Culp Inc (CULP) 2008 Q3 法說會逐字稿

Please standby. We are about to begin. Good day and welcome to the Culp, Inc. third quarter 2008 results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. [Gil Fuqua]. Please go ahead, sir.

As we start, let me express that some statements made in this call will be forward-looking statements. Forward-looking statements are statements that include projections, expectations or beliefs about future events or results or otherwise are statements of historical fact. Actual performance of the Company may differ from those projected in such statements. Investors should refer to statements file by the Company with the Securities and Exchange Commission for a discussion of those factors that could effect Culp's operations and the forward-looking statements made in this call.

The information being provided today is as of this date only and Culp expressly disclaims any obligations to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations.

In addition, during this call the Company will be discussion non-GAAP financial measurements that exclude restructuring and restructuring-related charges. A reconciliation of these non-GAAP financial measurements to the most directly comparable GAAP financial measurements is included as a Schedule to the Company's press release and 8K filed yesterday. This information is also available on the Investor Relations section of the Company's website at www.culpinc.com. I'll now turn the call over to Frank Saxon, Chief Executive Office. Please go ahead, sir.

Good morning, everyone and thanks for joining us today. I'd like to welcome you to the Culp quarter conference call for analysts and investors. With me on the call today is Ken Bowling, our Chief Financial Officer.

I will begin the call with some brief comments about Culp today and Ken will then review the financial results for the quarter. I will then update you on the strategic actions in each of our segments and then Ken will comment on fourth quarter business outlook and of course we'll be happy to answer any questions after that.

We delivered another solid performance in the third quarter. We are pleased with our year-over-year sales improvement and our ability to generate strong cash flow from operations and strengthen our financial position in this environment, even as business conditions for the furniture industry continue to be very weak and bedding industry demand began to soften.

These results reflect continued growth in our mattress fabric sales and a solid gain in our non-U.S. produced upholstery fabrics. Our China platform and lower S G-and-A expenses in our upholstery fabric business have positioned us to operate more efficiently during this down turn. We remain profitable on lower volumes and benefit from any upturn in demand.

I'll now turn the call over to Ken who will review the financial results for the quarter.

Thank you, Frank. Total sales for the quarter were $60.5 million, up 8.6% from the third quarter of last year. Operating income was $2 million, compared with operating income of $1.1 million last year, an increase of 81% excluding restructuring and related charges for both periods. Income before income taxes excluding restructuring and related charges was $1.4 million compared with $373,000 a year ago, an increase of almost 300%. We reported net income of $903,000 or $0.07 per diluted share for the third quarter fiscal 2008. The financial results for the third quarter of fiscal 2008 included $551,000 or $0.04 per diluted share in restructuring and related charges after taxes. Excluding these charges, net income for the third fiscal quarter was $1.5 million or $0.11 per diluted share. The third quarter of fiscal 2008 results reflect a significantly lower tax rate due primarily to lower expected U.S. income. Our year-to-date effective tax rate was 3.1% on a GAAP basis and 12.4% excluding restructuring and related charges. These rates are based on projected results for the full year, given the fact and circumstances that we know today. And will be updated again for our fiscal Q4 results.

It is important to note that with respect to the U.S., we have a net operating loss carry forward of approximately $72 million. Therefore we will not incur cash income taxes in the U.S. for the foreseeable future. The results of the third quarter compare with a net loss of $2.2 million or $0.19 per diluted share for the third quarter of fiscal 2007. The financial results for the third quarter of fiscal 2007 included $2.1 million or $0.18 per diluted share in restructuring and related charges, after taxes. Excluding these restructuring and related charges, net loss for the third quarter fiscal 2007 was $99,000 and $0.01 per diluted share.

Let me now review our results for our operating segments.

With respect to mattress fabrics, also known as mattress ticking, we reported $30.9 million in sales for the quarter, a 27% increase compared with $24.4 million for the same period last year. These results included the additional incremental sales related to the Company's acquisition of ITG's mattress fabrics business in January, 2007. However, the year-over-year sales gain is lower than the previous quarter since the acquisition, due to the planned discontinuation of certain ITG products that did not fit Culp's business model. Mattress ticking sales accounted for 51% of overall sales during the quarter. Unit volume and average selling price was disclosed in the press release so I will not go into detail here.

Operating income for this segment was $2.6 million or 8.5% of sales. For the prior year period, operating income was $2.5 million or 10.3% of sales. Frank will comment more specifically in a moment on operating results.

