Question-and-Answer Session
Operator
(Operator Instructions) Your first question comes from Chris Agnew – Goldman Sachs.
Chris Agnew – Goldman Sachs
First question on your annual savings of $60 million, will you be achieving the sort of $15 million quarterly run rate by fourth quarter assuming third quarter will still be too early?
Brian C. Walker
It will feather its way in throughout the rest of this fiscal year. We’ll see as Curt said, some of it starting in January although that will probably be a little bit lighter because there are some folks that while they are leaving us there is an extended period for them. It will gain speed in the fourth quarter and I would think by the time we get to the first quarter of next year we’ll be fully implemented. Partly that’s just the transition of folks if you will from one spot to another.
Chris Agnew – Goldman Sachs
Second question, have you seen any weakness in state or local government spending given the fiscal problems that they’re experiencing?
Curtis S. Pullen
No, actually not. The government continues to be fairly strong and in fact, the state and local governments were actually running stronger than they have been over the past couple of quarters. I think we commented on that before as well.
Chris Agnew – Goldman Sachs
Then the final question, is there any – from your experience in 2001, 2003 is there any change in product mix you typically see as volumes are declining that impacts gross margin in any way?
Curtis S. Pullen
I’d say a couple of things first, the international business has grown quite rapidly through increased distribution of seating products and as you know, those seating products carry higher margins for us. So, as John Portlock in the international business has started to sense a slowdown in some of those regions, if those regions are more dependent mix wise towards seating that could affect his business.
However, he’s seeing growth in certain areas around his patch. But, for the most part I don’t think we’ve seen significant change in mix in the North American business.
Brian C. Walker
Not yet. I think last time Chris if you went back to it we did see a bit of a movement last time towards seating and storage, more drop in products. I think part of that is you’re seeing less of the major projects stuff but you’re still seeing the drop in work. Now, whether that will repeat itself or not I don’t know but I think last time if you went back and looked by product category, the bigger drop off was actually in the systems category which is, as you know, we tend to have higher margins in the seating area. But of course, you know you sort of lose that in the absorption picture when you look at it overall.
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