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Worthington Industries (NYSE:WOR)

F4Q08 Earnings Call

June 26, 2008 1:30 pm ET

Executives

Allison Sanders – Director of Investor Relations

John P. McConnell - Chairman and CEO

John S. Christie - President, Chief Financial Officer, Director

George P. Stoe - Chief Operating Officer, Executive Vice President

Richard Welch – Controller

Analysts

John Tomazzo

Charles Bradford - Soleil

Bob Richard - Longbow Research

Mark Parr - Keybanc Capital Markets

David Taylor

Kevin Money

Operator

Good afternoon and welcome everyone to the Worthington Industries Fourth Quarter and Year End Earnings Results Conference Call. (Operator Instructions). I would like to introduce your first speaker, Miss Allison Sanders, Director of Investor Relations.

Allison Sanders

Thank you Melissa and good afternoon everyone. Welcome to our quarterly earnings conference call. Before we begin our presentation, I want to remind everyone that certain statements made in this conference call are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are subject to risks and uncertainties which could cause actual results to differ from those suggested. Please refer to the press release for more detail on factors that could cause actual results to differ materially.

For those who are interested in listening to this conference call again, a replay will be available on the home page of our website at www.worthingtonindustries.com . With me in the room today are John McConnell, Chairman and Chief Executive Officer; John Christie, President and Chief Financial Officer; George Stoe, Executive Vice President and Chief Operating Officer; and Richard Welch, Controller.

John McConnell will begin.

John McConnell

Good afternoon everyone and thanks for joining us today. We had an excellent fourth quarter. This performance was in the face of escalating input costs and softening demand, kind of the general head winds that you hear so much about in many basic industries today. All of our businesses performed at or near plan for the period.

Two of our major businesses, Steel Processing and Metal Framing, well they created some tailwinds for us due to excellent execution and some steel inventory gains. We are also very pleased to report today that Metal Framing turn-around continues on a good path as we achieve profitability for the quarter. Obviously an important milestone in our efforts to stabilize this business of ours, there is still much to be done out in front of us to drive this business forward.

You will hear more about our focus and effort at Metal Framing and all of our businesses from George Stoe during this call.

John Christie will now walk you through our financial results for the quarter and the year and he will be followed by George.

John Christie

We reported fiscal 2008 earnings per share of $1.31, which was equal to last year’s earnings per share. Excluding $0.15 per share and restructuring charges, earnings per share for fiscal 2008 were $1.46, up 11% from the prior year.

For our fourth quarter of fiscal 2008, which ended on May 31, 2008, we reported earnings per share of $0.68 excluding $0.04 per share in restructuring charges, earnings per share were $0.72 compared to last years $0.45 per share, up 60%.

Record fourth quarter sales of $869 million were up 10% from the $787 million for the same period last year, primarily due to higher selling prices. For the past few months, we have raised our selling prices to keep pace with the rapidly increasing prices of steel.

The gross profit margin rose from 12.7% to 15.1% as a result of a wider spread between raw material costs and selling prices in the Steel Processing and Metal Framing segments. A good deal of the spread improvement in these two segments is due to the temporary benefit of inventory holding gains, which results in selling lower priced inventory into a rising price environment.

SG&A expense was up $12 million from the year ago quarter. Much of the increase in SG&A was related to variable compensation expense, which moves in conjunction with bottom line performance. Higher compensation expense, as well as increases of professional fees offset the $6 million realized in cost reduction initiatives this quarter.

Operating income for the quarter rose to $42 million, from $42 million to $61 million excluding the impact of restructuring charges. Operating income does not include equity income from our nine unconsolidated joint ventures, the most significant which WAVE had record quarterly earnings.

Selectively, equity income rose 31% to $22 million from $17 million last year due to WAVE’s record performance, the addition of our Mexican steel processing joint venture and improved results at TWB. As a group, the nine joint ventures generated $214 million in sales during the fourth quarter and paid us $17 million in dividends.

Miscellaneous expense was in line with the year ago period. As you may recall, miscellaneous expense includes the elimination of our minority partner’s interest in Spartan Steel Coating, our consolidated steel processing joint venture.

Last quarter I called attention to an early fire at Severstal, our partner and supplier to the venture, which negatively impacted production at both Severstal and the joint venture. Spartan’s results were much stronger this quarter versus last quarter due to both recovery from the fire and general seasonality.

Interest expense increased $1 million due to higher short-term borrowings.

