MASC MASC
Q3 2011 Earnings Call Transcript
Transcript Call Date 01/14/2011

Operator: Greetings, and welcome to the Material Sciences Corporation Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Lynne Franklin.

Thank You. Ms. Franklin, you may begin.

Lynne Franklin - IR: Good morning. Thank you for joining us for the Material Sciences Corporation’s third quarter fiscal 2011 results conference call. By now, everyone should have received the copy of the news release, which was issued before the market opened today. If you don't have one, please call (Donna Peterson) at 847-718-8276 and we will provide it to you, or you may find it immediately on the Investors page of our website at www.matsci.com.

Before we begin, I'd like to remind you that the information in today's news release and the remarks made by our executives on this call may include forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on information currently available to us and involve risks and uncertainties that could cause our actual financial results, performance, business prospects and opportunities to differ materially from those expressed in or implied by these statements.

These risks and uncertainties include, but are not limited to, the factors identified in our news release, our Annual Report on Form 10-K for the year ended February 28, 2010, and our quarterly and other filings with the Securities and Exchange Commission. You may access any of these filings free of charge on our website or at www.sec.gov.

Please remember that the information on this call should be considered current only as of today. After this, you may use it for your reference and know that except as expressly required by securities laws, the Company has no duty to update it. In addition, a replay of this call may be found on our website about two hours after the call ends.

Now, I'll turn the call over to Material Sciences' CEO, Cliff Nastas.

Clifford Nastas - CEO: Thank you, Lynne. I'm here with Jim Pawlak, our Vice President, CFO and Controller. Both of us are excited to have you with us today as we review our strongest third quarter performance in five years. Jim will start by giving you a better understanding of the factors behind our financial results. I'll follow with my thoughts on the quarter and update on some of our strategic initiatives. After that we'll be happy to take your questions.

Now, I'll turn the call over to Jim.

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: Thanks Cliff. Let's begin by reviewing the income statement for our third quarter. Net sales were down 23% from the prior year to $30.1 million. Much of the difference stems from the coil coating assets and the associate book of business that we sold this past April.

Here, of course, I am looking at both of our product groups so you can get a better understanding of what happened. Our acoustical product group's sales were up 10.4% to $17.7 million. We experienced lower shipments to General Motors as some models containing Quite Steel went out of production or GM stopped using this technology on certain vehicles. This is offset in part by higher body panel laminates sales to Ford and because, of the new Quiet Steel program introduced into the appliance market.

Moving on to our Coated Materials groups, sales here were $12.4 million, which was down 35.9% from last year's third quarter. If you remove the $6.9 million in the sales associated with April coil coating asset sale, revenues for these products groups were actually flat between the two years. There are several other points we're building here.

As expected fuel tank sales to Ford were down, as some of the vehicles and producers are converting to plastic tanks. This is partially offset during the quarter by stronger shipments of electrogalvanized products and gaskets for automotive, as well as our continued product launch of ElectroBrite our stainless steel substitute.

Gross profit in the third quarter was $6.8 million, which represented 22.5% of sales. This was the 57.4% improvement from $4.3 million at this time last year or 11% of sale. Rising gross profit can be attributed to higher margin product mix which was a result of lower coil coating sales and an increase in the electrogalvanized shipments, as well as stronger secondary scraps sales, and continued improvements in product quality.

Selling, general and administrative expenses decreased once again on a total dollar basis. The latest quarter saw SG&A decline 17.2% to $5.6 million. However, because we have lower revenues in this period than a year ago, SG&A represented 18.5% of sales compared with 17.3% in the prior year's quarter. The $1.2 million decrease in SG&A came from several places. The major factor was $1.1 million reduction associated with the restructurings at the end of fiscal 2010, and in the first quarter of fiscal 2011, which reduced salary and headcount related expenses.

In addition, product development costs were down $0.4 million, and a decrease of professional fees and other general expenses saved us $0.7 million. These improvements were partially offset by $1 million through higher incentive expenses.

About $0.3 million of this came from (indiscernible) in stock expense, due to stock price appreciation in the quarter, and $0.7 million for our fiscal 2011, employee performance incentives, which are being fully accrued in the third and fourth quarters. There was no employee performance incentive expense in the first two quarters of fiscal year 2011.