Now turning to the result of our operating segment, upholstery fabrics. Sales were $29.6 million which include both fabric and cut and sown kits, representing a 5.5% decline from $31.3 million in the third quarter of last year. Again, unit volume and average selling price information for upholstery fabrics can be found in the press release.

Sales of upholstery fabrics reflect very weak overall industry demand for furniture, related to the slowing economy, a weak housing market and high gas prices. We also seek continued soft demand industry-wide for U.S. produced fabrics, driven by consumer preference for leather and suede covered furniture and other imported furniture and fabrics. Sales of non-U.S. produced fabrics were $20.2 million in the third quarter, up 17% over the prior year period. The year-over-year growth in non-U.S. produced fabrics reverses a trend reflected in results for the previous two fiscal quarters. Sales of our non-U.S. produced fabrics represented 68% of total upholstery fabric sales for the third quarter, compared with 55% a year ago.

Sales of U.S. produced fabrics were $9.4 million, down 33% from the third quarter of fiscal 2007. Overall the upholstery fabric segment reported operating income of $395,000 for the third quarter, compared with an operating loss of $496,000 for the same period last year.

Let me now turn to the balance sheet. Maintaining a strong financial position continues to be one of our most important objectives. At the end of the third fiscal quarter our balance sheet reflected $15.5 million in cash and cash equivalents, representing substantial improvement in cash flow from operations which was $14.8 million for the year-to-date period compared with $4.4 million for the same period a year ago. The performance is due to increased profitability and significant improvement in working capital management, especially in lower inventory balances which were almost $5 million or 11% lower than the same period a year ago. Additionally, our day sales outstanding were lowered to 32 days compared with 36 days the pervious year, an 11% improvement. And our working capital turnover increased to 5.8 turns compared with 5.2 turns the previous year.

The strong cash flow is helping the Company to substantially reduce its long term debt during this fiscal year. During the third quarter we reduced total borrowings by $5.6 million which brings the year-to-date total debt reduction to $7.6 million. With the scheduled repayment during the fourth quarter of an additional $8.3 million, the Company will have reduced total debt by almost $16 million this fiscal year. Total debt was $33.4 million at the end of the third quarter compared with $46.7 million a year earlier, a 28% reduction. Our debt to capital ratio has improved significantly and was 28% at the end of the third quarter compared with 37% a year ago.

During the quarter the Company adopted a plan to sell its corporate headquarters because we are currently utilizing only one half of the available space and with the sale we can lower our cost and reduce debt. The carrying value of the Company's headquarters is approximately $4.8 million and is recorded in assets held for sale on the balance sheet. The Company expects to receive proceeds in excess of the carrying value and such proceeds will be used repay the $6.4 million outstanding mortgage balance.

The Company expects cash capital expenditures to be approximately $5 million for this fiscal year and depreciation is expected to be approximately $6 million. For fiscal 2009, we expect cash capital expenditures to be $2.5 million and depreciation to be approximately $6 million. I will now turn the call back over to Frank.

Thank you, Ken. I will now talk about the progress we are making in both of our operating segments. Culp's mattress fabric's business has continued to perform well throughout this fiscal year and has been a key driver of our growth. Over the past year we have worked diligently to ensure the smooth integration of ITG's mattress fabrics business with minimal customer disruption. As a result, we have continued to enjoy excellent customer relationships and we have benefited from the additional sales volumes and more efficient production. As a final stage of the integration process, we did sell some excess inventory during the quarter at reduced margins.

The results for the quarter were also affected by higher raw material costs and increased Canadian operating costs due to the strengthening of the Canadian currency as compared with the same period last year. To offset these higher costs, we have implemented a price increase in our mattress fabric segment which is effective in March.

The acquisition of ITG's mattress fabrics business in January, 2007 has been a major step forward for us. Sales of mattress fabrics for the latest 12 months ended January 2008, which includes the four quarters of the acquired sale was $142 million, up $50 million or 53% from the previous 12 month period ended January 2007, which of course did not include the acquired sales.

We were successful in incorporating this substantial amount of business into our infrastructure within 9 months. And we did not acquire any of ITG's plants or equipment as part of the acquisition. Our folks in this business did an outstanding job in planning this implementation and working tirelessly to make it happen with the same high standards for delivery and quality that we always have provided to our customers.