Income expense for the quarter was due to higher earnings and a change in the mix of earnings that include more domestic and less foreign earnings, which are taxed at a lower rate. Our effective tax rate for fiscal 2008 was 26.5 % which included adjustments to our estimated tax liabilities. Looking forward we expect our effective tax rate to be 30% excluding adjustments that may occur in the normal course of events.

Now to the balance sheet: Total debt was $480 million, which includes $100 million outstanding under our accounts receivable securitization facility. Short-term borrowings increased $204 million to fund a$126 million in share repurchases and to support higher working capital requirements.

At the quarter end our total debt to capitalization ratio was 35.2% including the receivable securitization facility. For the fiscal year cash provided from operating activities was strong at $181 million consistent with last year.

Capital spending, excluding acquisitions was $10 million compared to depreciation of $16 million. For the year, capital spending was $48 million, while depreciation was $63 million. The lower capital spending versus depreciation was mainly due to timing of projects. As a result we expect capital spending in fiscal 2009 to be somewhat higher than depreciation excluding acquisitions.

Now I will talk specifically about fourth quarter and annual results for each of the three business segments beginning with processed steel, which represents 48% of revenues this quarter.

Steel processing’s quarterly sales rose 14% to $413 million from $360 million in last years fourth quarter. Average selling prices rose 18% compared to a year ago. Overall volumes were down 3%, that is direct volumes, but is sales where we own the material were up 6%. The increase in direct sales volume reflected a strategic sales effort that we began last fall to generate new business while the decrease in pulling sales corresponded with the lower automotive production.

Operating income for steel processing rose to $26 million, from $15 million last year, and the operating margin rose to 6.2% from 4.1%. The wider spread between selling prices and material costs was the major factor in the increase.

For the year, sales in operating income for steel processing was nearly flat with last year at $1.5 billion and $56 million respectively. This year operating income included $1 million of restructuring charges related to our cost reduction initiatives.

Now turning to metal framing, which represented 26% of revenue this quarter: Fourth quarter sales of $226 million were up 15% from last years May quarter, when sales were $196 million. The sales increase was driven by higher pricing as volumes were relatively flat. The spread between average selling prices and material costs rose significantly compared to the year ago quarter due to the higher selling prices I just mentioned. As a result operating income was $17 million, excluding restructuring charges, compared to a loss of $0.5 million in last years fourth quarter.

Although metal framing turned to profitability late in the third quarter, this segment ended the year with a $7 million operating loss excluding $9 million in restructuring charges. This compared to a $9 million operating loss last year. Sales of $789 million were up 2%. Going forward we anticipate that metal framing will realize additional benefits from the plant consolidations and cost reductions.

Finally, in our pressure cylinder segment, which represented 20% of total company revenues, sales for the quarter were essentially flat as strength in North America was offset by slight declines in the European market. Volumes in North America were up 7%, driven by strength in the small 14 and 16-ounce cylinders produced in our Wisconsin facility.

Volumes in Europe decreased 12% when compared to the exceptionally strong prior year period. Operating income was down, less $21 million, down from a record $26 million last year. As a percentage of sales, operating income was $12.1% down from 15.4% in the year ago quarter.

For the year, pressure cylinder sales increased 6% to $579 million. Operating income of $70 million was the second best performance in this segments history, second only to last years $85 million. Pressure cylinders continue to perform well above historical levels. Metal framing has returned to profitability and steel processing remains strong despite weaker end markets. Our focus on cost containment initiatives, higher margin business, and select geographic and capacity expansion should continue to benefit all of our business segments.

George Stoe will continue.

George Stoe

Our three main business segments all had strong results despite a difficult business environment during our fourth fiscal quarter. Rapidly escalating steel prices were responsible for some of the improvement in earnings, but operational improvements, plant closures and cost reduction initiatives played an important part in out outstanding results.

We reported on our third quarter call that sales in our metal framing business were up and that we expected to see a continuation of that improvement during our fourth quarter. I am pleased to report that in our recently completed fourth quarter, sales were up 15% or $30 million from the previous years fourth quarter and up 23% or $43 million from the third fiscal quarter of 2008.

We have been able to secure a volume for this business while increasing pricing and making continued progress at reducing our costs and repositioning ourselves for the future. We believe that the credit markets and current high steel prices will create headwinds for this business as we get into the second and third quarters of our fiscal 2009.

Our steel processing business has done an excellent job of managing through an unprecedented escalation in steel prices. When you factor in weakening demand in some of our key markets, with unexpected steel surcharges from the mills, the results in this segment of our business are very impressive.

