信達思 (CTAS) 2005 Q2 法說會逐字稿

Good day, everyone and welcome to the Cintas second quarter results conference call.

Today's call is being recorded.

At this time, I would like to now turn the conference over to Mr. Bill Gale, Vice President of Finance and Chief Financial Officer.

Please go ahead, sir.

Good evening.

And thank you for joining us to discuss our second quarter results.

We are pleased to announce increased sales and profits for the quarter ending November 30, 2004.

Our rental business grew at a rate in excess of 6%, the sixth consecutive quarter of improving growth as adjusted for workday differences.

New business remained at double digit levels and lost business declined slightly.

We also saw signs of business firming up with existing customers with an improved add/stop statistic.

Other service revenues which consist of direct sale items, first aid and safety services and document management services increased approximately 13% despite continued weakness in the industries that traditionally purchase uniform, such as hotels, casinos and transportation companies.

However, recent publications indicate that the lodging, gaming and hospitality industries are set to invest significant amounts in refurbishment.

Which typically includes the remaking of uniform programs.

We are very pleased with the performance of our first aid and safety business as that division expands its service offerings to its thousands of customers across the U.S.

While document management is still a relatively small contributor to our overall revenues, we see great opportunities for continued growth both through acquisitions and organically.

Net income increased approximately 6% to $73.6 million, while diluted earnings per share were 43 cents versus 40 cents last year.

This increase in net income comes despite an increase in our sales expenses of 80 basis points from last year, which were done to create for future growth.

Additionally, energy costs and the cost of providing medical benefits to our partners also increased.

But profits were still solid.

Our current guidance of revenues and earnings per share for the fiscal year ending May 31, 2005, remains unchanged.

That guidance calls for total revenues of $3 billion to $3.2 billion, and diluted earnings per share of $1.70 to $1.80.

While we continue to see an improvement in the economy, the timing and extent of the economic recovery coupled with acquisition opportunities will impact the degree of revenue and EPS growth.

We anticipate tightening our guidance when we release our third quarter results.

With me today is Karen Carnahan, Cintas's Vice President and Treasurer.

After some brief comments, we will open the call to questions.

The Private Securities Litigation Reform Act of 1995 provides a Safe Harbor from civil litigation for forward-looking statements.

This conference call contains forward-looking statements that reflect the Company's current views as to future events and financial performance.

These forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ materially from those we may discuss.

I refer you to the discussion on these points contained in our most recent filings with the SEC.

I will now turn the call over to Karen.

Good evening.

I would like to take you through our financial statements now, in a little more detail.

We have posted our financial statements on our website and I would first like to start with the income statement.

Total revenues were 757 million for the quarter, an 8% increase over that reported in the prior year.

Rental revenues were 584 million, compared to 548 million last year.

This was an increase of 6.4% over the second quarter of last fiscal year.

During the quarter, acquisitions contributed approximately $3 million of rental revenue.

When subtracting out the acquired revenue our organic growth for the second quarter was approximately 6%.

Our new business which has been booked over the past 4 quarters contributed 13% growth and our top line rental revenue this quarter versus the quarter a year ago.

This rate of growth is comparable to that experienced throughout fiscal 2004 and the first quarter of fiscal 2005.

We have built up our sales force by approximately 10% this year, compared to prior year.

We expect to see continued improvement in sales force productivity going forward, which will translate into a higher level of new business and an acceleration in organic sales growth throughout the remainder of the year.

Price increases to our existing customers contributed approximately 1% in growth during the quarter.

Add-ons and stop orders reduced top line growth by approximately 1/2 of 1%.

This metric has been as high as negative 3% in 2002.

And has improved primarily as a result of our success in cross-selling additional rental products to our customers.

Add-ons exceeded stop orders for 9 out of the 13 weeks.

With the delay in cold weather this year, jacket volume didn't kick in as quickly as in the past.

This reduced our organic growth rate slightly for the quarter.

However, during the quarter, our number of uniform wearers added at existing accounts exceeded those who were stopped.

This occurred in the months of October and November.

Needless to say, we are very encouraged about these changes in a fairly long-term trend of negative add/stops in uniform wearers.

While it is difficult to predict whether this positive metric will continue, especially over the holidays when certain businesses cut production, it is nonetheless a positive sign that employment at existing accounts is starting to pick up.

Lost business over the past 12 months clipped our top line growth by about 7.5%.

So to reconcile our organic rental growth, new business added 13%, lost business subtracted 7.5%, price increases added 1% and our add-stops subtracted 1/2 of 1%.

