat from a year ago.

Additionally, from a power transmission industry perspective itself, the PTDA member sales were up 6.6% through November, with manufacturers up 4.3% through November. Some additional color on the industrial distribution channel is that it remains very healthy. The inventory positions within the USID channel are in excellent shape -- turning between 8 and 9 times -- recently compared to 3 times the last time the industrial economy had slowed. A substantial difference. It's something we closely monitor, and we feel very good about the inventory levels of our products and the distribution channel.

As we look at Zurn on the water management side, overall construction spending in the third quarter slowed, and particularly non-residential building declined during the last two months of the quarter. The weakness in the residential and multifamily housing segments -- the slowing economy -- and tighter lending standards will likely contribute to the decline in starts for commercial construction through calendar '08.

And for '07 as a whole, non-residential building was up in dollar volume. However, it was down slightly flat on the square footage, put in play spaces -- which is how we measure the market from an overall trend perspective. In sight of that, it's important to look at categories of non-residential building, to gauge what's happening and how Zurn is positioned.

College and university construction showed strength -- up 4%, along with public buildings such as detention facilities also gaining year-over-year. However, healthcare stocks fell back 5% in the calendar year. As you know, school and hospital construction are important categories for the water-management business, as the entire package of Zurn products are typically specified at these structure types.

Everyone is well aware of the weak residential construction situation, with final calendar year numbers for single-family down 26% in dollar volume. But given that we're primarily focused on non-residential greater than 75% of our sales are non-residential, it continues to have limited impact on our overall business.

As it relates to commodities and price, we have been very diligent and disciplined on pricing, and will continue to be as raw materials such as copper, natural gas and oil continue to fluctuate.

We have talked about the green movement and the leadership in energy environmental design. And this trend continues to gain momentum as there are communities throughout the US that are literally running out of water. Our Zurn ECOVANTAGE product line continues to provide great solutions. We expect to see growth in the green building category in both new construction and retrofit, which should help offset an overall mark in the softness and allow the water management group to continue to outperform the market.

So in summary, earlier in my comments I highlighted how we have been repositioning the company over the last five years. All of which are very positive. It's also important to highlight some of the things that have not changed that make Rexnord a great business.

First, the highly engineered nature of our products -- the mission critical applications and the power transmission platform. And the specification-driven nature of most of the products in the water-management platform. Second -- the recurring nature of our revenues, driven by repair and replacement sales in the aftermarket. And lastly, our industry-leading product portfolios, with excellent brands and innovation, resulting in high relative market shares across our product lines.

All of these characteristics result in solid profitability across both platforms, and ultimately strong consistent cash flows. They have allowed us to continually reduce our leverage by using cash flows generated from operations to do acquisitions like the GA acquisition we closed last week.

As we look forward, our diversity and our leadership positions in platforms with attractive growth profiles -- coupled with the Rexnord Business System -- positions Rexnord as a premier multiplatform industrial company.

As we've discussed throughout the call, the underlying economy has a degree of uncertainty in it, but our priorities for the remainder of fiscal '08 remain the same. Focus on the customer, and drive world-class performance on quality, delivery and cost. And as we do the right things, we'll continue to grow, drive margin expansion and generate cash to reduce our debt.

With that, I'll turn it over to George Moore, to provide some more in-depth financial information regarding our third quarter performance. George?

Thanks, Bob.

I'll start out by outlining the finalization of the business interruption and property and casualty insurance matters related to the Canal Street accident.

On December 5th 2007, inside one year from the date of the accident, we reached a final settlement with our insurance carriers related to the Canal Street accident. The settlement brought the total claim in cash received since the accident to $71.4 million.

The claim was split approximately 21 million of recoveries under our business interruption policy, and approximately 50 million under our property and casualty policies. The total final business interruption recoveries of 21.1 million were slightly greater than the midpoint of the estimated adverse impact we've been communicating for the past year -- totaling 20.4 million.

As far as the allocation of recoveries between fiscal periods, of the 21.1 million, 10 million was allocated in fiscal 2007, and relates to fiscal 2007. The remaining 11.1 million was allocated in fiscal 2008 -- of which 8.3 million relates to fiscal 2007, and 2.8 million relates to fiscal 2008. And 11.1 million of recoveries allocated in fiscal 2008 are included within our 2008 year-to-date adjusted EBITDA -- of which 2.8 million is included in the third quarter.