While we saw a continuation of reduced demand in the automotive and building products sectors, these continue to be offset by increasing volumes in other markets and a strong effort on diversifying our customer base.

Our steel processing joint venture with Serviacero in Mexico is providing solid results. We and our partner furthered our commitment recently by securing land for a new site In Monetary. The first phase of this project will include a new building, rail spur, overhead cranes, and a new splitting line. This facility will provide us with more extensive coverage in the rapidly growing steel markets in Mexico. Our other new steel processing in Slovakia is gaining traction, although is not yet a material contributor.

Our cylinders business just completed the second best year in its history as John mentioned. This was driven by strong demand across almost all product lines and gains in market share in some of our key markets. Their results are particularly impressive when you consider the impact of rising steel prices and the challenge of passing those increases into the marketplace.

Our 14-ounce cylinder business finished well ahead of plans and prior year; our non-refillable refrigerated business had a record year and finished ahead of plan and prior year.

Our helium Balloon Time product continued with its uninterrupted strain of 10% annual growth since the products inception in the late 1980s. We are particularly pleased with the acceptance and growth in sales of this product in Europe.

We introduced a new product offering in fiscal 2008 of hand torch kits. The initial market acceptance of this product has been very strong.

Our volume in our high-pressure cylinder business is down slightly, but continues to be robust, especially in Europe. In fact, 2008 was the second best year in our history with this product line.

We continue to value the cylinders business highly, given its consistent track record of generating excellent shareholder value. As a result, we continue to search for additional growth opportunities within our current cylinders platform and market adjacencies.

One of the initiatives of which we are most proud is our safety performance. Our entire organization has embraced the concept that people are our most important asset and that one of our driving principles is to provide a safe and secure work environment for all of our employees. We do this because it is the right thing to do, and as a consequence, we receive tangible financial benefits from our progress in this area.

From 2004 to 2008 our recordable injury rate has been cut in half and our loss time incident rate has declined by 2/3. During this same time frame, our number of workers comp claims has been cut by more than half, while our actual claims expense has dropped by several million dollars.

I cannot close without mentioning our WAVE joint venture where record performance has become the norm. Product innovation, operational excellence, strong positions in global markets, and an outstanding relationship with our customers have been a recipe for remarkable success.

I will now turn this back to John McConnell for closing comments.

John McConnell

John and George thank you for that solid overview of the quarter and the year.

Now you read in our release a little about what we have come to call our transformation effort here at Worthington, as we focused on reducing our corporate wide SG&A expense and reduce the number of assets where we have the employed in metal framing.

We began to see additional opportunities in all of our major businesses and functions. In particular, in steel processing, as additional questions and opportunities arose, we decided to take a close look at one of our business markets and a facility where our new ERP system had been installed. We chose Baltimore and we turned a multi-functional team lose to examine how we currently operate the business from order to shipment. We have uncovered opportunities in all facets of our work during this process: operational, commercial, logistical, and we will conclude this initial review in July.

In our final month we are going to be focusing on the implementation plan for what we found in Baltimore and where applicable how to roll that out to all of steel processing. Over the coming several quarters, we will role this fundamental review and improvement process out across the steel network location by location. Our aim is to substantially improve performance and build capabilities to sustain it.

In metal framing we remain very focused on our ongoing initiatives to create a stable and profitable platform. We are closely monitoring the initial consolidation effort. We have positively answered one critical question at this point and that is, we have not lost customers in the areas where we retracted and closed facilities.

We are continuing to review our operating costs at high volumes and all of our freight movements and we will soon have the facts over a long enough period of time to assess how much we have impacted our total costs to our customer’s door and make a determination regarding further consolidation.

We will also start a fundamental review and improvement path, currently underway at steel, in metal framing, later this summer. We will closely examine everything we do from start to end and I am confident that, as we are learning the steel processing, we will find many opportunities to continue to improve our financial performance and our capability.

Cylinders, as you know, is a business that is running very well. Here we are focused on growth, both by expanding the existing product lines, as you heard George talk about with helium, developing adjacent markets, as we talked about with the hand torch, and through very thoughtful acquisitions. There are a number of opportunities we are pursuing in each of these growth areas.

What we have undertaken here is exciting and has a lot of momentum. We will continue to pull back the curtain for you and be more specific about the quarters ahead and what we are doing and what impact we anticipate on our business.