The Company estimates that approximately $10 million of the $50 million in incremental sales relates to products that we have chosen to discontinue because they did not fit our business model or were low volume items.

Operating income in the mattress fabrics business for the latest 12 months was $14.2 million up 61% from $8.8 million in the previous 12 month period ended January 2007. It is also important to note that our capital invested in this business which is now $40 million is only $4 million higher than the level immediately prior to the acquisition. As a result, our return on capital for the latest 12 months in this business exceeded 30% and increased substantially over the 12 months ended January 2007.

As we focus on maintaining our high level of execution, we are continuing to make strategic investments to enhance our manufacturing platform and provide additional reactive capacity in mattress fabrics. During the next few months we are implementing a $5 million capital project that includes the expansion of our weaving and finishing operations in our Stokesdale, North Carolina facility. We expect to have this project completed around the end of May. This state-of-the-art equipment and add ional capacity will allow us to operate more efficiently on lower inventory and provide even faster response times to our customers in this [JIT] environment. Additionally, these capital projects will position Culp to pursue additional growth opportunities and extend our leadership position in this business.

Now I'll give you an update on our upholstery fabric segment. We were pleased to report another profitable quarter in upholstery fabrics in this very difficult operating environment. The solid sales gains in our non-U.S. operations reflect our strategic focus on product development, innovation and improved supply chain performance. Unfortunately, we still faced significant challenges with respect to the underperformance of our remaining U.S. manufacturing operation and the lower volume it is experiencing.

Although difficult, we have little choice but to implement a meaningful price increase on our U.S. produced products during the fourth quarter to help offset significantly higher costs related to raw materials and less overhead absorption.

For the upholstery fabric business as a whole, we have improved our cost structure with lower S G-and-A expenses during the third quarter, which were down $1 million or 26% from the same period a year ago.

As difficult as these decisions are, we continued to take steps during the quarter to lower these costs further and keep them in line with expected demand in this tough environment. We have also reduced our inventory levels in this segment by almost $4 million or 16% from a year ago.

We are excited about our progress in China and the business model we have developed over the last five years since we established our operation there. As our customers and furniture retailers have moved more of their fabric and furniture purchases to China, we have moved with them. We have responded with a state-of-the-art operation designed to meet their fabric needs in terms of providing American design and color along with U.S. quality and service standards. Today we have a substantial and wholly owned operation in China with over 450 associates which includes capabilities for finishing, velvet manufacturing, cutting and sewing, along with a vertically integrated network of long term strategic suppliers.

With the excellent product values we are now operating from our China platform, we are aggressively pursuing top line growth. Even though the outlook for near term improvement in retail furniture demand is not that positive, we are encouraged by the number of fabric placements are receiving at the recent and upcoming furniture markets.

Ken will now review the outlook for our fourth quarter and then I'll have a few concluding comments.

Thanks, Frank. Before I talk about the outlook, I want to note that we have received notification from the New York Stock Exchange that Culp is now considered a company in good standing under the NYSE's continued listing standards and will be removed from its Watch List. The NYSE's decision comes as a result of the Company's consistent positive performance with respect to its business plan submitted to the NYSE in September of 2006 and its compliance with the NYSE's minimum market capitalization and shareholder's equity standard over the past six quarters. After a 12 month follow-up period to ensure continued compliance, the Company will remain subject to normal NYSE monitoring procedures.

Taking a look at the fourth quarter, we believe our mattress fabric segment will continue to perform well, even though bedding industry demand is softening. However, industry conditions to upholstery fabrics have been extremely difficult all year and continue to be difficult today. Overall, we expect our fourth quarter sales to be down in the 10% range from the fourth quarter of last year.

We expect sales in our mattress fabrics segment to be down approximately 5% to 10% for the fourth quarter, primarily due to the planned discontinuation of certain ITG products and softening overall demand. Our operating income in this segment is expected to approximate the prior year period with operating margins back over our target of 10%.

In our upholstery fabric segment we expect sales to be down approximately 13% to 18% for the fourth quarter due entirely to lower sales of U.S. produced fabrics. We believe the upholstery fabric segment's operating results will reflect breakeven results due primarily to very weak gross profits in our U.S. operations. However, we still expect continued solid gross profit margins in our non-U.S. produced business and substantially lower selling, general and administrative expenses as compared to the fourth quarter of the previous year.

Considering these factors, we expect to report net income in the fourth quarter in the range of $0.11 to $0.15 per diluted share, excluding restructuring and related charges for previously announced restructuring initiatives.