I'd like to thank everyone involved in the recovery over the past year for their efforts. Our commitment to making a quick, full recovery -- plus the dedication and determination of our employees to satisfy our customers -- made the difficult task of recovering from a tragic accident successful. Additionally as a result of the outstanding cooperation from our insurance carriers, contractors, suppliers and other advisors, we reached a fair settlement, and our business is back and running -- even better than it was prior to the blast. So, yes. Thank you.

Now I'd like to provide you with a financial overview of the third quarter, and some insight into our operating results. Let's start with sales.

For the quarter, sales were 449.1 million -- or 58.6% higher than the third quarter of last year. 115 million -- or 69% of the total growth was attributable to having the acquired Zurn order-management business included in the current quarter, without being included in the prior year. The remaining increase is a result of 18% growth in our power transmission segment -- of which 11.1% represents core organic growth, and approximately 7% of the growth is attributable to the adverse impact of the Canal Street accident on sales in the prior year third quarter.

As Bob mentioned earlier, our end-markets of mining, energy, aerospace and cement remain strong in our power transmission business. Additionally, [inaudible] foreign currency translation added approximately 2% to the growth compared to the prior year quarter.

Gross profit in the quarter was 147.6 million, or 32.9% of sales -- compared to 29.7% in the third quarter of a year ago. Gross profit margins in the third quarter of the prior year included the adverse impact of approximately 90 basis points as a result of the net impact of the amortization of inventory fair-value purchase accounting adjustments related to the Apollo acquisition, and LIFO income net.

SG&A in the third quarter was 74.1 million, or 16.5% of sales compared to 49.4 million or 17.4% of sales in the third quarter of last year. The inclusion of the acquired Zurn business from the acquisition date added 20.9 million of SG&A expense, compared to the prior year third quarter.

The increase in SG&A dollars over the prior-year third quarter after the additional SG&A from Zurn was 3.8 million. And primarily driven by the reduction in the net benefit recorded as a result of the change in the company's vacation policy last year.

In the third quarter, we recorded a gain on Canal Street explosion net of 17.4 million. This net gain in the quarter is comprised of the expenses associated with the cleanup and restoration expenses of 1.2 million. Offsetting the 1.2 million of expense is the allocation of 18.6 million of insurance proceeds recorded in the quarter under our business interruption and property and casualty policies with the Canal Street accident.

Income from operations in the quarter was 78.6 million -- compared to 18.2 million in the third quarter of last year. This year's operating income includes the acquired Zurn businesses, which was 17 million in the third quarter, as well as the 17.4 million gain recorded associated with the finalization of the Canal Street accident.

Operating income in the prior-year third quarter included a 7.9 million loss associated with the Canal Street accident. Adjusted EBITDA in the third quarter increased 81% to 92.8 million, or 20.7% of sales. When you look at it by platform, our transmission-adjusted EBITDA in the third quarter was 72.1 million, or 21.6% of sales, as margins expanded by 190 basis points compared to the prior-year third quarter.

Our water-management platform generated 22.9 million of adjusted EBITDA in the quarter, which equates to 19.9% of sales, and compares to 19.7 million, or 18.9% of sales in the prior-year third quarter on a pro-forma basis. The third-quarter corporate expenses were 2.2 million, compared to 4.4 million in the prior-year third quarter.

Adjusted EBITDA in the third quarter includes the adverse impact of $200,000 of severance calls associated with an organizational realignment within the power transmission segment -- and the benefit of the 2.8 million of business interruption recoveries related to fiscal 2008.

Interest expense in the quarter was 47.7 million, reflecting the additional interest of the increased impacts arising from the Apollo acquisition, as well as the Zurn acquisition, compared to the prior-year third quarter.

An income tax expense of 11.1 million was recorded in the quarter, resulting in an effective tax rate in the third quarter of 36%. Also in the quarter, we received a partial refund of $18 million related to an anticipated refund on a settlement of a Zurn IRS audit.

We continue to expect a net cash refund in fiscal 2008, in the range of [1]8 million, as a result of current-year estimated tax payments being less than the tax refunds expected to be received.

Now let's take a look at our balance sheet. Our cash balance at December 29th 2007 was 160.8 million -- an increase of 104.7 million from March 31, 2007 -- and an increase of 85.6 million from the end of September. From a trade working capital perspective at the end of the third quarter, receivables were 259 million, inventories were approximately 376 million, and accounts payable were 127.5 million -- for a net of 507.8 million.