Now looking at the rest of the calendar year, we expect business conditions in steel and metal framing to soften, driven by the automotive sector and the commercial construction markets. Now the extent of the retraction in both of these markets and their duration are topics that do not suffer from a lack of opinions.

A further topic with many differing views is what impact, if any, the lower demand will have on raw steel pricing. I mention these issues to assure you that we monitor them closely. I hope we have left you with the broad sense that we are also well down a path of acting on and improving all aspects of our business that are in our firm control. We are excited and encouraged by our early progress to date and I am confident when I say to you that our efforts over the next two years will create a noticeably better performance in all relative market conditions.

At this point we are happy to take your questions.

………..

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from John Tomazzo.

John Tomazzo

Congratulations on the very, very good results.

John McConnell

Thank you, John.

John Tomazzo

I have two questions. First, and this is a difficult one, I apologize, could you try to characterize whether 10% or closer to 50% of the benefits of your transformation programs are realized to date, or how much of it is in hand. Second could you describe your inventory positions across the several businesses please?

John McConnell

Yes, the first one is, as you said, a difficult question. Certainly on the SG&A front, and the consolidation front when we first came out and said we were after $35 to $40 million on this front, I think we have that well in hand from an identification standpoint and by the end of ’09 I would say we will be at 80-%, 90% of that number on a runway basis.

The, kind of the transformation process is one of continued discovery in building. So at this point I would say that there is much yet we have not seen that will continue to build on itself. It is the proverbial peeling of an onion exercise. In steel we have got a pretty good handle on opportunity and at the end of July, as I said, we will have developed an implementation plan and we will start down that road. Some of those things are currently in line and I would say 2% of that effort is going to show up in ’08 as we go forward and build tremendously in ’09, just as we go.

On the inventory positions, George or John?

George Stoe

I will try to answer that John. John, in our inventory position the three major business units we have at steel processing, we probably ended the fiscal year with a little bit more than we would like to have. Not much, but a little bit. Inside the cylinders we ended up about exactly where we wanted to be and inside the metal framing business we intentionally built up our inventory a little bit in the fourth quarter. We bought more compliant secondary material to help lower the prices we are going forward.

But, in general I think we are in pretty good shape. We have had a concentrated effort over the last couple of years to keep our inventories in a very careful range of where we want them to be.

John Tomazzo

You are describing tons, not dollar values, right?

George Stoe

That is correct.

Operator

Your next question comes from Charles Bradford.

Charles Bradford - Soleil

We have been hearing some stories, I have been hearing, about some price weakness on some of the galvanized products, principally because of zinc coming down. Are you seeing the same kind of thing?

John McConnell

I am not. It certainly hasn’t elevated itself to my radar screen if it is going on at this point. George or John, have you?

George Stoe

No. As you know Charles, the zinc prices are down now to about $0.84 a pound, but we haven’t seen that manifest itself in overall lower prices of finished products. The market is still relatively strong, there is still nothing coming in to speak about from off shore and the market is holding up reasonably well.

Charles Bradford - Soleil

What are you hearing in regards to lead time through your suppliers? Are they getting a little bit better?

John McConnell

Yes.

Charles Bradford - Soleil

As in contracting?

John McConnell

Yes.

Operator

Your next question comes from Bob Richard.

Bob Richard - Longbow Research

Can you comment on the surcharges John? Are those being able to be passed along to the customers and are you, in effect, assuming them also? With the mill charge and US surcharge, are you accepting it and in turn is your final customer accepting it?

John McConnell

As George and I think everybody alluded to, these are very difficult markets when you get surcharges, particularly when you have some contracts in play. Spot markets obviously are a lot easier to deal with. In essence, generally our philosophy here and the way we go about this is that we are in the middle of this chain as well. We will accept nothing that will not go all the way through it and that is the way we approach it.

Bob Richard - Longbow Research

Metal framing volumes are a little bit down in the prior two quarters, pretty strong this quarter in a normally seasonally strong quarter. What is your outlook for volumes here for this quarter coming up? Do you expect that to be flattish or down?

John McConnell

George and I think everybody alluded to, these are very difficult markets when you get surcharges, particularly when you have some contracts in play; spot markets are a lot easier to deal with. In essence, generally our philosophy here and the way we go about this is that we are in the middle of this chain as well. We will accept nothing that will not go all the way through it and that is the way we approach it.

Bob Richard - Longbow Research

Metal framing volumes were a little bit down in the prior two quarters, pretty strong this quarter and then seasonally you would normally see a seasonally strong quarter. What is your outlook for volumes here for this quarter coming up, do you expect that to be flattish or down?

