Masonite International Corp (DOOR) 2012 Q2 法說會逐字稿

Welcome to Masonite Second Quarter 2012 Earnings Call. During the presentation, all participants will be in a listen-only mode. After management's prepared remarks, investors are ready to participate in a question-and-answer session. This conference is being recorded. The replay may be accessed until August 19th, by dialing 877-660-6853 within the US or 201-612-7415 outside of the US under account number 404 and the conference ID is 393459. I will now introduce Joanne Freiberger, Masonite's Vice President and Treasurer. Please go ahead, ma'am.

Thank you, Dan, and good morning, everyone. I'm joined in our Tampa office today by Fred Lynch, our President and Chief Executive Officer, and Mark Erceg, our Executive Vice President and Chief Financial Officer. The access information for the webcast presentation that will accompany today's call is available on our website at www.masonite.com under the heading about Masonite and the subheading financials.

Before we begin, let me remind you that the earnings released and the presentations made by our executives include forward-looking statements that are based on the belief of the management team regarding the operations and the results of operations of the company as well as general economic condition. These beliefs and the related forward-looking statements are subject to risks and uncertainties which are described in greater detail in the financial statement document made available to you on our website.

Actual results may vary materially from those described in the forward-looking statements. We do supplement our GAAP reporting with a non-GAAP financial measure adjusted EBITDA. A reconciliation of adjusted EBITDA, the non-GAAP measure, to the GAAP measure of net income is provided in the appendix of the presentation and also available on our website.

On today's call, Fred will provide a market update and discuss one of our key strategic initiative, our corporate acquisition program. He will then share some additional insight on how our recent acquisition of Lemieux Doors fits within that broader strategic framework. Mark will then briefly comment on the key financial aspects of the transaction before reviewing 2012 second quarter and fiscal year to date result. Next, Mark will update our full-year guidance before Fred summarizes today's call. We will conduct a question-and-answer session following our prepared remarks. And with that, I'll now turn the call over to Fred.

Thank you, Joanne. Good morning and welcome, everyone. The market continues to send mix signals. On the one hand, home ownership has never been more affordable. And the National Association of Home Builders reported as part of the July Housing Market Index that home builders' sentiment rose the most in September of 2002.

On the other hand, we have seen a series of disappointing monthly driving force as US GDP growth slowed from 2% during the first quarter of 2012 to only 1.5% during the second quarter. Against, this macro economic backdrop US new housing start continues to edge up but only slightly increasing 3.4% from an average of 715,000 starts during the first quarter of 2012 to 739,000 starts during the second quarter of 2012.

While the overall direction of US housing market remains positive and July's number 750,000 start was the highest since October 2008. Much of the growth we are seeing in US new continues to be driven by multifamily. Multifamily accounted for almost 30% of total US new housing start on a trailing 12-month basis. This is more than double the rate seen as recently as June 2012 and it's important because from a door perspective, a multifamily housing start is worth slightly less than half of the single family start in dollar term.

And for this reason out when we look at the US new housing start we do it on a prevalent basis. And when viewed this way, the second quarter average of 739,000 total US new housing start is comparable to approximately 618,000 single family unit.

So what are some positive momentum behind US new housing start unfortunately we're not seeing the same for North American repair, renovation, and remodeling which seems to have exhibited very little growth during the second quarter. This may suggest the favorable weather which was experienced across much of the country during the first quarter was in fact responsible for some of the early signs of strength being exhibited in this channel.

If we go across the Atlantic, Europe has continued to experience considerable pressure on construction activity with housing permit in the United Kingdom down 36% year over year. And in France permits have slowed considerably since the start of the year with last four months below year ago level. Given lower housing permits in both UK and France along with unfavorable foreign exchange impact, we remain particularly cautious with respect to our overall European business and I recently taken actions to strengthen our core by exiting non-performing product lines and customers and certain regional market.

