Global Industrial Co (GIC) 2010 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to Systemax Incorporated's fourth quarter and full year and 2010 earnings teleconference. During the presentation, all participants will be in a listen-only mode. Afterwards you will be invited to participate in a question-and-answer session. (Operator Instructions)As a reminder, this conference call is being recorded today, March, 15, 2011. At this time, I would like to turn the call over to Mike Smargiassi from Systemax. Please go ahead, sir.

Thank you, and welcome to the Systemax fourth quarter 2010 earnings conference call. I'm here today with Richard Leeds, Chairman and Chief Executive Officer of Systemax, Gilbert Fiorentino, Chief Executive Systemax Technology Products Segment which includes TigerDirect, CompUSA, CircuitCity.com, Misco and WStore and Larry Reinhold, Executive Vice President and Chief Financial Officer. This discussion may include certain forward-looking statements. It should be understood that actual results could differ materially than those projected due to a number of factors, including those described under the caption Forward-Looking Statements in the Company's Annual Report on Form 10-K. This call is the property of and is copyrighted by Systemax, Inc. I will now turn the call over to Mr. Richard Leeds.

Good afternoon, and thank you for joining us for today's fourth quarter and full-year 2010 earnings call. In 2010, we managed through the difficult macroeconomic and consumer environments and delivered record sales for the full year as we continue to benefit from our channel, product and geographic diversity. Results were led by our business to business operations, representing approximately half of our total revenues which generated double-digit increases with strong performances in all of our markets, the US, Canada and Europe. Full-year consumer channel results were up modestly on a consolidated basis, and should improve as the economy continues to recover and new products are brought to market by our vendors.

One of the bright spots in our consumer channels is our improved retail store performance in the latter part of the year. In addition, we executed on a number of strategic initiatives throughout the year, including integration of our Misco and WStore operations in Europe and the construction and launch of our new distribution center in Georgia, both of which would strengthen our position as we enter 2011. Looking at our revenue drivers for the quarter, results generally mirrored our full-year performance with solid double digit B-to-B channel growth in our technology and industrial operations and low single-digit gains in our consumer channels. We recorded strong results in a number of categories in the quarter, including double-digit increases in laptops, televisions and industrial products.

Europe had an outstanding quarter, and we recorded growth in each of our European countries including Spain and Italy, both of which had seen some of the most difficult macroeconomic climates in the region. In the quarter, France's sales were up double digits on a constant currency basis, and we look forward to building upon our position in this market. Misco and WStore are now operating separate brands with integrated infrastructure in both France and the UK. The industrial products group delivered another impressive performance with sales up over 30% from the fourth quarter of 2009. We ended the year with over 250,000 SKUs as we continue to expand new product lines and enter new product categories. In 2011, the industrial segment remains focused on the further expansion of its SKU count and the build-out of its Canadian website that launched at the end of 2010. Below the revenue line, it's clear that both gross and operating margins remain under pressure and continue to impact our bottom line performance.

I want to take a moment to update you on several of our initiatives to address gross margins. First, the most important gross margin indicator relative to the health of the ongoing business is product margin, and we held those flat in the quarter. We were very selective in targeting our discounting programs, with a focus on promotions new drive traffic through our retail and online channels. We believe this lowered the growth rate of our consumer sales. In regard to the impact of discounted freight on gross margins, first we took a more measured approach to shipping this holiday season as we targeted most of our free shipping offers around the industry's free shipping promotional days. Second, we launched a new shipping up sell program providing additional options for expedited delivery, which helped recoup some of our shipping expenses. As a result, we reduced our losses on freight during the quarter versus a year ago.

Finally, we reported increased logistics and warehouse costs as our new distribution center continued to scale up operations. The ramp-up of the new DC is on track to deliver the benefits we expect from it. Integrating a new facility is a process that unfolds over several quarters, and we're looking to the second half of 2011 for meaningful, positive margin impact. Our operating margin reflects a special charge related to the integration of WStore. The integration effort is now essentially complete, and we're very pleased with the results of this process. Overall, we are in a good position to drive improved performance in 2011, assuming economic conditions continue to improve and we execute well. Our B-to-B businesses are strong and poised to benefit from the WStore integration, the continuation of the IT refresh cycle and ongoing product line expansion.