This is management's best estimate at present, recognizing that future financial results are difficult to predict because the upholstery fabrics industry is undergoing a dramatic transition. Some internal changes are still underway within the Company and foreign currency fluctuations may continue. The actual results will depend primarily upon the level of demand throughout the quarter. We estimate restructuring and related charges of approximately $200,000 and $176,000 net of taxes or $0.01 per diluted share will incurred during the fourth fiscal quarter. Including the restructuring and related charges, we expect to report net income for the fourth quarter in the range of $0.10 to $0.14 per diluted share. The net income for the fourth quarter of fiscal 2007 was $0.00 per diluted share. I'll now turn the call back over to Frank.

We are pleased with our execution and we are building upon the leadership positions we enjoy in both of our businesses. Our mattress fabrics business will continue to be a key driver of our growth in the short term. With the capital improvements underway to enhance our manufacturing capabilities, we believe we have additional opportunities to grow this business. Our upholstery fabric business is being affected by the extremely challenging conditions in the furniture industry; however we believe we are well-positioned to withstand the current downturn and report better results with any upturn in demand.

Our China platform is gaining traction and provides a sustainable business model for Culp to compete effectively in upholstery fabrics in today's global marketplace. Additionally, the substantial reduction in our long term debt this fiscal year has considerably strengthened our financial position. Overall we are pleased so far with our progress in fiscal 2008 and remain focused on achieving profitable growth over the long term.

With that we will now take your questions.

(OPERATOR INSTRUCTIONS) And we'll go first to Bud Bugatch with Raymond, James.

Good morning, Frank. Good morning, Ken. Let's talk a little bit about upholstery. Talk to me a little bit about what's going on in Anderson, utilization and how you're thinking about that? Realize I'm not trying to get to a too touchy a subject, but give us what you can or what you're comfortable saying, at least in the public domain.

The one remaining plant in Anderson, South Carolina makes our velvet fabrics. We do make velvet fabrics in China, as well. And as we indicated it is underperforming our expectations and we need to do several things. We need to have a meaningful price increase, unfortunately to cover some higher costs for which we have not passed along in terms of raw materials and the higher cost due to lower absorption. And we're doing a number of things in the plant to improve our manufacturing performance. And we are optimistic that these actions will help improve the profitability in this operation. It is strategically important, as we've said on a number of occasions, to keep a U.S. facility. There are rising costs in China and in other factors. We would really like to maintain our one U.S. production facility.

I mean, I think that's where I was going with this. I'm going to encourage you to at least from this aspect to do that. And I see the costs rising in China and I hope you would articulate some of what you're seeing in China in terms of those costs and maybe get a better feel as to where those costs are rising, besides just currency translation. But I do think that's the right thing to do and I realize you've got the difficult situation because if that trend continues you want to have some domestic capability, particularly in upholstery as you do in ticking. Can you give us a feel as to what's happening in China in terms of costs? Where the rises are? I think they're on several fronts so I'd love to get a better feel for that.

Sure. I'll probably put them in maybe four categories. First, currency and the historical increase has been about 6% a year. There is certainly talk that that percentage increase is going up. Secondly the export rebates related to the vat costs are going up. The China Government is gradually removing those rebates.

Where did it start? Wasn't it about 18% (inaudible)?

It started in upholstery fabrics and I don't know other categories. It's 17% 6 years ago, it's now 11%.

And where do you think it goes and when?

Well that's the [$64] question. They have been doing it every 18 months, if you took an average, something like that. 18 months to two years. So we haven't seen an increase in over a year now so we have no indication when it comes. It's published on their website and then we see it an, an amount. The other thing we're seeing of course is rising labor costs and general inflation in China as probably most people have heard in the news. And another rising cost, the government, effective early this calendar year, has put in the most sweeping labor regulations over there in maybe their history and apparently with more enforcement behind these regulations. So we're seeing some labor but that's not affecting us as much as other people because we've been in the Shanghai area and always done things very well.

In the labor cost, can you give us a feel quantitatively what's changed? It's gone to $0.55 or so an hour on balance to what?

I think you're seeing probably, if you look at the minimum wage increases, it's probably 6%. 6% to 8% increase annually.

And what percentage of your business over there or costs over there is labor?

Oh, very, very small. You know remember with our model, where most of all of the fixed costs in manufacturing is in our network of partner mills. And we have finishing and cutting and sewing but the labor costs, even with 450, is just so low. Which is a sharp contrast to the U.S. It's just not that much.