Within this very challenging global environment, our acquisition program has helped solidify our competitiveness in advance of any robust market recovery. Most of you are already familiar with the rigorous approach, the Tuck-In acquisition and the detailed analysis we go through to understand how our propose target can create shareholder value by meeting our five strategic acquisition criteria. So rather than picking everyone through that details of each of the five acquisition criteria again today, I prefer to spend time to share with you the higher level strategic thinking behind all of the recent acquisitions of Masonite.

The objective of our corporate acquisition program has and will continue to be the deployment of capital in a manner that allows us to establish and maintain market leadership position in order to create long term value for our shareholder.

So let's look at how recent acquisitions support this effort. As one of the largest manufacturers of doors in the world, Masonite offers a broad line of product. On the residential side, we manufacture interior molded doors and stile and rail wood doors. And we also manufacture exterior fiber glass and steel doors.

On the commercial side, we manufacture architecturally specified interior wood doors. And finally, we are vertically integrated into several door components which we believe are strategically important such as door course, the mirrors and facings, along with other input such as stiles and rails.

To complement what was already robust product offering, we have successfully completed 10 acquisitions since 2010. On the residential side, we acquired [Let Go and Lifetime Doors] in the United States and selected assets of three-door manufactures in India and all five of those deals were consummated in 2010.

Just last week, we acquired Lemieux Doors which we believe is an excellent addition to our North American interior stile and rail wood door business. And we'll share more perspective on this recent acquisition in just a few minutes.

Along the way, we invest into capabilities that also allowed us to secure two important new business wins and residential doors. One was the Home Depot and one with [Load]. And these two wins further strengthen our residential exterior fiber glass and residential exterior steel businesses respectively.

During 2011 and 2012, we also dramatically strengthen our position in interior commercial and architectural wood doors and component through a series of well fought out and carefully executed acquisition, these acquisitions and aggregate more than doubled Masonite's existing commercial door and components business which is concentrated in North America and France.

Specifically, we acquired Marshfield doors in August 2011. Birchwood Best in November of 2011. Baillargeon in March 2012, and Algoma in April of 2012. Collectively, these four acquisitions have bought pro forma consolidated net sales for our combined commercial and architecture wood door and component business to over 20% of our 2012 expected revenue.

Turning to strategic move is systematically made, allow it to achieve the object we originally establish which was to create market leadership position. We currently estimate that we are number one or two in seven of eight product categories in North America, the only exception steel and glass commercial door which we do not view as a core competency today.

Having now established leadership positions in all of these areas we set out to achieve the pay through our acquisition program is likely to slow down going forward although we will continue to look for business that deliver against our acquisition criteria and have the potential to create additional shareholder value.

So with the better understanding of our overall corporate acquisition program and how the strategic moves -- we made fit into the framework of our overall businesses let us take a closer look at our most recent edition.

Lemieux was added to the Masonite portfolio branded door businesses on August 1st, 2012, just last week. Lemieux has been producing high quality residential wood doors in Quebec since 1990. And we believe Lemieux was one of the most attractive residential wood door asset available in North America and we're delighted to welcome Lemieux to the Masonite family.

Lemieux is a leader in the North American stile and rail wood door market. They have a strong brand reputation that is back by an impressive product portfolio of high quality wood doors and a robust service proposition any door, anywhere within North America in two weeks or less.

Finally, from a strategic standpoint, Lemieux increases our presence in North America stile and rail wood doors by approximately 50% while creating better channel balance and nearly doubling our presents in wood doors in the wholesale channel. So with that, let me turn the call over to Mark, who will share some of the key transaction metrics before reviewing the quarter and year to date financial result and touching on guidance for 2012. Mark?

Thanks, Fred, and good morning, everyone. Lemieux's revenues for the 12-month ended June 30th exceeded $40 million with trailing 12-month adjusted EBITDA of $3.8 million and a purchase price of approximately $23 million, this equates to a pre-synergy purchase price multiple of about six times.