Worldwide, we add more than 150 B-to-B sales agents last year and will continue to prudently invest in our sales teams in the year ahead. While economic indicators and corporate profit gross signal that the economy is beginning to grow, it is clear that CE consumers have yet to show they can keep pace. For us, that means our consumer channel performance remains challenged. With that said, there are categories for consumers where they're beginning to spend. We're impressed with the new tablet products and look forward to the expansion of this category on a broad scale later this year. In addition, the rollout of our 2.0 mobile centers in our retail stores is moving forward, which Gilbert will discuss in a few minutes. Our bottom line performance remains a key focus for our management teams, and we're committed to controlling costs and driving efficiencies across our operations. We will continue to prudently expand our businesses. We believe our strategic efforts to continue building a diversified and multi-channel company positions us to create additional values for our shareholders over the long term. I will now turn the call over to Gilbert.

Thanks, Richard, and good afternoon, everybody. Our worldwide technology sales increased 6% in the fourth quarter and 12% for the full year compared to prior-year periods. In Europe, B-to-B sales grew both in the quarter and full-year versus the year-ago periods. The fourth quarter is historically our slowest B-to-B as a result of the holidays. But this year we had a solid sales performance in all of our markets. On a local currency basis, we recorded strong double digit sales gains in France, Sweden and Italy. We also had solid performances from Germany, Holland, Ireland and Spain. We are seeing the benefits from combining the sales of Misco and WStore, while utilizing the low-cost structure of common warehouses and back office systems. Additionally, the significant increase in our combined market share within France is opening a number of vendor and sales opportunities that were not available to either company when they were separate. Europe remains a very attractive market to us, and we expect to expand our base of sales agents across our Pan-European footprint in 2011.

Our North American B-to-B operations continued their solid performance as sales from our core, small and middle market customers remain robust. Canadian sales in the quarter were exceptionally strong. The IT upgrade trend remains positive, and we continue duty invest in people and resources for our B-to-B sales channel. Specifically, we are making additional investments in our call centers and plan to hire additional sales agents in the year ahead . We are also opening two new offices in the second quarter, one in Dallas and one in Chicago. North American consumer channel sales were up in the quarter. However, the overall consumer channel remains competitive with same-channel sales off 1%. Our holiday sales period looked a lot like that of the industry at large, with an excellent start on Black Friday and Cyber Monday and a softening as we moved through the quarter. Consumers have clearly back more promotion-driven in their buying, which is in part due to the economy and the competitive nature of consumer shopping for technology products. That said, we did see some solid category performances.

Computers were up double digits in the quarter. More specifically, high-end laptops had very strong growth that, as expected, was partially offset by soft netbook sales. Without question, netbooks are being substituted by tablet devices. In 2011, we will position ourselves as a tablet destination for consumers. We are excited about a robust line of new devices. Thinner, lighter and more powerful laptops, as well as a number of exciting tablet offerings that are on the way from our vendors. While manufacturers are initially being cautious in targeting inventory residents to the wireless carriers, we're anticipating broader availability in the third quarter as manufacturers move forward with their rollouts.

In the fourth quarter, we also had strong double-digit growth in sales of televisions, making it one of our fastest-growing categories. Computer components continued to be a key market different charity for our Company, but this category is facing several product cycle headwinds, including technology-driven ASP declines and the sale of more full-feature systems that limit the need for component upgrades. On the retail front, we were pleased with our brick and mortar same-store sales performance, which grew low single digits in the quarter. We attribute this in part to the combined impact of our retail 2.0 initiative and our recent co-branding efforts. We ended the quarter with four new stores in our footprint, bringing our total store count to 41 at the end of the year. Our average store size is in the 22,000 square foot range, which we believe is an attractive market and provides us tremendous flexibility as we move through product cycles. We continue to take a very prudent approach to our retail expansion plans, with a strategic focus on markets where we can leverage our existing infrastructure and advertising budgets.