Total other income doubled to $0.4 million. This is a result of rental income we received, during the coil coating equipment that we sold in April. Our effective income tax rate for the three months was a benefit of 4.5% versus a 10.6% benefit last year. The third quarter tax number included a current tax benefit of $0.2 million. This resulted from the release of reserves to uncertain tax provisions because some statutes expired.

As you probably remember, Material Sciences uses a full valuation allowance on all of its deferred tax assets. During the quarter, we reduced this allowance by $1 million. This reflected tax effects of the income we generated during the three months and amounts allocated to other comprehensive income. That brings us to our bottom-line.

Net income was $1.7 million or $0.13 per share compared with last year's third quarter, net loss of $2 million equal to $0.15 per share.

Now, I'll move on to the first nine months of the fiscal 2011. Net sales reached $105.7 million that was a 3.6% increase from a year ago. So, we more than replaced the $14.9 million of revenue related to the coil coating assets we sold. Gross profit jumped to 133.2% to $22.9 million, this represented 21.6% of sales compared with 9.6% for last year's nine months. SG&A dropped 21.6% to $15.8 million. That means it equated to 15% of sales versus 19.8% at this time a year ago.

Our net income for the year-to-date was $9.7 million or $0.75 per share, a reversal of last year's net loss of $9.7 million equal to $0.74 per share.

Our earnings before interest, taxes, depreciation and amortization or EBITDA in our third quarter was $2.8 million and $14.1 million for the year-to-date. If you take out the impact for the coil coating asset sales, the year-to-date EBITDA was $13.4 million on a pro forma basis.

Next, I'd like to offer some background on our balance sheet and cash flows. When the third quarter ended, our cash balance was $35.9 million compared to $12.9 million at the beginning of this fiscal year. The increase came from three sources; first, $14.1 million of net proceeds were generated by (selling) the Elk Grove Village and Middletown coil coating assets.

Second, $1.7 million resulted from the early collection of our note receivable from the sale of the Morrisville coil coating facility; and third, $8.6 million of cash came from operating activities.

So far this fiscal year, we have invested $1.4 million in capital improvement projects, primarily in our U.S. operations. In addition, due to amendments and actuarial changes to our retiree health care plan, the Company lowered that long-term liability by $2.4 million at the end of the third quarter.

In closing, I'd like to leave you with a few final thoughts. We continue to leverage our sales and higher profits as a result of lower overhead cost structure and an improved product mix. Our cash balance is strong and we continue to have no long-term debt. As you all know, our shares began trading on the NASDAQ during the third quarter. Our stock recently has been trading in the $6 to $7 per share range, which is an increase of over 60% since the end of the second quarter.

You will find greater level of detail on many areas I discussed in our third quarter 10-Q, which we file later this morning. In the meantime, I will be happy to answer immediate questions during this morning’s Q&A session.

I’ll turn the call back over to Cliff, who will offer his view on the third quarter results.

Clifford Nastas - CEO: Thanks Jim. On our last call, I said we expected favorable, but modest improvements in our financial results for the second half of fiscal 2011, and that’s exactly what happened in the third quarter. Even with sales up 23%, we still made a dramatic improvement in gross profit, a significant cut in SG&A and enjoyed our third consecutive quarterly profit.

It’s worth noting that fiscal 2006 was the last time Material Science has enjoyed three consecutive profitable quarters. The reason we were able to make this happen was the continued pursuit of our strategic direction and growth strategies over the past few years.

As Jim mentioned, the biggest contributor to lower quarterly revenue was the sale of some of our coil coating assets in April. This removed almost $7 million from our top-line. Two other areas adversely impacted sales was Ford's continued move to utilize more plastic fuel tanks and lower shipments of Quiet Steel for General Motors.

As mentioned, earlier, successful implementation of our growth strategies has fuelled our year-to-date performance. Here is a brief update surrounding some of our strategies. As you may recall, our first strategy is to maintain the operating leverage we created over the last two years. During the quarter we achieved a 57% rise in gross profit, which represents our third straight quarter of gross profit conversion at/or above 20%. This trend really reflects some of the systemic changes we've made in the business.

First, we have a higher margin product mix. Improvements in the global automotive market, combined with our exit from some markets associated with coil coating access assets we sold in the first quarter, has lead to a greater percentage of our sales coming from innovative technologies.

Second, our plants continue to make improvements in their operating efficiencies. This is driven primarily through a successful implementation of our six sigma and lean manufacturing programs.

Third, we continue to reduce overhead spending across the Company by scrutinizing all expenditures and competitively bidding most of our direct materials and operating supplies.