The deals expected to be accretive to 2012. And over the next 12 to 18 months we expect to generate annual synergies that would bring the post-synergy purchase price adjusted EBITDA multiple down to about four to five times, which we believe represents good value for our shareholders.

Let's now turn to our financial results. Net sales for the three-month ended June 30, 2012, increased from $380.8 million to $432.8, an increase of $52 million or 13.7% versus year ago. Adjusted EBITDA increased from $20.5 million in the second quarter last year to $26.9 million during the second quarter of 2012, an increase of 31.2%. Adjusted EBITDA margin increased by 80 basis points to 6.2% of net sales.

On slide 20, we present a closer look at our 13.7% increase in total consolidated net sales during the second quarter of 2012 by examining the change in net sales for each of our three reportable business segments. Acquisitions increase net sales by $59.1 million or 15.5%. All of which occurred in the North American business segment. Growth on the base business which includes volume, price, and mix increased total company net sales by $9.4 million or 2.5%.

Base business growth was strongest in North America at $11.4 million or volume from the new home depot fiber glass program and the slight uptick in US new housing construction on an equivalent unit basis more than offset negative price mix on the quarter.

Meanwhile our base business in Europe/rest of world was responsible for a $3.9 million reduction in net sales during the second quarter. Price mix was positive. Largely due to several targeted price increases in United Kingdom taken during the second half of 2011 and the first quarter of 2012.

Price mix was also positively impacted in the Europe/rest of world segment by the decision to proactively discontinue some unprofitable product line and brands. However, the decision to discontinue certain product offerings and a slowdown in our France commercial business did result in lower volumes which more than offset favorable price mix during the second quarter.

Base business sales in our Africa segment were up $1.9 million during the second quarter of 2012 behind pricing actions which we're intended to offset negative changes and foreign exchange rates.

Foreign exchange was negative across all three business segments and reduced consolidated net sales by $16.5 million or roughly 4.3%. The impact of negative foreign exchange rate was particularly pronounced in our Europe/rest of world and Africa segments where foreign exchange reduced second quarter net sales by 8% and 17.6% respectively.

Taking the base business discussion one step further to include adjusted EBITDA you will see on slide 21 that while net sales on our base business increased by 2.5% during the second quarter, adjusted EBITDA on our base business increased by only 0.5%. As we have previously discussed adjusted EBITDA on our base business continues to be impacted by negative pricing dynamics across our North America residential door business. In addition, second quarter base business adjusted EBITDA was negatively impacted by the bankruptcy of a large customer on the West Coast of the United States.

Consolidated net sales and adjusted EBITDA both continue to benefit from our Tuck-In acquisition strategy, adding $59.1 million of incremental net sales and $7.9 million of incremental adjusted EBITDA during the second quarter of 2012. Importantly and consistent with the past three quarters, our second quarter result exclude any potential future recovery from our business interruption insurance claim related to the explosion at Marshfield's primary production facility which occurred on July 11, 2011. Completing the reconciliation, foreign exchange lowered second quarter net sales by $16.5 million and reduced adjusted EBITDA by $1.6 million.

Turning to slide 22, net sales for the six months ended June 30, 2012 increased from $729.4 million to $832.9 million, an increase of $103.5 million or 14.2% versus year ago. Adjusted EBITDA increased from $39 million in the first half of last year, the $46.7 million during the first half of 2012, an increase of 19.7%. Adjusted EBITDA margin increased by 30 basis points to 5.6%.

Turning to fiscal year to date consolidated net sales by segment, acquisition debt at $94 million or 12.9% with all that growth coming from North America. During that same time period, growth on the base business increased total company sales by $33.7 million or 4.6%.