I would remind you that all of these metrics reconcile the increase in rental revenue for the current quarter compared to that same quarter a year ago.

So they captured the cumulative effect of all of these items over the past 12 months.

Other services revenue of $173 million increased 13.2% from last year.

On an organic basis, this segment of our business grew 2% without the benefit of acquisitions.

Our uniform sales business from our national account sales division and our catalog division in total declined 1% on an organic basis.

The national accounts business continues to be very competitive from a pricing standpoint.

In addition, catalog sales did not pick up as early as we had predicted due to the unseasonably warm weather during the fall months.

The first aid and safety business grew 9% on an organic basis year-over-year.

We have been very successful in adding additional products and services in this segment of our business.

Just like our core uniform business, we have the ability to leverage our delivery systems and our customer relationships to satisfy their needs in the safety and first aid area.

Our document management business is building nicely and growing organically as well.

This quarter our organic growth in that business was 24%.

Now I would like to move on to the margins.

Rental margins were 44.6%.

This is a 30 basis point improvement over the prior year in spite of increased energy costs.

In total, our electricity, fuel and gas costs increased approximately 30 basis points as a percentage of revenue from the prior year.

A couple of years ago, we launched a Six Sigma effort to address our inventory levels and distribution processes, and we realized significant savings in both areas.

We are now rolling out the Six Sigma initiative throughout the entire Company.

We now have approximately 50 black belts and most of these individuals were trained and placed in their positions this fiscal year.

We expect to achieve significant savings throughout the entire Company.

And a big part of these savings will be realized in our largest business division, which is the rental division.

This initiative will have its biggest impact on rental gross margins beginning in fiscal 2006.

Other services revenue, gross margins were 32%, which is a 90 basis point decline from the second quarter of last year.

This margin generally falls in the 30% to 35% range but fluctuates from quarter to quarter due to a change in customer mix each quarter and the amount of sales volume in the particular quarter.

So we were solidly in this range.

Our selling and administrative expenses were 25.7% of revenue or 50 basis points higher than last year's second quarter.

But 100 basis points less than the first quarter level.

As we commented earlier, we have increased the size of our sales force by approximately 10%.

And increased our marketing and sales promotions in order to accelerate our top line growth.

Medical costs also account for a portion of the selling and administrative expense increase but the sales cost primarily explain the increase in this line item.

Net interest costs were 0.6% of revenue, down 20 basis points from last year and reflective of the lower debt levels this year, as a result of paying down the debt from acquisitions.

Our effective tax rate was 37% for the quarter, which is comparable to last year.

So as a result, for the quarter, net income of 73.6 million increased 6% over last year's second quarter.

Earnings per share increased 8% to 43 cents per diluted share.

I would like to move on to the balance sheet for a few minutes.

The balance sheet continues to strengthen.

The current ratio stands at 3.5 to 1, compared to 3.1 to 1 last November.

Cash and marketable securities reached $356 million an 80% increase from last November.

DSOs on accounts receivable reached 37 days, which is 1 additional day compared to the first quarter.

We had a strong November sales month in both the rental and our national account sales division, which resulted in a higher increase in receivables at the end of the quarter.

Inventory levels decreased 7% compared to last November but they increased 8% sequentially from the first quarter.

We increased our stock for the rollout of a new catalog in our national account sales division.

However, the projected revenue from this new catalog as well as other national account programs did not meet our projections for the entire quarter.

As I mentioned earlier, in the month of November we had a strong sales month, so we believe this momentum will continue as the hotel industry continues to strengthen.

In- service inventory increased in line with the acceleration in rental growth.

And lastly, accrued liabilities, including - - included 2 extra days of accrued compensation compared to last November, based on how our pay dates fell during the end of the quarter.

The cash flow statement is strong, cash flow for the first 6 months was $123 million.

This compares to $193 million last year.

Many of you are aware of the decline but I will reiterate it is primarily in 3 areas: The build-up in accounts receivable in the most recent quarter due to a strong November.

The increase in inventory levels this year is a shift from declining levels last year.

The decline last year was the result of a successful Six Sigma effort and paring back our inventory levels while still reducing back orders and increasing customer satisfaction.

From these lower levels, we are starting to build inventory in a controlled manner in order to launch some new catalog product offerings.

And capital expenditures increased $16 million as we are building 3 additional facilities this fiscal year versus last year.

In conclusion, our business is on solid ground.