Additionally, as Richard mentioned, we have started the rollout of our retail 2.0 powered mobility centers in our retail stores, through which customers will receive full-service offerings from plan selection to mobile device setup, allowing customers to leave our store fully connected with their smartphone, tablet, laptop or other device. We have already signed contracts with AT&T and Sprint, and discussions with other major carriers are ongoing. We've added a seasoned industry executive with an extensive multi-channel background to lead this initiative, and currently expect to have mobile centers in half of our stores by year end. Our E-commerce websites continue to benefit from strong brand awareness and loyal customer base. However, the web remains our most price-sensitive sales channel. Our success in B-to-B operations and brick and mortar stores is partially driven by our strong web presence, which generates new leads for B-to-B sales teams and drives customers to our retail stores. We continue to enjoy long-standing vendor relationships and have built a nimble web business, which allows us to find price advantage in select areas and bring those deals to our customers.

During this recession, we have been very focused on and successful at capturing additional market share. As the economy improves, we are shifting this focus towards holding firm on product margins. This was an initiative we launched during the holiday period, and we benefited from maintaining product margins in a quarter that historically sees substantial discounting. Balancing top-line sales and gross margin is a continual process that we pay particular attention to every day. Additionally, we are moving forward with plans for significant functionality enhancements to our core web engines which will be deployed across our North American websites.

In summary, our B-to-B channels continue to benefit from broad-based recovery in the IT cycle. In Europe we are capitalizing on our strategic acquisition of WStore and our stronger Pan- European footprint. Our consumer channels remain challenging, but we are optimistic as we prepare to significantly expand our tablet offering and launch our retail wireless centers. We recently entered into an agreement with Dell which allows us to offer their full line of products and are executing across a number of initiatives across our diversified distribution channels. Thanks, and with that, I'll pass the call on to Larry.

Thank you, Gilbert. Fourth quarter consolidated sales were over $1.0 billion, up 7% compared to the fourth quarter of 2009, primarily driven by our B-to-B operations, which includes our technology B-to-B businesses in North America and Europe and our entire industrial products segment. Fourth quarter B-to-B channel sales increased 12% in US dollars and 15% on a constant currency basis compared to last year. Consumer channel sales increased 3% in both US dollars and on a constant currency basis. For the full year of 2010, consolidated sales were $3.6 billion, up 13% compared to the full year of 2009, again, primarily driven by our B-to-B operations. Full-year 2010 B-to-B channel sales increased 26% in US dollars and 18% on a constant currency basis, and excluding WStore, compared to last year. While consumer channel sales increased by 3% in US dollars and 2% on a constant currency basis, and excluding WStore. Gross margin for the quarter was 13.7% versus 14.2% last year. The 50-basis-point decline resulted from the cost of our second distribution center before its operating expected efficiencies, fewer early pay discounts than were available to us, and changes in channel and category mix.

Sequentially, gross margin for the quarter improved 20 basis points. SG&A expense was 11.6% of sales during the quarter versus 10.9% in 2009. The 70-basis point increase resulted primarily from higher headcount in retail stores. Sequentially, SG&A as a percent of sales improved 20 basis points from Q3. Operating margin was 2.0% this quarter versus 3.3% last year. Excluding the onetime charge for the integration of WStore, operating margin would have been 2.2%. Sequentially, operating margin improved 30 basis points from Q3 of 2010, excluding WStore charges. The Company's effective tax rate for the quarter was 31.1% compared to 37.5% last year. The Company's effective tax rate for the full year of 2010 was 35.6% compared to 36.8% last year. Net income for the quarter was $12.7 million, or $0.34 per diluted share, down from $18.4 million and $0.49 per share last year. The one time charge for WStore was about $0.02 per share.

Now, turning to technology products. Net sales for the fourth quarter were $940.2 million, an increase of 5.9% in US dollars and represented 93.4% of the Company's overall revenue. On a constant currency basis, technology product sales would have increased 7.2% compared to last year. Technology products operating income in the fourth quarter was $19.1 million compared to $27.6 million last year. The decrease was primarily driven by lower North American consumer gross margin. Industrial products generated sales of $65.4 million dollars, and increase of 31.9% and represented a 6.5% of the Company's overall revenue. Industrial products operating income was $6.2 million for the quarter compared to $5.5 million last year.