Similar to our second quarter results, base business growth for the six-month ending June 30, 2012, was strongest in North America or net sales increased by $30 million through a combination of higher volume and favorable mix but lower net pricing. Europe/rest of world rise $600,000 in base business net sales fiscal year to date as nearly $4 million of positive price mix was more than offset by lower volumes

As indicated earlier, the decision to proactively discontinue some unprofitable product lines in France and a slowdown in our France commercial business contributed to the reduction and volume. Base business net sales and our Africa segment were up $4.3 million fiscal year to date behind sizeable price increases which were taken to counterbalance the significant weakening of the South African rand versus the US dollar. Foreign exchange was negative across all three business segments for the six-month ended June 30, 2012 and lowered net sales by $24.2 million or roughly 3.3%.

Slide 24 shows the base business reconciliation inclusive of adjusted EBITDA for the six-month ended June 30, 2012 compared to the first half of 2012. During that time period, net sales on our base business increased by 4.6% while adjusted EBITDA on our base business decreased by 3.8%.

The reduction in base business adjusted EBITDA was primarily due to one-time cost related to the new home depot fiber glass business which were incurred during the first quarter, an increase in second quarter bad debt expense, a negative pricing dynamics across the North America residential door business.

The combination of these items offset positive mix from the new home depot fiber glass business slightly higher volume from an increase in US new housing start equivalent and positive pricing carry over from 2011. Consolidated net sales and adjusted EBITDA both benefited from our Tuck-In acquisition strategy, adding $94 million of incremental net sales and $11.2 million of incremental adjusted EBITDA during the first half of 2012.

Foreign exchange lowered net sales for the first six months of 2012 by $24.2 million and reduced adjusted EBITDA by $2 million. Cash used in continuing operations during the first six months of 2012 was $12.3 million. Within that, working capital increased by $37.7 million. The large increase in working capital during the first half was due to a seasonal increase in accounts receivable off of December's historically low base and the overall expansion of the business.

Capital spending was $20.4 million or 2.4% of total net sales. For the full year, we expect the capital spending remained below 3% of net sales. The acquisitions of Baillargeon and Algoma used over $66 million during the six-month period ending June 30 of 2012, and the net proceeds from the March 9th issuance of additional senior unsecured notes provided a $101.5 million of cash net of fees. With $109 million of cash and cash equivalents, no short term debt and $375 million of senior unsecured long term debt, net debt was $266 million as of June 30, 2012.

Available liquidity at June 30th which includes unrestricted cash and undrawn ABL and an unused accounts receivable purchase agreement totaled $237.6 million or approximately 16% of Masonite trailing 12-month net sales.

Total debt, the trailing 12-month adjusted EBITDA stood up 4.2 times as of June 30, 2012, which is above our stated financial policy of three to four terms of total debt. However, we have not changed our financial policy. We are temporarily above our financial policy target due to the timing associated with $100 million of additional base value, senior unsecured notes which we issue during the first quarter of 2012.

The full value of those notes goes into the numerator of the total debt calculation whereas only partial year results from our recent acquisitions are currently reflected in the denominator. As we continue to consolidate the earnings of our recent acquisitions and reflect them on our historical adjusted EBITDA, we expect to be within the high end of our policy range by year end.

Net debt as of June 30, 2012, was three times trailing 12-month adjusted EBITDA. Our trailing 12-month adjusted EBITDA interest coverage ratio was 3.3 times and our trailing 12-month fix charge covered ratio was 1.5 times.

Adding reviewed results for the first six months of 2012, let's turn to our full year financial outlook on slide 28. We now expect net sales to be approximately $1.7 billion versus $1.75 billion. The reduction is primarily due to unfavorable foreign exchange rates which as I indicated earlier have reduced fiscal year to date net sales by almost $25 million. Expectations for adjusted EBITDA remain unchanged at the high end of the previous guidance range of $90 million plus or minus $5 million. I will now turn the call back to Fred to summarize today's call.

Great. Thanks, Mark. Throughout the first half of 2012, Masonite remain committed to successfully executing against the balance set of strategies which we believe will create long term value for our shareholders and our channel partners. By adhering to Masonite's strategic blueprint and focusing on our three pillars of profitable revenue in EBITDA growth, we're able to successfully advance several key strategic initiatives during the second quarter of 20112.

