Acuity Brands Inc (AYI) 2005 Q4 法說會逐字稿

Hello and good afternoon and welcome to the Acuity Brands 2005 fourth quarter results conference call. [OPERATOR INSTRUCTIONS] Today's conference call is being recorded at the request of the Company and if you have any objections you must disconnect at this time.

I would now like to introduce Mr. Dan Smith, Vice President and Treasurer of Acuity Brands, Inc.

Sir, you may begin when ready.

Thank you.

Good afternoon.

With me today to discuss our fourth-quarter results are Vern Nagel, our Chairman, President, and Chief Executive Officer and other selected members of our Executive team.

We are webcasting today's conference call at www.acuitybrands.com.

I would like to remind everyone that during this call, we may make projections or forward-looking statements regarding future events or future financial performance of the Company.

Such statements involve risks and uncertainties such that actual results may differ materially.

Please refer to our most recent 10-K and 10-Q SEC filings in today's press release which identify important factors that could cause actual results to differ materially from those contained in our projections or forward-looking statements.

Now let me turn this call over to Vern Nagel.

Thanks, Dan.

Good afternoon everyone and thank you for being with us.

What I'd like to do is take us through some of our financial statements and make some brief comments about our results for the quarter and then we will turn it over to a question and answer period.

Overall we are pleased with the results that we've posted in the quarter.

Obviously we had a number of very significant challenges throughout the quarter not inconsistent with what I'm sure competition and other industry participants felt.

When you look at our EPS for the fourth-quarter of '05, what you will see is that we had earnings of approximately $0.61.

Included in our earnings was a special charge of approximately $6 million or $0.09 a share for additional charges associated with our previously announced reduction in force.

We had benefiting our results a gain on sale of assets of approximately $0.03 a share.

Also during the quarter, our tax rate, we were able to benefit our earnings by approximately $0.06, for items associated with current period opportunities in terms of investments that we made within our Mexican operations and other state-related adjustments.

All of which were favorable to us.

Also impacting our EPS during the quarter was approximately $0.03 for additional shares outstanding during the period.

As you know we posted $0.62 in the year-ago fourth-quarter period.

When we look at our net sales, total net sales were approximately $600 million, up approximately $34 million or 6%.

Those sales were a record quarter for us.

When you look at the business units Acuity Brands Lighting or ABL was up approximately 7% posting again, record earnings and ASP was up approximately 3% during the period.

When we look at the increase of approximately $34 million, what we see is that approximately 2 -- excuse me, 2 points of the increase was associated with the volume growth while the remaining portion was due to price and mix.

So what you see there is that we continue to push price into the marketplace in a very favorable way.

When we look at what happened within the business units, we are starting to see the signs of growth opportunities.

When you look at our Acuity Brands Lighting business, what you see in there is within the solutions group which is made up of Holophane and American Electric.

Our growth in terms of units were in the low teens in terms of growth year-over-year.

Similarly in the consumer products group, we were up approximately 12% on a unit volume basis because of opportunities of growth within business units and extending our product offering.

At ASP, our International operations continue to perform well.

Overall, market demand in certain key segments became somewhat more favorable during the quarter.

For example, in nonresidential construction, which is a core market for us, we estimate that construction put in place in terms of units expanded between 1 and 2%.

As you know, customer demand in the nonresidential market for the first three quarters of our 2005 have been flat to down.

This is consistent with our own experience and hopefully the fourth quarter is a positive sign for future market vitality.

Similarly in the quarter, incoming orders were positive reflecting the record sales level at both ABL and company-wide.

Our backlog at ABL stood at approximately $152 million as of the end of August.

I would also mention that order input for September was consistent with our expectations and reflective of what we believe are improving customer demand within the nonresidential construction market.

As we look at gross profit in the fourth-quarter of 2005, gross profit increased approximately $4 million or 2% in the quarter.

Raw materials and component cost increased approximately $25 million in the quarter.

ABL incurred approximately $20 million of this increase while ASP was approximately $5 million.

We were able to pass along all but approximately $3 million of the higher material and component cost through price increases and a more favorable mix of products sold.

Really it was quite a significant and extraordinary event given just how rapidly certain prices for items like lenses, freight, and other component parts, particularly packaging rose during the quarter.

If you look at the other items that impacted gross profit, we also had product disruptions -- excuse me production disruptions caused by outages for certain feed stock chemicals that are petroleum based.

We continue to be on allocation for certain products including resins and we believe that that will have an impact on the market overall.