We are seeing momentum in our businesses and we are looking forward to continuing improvement in top line and bottom growth for the remainder of the year.

We would now like to open the call to answer your questions.

[Caller instructions.] The first question is from Michael Schneider with R.W. Baird.

Wondering, when I look at my model and the results this quarter, revenue was right on track.

I guess the one area of slight disappointment would have been the rental gross margin.

When I look at the incremental profitability this quarter, it looks like it was probably the lowest incremental profitability number really in 5 quarters.

I know energy was up a bit but that may not explain it all.

Is there anything else in the expense items in the rental division that would explain why gross margins were a little lighter than I expected?

I will address that, Michael.

I do see that you're probably especially comparing the gross margins in the rental area to the first quarter, which was very strong, at 45.4%.

If I look over those previous 4 quarters prior to that, though, we're still solidly within that range, which was running right between 44.3% and 44.6%.

But just compared to the first quarter, which I think you might have modeled based on that, we have seen some increases in material costs.

We're seeing that as a result of the new business effort that's kicking in.

We're also seeing our operations are upgrading some of the garments that are in service for our customers.

And as you said, the energy costs have picked up a bit.

This Six Sigma effort has definitely front-end loaded some costs without much of an improvement in margins yet.

As I mentioned, the 50 black belts, although they're not all concentrated in the rental division, the vast majority of them are working on rental projects because that's our largest division.

And we anticipate that their progress and their impact will be seen about 6 months from now.

So we have some extra costs from that Six Sigma effort, the energy costs and a little bit of pickup in the material costs.

Okay.

And the outlook for the gross margins then in the second half, are you closer to the second quarter number or do you trend back up as you have historically in the second half of the year?

We probably will trend up a bit.

A lot of that is going to be based or contingent upon the continued momentum in new business efforts.

As you know, when we write new business, we install all new garments, which is a very expensive way to grow.

So that will weigh heavily on how the gross margins come out.

But I expect that they will increase somewhat in the second half of the year from where they were here in the second quarter.

Okay.

I will get back in line.

Thank you.

We will now hear from Greg Cappelli with CSFB.

That's an interesting way to say it.

Karen, just to follow-on, does the guidance imply 25, 30 basis points of margin improvement in the rental business for the overall year?

It is hard to pin it down exactly, Greg, but we do think that we're going to see some - - definitely some improvements in the energy costs.

We're going to - - we feel that those are going to come down a bit.

The material cost is the wild card, as I explained before.

And as we see this Six Sigma effort kick in, we will get some benefit from that.

But that will be by and large probably at the beginning of fiscal '06.

So I don't know that I can narrow it down exactly.

One other thing, Greg, that might - - that will help us, and of course, you know, we're predicting an improving - - a steadily improving economy.

But as we see our existing customer base adding additional people, we will have a greater revenue from those stops we're already making with our service people anyway.

So, you know, again part of what is driven in the rental gross margins is where does the growth come from.

The more growth that can come from existing customers, the more profitable that growth will be.

The more growth that comes from new business, the less profitable it will be in the short run because of the material cost factor.

Okay.

That makes sense.

Bill, did you say that the add/stops actually improved every month of the quarter?

No, I didn't say that.

I said it improved this quarter over last.

Okay.

And could you give us any insight on the trends throughout the quarter?

Did it bounce around or - -?

I will tell you, it was the September and October results were somewhat disappointing to us.

November, fortunately, improved.

And we don't know whether we rented a little soft spot in the economy but we really felt it a little bit in September and October.

But as Karen said, sales improved in November, such that we got pretty much to the quarter, you know, for what we expected.

But I would say that the November trends were better than what we saw earlier in the quarter.

Okay.

Just one more quick one then.

On the inventory side, up 8% sequentially, Karen, did you say that was solely due to the rollout of the new catalog, or is that just one piece of it?

That was one piece of it, but it was a major piece.

And that's in the national account sales division that launched that catalog, so that is a big portion of it.

The other thing is, Greg, we are developing some new lines, garment lines, for our rental division.

You might have heard us talk about it before.

We are coming out with a new pant for our rental customers and we're starting to build some inventory for that as well.

But by and large, it was mostly the catalog - - getting ramped up for that catalog that got dropped, mailed to our customer, I should say, at the end of the quarter.

And so with the initial sales of that you said were disappointing, you're still - - you're expecting that build in the next quarter or two?

Yes.

Well we're expecting it to build over the next 6 months.