As a percentage of annualized sales, trade working capital was 28.2% on a consolidated basis in the third quarter, compared to 27.7% on a consolidated basis at the end of the second quarter, and 31.4% in the fourth quarter of fiscal 2007.

We continue to see working capital as a cash opportunity. Particularly inventory within both power transmission and water management businesses. Our goal remains to drive down trade working capital as a percent of sales, and we believe that the majority of the opportunity will come from improving the velocity of our inventory turns.

We expect to finalize the purchase price allocation associated with the Zurn acquisition in our fiscal fourth quarter, and to make the appropriate adjustment to the balance sheet at that time.

Capital spending in the third quarter was 14.4 million, or 3.2% of sales. Through the first nine months of fiscal 2008, capital spending was 37.1 million or 2.7% of sales -- which compares to 29.9 million, or 3.4% of sales through the first nine months of last year.

Current-year capital expenditures of 37.1 million include 8.1 million of expenditures relating to the Canal Street accident and recovery. Consistent with what we communicated during the prior call, we anticipate for the full fiscal year, capital spending will be in the 2.6 to 2.9 percent of sales range.

Our total debt at the end of the quarter was $2,025 billion. After reducing debt by a half-million in the third quarter, after incurring 669 million of additional indebtedness to finance the Zurn acquisition, we have reduced our total debt by approximately 82 million. Our liquidity at the end of December remains strong, as we had cash balances of 160.8 million and had no borrowings outstanding on our 150 million revolving credit facility, or the 100 million AR securitization facility that we put in place in the second quarter. However, 31 million of the revolving credit facility is considered utilized from letters of credit.

Subsequent to the end of the third quarter, we utilized a portion of our cash balance to acquire GA Industries for $76 million. As part of the acquisition of GA, we acquired net cash and marketable securities totaling approximately $6 million -- bringing the net purchase price to approximately $70 million.

As of the end of the third quarter, we had 767 million of term loan [bid] borrowings, 803 million of 9.5% senior, unsecured notes, 150 million of 8 7/8 senior unsecured notes, 300 million of 11.75% senior subordinated, and 5.2 million of other debt.

Finally, we continue to de-lever. Through the third quarter of fiscal 2008, we have reduced our debt by 22.4 million, driving our leverage ratio to 5.6 times at the end of December, and 5.1 times on a net-debt basis. Our current leverage compares to 6.2 times at the end of March 2007, and down from 6.8 times at the time of the Apollo acquisition.

With that financial overview, I'll turn it back over to the operator to open it up for any questions.

Thank you, sir.

Today's question-and-answer session is held electronically. If you would like to signal to ask a question, please press *1 on your touchtone phone, at this time. We'd also like to remind our participants that if you are using a phone with a mute function, we do ask that you disengage that function before signaling. Just to be sure that your signal can reach our equipment.

Once again, that is *1 to signal to ask a question at this time. And we'll pause just a moment to give everyone a chance to signal.

And we will go first to Tom Klamka -- Credit Suisse.

Good morning.

Good morning, Tom.

Can you talk a little bit about what you're seeing on the pricing side? Especially with steel and scrap and forgings and all of that going up? What kind of latitude you have to push those costs through?

Yes, Tom -- Bob. We've been, I'd say, successful, to date. In fact, we on the power transmission side had a price increase in October that was successful. If you look across both segments with our leadership position in the marketplace, we've been successful. And as you know, we've seen escalating fuel costs for the last couple years.

We saw somewhat of lag effects in water management, which you'll see, anyways, due to the tie-in to the contracts. And also, some competitors -- it took them a little longer to get there, I think -- overall. But have.

So I'd say overall, we've been keeping up.

The last time we talked about Zurn raising prices, given what was going on with copper. How much of their 10% growth this quarter was attributed to pricing, and how much was volume?

Yes. I'd say the pricing was somewhere in the range of 3 to 5. The rest on growth.

Okay. And obviously, we're all concerned about what's happening in the economy. It sounds like you guys haven't seen much yet, in terms of any economic impact of a slowdown. What do you do as you start to see -- or if you start to see a decline in orders, and some sort of slowdowns and in Zurn? What's the action plan?

I would say first and foremost, I think we've been pre-empted with the whole thing, anyways. If you look at what we've done in restructuring, consolidating further down in our management basis -- particularly in power transmission -- we've done that.

We've been pretty experienced in the past of learning how to flex. Clearly we would flex from a labor force, et cetera. If there was that indication to do so. I would also tell you definitely from the past, though, if you look -- as I mentioned -- some of the segments we're in. We clearly have much longer visibilities in a lot of segments. And I think that betrays itself in the backlog.

