Question-and-Answer Session
Operator
Thank you. (Operator Instructions) Our first question today comes from Kevin Maczka. Your line is open and please state your company name.
Kevin Maczka – BB&T Capital Markets
Good morning; Kevin Maczka, BB&T Capital Markets.
Gregory E. Hyland
Morning, Kevin.
Kevin Maczka – BB&T Capital Markets
Good morning. Greg, I am wondering if you can say a little bit more about the channel inventory situation. You’ve got orders trending down 30% to 40% and it sounds like you're kind of implying that you’re not going to see any uptake until we get into the spring construction season. What is that inventory channel look like? Is that de-stocking still a big part of that where your distributors are still working down inventories, or has that played out and they are just not ordering out yet at this point.
Gregory E. Hyland
Yes, Kevin, our best market intelligence leads us to believe that most of the de-stocking has occurred. I think that as I said in our prepared comments that there was a very aggressive take-down starting in September. So our belief is that we just won't see orders from the replenishment of that inventory. You know, typically as we get into the end of Q2 in past years, distributors would start bringing in some inventory to be prepared for the construction season. We think this year, as I said, that we won't see distributors bringing back, or bringing up, their inventories until we get into the construction season and they see the pick-up. So I think it’s the latter that you pointed out. We think we've seen most of the stocking; at this point, though, we don't expect to see, especially in the second quarter, any orders to start bringing up inventory.
Kevin Maczka – BB&T Capital Markets
Okay, switching over to the debt covenant slide, you know you showed on the slide that you are well below your covenants, but I think you’ve said in the past you have an EBITDA number of around 180 million or so for the full year ’09 that you need to hit to not have those covenants become an issue. And I guess with running at a run-rate in Q1 well below that and looking at Q2 maybe even lower, can you just comment on your outlook there, Greg?
Gregory E. Hyland
Sure. And, as you pointed out, actually at the end of December, our trailing fourth quarter EBITDA for bank covenant purposes was almost $252 million. I think it’s important to point out that the EBITDA that we report is not necessarily EBITDA that is used for bank covenant purposes because we are allowed to add back a certain item. So actually in our first quarter for bank covenant purposes, our EBITDA was about $40 million. But in current net debt levels, we need minimum trailing fourth quarter EBITDA of about $187 million. Of course, that is calculated as defined by our credit agreement. We monitor these covenants closely. We've been taking aggressive actions to reduce our controllable expenses with work force reductions and plant shutdowns. We are also focused on managing our working capital and generating free cash flow, which helps to lower our net debt. So we will continue to take the steps necessary to meet our debt covenant obligations. At this point we are in compliance with our debt covenant, and we anticipate [audio interruption]—
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