You know, this third quarter is often an anomaly because you never know what is going to happen with holidays and with weather and that sort of thing.

Plus it is a 64 day quarter for us -- workday quarter -- it will be compared to a 65 day quarter last year.

So as you guys model your numbers, you might want to keep that in mind as you go forward.

But we're pretty confident looking at a lot of the information that's been published recently about the hospitality industry, and the improvement in occupancy rates in hotels and rate per night, we expect there to be a pickup over the next 6 to 9 months in that line of business.

So, you know, we're real hopeful for that, and we think we've got the inventory to supply it.

Okay.

Very helpful.

Thank you, Karen and Bill.

We will now hear from Chris Gutek with Morgan Stanley.

Thanks.

A couple of follow-up questions.

If we look at the contribution from the gross new sales in the rental division, it was 13% in the quarter, and that was the same growth you had in the previous quarter.

And this is a reversal of a slight downward trajectory we had seen over the last couple of years.

Are you pretty confident we have now bottomed out at 13%?

And should we expect that to improve going forward?

Yes, we think you can expect that to improve going forward.

Again this new sales force is becoming more and more seasoned.

Productivity continues to improve.

As we get further away from earlier quarters where we were training the sales force, so it will be a larger impact on the top line from this new business effort.

And we're very excited about what we see from that new sales force going forward.

Chris but it will be a gradual rise, because remember we're always reporting on the previous 12 months.

Right.

And is it your intention going forward to continue to grow the sales forth head count at about a 10% rate or going forward will grow more in line with revenue growth?

We would expect to grow at 10% or even more.

If we can get that top line growing even a little bit more and generating some more net income as we've always said, we'd like to continue to invest in future growth.

So as we look at our overall prospects and the continued vast size of this unserved market, you know, I think if the profits would allow we would certainly want to invest even in more sales growth.

Alright, okay.

And on the pricing side, I mean the pricing growth has been stuck at about 1% growth for probably a year, year and a half now.

Who knows where the economy is going.

But for what it is worth, our economist is looking for an acceleration or increasing his next year's CPE forecast about 3.7%.

In that context, how aggressive do you guys tend to be or conversely not aggressive in terms of pricing?

Do you think you can do better than 1% over the calendar 2005?

Yes, I believe, Chris, we should be able to do a little bit better in pricing because I think there's - - there are 10 - - my sense is, is that there is an expectation that companies are going to start increasing prices because they're seeing increases in their costs.

So I would expect that to be the case.

However, we're not going to go out and gouge any of our customers by any means.

We feel that any price increases will have to be justified.

And we also, you know, will continue our practice in the past - - as we have in the past, that we will go to customers and when we can get renewals for contracts, perhaps in the third, fourth year of a contract, we will certainly do that.

And we might forgo a price increase if needed in order to get that renewal.

So we will - - I would expect there to be some modest increase in those prices if the economy, as you say, continues to improve.

Okay.

Great.

And one more quick one for Karen.

Karen, you talked about the difficulty in forecasting the garment or materials expense and the rental division because it is a function of how you grow and where those sales come from.

But if you focus purely on the garment amortization piece relating to uniforms granted to the former Omni customers, workers, it is my impression that some of those uniforms are now solely amortized and will have to be replaced pretty soon.

Will those dynamics have any meaningful impact on your gross margin in the next quarter or two, positive or negative?

I don't think Omni is going to impact it going forward.

I think that has run its course through the system.

I think what we're seeing now is replacement of uniforms for the core Cintas business is what we're seeing.

Great.

Thank you.

We will now hear from Bruce Simpson with William Blair.

Can you just give us kind of an update on where you are in terms of capital expenditures, how many plants you're building this year and if they're just sort of standard uniform plants or distribution centers and how that compares to last year?

And expectation for CapEx and total cash flow for the year.

The CapEx expectation for the full year is going to be about $150 million.

We are in process of building 7 new facilities.

Some have already been opened and are fully operational, but 7 facilities in fiscal '05 compares to 4 facilities that we had last year in '04.

And those are costing sort of $7 million for new ones?

$7 to $8 million.

They're all uniform rental facilities, so they're all what we would call laundry facilities that are fully automated that have the latest state of the art equipment that you've seen, Bruce, in the past.

So you have automation systems in the garment sortation area as well as in the washroom facility.

Okay.

Karen, and then just a word on the shredding business, what are you learning now that you've been in that business for a year or so?

Are you interested in getting into document management?

Are you continuing to acquire companies and so forth?