The good news is given our size, we are able to get product.

It is just that it is slow in coming.

To a lesser degree gross profit was impacted by lower absorption of factory overhead as we continue to reduce levels of inventory because of leaner, more efficient processes.

The good news for this quarter is that the decline in total production cost at ABL in the quarter mostly offset the drop in units produced.

In addition inventory declined at both business units while sales grew and service improved dramatically in key areas.

All of this bodes well for future improvements in performance for our key stakeholders.

Gross profit as a percentage of net sales declined to 38.9% in the fourth quarter of 2005 from 40.6% in the year-ago period.

The decline in margin percentage was due primarily to higher selling prices, substantial offsetting raw material costs during the quarter.

As we look at our operating expenses, operating expenses grew approximately $8 million in the quarter compared to the year-ago period.

The increase in expenses was due primarily to three factors.

One was the special charge of $6 million, which I'll explain momentarily.

Number two we incurred approximately $5 million for higher logistics costs.

And number three, higher commission expense primarily at the lighting company.

These increases were offset by approximately $9 million in cost reductions, including benefits from the previously announced reduction in force.

A portion of the freight and distribution cost was due to the spike in oil prices during this quarter.

For example, the price of crude oil jumped approximately 33% in the quarter and is up on average 50% from the year-ago period.

So those were rather dramatic increases that we absorbed, if you will, during the quarter.

Other contributing factors to the increase in logistics costs were temporary actions that we took to enhance or maintain service levels as we continued to restructure certain supply chain processes.

Continued enhancements of these processes will allow us to improve our efficiency of our distribution system and thus reduce costs while enhancing service.

These are primary goals for both of our businesses.

I am very pleased with the progress that we continue to make to lean our various processes.

We still have issues that are in front of us but we are confronting them in a very positive fashion.

Commission expenses were higher in the quarter, primarily at ABL as programs put in place to drive improvements in product mix and to drive greater volume contributed to the higher sales that we noted above.

We expect this benefit to continue as we go forward.

As a percentage of sales, operating expenses declined to 31.5% in the current quarter.

This compares to 31.9% in the year-ago period.

Again, remember that approximately $24 million of our sales increase went to offset material cost and operating expenses included the $6 million special charge.

This, of course, will skew all comparisons to net sales on a percentage basis.

With regard to the special charge of $6 million during the quarter, it was for the continuation of our ongoing restructuring program and the reduction in force announced in February.

Approximately half of the current charges for noncash expenses associated with certain tenured employees who participated in our long-term compensation programs.

These certain individuals were not specifically identified during the February announcement but were subsequently part of the restructuring.

The remaining portion of the charge was for certain miscellaneous follow-on actions announced in February.

We expect that most of the benefit from this portion of the charge will impact our results favorably in late fiscal 2006 and early 2007.

Operating profit declined approximately $5 million in the fourth quarter of 2005 compared to one year earlier.

This includes a special charge of $6 million, of course.

As I noted above, operating profit was negatively impacted by approximately $3 million due to the dramatic increase in raw materials, which were mostly offset by improved pricing, product mix, and volume growth.

In fact the difference at ABL was a negative $5 million while ASP was able to post a positive $2 million in this regard for the net 3, of course.

Also operating profit was negatively impacted by higher freight and distribution costs in the quarter.

We expect to mitigate these costs through a number of actions as we enter first-quarter 2006.

Operating profit as a percentage of net sales declined to 7.4% from 8.7% a year-ago period.

The decline is due primarily to the impact of price mix increases which went to offset rising raw material costs and the special charge.

Moving to our financial position, we made significant progress in improving business processes in our overall effectiveness during the quarter.

As a consequence we are able to report dramatic improvements in operating working capital and cashing flow from operations.

For example, compared to the year-ago period, inventory declined $7 million or 3%.

Adjusted for the increase in materials, the decline was closer to 6% when you look at it on a unit basis.

Our net trade cycle declined by 7 days or close to 12% to 52 days at the end of the period.

Overall, our operating working capital as a percentage of sales declined to 15.6% at the end of August of 2005 compared to 16.5% a year ago.

Cash flow from operations increased $24 million or 21% to $137 million while we funded capital expenditures of approximately $33 million for the year, and paid $26 million in dividends to shareholders.

We also raised $27 million from the exercise of stock options during the 2005 year.

Again, all of this is a result of programs implemented to create a leaner, more efficient operation.