First, both top and bottom line growth continued year over year with Q2 net sales up nearly 14%, an adjusted EBITDA up over 30%. Second, our strategic acquisition program remains on track. We have completed five acquisitions since august of 2011 and 10 since the beginning of 2010. These acquisitions along with two important new business wins have put Masonite into a North American leadership position across residential doors, commercial wood doors and door components.

And finally, as part of our continuing efforts to ensure that we're prepared to respond quickly, the changes in the capital market, we are continuing to strengthen our controls and compliance and our internal business processes.

We continue to operate in a challenging macroeconomic environment and in a very competitive market but we remain confident that the capabilities we are building and the balance set of strategies we are pursuing will improve our total value proposition and increase shareholder value. So with that, I'll now turn the call back to the operator to open the line for questions that you may have. Operator?

Thank you, Mr. Lynch.

(Operator's instructions)

Our first question is coming from Seth Yeager of Jefferies and Company. Caller, please proceed with your question.

Hi. Good morning. Thanks for taking my question. Nice quarter. Can you walk us through the improvement gross margins for the quarter? How much of that was the well input cause versus manufacturing efficiencies from some of the restructuring projects that you guys have taken on over the last year or two?

Yes. This is Mark. The real simple reconciliation on that is to simply look at the acquisitions that we brought forward. The acquisitions we brought forward are response for nearly 100% of the increase in the margin that you saw in the quarter.

Okay. Perfect. That's an easy one. And I guess as far as the incremental home depot sales, how much of the 40 million or so have you gotten year to date and are you on track at this point given some of the weakness in [RNR]?

I think the overall weakness in RNR is affecting all aspects I think of our business in that channel. With regard to that business, started out a little slower than we would have like just based on the clearing of inventory from the previous supplier product. But beyond that, the product line is being very well received. We're getting a lot of positive comments on the product line, the display that we put them at stores and overlooking for it to seeing that business continue to grow.

All right. Thanks. And then, it sounds like right now you're sort of at the high end of your leverage range that you would like to operate at it. Is it safe to say from an acquisition standpoint or sort of pulling back unless something very creative comes out. And then if so, cash going forward, would you plan on utilizing that?

Yes. I would say that we've done five acquisitions in the last 12 months. One of the key focus areas for my team has been to make sure we integrate those extremely effectively and that we get all the value out of those that we're committed to achieving. So, with that, that I think it would be wise to believe that we're going to slow down some on the acquisition front.

And so, I said we'll continue to look for areas but for the most part, I think what we bought in place is where our focus is going to be. So I think [constantly] we've achieved our objective of positioning ourselves appropriately in the market space that we compete in.

Sure. I appreciate it. One final question, as far as working capital goes that of a use year to date, given the most recent acquisitions and your guidance going forward. Can you just help give us a sense of what they may shake out over the second half?

Yes. What we've typically said is that on a going basis, we think for every $100 million of incremental sales, we'll have to have about $12 million to $14 million take on cash to support that. Right now, you'll see us up a little bit. That's because of two reasons. One, you coming off a December period in the comparison and that's always on a historical basis, a low point trust.

Secondly, you do have on the commercial and architectural side slightly different terms generally speaking. And so, you do tend to have a little bit higher AR on that side of the business but we're pretty confident that we continue to manage inventory very well and tightly we do continue to focus on terms and collections and that by the end of the year, they will not be as large of a working capital drill.

Okay. Perfect. Thanks a lot. Good luck.

Thank you.

Our next question comes from Keith Hughes of SunTrust. Caller, please proceed with your question.

Thank you. In the first place you discussed domestically you've had organic growth but [price in X] or detraction during the period. I guess my question is number one was a more price, more price? And then number two, what do you think is going to take in your industry, in your business to get that back on the positive side?