Our next growth strategy is to capitalize on Material Sciences global presence. We were particularly successful in signing new contracts in Asia. We concluded several OE and aftermarket break programs, a new hard disk drive track platform and Quiet Steel in our second ElectroBrite appliance close.

In Europe, we continue to increase brake market share in both the aftermarket and original equipment segments. Also, it's worth noting that we continue to expand our market share in North America. During the quarter, we began shipping brake shims for the new Chevy Volt, Dodge Avenger and Chrysler 200.

Moving on our next growth strategy is focused on building acceptance of our new technology. These include ElectroBrite, Deco Steel, ViViColor, and rubber coated metal products. Here are two of the advances we made during the third quarter. This month our major appliance OEM is launching another new refrigeration platform using ElectroBrite. Our material is also being submitted for fast track approval at a different appliance manufacture for a new platform that is scheduled to start production in next fiscal year.

Now that the appliance OEMs are becoming comfortable with the technology, we are beginning to seek out and identify other possible end-uses for this lower cost substitute for straight line deal. We also introduced a new brake material, which we're calling (Quiet Aid). Its first use is for European platform being produced in North America.

Our last growth strategy is to divest non-strategic assets and put that money to work in higher growth areas of our business. The result activity on this front in the third quarter however so far this year, we have netted $14.1 million from selling assets we believe do not have a place in Material Sciences' portfolio. This is one of the reasons you have seen our cash on hand nearly tripled since the end of last year, which of course, pegs the question, what do we intend to do with our $35.9 million of cash?

As mentioned in previous calls all I can say is that we're evaluating potential uses for these funds remains a top priority of the Board of Directors and management, and we continue to accept several opportunities. I also know that the amount of time it takes to make and announce these decisions can be frustrating for investors, but I think you'd agree it's important to ensure that every opportunity is fully evaluated before taking action. Once our decisions have been made, we will certainly communicate them with you.

While this was a strong quarter for most every aspect we remain cautiously optimistic moving forward. Having met our objectives of returning to and sustaining profitable growth in fiscal 2011 management needs to continue shifting more energy towards strategies to help Material Sciences grow beyond increasing automotive builds.

As a result of a year-to-date progress, we expect to continue seeing favorable comparisons to fiscal 2010 in the fourth quarter. However, this optimism must be tempered by what happens in the worldwide automotive market because so much of our business is tied to that industry, and as always, we remain excited about our new products, new technologies and new prospects.

That should give you a good idea of what happened in the third quarter and what we're watching as the fiscal year draws to a close. Now, I ask the operator to open up the call, so that Jim and I may take your questions.

Transcript Call Date 01/14/2011

Operator: Steven Schwartz, First Analysis

Steven Schwartz - First Analysis: If we could take a 30,000 foot view where your revenue is coming from and if you could just add some color to how it looks today. So, in other words, how much of your revenue stream right now is tied to auto production versus some of this brake shim business that just might be tied to miles driven, and then of course, you've got the appliance component? Can you give us some color there?

Clifford Nastas - CEO: About 90% of our overall business is tied to the automotive industry and really the only place that we have aftermarket type products is in the brake side. On aftermarket it's probably only about maybe 10% to 15% of the remaining automotive annual sales volume. So, much of what we're seeing today is driven by the improvements in automotive builds, but it's also being attributed to some of the new closures we're having. So, not only are we enjoying the fact that there's more automobiles being produced globally, but we're also closing new businesses as we move through the fiscal year. In the remaining 10%, we have had quite a bit of good news come our way in Quiet Steel for appliance and also ElectroBrite for appliances. As I mentioned during my script, we just closed a new hard disk drive program in Quiet Steel, which really there was virtually no sales attributed to that new piece of business in the third quarter. So, we're benefiting on multiple fronts.

Steven Schwartz - First Analysis: It sounds then still like 75% to 80% of your revenues still is tied to how new car production is going, safe to say?

Clifford Nastas - CEO: That's a fair assessment.

Steven Schwartz - First Analysis: I was going to ask you then how your raw material exposure might be changing, but again, most of that auto business is through these OEM purchase programs, is that right?

Clifford Nastas - CEO: That's correct.

Steven Schwartz - First Analysis: You've benefited from being able to resell scrap. It looks like cold-rolled steel now pricing is coming down. Is there a point where you lose that benefit here in coming quarters?