When you look at our cash position as of the end of August, 2005, it was almost $100 million.

This is up from $14 million a year ago.

Our total debt outstanding is approximately $372 million.

It is comprised primarily of fixed rate longer term obligations.

Our debt position net of cash declined $108 million or 28% during the year to $274 million.

From the year-ago period, our debt net of cash to total capitalization is now well below our target of 40%.

As we enter 2006, we are very optimistic about our future.

We have never been in a stronger financial position nor had the flexibility we enjoy today.

We expect that past actions and continuing improvements will result in more efficient effective operations producing results expected by our key shareholders.

Our customer service has improved dramatically in key channels and we continue to make progress in creating a leaner more efficient company.

We believe that we are on target to achieve the previously announced annualized savings run rate of approximately $50 million by the end of our second quarter in fiscal 2006.

Additionally, we are encouraged by external forecasts that are projecting unit volume growth in calendar 2006 in the nonresidential construction industry which is, as you all know, a core market for us.

To the extent this occurs, we believe that it will have a positive impact on our unit volume.

Overall, we expect cash flow from operations to remain strong, while investing between 40 million and $45 million in capital expenditures in 2006.

Although these influences bode well for us in 2006, we are certainly not without our challenges.

These challenges would include the impact of escalating costs, particularly for energy and crude oil, which, as everyone knows, continues to rise dramatically.

We are also looking to continue to generate profitable growth within our retail channels and the potential for fluctuating market demand.

I hope that what we've seen so far is a harbinger of good things to come but as you know until we can put together some back-to-back quarters of unit volume growth we are always a bit skeptical; however, I do have to say in spite of what we perceive as these challenges, we do expect to make very positive progress in growing our business and improving our operations in 2006, sufficient to allow us to make meaningful progress towards the achievement of our long-term financial goals.

On a final note, I am quite pleased to announce that on behalf of the Board, we have authorized the Company to buy back up to 2 million shares or 4.5% of our outstanding stock.

We believe that the repurchase program supports our objective to maximize long-term shareholder value.

The Board's approval of the share repurchase program is a reflection of our confidence in the Company's future and our ability to continue to generate strong cash flow from operations.

With that I'd like to turn it over to questions.

So Dan if you could help us with that.

[OPERATOR INSTRUCTIONS] We have our first question from Cliff Walsh of Sidoti Company.

Hi, everyone.

Can you -- with the share repurchase program, can you kind of prioritize your use of cash in terms of repurchases, debt reduction, and acquisitions as well?

Cliff, our debt balance right now is down to our fixed rate long-term obligations of 372 million.

So as you know, we are now generating cash that we are building on our balance sheet.

We believe that we have ample opportunity to continue to improve our operations, to generate cash flow beyond net income, and sufficient cash flow to continue to fund the kinds of investments we need to to build our business, to grow our business internally.

We have a very aggressive product development program in both businesses that has been ongoing and we will continue to develop that.

So our view right now is that the best use of our cash, our excess cash, is to continue to look for opportunities.

And we think that one of the best opportunities we have is to invest in our own stock.

From an acquisition point of view, we think that there are opportunities out there, but at this point in time, we still see -- we still feel that we need to continue to develop our business and enhance some of our business processes internally, as well as continue to fund some of these product development areas that we think are quite exciting.

My guess is, is that over the next 12 to 24 months, we will continue to look at whether it makes more sense for us to acquire or develop internally, and we -- so we believe that the financial strength that we have and where we are today gives us the flexibility to make those choices as opportunities avail themselves.

Okay.

And in terms of the various resins that you spoke about, can you specify which ones you are having difficulty getting a hold of?

I’d prefer not at this point in time.

And what I would say, though, is that from a -- just from a general perspective, the allocation process that goes on is now pretty consistent, pretty rampant in the industry.

I do feel good that we are getting the requirements that we need.

It is just that from a just in time perspective, it makes it a little bit more difficult to run your facilities in a more effective way.

So that's where we are seeing a little bit of disruption.

From a cost point of view, boy, the costs are coming at us fast and furious in that marketplace, and we have taken actions, particularly on the ASP side to improve pricing to help offset both those types of costs, as well as energy costs, both from natural gas as well as diesel fuel to move product around.

John, do you have a comment on the -- from an ABL perspective?

Well, there are no allocations per se from an ABL perspective but of course, as you would expect energy costs are affecting our plastic lenses, freight, paint, cleaning chemicals in preparation for paint and that type of thing.