And in that backlog, I think you compared today's backlog to last March -- instead of December. Can you compare that? Do you have the comparable number in December of '07?

The December '07 through? Could you ask that question again?

I think you said backlog was up 13% or so from March of '07. So you compared your December '07 backlog to March '07. What was the backlog as of December '07? From December '07 to December '08? I'm sorry. '06 to '07? What was the change?

Hold on a second. We're looking at that, as we speak.

It's up 24%.

It's up about 24%.

Is that apples-to-apples with Zurn, or no?

Yes. Apples-to-apples. It's up 18%.

18%. Okay. Good. And just a last question. Can you talk about what the acquisition of GA -- how that fits in? And how do you guys, going forward, balance acquisitions against paying down debt?

Yes. Well, if you look at GA, itself and how it fits -- it really expands our market penetration to water management beyond just into commercial buildings, et cetera. It gives us that opportunity. And a growth market that we see -- which is the civil side. And particularly in waste management water management.

There is opportunity for pull-through of additional Zurn products into that market. Well, we've been there. But GA clearly gives us a much better opportunity in terms of its presence there at the pull-through product. So it does two things. One is, it starts to get us in water management water quality beyond where we are with commercial construction, into that civil side. And it gives us the opportunity then of pull-through products, as well.

And Tom, to your question. As I said, we ended the quarter at 5.6-times leverage. 5.1 will net that. But we used some of our cash to pay for GA. So by bringing GA and getting that additional EBIT and the cash that it brings forward, we had said that we had hoped to be in the mid-5s by the end of the year. And we're still on track to do that, even with the explosion we had on Canal Street, last year -- as well as the purchase of GA.

So I think that's inline with what we said we were going to do to continue to deleverage.

Right. And I would highlight to that, Tom. You asked of specific acquisitions. We are de-levering and continue to deleverage, as far as that's concerned. So our objective is to continue to do so. To earnings growth and absolute debt reduction.

But as we look ahead in addition to our organic growth, we'll likely also look to grow and expand on our two strategic platforms, as we make strategic acquisitions. So much like we did with GA last month, if things come up that make a lot of sense, we would certainly de-lever first, but look at those.

Right. Okay. Thank you.

And we go next to Yilme Abebe of JP Morgan.

Thank you. Good morning. If you look at volume trends such as sales to OEMs versus sales through a distribution channel, any differences there, in terms of trends in the quarter?

Yes. I would say they're the same, as far as what we see. I haven't seen any big difference in trend as far as what they were before and where they are, today.

And of the 11% of PT core sales, how much of that growth was OEM versus distribution? And cores and halves is good enough without the exact numbers.

I'm going to have to classify it as -- I'm going to put another category in there -- which is also, "end users." Particularly when you look at the mining segments and what we do, there. Then I've got to factor in our aerospace segment of that.

I would say it's probably slightly more on OEM. In fact, probably I'm going to say 60 to 65%. Somewhere around there. Which is also interesting. Because what that also says -- it bodes well for the aftermarket comes afterwards.

Any sense in terms of pullback from the distribution channels as we go, I guess, into your fiscal 4th quarter?

We haven't sent that on. Clearly, if you recall what I mentioned earlier is, we go back a few years ago in the most recent downturn in the early 2000s. Inventory positions were about 3.9, and they're up over 8-plus. So we feel very good as far as the inventory position. And if we look at the PTBA data, as far as their year-over-year sales, they continue to show growth.

Okay. And I believe in your prepared comments, you said that the last two months of the quarter non-residential construction continued to decline. As we go into January, any change in the magnitude of the decline versus your [or their] fiscal quarter?

No. I don't see any change in the rate of decline that I can see.

It gets better, but not [much].

Right. I wouldn't say it's getting better, but I don't see it getting worse.

Okay. That's helpful.

My last question is, given the fact that your bonds -- your public [inaudible] bonds are maturing at a discount, how do you look at purchasing bonds versus paying down term loan?

We look at liquidity. We look at the opportunity. And since buying back bonds is not a deleveraging event, we'll focus on running our business and liquidity. At this point, we have no plans from a company standpoint of buying back bonds.

Great. Thank you.

Thank you.

And we go next to Tomar Patel at Churchill Pacific.

Hey, guys, actually I think you answered the question. I got in the call kind of late, here. But are you saying that Zurn was up 10% year-over-year for this quarter, as far as sales go?