Clifford Nastas - CEO: We've actually seen a firming in the price for scrap over the last few months. I think that it's anybody's guess where cold-rolled steel pricing is going to go over the next 12 months, but we're actually seeing a firming in the pricing of steel and scrap, but once again, that fluctuates on a regular basis.

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: Also, our business is not as turns intensive as it was when we had coil coating, I mean Electrogalvanizing is more of a higher turns business then some of the other products we have, but prices go up and down a little bit on scrappy. We're probably talking about $100,000 swing here and that's not going to be major. A good portion of why we talk about that in terms of quality, as well as our quality numbers have much improved through our improvements, as well as product mix.

Steven Schwartz - First Analysis: Cliff, you did a nice job by just calling out Ford in the fuel tanks and Quiet Steel to GM, but just to reference though the line in the press release, if you could add some color. So, what type of product for Quiet Steel decline was this body panel, that kind of thing? Where the new body panel laminate, I guess see in the appliance, but if you could just add some color, I'm trying to get a feel for the area, are we losing big panels and gaining small parts, that sort of thing?

Clifford Nastas - CEO: The decline at General Motors was primarily related to body panel application. As Jim stated in here that, some models just cease to exist, go out of production, other models they decided to change through a different technology for cost savings, but there was also a degradation and the noise quality on those vehicle, and then some of the vehicles they remain in Quiet Steel at General Motors. As far as the wins in appliance, as you know that the pieces in the appliance industry are not as large as automotive body panel, however, we tend to get a little bit higher selling price, may because there are more specialty items, sometimes if the combination of steel with one side and stainless steel on the other. So, it's really hard if you just say, one panel is big or the other one is smaller, so you're losing one and you are gaining, because the selling price on the other one can be smart piece can be twice what is on the larger one. Overall, body panel sales were down, especially as its attributed to the GM there, but on the nine month period, we have seen a nice gain overall in body panel sales, because sales in the Ford Motor Company and Chrysler have been significantly up versus nine months last year, and that's because we are on big panels, on prominent platforms there and both those companies are enjoying significant increases in sales over 12 months ago.

Steven Schwartz - First Analysis: You mentioned the Volt and the Avenger, I may be wrong and correct me if I am, but these are different types of vehicles than where you traditionally have had success, these are not explorers with a large margin or a Ford F-150. Where are they using your material in these cars?

Clifford Nastas - CEO: Well these are primarily brake applications and our products have been found both in passenger cars and large SUVs for many years in the brake area.

Steven Schwartz - First Analysis: On the mix shift you, mentioned EG was up, coil down, that gave you a benefit at gross margin. Can you foresee how long this benefit might hold out?

Clifford Nastas - CEO: Well the coil has gone forever at least for the amount of time we have or not compete with Roll Coater who we sold the assets to, but the EG business is something that comes and goes and it's been that way for many years. It's very difficult for us to predict what our volumes in Electrogalvanized might be two, three, four quarters out. We generally have a good hand lined up for the next three months because we line up that spot business with the mill, but our Walbridge facility is considered the premiere outsourcing electrogalvanized facility for all the major mills for automotive applications. So, whenever they have a situation at their captive facilities, where they cannot handle the volume, whether it be because of a breakdown or because they are running a different product down the line, Walbridge is where they normally go to and it's hard to project what that's going to be, but the business has been fairly steady over the last few years, where we do enjoy a nice outsourcing business there.

Steven Schwartz - First Analysis: So it's been strong for a few years, but it sounds like, if I were to ask you what (indiscernible) looks like. You might not really be able to give me a firm answer?

Clifford Nastas - CEO: I don't think I'll give you answer. I'd say, directionally, I think that our business will be at least where it is today to up, because we have landed some of – (it's not like) spot business, but with Volkswagen. They have contracted with us to do some exterior specialty products for vehicles they are producing in North America and that's just starting up right now. So, if the spot business was to go away completely that would more than fill the void, but the spot business is consistently been there. I anticipate it to be there going forward. So, once again, directionally, I think that we'll be at least where we are today and probably may be up a few million.

Steven Schwartz - First Analysis: Then just one last one for Jim, if you could. Just clarify the tax benefits for me. You mentioned the $0.2 million and then the NOLs, if I get this right, $1 million came off of your pre-tax income?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: We adjusted our reserves against deferred taxes by $1 million, but some of that had to do with the savings in the income tax for the quarter, but also some changes in the other portions of the deferred tax liability that pertain to retiree healthcare benefits, we lowered that liability as well. So the reserve change encompasses many areas.