John McConnell

George certainly is very close to that market overall. I think we, in general, are expecting the first quarter to start the year very well. George, do you have anything further?

George Stoe

No. I think, Bob I think that John is absolutely correct. I think that we will see a general continuation of what we saw in our fourth quarter this quarter.

As I mentioned in my comments, we had some concerns about getting out into the later part of the year and worried about the credit markets and also just the commercial construction and where that is going, but I probably should add that I think the people at our metal framing business have done a great job of securing volume and getting the prices up and pushing the increased steel prices into the marketplace. They have really done an outstanding job.

Bob Richard - Longbow Research

The sales price and the cost of sales relationship in metal framing is pretty impressive. George does the mix of non-prime, is that what it is?

George Stoe

It certainly helps Bob. That is something that we do intentionally, trying to lower our overall costs by bringing some of that material in as long as it is compliant to secondary material. That is critical to us.

Operator

Your next question comes from Mark Parr.

Mark Parr - Keybanc Capital Markets

I am curious, I was looking at the SG&A number, and sequentially it was up so much. Normally you would expect, you know if you are going to be paying variable compensation, it gets accrued over the course of the year. Was there something in the fourth quarter that really changed for you guys that kind of created a whole different amount of momentum as far as the bottom line was concerned?

John McConnell

John, I don’t know if you want to add any color to that. I think clearly the quarter was a very successful quarter as you pointed out. The accounting treatments of it I don’t know, but our compensation expense is variable. It goes up in line with our earnings and we performed very well, so we definitely expect it to be up significantly.

John Christie

Fourth quarter over previous years fourth quarter, we did have an adjustment in base wages here and a change in our compensation program.

Going forward you will see that profit sharing, still very much we are an at risk business from employment here, but we have balanced our base wage and our profit sharing, we think, better for our employees and for the success of the company going forward. So, you have a fourth quarter over fourth quarter that is a little out of sync with wages. Comparing last fourth quarter to this previously ended fourth quarter.

Mark Parr - Keybanc Capital Markets

I have been thinking about the magnitude of recovery that you have achieved in the metal framing business in the face of potentially some difficulty or some difficult end markets, or I think in the past you have characterized these markets as highly competitive and I am wondering if you could provide some color on the competitive landscape. Are credit issues hurting your smaller competitors in metal framing?

John McConnell

Mark, I would say this to you. I think that when steel prices were a lot lower, we had some smaller competitors that today are having a difficult time, first getting steel and financing it as they go forward.

I think the other issue for us has been that our two major competitors in the metal framing business, I don’t think they were in any different position than we were back in the past. I think that they were just as eager and aggressive as we were to get prices up in the marketplace and to transform that part of their business as well.

We have seen it in the marketplace that the customers have accepted the fact that steel prices are going up and are willing to pay those prices. Our realized prices have gone up dramatically since, I keep track of it every day and since last October we are up significantly from where we were on selling on a 100 weight basis in that business.

John Christie

There is not doubt that the price of steel has stripped some people’s credit lines as you have read about. That is where our strong balance sheet is really. But having Dietrich under the Worthington umbrella gives them a lot of flexibility and staying power in a market like this, so I think it has been a big advantage to us.

Mark Parr - Keybanc Capital Markets

Another question is your mix of secondary material, has that increased recently, or is that running about the same as it normally does?

George Stoe

Is that in framing Mark?

Mark Parr - Keybanc Capital Markets

Within metal framing, yes. The mix of secondary materials.

John Christie

It has gone up about 10% higher than it was in the past and that was done intentionally by us as part of our transformation process of that business.

Mark Parr - Keybanc Capital Markets

Are you beginning to see some pricing differential on the ultra steel product in the marketplace? I mean, I know in the past it seemed like this was clearly a superior product, but it was difficult to get paid for it. Is it getting less difficult in the current environment?

John McConnell

I don’t think our intention ever was that it would be priced higher than the market and I don’t believe it is now. This is really a cost advantage to us, but its acceptance, generally, has improved across the board.

A couple of points I want to throw out here. While clearly the smaller participants in this business, there is some pressure on them. We have seen some go away. It remains a highly competitive marketplace at this point, so I don’t want you to get mislead on that or the guys out here slugging it out every day will wonder why we would say that.

It remains a competitive marketplace. We are doing a much better job and working every day to improve our levels of service, which is part of how we got at least a percent increase in volume from where we were in a slowing market. I think that’s important to remember. Overall I think they are doing a good job.