That's correct.

And do you guys have like a 9-month number on that? What kind of growth you were seeing with Zurn?

I think that's exactly. About the same. 10.2 versus 10.1.

Thanks. That was it.

You're welcome.

We go next to Jim Casagrande at Pike Place Capital.

Good morning, guys.

Hi, Jim.

Just a quick one. My other ones have been asked.

You talked a bunch about the end industries that had been doing well. Are you can point out on the PT side that haven't been specifically performing well? Is it housing-related, et cetera?

Sure. Particularly, for example, the forest industry. If you look at that industry, wood yards, et cetera, anything related to that. Sheetrock, roofing materials. Those type of things have been clearly soft. Now the interesting thing if you look at that, though -- as I mentioned -- as we've been repositioning the Company, we're entering the higher growth segments and what we've been focused on -- those areas are a much smaller percentage of our portfolio.

So it hasn't been for us something that I would register as "significant."

Okay. Great. That was my question. Thank you.

And once again, that's *1 to signal to ask a question. Next, to Edward Shaugus, at Tenet Park Investments.

Good morning, guys. Just to go back onto the GA Industries acquisition. Can you comment, possibly, on the LTM sales and EBITDA magnitude of the Company? I'm just trying to get to a pro forma leverage number.

Well, sales were approximately 60 million, and EBITDA -- okay -- we expect to be, I gave out 9 million.

Okay. Great. Thank you.

And next to Richard Starling at Canyon Capital.

Hi. Good morning. Could you comment on the degree to which in the power transmission and in the water management business that there's a channel in distributors or in end-users? If there's an inventory in the channel and the end-users that's beyond your control. And what levels you see in that inventory.

Well, clearly -- one -- we don't control the inventory all the way through the channel. But the inventory positions that we've been seeing -- as I mentioned -- have been fine.

We know. I don't have the exact number to water management. It's tough to measure. It's a lot easier through power transmission. But they're not seeing a huge difference that I'm aware of.

On power transmissions, I mentioned, we're at about 8.9 to 9 times inventory turns through the channel, which we see as very comfortable and healthy.

And I think you commented that in water management, because of the decrease in non-res, you saw potentially an inventory reduction in the channel during the year. Could you comment on the magnitude of that?

I don't think we made that statement.

I don't think I made that statement.

You didn't make that statement. I must have misheard. Okay. Thank you.

You're welcome.

And we will go next to Jordan Hollander at Jefferies & Company.

Hi, guys. Just a follow-up. Earlier we were talking about the price increases you guys put in place. You said you put one in in October. Are there any plans for any going forward with what looks like steel prices ticking up?

Well, we continually monitor what's going on. So specifically at this date, I can't comment on that one way or the other. But we've always been diligent about monitoring coming up with what we need to do. At the appropriate time, we'll continue to do that.

Okay. And then on international business, what was the percentage of sales internationally in the quarter?

Jordan, as you look at it, I think if you look at sales generated, it's about 25% of sales. Power transmission. And very, very little as it relates to -- about 5% in water management. When you look at domestic sales that go to other parts of the world, it's probably greater than 1/3 of power transmission sales start here, but go to other parts of the world. Particularly if you look at mining applications, cement mills throughout the world.

So international exposure is probably a little bit better than what we highlighted. But probably about a third of power transmission sales.

And in terms of growth internationally in domestic power transmissions. You're saying international was greater in the quarter and is that trend continuing?

Yes. I think when you look at where the ultimate products end up, clearly the growth outside of the US is a little bit greater.

We see particularly in our mining and so forth, that the end user -- the where to ship - is becoming increasingly more international. Which is not surprising. Because that's a much higher growth rate than it is in the US.

Okay. Thanks a lot, guys.

Thanks.

You're welcome.

And once again, that is *1 to signal to ask a question. Again, *1.

And we have no further questions at this time. Mr. Hitt, I'd like to turn the conference back to you for any closing or additional comments you'd like to make.

Thank you. Thanks to everyone for listening, and for your attention on our call, today.

As you can see, we had another strong quarter. Solid core growth in both platforms, with adjusted EBITDA margin expansion.

Additionally, we continue to reduce our leverage and our liquidity remains excellent. Again, thank you. And we look forward to speaking with you again as we announce our fourth quarter fiscal 2008 results.

Have a good day.

This does conclude today's conference. We do thank you very much for your participation. You may disconnect at this time.