Any update you can give us on revenue?

Well, Bruce, let me answer that.

What we've learned is that so far, that we've been in the shredding business that we really like it.

It is meeting our expectations.

We see real opportunities going forward.

The primary focus that we have had is in the shredding side -- the shredding services both on-site and off-site shredding.

We also have acquired a small document storage company in Cincinnati that we've had now for about 8 months, 8 or 9 months, I guess it is.

And we are pleased with the results there.

We're looking at other acquisition opportunities around the country both in terms - - both in document shredding as well as in document storage.

It is still a relatively small piece of the pie but our expectation is, is that this will go to be a more significant service offering of Cintas over the next few years, just like what we've done in first aid and safety.

And anything on the promotional products?

Where does that stand?

The promotional products is still - - is showing a year-over-year improvement.

I would say that we have found some reluctance on the part of the big customers which is all we're targeting to aggressively go after promotional products just like we're seeing in the direct sale of uniform.

There is a cost control mentality that exists out there I think among U.S. businesses, such that while our promotional products are higher than they were a year ago, they are still not at the levels that we expect to achieve in a little bit better economy.

Okay.

Thanks.

The next question will come from J.P.

Morgan, Brad Safalow, please go ahead.

Just a question on the new account side, what are you seeing in terms of non-programmer conversion rates?

You know, I don't have the percentage for the quarter.

When we looked at that last quarter, it was running - - it had picked up to about 56%, and that had come off of a low, about 4 quarters ago, of about 51% or 52%.

So it has started to pick up again.

Okay.

And in terms of you guys referenced in the press release and certainly last quarter talking about looking at more acquisitions, can you just comment on the environment generally?

And whether you see any sort of moderation or lowering of expectations in terms of multiples people are looking for to sell?

No, I don't see any real change in the environment as yet.

As I've stated a couple of times in the past, the belief we have in the uniform side is that the acquisition opportunities will become more plentiful as the economy picks up and as these sellers businesses pick up.

Right now, they still seem to be reluctant to sell.

We've done very well in - - but it's on a minor basis in terms of document management and first aid and safety.

We've made several acquisitions there.

In fact, what the acquisition volumes you see in our financial statements are primarily driven by those 2 businesses.

I - - you know, firmly believe, though, as does our management here, that those acquisition opportunities will present themselves over the course of the next couple of years.

And we believe that our $350 million of cash, plus the extensive borrowing capacity that we have will put us in a position to make some great acquisitions in the not too distant future.

Great.

And just in terms of what you will be using currency if at all for acquisitions, is it going to still be targeted in the other services area?

And are you looking at anything sort of new types of services to augment, you know, any of your offerings out there?

In the short run, you're not going to see us go in any big way into any new service offering.

You're going to see us though certainly look for acquisition opportunities that are extensions of our existing businesses, or are additions to our existing businesses.

You know, when we go into a new service, we tend to take a relatively conservative view and want to experiment with it a little bit before we jump in in a big way, so I would not expect that to happen.

Okay.

Great.

Thanks for all the color.

Next we will hear a question from Greg Halter with LJR Great Lakes Review.

Just wondered if you could clarify the comments about the catalog.

Is that a hospital catalog -- a hospitality catalog only?

No, actually it is a very broad diverse catalog that goes after many segments of business.

It would include hotels, gaming, the cruise ships.

It would include some hospital, but it is a wide variety of uniforms that reach the - - pretty much the entire customer base of the national account sales division.

It is probably about 150 page catalog, Greg.

Okay, that's helpful.

And given the cash flow and the cash that has been building, and I think you've commented on this in the past, but I was just wondering what your thoughts regarding dividend increases and/or share repurchase?

Well, as I've said in the past, the Board of Cintas continues to evaluate all potential uses of the cash.

And at this point in time, they are comfortable with the position that that cash will primarily be used for acquisition opportunities because we feel there are going to be so many of those available to us.

But with that said, you know, if the circumstances would dictate that a share buyback would be in order, they would certainly do that.

Okay.

And anything change with that, or any collection regarding that receivable?

You're talking about that write-off at the beginning of the first quarter of fiscal '04?

Yes, that's right.

No, no we have made no progress in collecting any of that.

Okay.

And then I would like to get a comment on the RFID initiative that you're working on, just some [indiscernible].

You're breaking up.

But --

Yes, we will take a stab at that.

The RFID initiative at Cintas, we're exciting about it.