So in our particular case, it is not so much allocation.

It's more of a cost issue that we are watching closely.

Okay.

Great, thanks very much, guys.

Thank you.

Thank you.

Our next question comes from Craig Kennison of Robert W. Baird.

Congratulations on the very impressive cash flow for the quarter.

I wondered if you have any objectives from a cash flow objective in '06?

What would your financial goals be there?

Well, as you look at what our longer-term financial goals are for earnings growth, and I think you would have to go back to 2004 as sort of the start point for us, you could begin to imagine the types of earnings objectives that we have.

I believe and I know that John and Jim Heagle feel the same way, there is ample opportunity for us to generate free cash flow beyond what net income would look like.

As we think about that, well, you can do your own math, I just think that there is ample opportunity for us to continue to generate this type of cash.

And obviously that bodes well for a couple of opportunities.

One from an investment point of view in terms of going forward from product development, from acquisition potential, and then the second thing is just from the efficiencies in the business processes that allow us to become more competitive, provide better service to our customers, and to obviously improve our financial dynamics which is a key goal.

So if we look at your balance sheet.

In the last several years one of the most impressive metrics has been your ability to be more efficient with working capital.

It has been a source of cash I think in '05.

Can it be a source of cash going forward?

Are we -- have you reached the pinnacle, so to speak, of some of these efficiency gains?

I think from a net days -- or our trade cycle looking in terms of net days, we are at about 52 days right now.

My sense is that from an accounts receivable point of view, there may be a day or so of opportunity.

Inventory we believe that there is about probably more opportunity there over the next 24 months.

That could be rather interesting.

And from an accounts payable point of view, those numbers are consistent with where they ought to be.

So ultimately, what I see, and from the business units' perspective, the opportunity to drive cash would really come from inventory and more rapid turns on the receivable side.

Having said all of that, our objective is to turn our considerable resources into greater product development opportunities and into enhanced service.

To the extent that we can do that we intend to rekindle the organic growth opportunities in our business, which have been strong in the past.

We just continue to see other opportunities there.

So I still feel working capital gives us an opportunity to continue to generate cash.

There are other businesses out there that have a long history of continuing to generate cash from their balance sheet through more efficient operations while growing their business.

And there is no reason why we won't be able to do that as well.

Next question just on Hurricane Katrina and the hurricanes in the Gulf area.

What would you expect to be the short and medium-term impact of that?

Let me comment for ASP, and then I would like to ask John to comment for ABL.

From Acuity Specialty Products perspective, the short-term impact is probably a loss of revenues of approximately $0.5 million a month.

The reason being is that our commission folks who are on the ground there really have -- their customer base is in disarray at this point in time.

So that's what we expect the short-term impact to be.

On a longer term -- on a medium and longer-term basis, we would also expect to continue to serve that market in a rather robust way given the needs that they have on a go-forward basis for various types of cleaning products, disinfectant products, mold killers, industrial-type cleansers.

So I think that there is ample opportunity there.

We were fortunate that while we had a number of people impacted by Katrina, we were able to maintain those folks through a salary continuation program.

And my hope is, is that we will be able to come back even stronger -- as that area, which has been devastated, continues to find its footing again.

John, from your perspective?

Well from a Lighting standpoint, and Craig I do want to take just a moment and bifurcate the thinking and just comment from an employee and agency employee standpoint as you would expect, a number of employees were personally impacted, and I would compliment all the balance of our employees every place in the country for the way they have stepped up and helped their fellow employees.

They have done a fabulous job of providing relief.

From an overall business perspective, as you would expect, it essentially shut down the Lighting business there with the exception of some offset as a result of the need for things like emergency and temporary lighting in housing and storage areas where we found ways to serve that market.

And the longer term perspective, I think we will follow the trends of the construction trades that you see there, and we would expect a very significant rebuilding program that would have a very favorable impact on our business overall.

Okay.

And final two questions.

Could you just provide an update on the CFO search.

And also on the tone of business in September and early October.

Thanks again.

Sure.

Thanks, Craig.

The CFO search, we are moving along aggressively.

We have been interviewing candidates.

So I'm pleased with the progress that we've made.

As you know, Karen Holcom who is sitting next to us here is doing a stellar job as the interim Chief Financial Officer.

So we are in good hands and the financial folks that we have in our organization continue to perform as well.

So I'm pleased with the progress that we are making.

I am pleased with the candidates that we are seeing and my hope is that we would make a decision here or be in a position to make a decision here relatively quickly.