We're seeing much more price pressure than we have seen historically. Obviously, we're having been through this downturn over five years. We would have hoped that that would have begin to move in the right direction. We find ourselves reacting to having to deal with price pressures from competition and we're going to have to continue to do that until such time as I think there's some additional volume in the market or others change their behavior.

Keith, one thing out is that getting about the new fiber glass business with the home depot. The mix on that is considerably better than what you would knew normalizes our base business. Fred's comments are completely apt if you kind of deconstruct it to, there were definitely be more of a price component which is putting pressure on the business.

Is that the case just because that you'll be mixing up from your interior door business, is that a positive?

Yes, the home depot fiber glass program, the fiber glass doors and the entry door systems go for a significantly higher enterprise than you would see on a lot of the interior molded doors as an example.

Yes. And that's true across the board, right?

Yes.

No matter what channel. Yes, okay. All right, thanks, guys.

You're welcome.

our next question comes from Lee Brading of Wells Fargo Securities. Caller, please proceed with your question.

Hi, guys. You talked about the pricing being toughened, a North America you've talked about it before but I was just kind of curious if you've seen it, not necessarily [baiting] but not getting worse I guess is one of the question.

I'll say that continue to see very difficult price and dynamics hasn't changed.

Okay. And on the on [M&A, Fred], you talked about, pulling back a little bit obviously you'll get slides 11 and 12, a hold there on the steel and glass. Is that the category that you would love to focus on just to kind of round out the portfolio?

yes. And that's the steel and glass in the commercial segment. Obviously, that would be an area of potential future area for us but as we said, we've achieved the goal that we set out for. We're not present in that market today but we're in that part of the business today.

Clearly, if we decide that we want to increase our M&A activity in the future, there would be an area we might look at.

And in the multiple front, you talked about this multiple, I think you said pre-synergies about six times. It doesn't sound like you're seeing much of a creep up of multiples or am I correct on that?

Yes, I would say that I think we have done a very good job to find targets that meet our criteria but also are attracted financially. If you think back to Marshfield, we paid a little bit less than eight times for that transaction. Birchwood was closer to seven. We talked about Baillargeon and Algoma as collective because they happen so close to one another. That was about an eight multiple and here again, we're talking about six. So we've been very, very strict in our criteria to make sure we get good returns out of these businesses.

Obviously, there's a lot of deals that we have looked at and haven't chosen to execute against neither simply the ones that met all the parameters we set out for ourselves.

Great. and on your guidance, thanks for that, but when I was looking at trying to go out the second half here and just relative to Q2 which is a strong EBITDA margin before (inaudible) versus historical. It looks like you're expecting some margin pressure here in the second half, or is it just more of a seasonality dynamic?

It's more of a seasonality dynamic.

Okay. Great. Thanks so much, guys.

Thank you.

our next question comes from Philip Volpicelli of Deutsche Bank. Caller, please proceed with your question.

Good morning. The question is a little bit adding on to Lee's question about steel and glass doors and the architectural side. Is that something you can grow organically, or do you have to make an acquisition there?

and obviously, you have both choices. But with specifics around that, we have no specifics we want to share around our intentions in that space at this point in time.

Okay. And then in terms of your product portfolio, would it make any sense to get into some of the hardware that goes on to a door, the hinges and the knob and so forth. Is that something that down the road would make sense for (inaudible) or just completely not [course] of what you do.

we try not to comment on our future strategy and acquisition, so we're not going to do that on this call either.

Okay. All right. Great. Thanks, guys.

Thank you, Philip.

Our next question comes from Howard Weinberg of UBS. Caller, please proceed with your question.

Thanks. I want to go back to the gross margins a little bit. And in the MDNA, you talked about organic cause and control dropped around 80 basis points. But it looks like the materials dropped around 210 basis points during that quarter so it implies that your operation is cost of goods sold has not been benefited from lower wood cost would have been penalize. So, if you could just provide us any more color on that and sort of your outlook for raw material cost over the rest of the year.