It is actually installing a radio frequency chip in all of our shirts and pants in the rental line.

We're right now in the midst of testing several areas of that initiative, the reliability of the tags, the reliability of the equipment that will scan the tags, obviously our customer acceptance of the technology and the ability to integrate that into our operation.

We're very encouraged by what we see so far and we're beginning the process of putting the tags in garments at one of our Cintas locations in Cincinnati.

And we expect to have the results of that pilot sometime in mid '05.

Okay.

And one last one, I haven't heard much on the Unite campaign, a couple months now, just wondering what the status is there?

Well, I think the fact that you haven't heard much might tell you something.

Unite continues to conduct its corporate campaign against Cintas, but has made no progress at all with any of our partners, in convincing them to become unionized.

In fact, I would say they have alienated many of our partners by their tactics.

They continue to be a threat to us in terms of, you know, trying to file, you know, lawsuits, spread bad news about Cintas.

But they have made no progress in the almost 2 years that they've been involved.

And we continue to have a dedicated group within Cintas, focused on, you know, working on all their deeds that they're trying to do against us, while the rest of us continue to run the business.

All right.

Thank you.

Thanks, Greg.

We will now hear from Brandt Sakakeeny with Deutsche Bank Securities.

Actually, just about everything has been asked but I just have one quick question.

We are 2 weeks into December and I think Bill you alludedeluded to the fact after somewhat soft September and other thinkgs perked up in November.

Do you have any December data and any commentary with respect to how, maybe the add stop or new sales is going in December?

Well we only have the basic full week of December so it is tough to draw any conclusions.

But I would say some of the momentum we saw building in November has continued into December.

Okay.

Great.

Thanks.

That's all I had.

We will now hear from Patrick Thompson with CIBC World Markets.

Quick question.

You mentioned that your clients were adding employees, that that number was positive.

How long has it been since that was the case?

Well, that's a very good question.

It has been a long time.

Definitely over the last 4 years.

You know, ever since 9/11 we have seen a continual decline, shrinkage in our customer - - employment within our customer accounts.

And as you know, we've been commenting on this for quite some time. add/stops were actually negative 3% at one point and if we would have just pulled out the uniforms, they probably would have been as high as negative 5%.

Okay.

And one other question.

In your uniform sales, what percentage right now is to the lodging, gaming, and hospitality sector?

That is approximately 6% of our total business.

And what would have been peak for that industry?

Again, you're stretching my memory, but I think the peak was right around 8%.

Okay.

All right.

Thank you.

Thanks, Patrick.

[Caller instructions.] We will now hear a follow-up question by Michael Schneider.

Bill, Karen, I guess I'm a little confused.

I thought I heard, Bill, you say that October was actually a weak month in add/stops and Karen you say it was actually positive in both October and November.

Could you clarify?

Yes, I will clarify that.

We - - I was talking about the number of wearers in uniform.

The add/stops being positive in October and November.

What Bill is talking about is the total add/stops for all rental products.

It started off the quarter somewhat weak, gained momentum, and ended up November in solid positive territory.

Also, Michael, I was alluding to direct sale business, catalog and our national account sales business, also.

Okay.

But the core statistic that's most important at least as an indicator of the economy and the employment market is this uniform add versus drop, and that was indeed positive in October and November?

Yes, it was.

Okay.

Now, we do want to say, though, it is coming off of a trend that has been negative, as we said before, for a long period of time.

So now that it is in positive territory, it is positive but the numbers hopefully will grow from here.

So it is a small positive, Michael, you know, it is just the trend that we are encouraged by.

Okay.

And I guess, Bill, I would also echo at least some of the comments that have been made recently about reconsidering a share repurchase program, because as the cash sits on the balance sheet, obviously the returns in invested capital continue to suffer as a result.

So with the stock trading in a range now for well several years, has the Board freshened its analysis at all of what a share repurchase would do over EPS and investor sentiment?

Michael, I can tell you that the Board looks at this continuously.

And they certainly will listen to a replay of this call so they will hear your comment.

Okay.

Fair enough.

Thank you.

Thanks, Mike.

[Caller instructions.] And Mr. Gale, it does appear there are no further questions.

I will turn the conference back over to you.

Well, thank you all for participating in our call today.

And we would like to express our hope for you and your family for a very joyous holiday season and a prosperous 2005.

And we will look forward to speaking with you again in March, when we report third quarter results.

Thank you.

That does conclude today's teleconference.

And thank you for your participation.

At this time, you may disconnect.