Steven Schwartz - First Analysis: I think your NOLs were $6 million?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: As we go forward here federal tax NOLs and AMT tax credits are approximately $5 million or $6 million that probably will be utilized up in the next probably four or six quarters. We also have some state NOLs as well.

Operator: Jonathan Evans, Edmunds White Partners

Jonathan Evans - Edmunds White Partners: Can you just talk a little bit about and maybe I misunderstood this, but directionally then for the February quarter. Do you expect sales to be up year-over-year and it sounded like you still expect that mix shift to be positive, but affected gross margins in the November quarter, is that right, is that what you were saying?

Clifford Nastas - CEO: John, we don't give forecast. I think this is one of the first times you've asked the question on the call, but generally we don't do that, but I think you can construe from our press release that we believe that revenue adjusted for some of the things that we sold for coil coating, we do expect revenue to be up over the prior year.

Jonathan Evans - Edmunds White Partners: Can you talk a little bit about then as you go into your fiscal 2012 we've had three months in a row of positive (stars) that were better than the expectations. I think the guy from AutoNation was out the other day saying that he thinks the star will be like 12.8, et cetera. Can you just help us understand if star is kind 12.8 million to 13 million, what kind of growth potentially could you have with that kind of number off of 2011? Can you help us layer in or think about the incremental business that you're bringing onto because it seems like you're going to benefit from two things, right? The industry is getting better you have a lot of exposure to Ford who is gaining share. So, can you just help us to think about that, I know you don't want to give guidance, but can you talk about that?

Clifford Nastas - CEO: I'll talk about it, but once again you got the guidance incorrect. The SARs thing, it's difficult to equate auto build to exactly what we do as a Company, because our products are not found on every vehicle. They are found on a selected subset of vehicles and we really need to understand what's happening on those vehicles and which our products are found. So, I've seen periods in my time here at MSD, where builds have been up 10%, 15% and sales have been down. I've seen times, where builds have been up, 10%, 15% and sales have been up 20%, 30%. So, it's very difficult unless you take a look platform by platform exactly what's moving, is that SAR, is adjusted. On top of that we also have a lot of other moving pieces as you mentioned in your question, and that's the fact that even while things might be increasing or decreasing on a production basis, we have new business is at the closing and we're starting to sell into those programs and we have others, where we're on a platform and it's gone away or the customers gone a different direction. So, there is just a tremendous amount of moving pieces here. So, to answer your question, it's not easy for us to give you something that really correlates to what our sales are going to be moving forward.

Jonathan Evans - Edmunds White Partners: Can you help me understand another piece. So, you did a great job on the gross margin. You talked about the mix shift that went on within the quarter. Can you help me understand the incremental margin, so if I build my model of the SARs and maybe from the new wins, et cetera, as you get a dollar more of revenue from this $30 million kind of level, help me understand the incremental that you drive, is it basically the gross margin flows through or will you need to add to SG&A? That's where I'm really focused?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: I think that the operating leverage we have on the business right now enables us to grow revenue quite substantially without adding a lot of resources, especially in the SG&A area. I think that if we were to grow sales another $30 million, $40 million, you might be talking about a couple of sales people and some customer service folks, and if that's the plan those, of course, would all be variable or maybe flexed with production. So, I think we've got a lot of runway in front of us here to grow the top-line, without adding a lot of expense.

Jonathan Evans - Edmunds White Partners: Does that mean if you could grow $30 million or $40 million, you only have to grow SG&A a couple of million?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: Let's say that, that type of comparison would be fairly accurate.

Jonathan Evans - Edmunds White Partners: Lastly, I know you had a comment about this, about the balance sheet, the strong cash flow, and your guided thought process for that. Can you give us any insight just relative to, if that thought process more of giving it back to shareholders or is that thought process of expanding the Company and growing the Company?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: It's all of above. We sit down with the Board on a regular basis. We discuss our cash position, and we talk about all potential uses. We look at dividends, on-time regular dividends. We look at share repurchase. We look at investments and capitals that are required to grow the business. We take a look at any potential acquisition opportunities that might be available. So, really we're taking a look at theoretically, almost every use of cash that you could think of. We've made a lot of progress. We've discussed a lot of things over the last year, and every time we're getting (funny), I think we're getting a lot closer to figuring out exactly what we are be doing with our cash.