With regard to the vitality of the markets on a go-forward basis, I am going to make a comment, and, again, I would like John to comment.

I believe that the tea leaves are starting to show some positive signs.

We think that the fourth quarter in terms of unit volume growth, while if you look at June, it was positive on a unit basis, July was negative, and then August turned positive again.

So at some point in time, we are actually, I think, going to see three positive months in a row, but I believe that there are lots of indicators out there that would suggest that we keep bouncing along and that pretty soon the lift will be before us.

I like the things that we are doing in our business to improve our effectiveness, to improve our competitiveness.

So in my own view, 2006 represents the opportunity for us to continue to grow our business, both top line as well as bottom line.

My hope is is that we don't experience a year like we did in 2005 where I think everyone based on -- when I say "everyone" all of the external forecasters were expecting unit volume growth and 2005 will now end up being, John, I believe, for the nonresidential construction market, the sixth year in a row in which unit volume has declined.

So I have a -- I have an optimistic view about 2006.

And that is also true at Acuity Specialty Products.

We have some challenges within the retail side of our business to find ways to continue to grow.

We are doing well at the Depot but we think there are opportunities to enhance that and as you know those are always competitive challenges.

I would just add, Vern, for 2005 to -- for that year to end with the nonresidential construction awards being modestly down as opposed to dramatically down, it relies upon some uptick here at the end of the calendar year.

We are beginning to see that.

We have every confidence that this extended trough is pretty much bottomed out.

Now the -- so the overall market has -- in the current period has still been relatively soft, but has not worsened from the times we were talking, two or three quarters ago.

From an order rate standpoint, at Acuity Brands, we have been very pleased with the order rates that we saw in August.

We are very pleased with what we've experienced in September.

And as we've entered into October, we continue to be pleased -- furthermore, I'm pleased with the fact that the price increases have held up in the face of the increased order rates here in the September and early October time frame, and some of that is market -- some of that has to do with the fact that in the recent past, as we've continued to take costs out of the organization we have, nonetheless, invested in growing our market presence in most all areas of our business.

And so we think that is beginning to show up in the revenue line.

Thank you.

Thank you.

Thank you. [OPERATOR INSTRUCTIONS] Our next question comes from Ron Redmirski (ph) of Citigroup.

You had mentioned that some forecasters are saying that this is going to be another down year for unit volume in the nonresidential construction market, and I am not exactly sure how they are defining that, if they're including commercial construction and industrial and institutional and kind of lumping all three of those into nonres.

But I guess my question is, do you track the sales of your parts into, like, both the light commercial construction market, and then the more -- the larger project commercial construction market?

And if you do, would you be able to give us an idea of the differential growth rates between those two subsegments of the market?

Ron, let me answer one portion of it, and then I will turn it over to John.

The first portion, what I am referring to is there are a number of forecasters out there including FW Dodge as one group and I believe that the numbers that we look at are both construction put in place, as well as square foot -- as well as contract awards.

And when we look at those numbers, and we use them -- look at them in constant $96, and go back and track that, it is on a calendar year basis.

As you know we are a fiscal year end company.

So our fiscal 2005 ends August 31, of 2005.

They are talking about a calendar basis.

And as John said earlier for the calendar year to only be down modestly as they are now forecasting, the latter half of calendar year 2005 needs to show an uptick.

We believe that we are starting to see some of that favorability, and that would impact our 2006.

So that's what I meant by that.

And, John, if you want to comment.

And we do -- we do track, but we don't release precisely what our shares are in each of those segments, but to put a little more flavor for that for you, in that nonresidential area, it is commercial, it is industrial, it is institutional, and it is infrastructure.

And we track both contract awards, which is square footage that has been awarded as a contract that will ultimately result in the purchase of light fixtures at some point in time and contract values, which are the dollars of construction that will include both new construction and renovation, and there are areas where we are stronger and areas where we are relatively weaker than competition.

When it comes to areas such as institutional such as schools, health, hospital, parking garages, offices.

We have a division that is very strong in the light industrial warehousing.

We have a division that is very strong in heavy process oriented industrial and so forth.

We do try to track in each of those areas, and generally, the investments we have recently made and are continuing to make are directed at most all of those major categories of nonresidential contract awards, and really I would refer you to the Dodge data and how they break that down.

Thanks a lot for clarifying that.

I just had one quick follow-up.