Two other quick questions on other areas. Receivables are down to 32 days. Do you think that's sustainable?

I do think that's sustainable. I mean, our folks in that area just continue to do a terrific job. And we believe we should collect our bills when they're due and we make that happen. And then we offer in a number of cases, shorter terms with discounts. And many customers are taking advantage of those, particularly in the mattress fabrics business.

And your debt at the end of the quarter was $22 million, I think. Right?

Net debt.

No. No. No.

No. Total debt was $33.4. $33 in cash. Net debt in the $17 million to $18 million range.

You've got $8.6 million in the current column of debt. What's it going to look like at the end of the year? Is it going to be down to the $8 million that's in the current column plus if you sell the business $6 million? Is that what you're talking about?

Well I think what we've said is we expect to receive sale proceeds in excess of book value, $4.8 million and don't know if that will occur in fourth quarter. Probably unlikely. We have a scheduled $8.3 million payment and that will be made in March. We obviously have the cash to pay that. And of course then we have other opportunities once that payment is made, we could chose to reduce some other debt with the cash on hand.

So next year at the end of the year, what do you think the debt will be at the end of April of '09?

I'll let you know. Bud, that's for you guys to run your models, but obviously you look at the cash flow ability we have and what we're able to do. And you know it looks pretty darn good. I mean, a couple of other factors with significantly lower debt, our interest cost will be down dramatically next year with the lower debt. And in other good news, we've been having cash restructuring charges all as you know for years. That's really almost entirely done.

That was my last question. The lease is up on the remaining facility in the end of this fiscal year, right?

That is correct.

So there's no more restructuring actions being taken? You're just paying the cost of occupancy of that facility until your lease is up?

Which is up April 30, in two months. So we really aren't going to have much cash restructuring charges, on all of our previously announced restructuring. There's only one plant left in the U.S.

(Inaudible) has better than I think anybody could have wished. Thank you very much.

Thank you.

Thank you. We'll take our next question from [Ike Vortel] with Morgan Keegan.

Hi. Good morning, Frank. Good morning, Ken.

Good morning, Ike.

I'm calling in for Laura this morning. A couple quick questions. Are you seeing mattress ticking competition coming from the lower cost countries right now?

We really are. We, of course, with the China phenomenon in upholstery fabrics and furniture, that is something we had been watching carefully for many years. We just aren't seeing that happen.

Okay. In the mattress ticking segment, can you talk about the demand trends you saw in January and what you've been seeing so far in February?

Certainly since Thanksgiving it's been softer, which was our third quarter and now as we're into the fourth quarter and as we indicated, it's clearly softer at the mattress retail sector. How much, I'm not really sure. But we certainly hear it and see it and, you know, feeling it somewhat as we mentioned in our release and our comments today.

And you're doing a good job paying down debt with the debt to cap at about 28%. Is there a target that you guys have in mind? Or are you just kind of seeing how it goes?

That's a good question. As we've stated before our near term targets of course are to use the excess cash to retire debt. But we are having a stronger financial position and more debt availability or debt capacity certainly has given us more financial flexibility and opportunities that might come our way. But there really isn't any target. Near term is just pay the debt off and reduce debt service. We're in a very uncertain economic time in certainly furniture and now to some degree mattress fabrics. So it's just a great thing to be in a much stronger financial position than we've been over the last several years.

And our goal has been the last several years just focus on debt reduction and take the excess cash flow and reduce our debt as quickly as possible. And you see the results and what we've been able to do there. And that of course will continue to be our focus.

All right. Thanks very much. Nice quarter.

Thank you.

Thank you. (OPERATOR INSTRUCTIONS) We'll go next to Michael [Wasserman] with Moors & Cabot.

Hi Frank and Ken. Good morning. You guys continue to execute beautifully in a difficult environment. What is the building up for sale for and what is the asking price?

Probably right at $6 million.

Okay. So if we get close to the asking price it's basically going to be a pretty close swap of mortgage debt for cash received?

That's correct.

I think it's important, Michael, to note office buildings are not moving very fast these days. So we are patient. We have one of the best properties for those of you who have been here in the High Point, Greensboro area. So we are going to take our time and we are a very patient seller.

I hear you. As I understand it here with the current cash of $15.5 million as of the end of the year, December 31st, paying off the $8.3 million of debt in March and spending $5 million on cap ex, that would leave the cash balance at around $2 million and change plus whatever cash flow is being currently generated; is that correct?