When we started the year, you may recall that we said that we expect commodity inflation which would include energy to be about $25 million a headwind for us on the year. We still think that that is about right. We obviously have a Lean Sigma program that's very active, the productivity that comes out to that is roughly comparable to what we need to offset the commodities and the inflation.

If you really think about what' likely happening there on the material side, the margin profile of the commercial architectural space is different in our base business. So, the internal complementary between materials and direct labor and freight and overhead is different between those two businesses. And now that the commercial architectural group is providing a significant amount of our overall revenue and earnings, that's part of what's driving those internal moves are seeing.

Great. Thanks. And then maybe we just go back high level regarding the acquisition strategies and if you could just remind us regarding your focus on the commercial market and the acquisitions that you made in the last two years. Is that primarily because it's a better margin you're expecting faster growth, or just simply diversification?

I think it's a combination of both. Obviously, it's clearly diversification that would drive that business, leading indicator of that business is different in residential. It has a very different customer base. It's much more fragmented and spread out. And then because of the specification and certification requirements in that business, there's a much higher level of technology that's associated with that. And as a result of that, we believe we can achieve higher margins whether in bad market or in good market.

Clearly, we also felt this was an excellent time to enter into that market because like the residential market, the commercial market still essentially in the [trial]. And so there's both opportunity or additional opportunity for that market to grow as the business ultimately recovers.

And then just to couple clean accounting questions if I could. The church for the West Coast customer, Mark, I think you mentioned that impacted EBITDA, is that just a one-time hit on -- right off of a receivable or is that going to impact sales going forward. And if you could provide us some perspective of how much area that was.

Yes. For the second quarter, we book the charge of about $1 million of bad debt expense related that specific account. It will not be an ongoing event thereafter.

That business was purchased out of bankruptcy by Rugby Architectural Products which is maintaining their position in the network space and we'll be selling to our products again. And we expect and it tends to be the key supplier to them going forward as well. So we do expect a recovery of sales over time.

Great. And then just a final clean up item. You mentioned one of the activities that you're going to be doing post quarter end is exiting your Romanian and Hungarian distribution businesses. Are those businesses currently running at a negative EBITDA and you'll get some benefit? And if you could give us any perspective what sort of proceeds you potentially be receiving for the sales of assets?

What I would tell you is that both of the businesses are very, very small. The actual effect of us choosing to discontinue sales and to those markets will not really be an impact one way or the other.

Perfect. All right. Good luck, guys. Thank you.

Thank you.

just a reminder, ladies and gentlemen, if you'd like to register a question, please press star one on your telephone keypad; star one to register your question.

Our next question is a follow up from Philip Volpicelli of Deutsche Bank. Caller, please proceed with your question.

Thanks. I'm hoping you guys could give us an update on industry capacity. Are there any factories that have been closed? Are there any that are opening? Just a sense of what's going on out there. I know you guys are close I think 40 facilities in the last four years. Just want to see what everyone else is doing.

Yes. I mean, I think we can only comment on obviously what we're doing. You'd have to ask the other folks on what they're doing but at this point in time, as you said we've closed about 47 facilities over the last five years. The facilities that we're planning to close in Romania and Hungary are really distribution facilities and not manufacturing assets. We always continue to look at our manufacturing footprint and look for where we can optimize it. And if that makes sense to reduce capacity in line with them in, we make those changes. But right now, we have nothing to report on that and we ask you to really gather what their decisions area.

All right. Okay. That's great. Thank you.

It appears we have no further questions at this time. I would now like to turn the floor back to management for closing comments.

Great. Well, thank you very much. We thank everyone for taking the time to participate on the call today and for your questions. And if there are no further questions, operator, can you please provide the replay instructions?

Absolutely. Thank you for joining Masonite International Second Quarter Earnings Conference Call. This conference call has been recorded. The replay maybe accessed until August 19, 2012, by dialing 1-877-660-6853, or 1-201-612-7415 and under in the account number of 404 and the conference ID number of 393459. Thank you and have a great day.