Jonathan Evans - Edmunds White Partners: You have a very cheap Company, I mean, on lots of a different metrics. Is there an emphasis and you have a good story to tell – is there an emphasis at all to become more proactive and tell your story, or is that not something you guys want to do?

Clifford Nastas - CEO: That that’s something that we'll probably do more of moving forward. I have been asked to go on a lot of road shows and even participate in some investor conferences over the last few years, and my answer generally has been no to that. That's because, we wanted to focus on returning the Company to profitable growth and a sustained model, not just one quarter. I think that we're fairly comfortable right now with all the restructuring and all the work that we've done to bring new products to bear on the market. Over the last few years, we think that we've really got some traction in those areas. So, we're more comfortable with the outlook of the Company. I think that now that we've accomplished many of the goals we set out to achieve, I think that now is the time to start being a little bit more proactive in some of those activities that you mentioned. I will tell that we speak regularly with investors one-on-one. They call and want some time with Jim. Over the last few weeks, we haven't been able to do it as much as we'd like, just because we're in a quite period, and we had a lot of activity going on running the business, but we do do our best to try to keep our existing and potential shareholders abreast of their investments in MSC or potential investment.

Operator: (David Wright, Henry Investment Trust).

David Wright - Henry Investment Trust: The subtext of some of these questions really has been profitability. You had really just two quarters of operating profit and we have an operating margin of sort of 4% to 5%. Is that what we have to look forward to going forward?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: David I think this is our third quarter of profitable operations. I think our year-to-date is really higher than 5%

David Wright - Henry Investment Trust: I don’t want to nitpick, but in the first quarter if you back out the restructuring benefit, I think it’s some very slight negative, but in any event you had a 4.89% in Q2 with 3.98% in Q3 and is this kind of where the business is, 4% to 5%?

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: If you back out some of the noise in the first and second quarter regarding the asset sale transactions, our earnings per share were $0.37, $0.20, in this quarter it were $0.13. Our operating margins are probably somewhere 5% to 7%. We think that’s very stable going forward, but obviously our goal is to probably get like closer to 10% on a pretax basis, no doubt about it and that’s what we are working towards.

David Wright - Henry Investment Trust: So should we have an upward trajectory sequentially going forward?

Clifford Nastas - CEO: David, we have ups and downs remain, we've strong quarters and weak quarters seasonally. I think that we are going to be working our way towards the target that Jim gave you.

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: We are a little slow here just because we look at some of our numbers and we are trying to figure out where you are getting your numbers from?

David Wright - Henry Investment Trust: Well I'm taking 1198 divided 31.20, and that's 398 for the most recent quarter, for example.

James Pawlak - VP, CFO, Corporate Controller and Corporate Secretary: There are a couple of things going on in the quarter. Our SG&A is a little high, as we are trying to mention in our scripts and in our press release. We are backend loading some of our management performance incentives since that was not authorized by our Board until the third quarter of this year. So, that's actually weighing down the third quarter, as well as the significance stock price depreciation that we have does have an impact on some of incentive expense for our Directors it's inside the stock price. So, our SG&A is a little on the high side this month or this quarter, but if you take a look at the operating results on a year-to-date basis taken out some of the noise like I mentioned in first and second quarter, and I think we mentioned in the press release as well, I think it gives you a good idea where the operating margins are really and for three solid quarters that where we were at.

David Wright - Henry Investment Trust: Well you've done a fine job going from losses to profitability, but when we look here basically have the stockholders equity is cash, that if these are the kind of returns that represent the new Material Sciences, then you either got to gives us back the cash or we do got to buy something a lot more profitable in my view?

Clifford Nastas - CEO: We hear what you are saying, David.

Operator: Mr. Nastas there are no further questions in the queue at this time. I would now like to turn the floor back over to you for closing comments.

Clifford Nastas - CEO: Thank you. When this fiscal year began I told you Material Sciences was making a shift from survival to growth. Nearly every important financial yardstick for our third quarter and nine months shows a significant improvement from a year ago. Thanks to the incredible hard work of our talented people. We not only learn to do more with less, but improve our operations and opportunities along the way. Jim and I appreciate the support you have given Material Sciences during this process, and the time you have taken to be with us this morning. We look forward to talking with you again in May, when we report our progress on the fourth quarter and full fiscal year.

Operator: Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you all for your participation.