That's correct except for the $5 million in cap ex probably I think $3 million to $3.5 million is vendor financed over the next three years.

Okay.

At good rates. So we take advantage of that, as well.

All right. But basically we're drawing cash down fairly substantially but it's going to rebuild fairly rapidly due to the close to $4 million a quarter we seem to be able to generate in cash even in less than ideal times? Is that more or less correct?

Well I think you see what we've done and I think the projections for next year have to come from you.

Yes. Okay. The upgrades you're doing in the mattress ticking area, is that at all related to the acquisition of the ITG assets? WE did upgrades not long ago. Is that something you were envisioning then or is this something new that's come along?

this is not related to the ITG acquisition of their mattress fabric business. It's really with the increased business and looking at the industry landscape, it provides us with some flexibility to help lower our inventories more because we have a little more capacity. And it helps us lower costs, inventory obsolescence and does provide opportunities for us to consider other potential investments.

Right. Okay. Last question.

Michael, I spend some time laying out the ITG acquisition and the benefits of bringing that business in house. We obviously like to buy that acquisition and not have to acquire any plants or equipment.

right.

But in order to do that we had to have the infrastructure to be able to do that.

Right. I presume during these times as more and more firms struggle, the opportunities may become greater?

Well, no doubt that's probably the case. There are stronger firms and there are weaker firms. And we hear that on both businesses, that there are weaker players and many people are struggling. And this is in China, as well. Not just the U.S.

Right. Perhaps you can comment on this. I'm not a hundred percent sure how to explain it. In recent days, Macy's announced their results and they announced that their better than expected results were partly a function of better than expected mattress sales. But that doesn't seem to sync with what you've said about weakening conditions. So I'm not quite sure what to come away with there.

You know, I'm not sure how to comment. But if they recently announced their results, that probably pertained to the latter part of the last calendar year. And our softness, as I mentioned, we're really seeing after Thanksgiving.

Right. Okay.

But mattresses, we have to keep in mind, even though it's somewhat softer, the bedding folks have done a great job with selling the health benefits of sleep. And the mattress sales are not nearly as much tied to housing as they used to be. And the numbers they quote are 70% of their business is replacement business. So while it softened, I don't think we're going to see big drops like we do furniture because of the housing weakness.

Okay. One other thing about the building sale. Are you anticipating remaining in the building and leasing from the buyer? Or are you moving to a new location? And either of which, what do you anticipate the yearly cost to be?

We need about half the square footage here and we've got 56,000 square feet. And we would prefer to stay in our current building and just use the space we need because we like it a lot. Our folks like it. It's a great building. We'd prefer that but that will be up to the buyer. If that's not the case, there are numerous very good office choices, very close to us here. And you're looking at rents in the probably $14.00 to $17.00 a square foot range.

Okay.

Market rates.

And you have about 28,000 square feet?

Yes. So we'll save a lot of money. It's another reason we want to consider this.

Okay. Thank you. Keep up the great work.

Thanks.

Next we'll go to John Baugh with Stifel Nicolaus.

Good morning. This is actually Stanley in for John Baugh. A quick question about the EBITDA margins in the ticking. Did I hear correctly it was 8.5 down from 10.3?

Yes. That's correct.

Was that more due to moving the inventory that you chose to discontinue? Or have you all seen kind of a mix shift down in the quarter?

No, it was due to the three things. The excess inventory that we moved out during the quarter, related to the acquisition. As well as some higher raw material costs and the higher Canadian operating costs with our facility near Montreal, due to the currency.

And to kind of follow up on that. Have you all seen any mix shift down the coming quarter with sales expected to be down 5% to 10%?

Really not. I don't think so. We're still seeing the knitted mattress fabric area is growing faster than the [dam ups].

And one last question. Price increase is effective in March; was that right?

Yes. For mattresses. For mattress ticking.

For mattress ticking. And can you provide anymore color on that? Like amount of price increase or anything like that?

Modest.

Modest? Okay. Very good. That's all I have. Thank you very much.

Thank you.

Thank you. And at this time we have no further questions. I'd like to turn the program back over to Mr. Frank Saxon for any additional or closing comments.

Okay. Well that concludes our call today. Thank you for joining us. We'll look forward to updating you next quarter. Thank you.

That concludes today's conference. You may disconnect your lines at this time.