We have a ways to go here and by the end of July, like I said, we are going to take a really close look at consolidation and what it means to our future footprint. We have warned a lot so far, but we want to really evaluate what happened to our total costs when we were running a three-shift operation versus one and what happened logistically to different freight movements that weren’t in place before.

So, we are really understanding our total line in cost with the customer store and make some decisions, which we will let you know about as we go forward. We have made good progress here.

Mark Parr - Keybanc Capital Markets

Has the higher steel costs really begun to impact the pressure cylinder business yet?

John McConnell

Yes and sometimes we wonder if everybody remembers that we have other parts of the business that do have to go through getting their prices adjusted as material costs climb. It had a clearly negative impact in this quarter. We have different pricing arrangements; it will catch up at some point due to the trailing nature of adjustments on material costs of cylinders with our customers. There is all different kind of agreements, so slightly behind the curve at the moment, but we will catch up as we go forward.

Mark Parr - Keybanc Capital Markets

Have you seen an increase or a decrease in the amount of import offerings of flat rolled products for the summer months relative to what you saw in the second calendar quarter?

John McConnell

We have not at this point.

Mark Parr - Keybanc Capital Markets

Have they come down at all John?

John McConnell

No not that I am aware of either. You really had some specialty products and there weren’t many coming in. I think it was in galvanized wasn’t it, we saw some imports come in. I think after ’04, ’05 Mark I am not a mill and nor do I know, or have heard their strategies directly on this, but I think they will be very sensitive to keeping price points that it does not invite imports in, because that certainly turned the pricing for them in ’04, ’05. My guess is that they are going to try to make sure that they’re in close parody with world pricing. We are a little higher now in some places, but I’m sure they are going to be very sensitive to that.

Operator

Your next question comes from David Taylor.

David Taylor

My first statement is a statement and not a question. JP, I want to express my condolences on the death of your father. He was one of my favorite people in the business, so I have known him over the decades, and I am sure he meant a lot more to you than he did to me.

John McConnell

David thank you and you were always one of his as you are one of mine, so thank you very much.

David Taylor

I hope you don’t consider this question to personal JP, but you are, after all the CEO of a publicly traded company and your father’s shares represented a fair percentage of the outstanding shares of Worthington.

John McConnell

You want to remember I am not a public elected official or a movie star so…

David Taylor

I mean your father’s death; does this have an effect on the disposition of his shares?

John McConnell

Does it have an effect on the disposition? In other words is the estate in a situation it must liquidate, is that really what you are asking? Not liquidate, but…

David Taylor

Well I don’t know what state the estate is in, but something has to happen to his shares. I mean are you going to inherit them all, or are they going to go elsewhere, do they need to be sold?

John McConnell

Let me put it this way. The shares, and we did a form profiling shortly after his death, shows that I have voting control over those. They are in different pockets and places; but as far as control of them, I have control of them and that is where we are today. We do not have a need to, for tax reasons or otherwise, to have any pressure on us to do anything around his death with the shares of stock.

Operator

Your last question comes from Kevin Money.

Kevin Money

I was just hoping you could talk a little bit more about the drivers behind the WAVE JV. It just seems like that business continues to perform really well in what looks to be, kind of a slowing, more challenging environment?

John McConnell

We definitely are going to have some more challenges as there is no premium on slowing commercial markets, but you are right. This is a very well run business. They understand their markets, they understand and like cylinders and both enjoy the fact that it is a limited compatible space, but we have done a great job of innovating products, staying ahead of our competition, continually taking costs down over the last ten years and it is just a very well run business like cylinders is.

John Christie

Also, when you look at the slow down in commercial construction, larger than 50% of WAVE’s business is reconstruction or remodel, not new builds; so, as new space slows down and old space continues to become more valuable, really WAVE is in a perfect position to continue on its track.

John McConnell

John as well as Harry and his team have just done outstanding work. Over the last five years they are just going solid, solid, solid.

One thing around that business, or international opportunities that as we go forward should play in and give them additional running room, in particular India; so just throw that out there as well.

Thank you all for spending time with us today. We are very pleased with our results, very proud of our employees who produced them. We have a number of people in particular that I thank for all the double duty they are doing besides their day jobs, helping to drive our transformational efforts here.

We look forward to joining you next quarter. As I said, we will continue, over the course of the next year and a half, slowly introduce impacts on the company from the actions that we are taking today. Thank you very much.

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