I had heard kind of like an unconfirmed report that possibly maybe some U.S. distributors had been getting some delayed shipments in from Acuity as a result of potential supply chain problem that originated in Asia.

And I was just wondering if you could confirm or deny that, and if it did, in fact, occur, if it was of the size or scope that could have materially impacted the quarter?

Ron, that is partially true.

It is not as a result of delays in supply chain issues from Asia.

It is as a result of the fact that we are continuing to restructure the business through our manufacturing network transformation, closing some locations and increasing the size of other locations, and as we have made those changes, moving some product lines from factory "A" to factory "B" with the eventual closure of factory "A," we have impacted our service during that period of time.

I would say that looking at both our external measures and our internal measures, I think our service in the fourth quarter -- in the quarter we just announced has -- I'll say retrenched back to a level similar to the rest of the industry.

I don't think we are far inferior like I believe we were previously.

We are, as of today, have the lowest late order backlog level we've had in two years.

And so we're -- our folks are doing a good job of getting their arms around that, but in fact we were not providing the level of service over the last year that we had hoped to be providing.

But it was not our agent sourcing.

Thanks a lot.

I appreciate it.

I will pass the baton.

Thank you.

Thank you.

We have a question from Mike DeBernardis of Lazard Asset Management.

I was just wondering if you think you've put enough price increases through to cover the recent surge in raw materials?

I would say that as we see them today, we are looking at the opportunity for those raw materials and other component costs to stay or fluctuate in how would that impact our business.

And we are looking to put in contingencies to handle that.

I would say that at the specialty chemical business, we have taken some actions in the very short run here to help mitigate some of the cost increases that we have experienced due to the rapid rise -- the dramatic rise in crude oil.

It particularly impacts that business because of the feed stock chemicals that we use, it also impacts natural gas as you might imagine which we use a lot of.

So we have taken action there, and, John, I would turn it over to you for your views on ABL.

Well, with the exception of energy-related costs, I would say we believe we had reflected that in the most recent price increases, but we are currently evaluating the need for a -- another modest price increase as a result of the cost increases.

We are recently -- have recently incurred and believe we might incur in the next 30 to 90 days, in particular, the energy-related area.

We use a lot of natural gas in the manufacturing of glass.

We, of course, ship a lot of product and diesel fuel, as you know is more than twice the rate of the last ten-year average, and we are being impacted by that.

And all petroleum-based products such as our plastics and paints are being affected.

So we are taking a view of that right now, and we'll be making some indication to the market in that area soon.

Mike, I would say that our sensitivity as you might imagine is quite high around rising costs.

And what it means to us and where expectations are.

So we continue to very aggressively monitor in both businesses the impact of rising raw material costs, and these other cost factors, particularly energy, and fuel as to what it means for our business.

My hope is, is that we will start to see some flattening out of this but that is just a hope at this stage.

I would just add this since it is such a major category and we have talked about it in in the past.

We have not seen any more recent increases in the steel area and we are waiting to see what happens there because of course they are impacted by energy costs as well.

So there is a little more analysis to be done on our part in that regards.

Are you seeing competitors raise prices along the same magnitude as you have?

We did in the past.

We have not heard anything from the marketplace recently about competition.

But in our particular case, we are going -- we are going to take a hard look here very quickly at the energy-related costs and make a decision on pricing indifferent to what the balance of the market does.

That's true for the lighting business and I would also echo the same for the specialty chemical business, where, again, we see certain competitors taking pricing action, but on a larger scale, we tend to lead the market.

So we will watch it very carefully and make sure that we are doing the right things.

Thanks.

Thank you.

Thank you.

At this time we have no questions registered.

I would like to turn the conference back over to our host for closing remarks.

Thank you, everyone.

As I said earlier I believe we posted a solid quarter.

I think that the quarter is a harbinger of good things to come.

When you look at our cash flow and you look at some of the things that we are doing within the business, what you are seeing are improvements in our processes that give us confidence that these things will begin to manifest themselves in terms of earnings improvements as well.

I know that the quarter had some -- we had some -- certainly some challenges there.

My expectation is that some of these challenges such as the distribution or the -- or what I'll call the logistics cost side of our business.

We understand it well and we understand some of the temporary nature of it.

So as we enter 2006 and look to our future, we are very excited about what we see, and that's the reason we continue to invest in our company in terms of the share buyback, but, again, we are very, very optimistic as we look forward.

Thank you.

Thanks for your support and we will talk to you at the end of the first quarter.

Thank you.