Turning to our geographical breakdown, our total North American sales were $725 .4 million, an increase of 8.4%, and represented 72% of our consolidated sales for the quarter. European sales were $280.8 million, up 4.3% and represented 28% of our total consolidated sales. Excluding exchange rate changes, European sales would have grown 10%. Looking at our revenue mix by customer channel, our total consumer channel sales, which includes sales from our retail stores, consumer websites, inbound call centers and television shopping were $533.8 million, an increase of 3.1% compared to the fourth quarter of last year. Consumer sales represented 53% of our total sales for the quarter. Business to business sales, which include sales generated from managed business relationships, including outbound call centers and business extranets and the entire industrial products corporate segment were $472.4 million, an increase of 12.3%, and represented 47% of our total consolidated sales. Working capital grew during the quarter by $21.3 million to $300.9 million as of December 31, primarily due to earnings and the proceeds from the issuance of long-term debt associated with equipment that went into our new distribution center.

Cash and cash equivalents grew during the quarter by $61.6 million to $92.1 million as of December 31 due to decreased inventory levels, increased days accounts payable outstanding and other working capital management actions. The Company's current ratio at the end of the year was 1.65 to 1. As of December 31, 2010, the Company had availability under its credit facility of approximately $115.9 million dollars and total cash and available liquidity of approximately $208.0 million. Total short and long-term debt was about $10.0 million at December 31. With that, we would like to open the call up for questions. Operator?

Thank you. (Operator Instructions)Our first question comes from David Strasser from Janney.

Hi. Thank you very much. A couple of quick -- two questions. First of all, looking at -- when you look at the tablet category, obviously, it's been a negative for you that could turn into a positive this year. From a point of view of going to market, where do you think -- how do you think your customer is going to -- how do you plan on basically selling the product and looking at it? Are you going to set it up as a competition versus Apple? Are you going to look at as an -- are you going to stay with the Android system and only products around the Android, or are you going to go to the Blackberry as well? Are you agnostic? Just trying to think a little bit about it.

Thank you. We try to stay agnostic about the products and offer our customers really about what they want to buy. As I said in the call, we're going to be tablet central. We really want to concentrate on this paradigm in computing. We think it is going to be very important as the year unrolls. So, we have offerings that we'll be running both the Windows operating system and the Android operating system and the rim -- the playbook as well. So, we're excited about all of it.

When you look at 2000 -- you go into 2011, and you look at one of the big deltas versus 2010, which had some tough times, although the year did end, at least from a sales standpoint, pretty strong. Do you think the biggest delta is the opportunity to go from a negative opportunity to strengthen this category? What are the biggest opportunities in '11?

Really to continue to execute on all aspects of what we're doing. The tablets are very exciting and so are the mobile centers, and so are the things we're doing with televisions. Really, there's opportunity everywhere and just need to continue to execute on all of those.

And I guess the last one, you have -- I guess in your Florida market you have HH Greg coming into the market. Does that change, particularly on the retail side, strategically how you go to market there? The mix is (inaudible).

This is our home. It's an extremely competitive market, and we'll see how that unrolls. We do know that they are opening a number of stores, but they really specialize in televisions in other areas where we are a full-service technology with Retail 2.0 and tech benches and service and installation and everything else. So, there's a differentiator.

Thank you.

Thank you.Our next question comes from Anthony Lebiedzinski from Sidoti.

Good afternoon. You guys hired a couple of executives in the logistics of merchandising area last fall. Can you give us an update as to what the observations of those two executives have been? Where do they see the opportunities to improve? Is there any low-hanging fruit that they can start off first? Could you just talk -- if you could just update that on these two individuals, that would be great.

Well, they're listening to the call, so I want to tell them that I love them. (laughter) Seriously, we hired Jay Kent to run logistics and supply chain and Raj Seth to help us with retail merchandising. And it's still very early, but we did open a second distribution center with Jay here, and we're looking forward to lots of improved synergies in both of those areas.

And as far as the store-based, I think you said that you ended the year with 41 stores. What are the plans for the next couple of years in terms of store openings?

This is Richard. We have always said that we're on or opportunistic on our store openings, and we continue to view it that way. So, as we find leases that make sense and areas that make sense for us -- and when I say areas that make sense, right now we're going to be looking at concentrating on building out the markets that we're in. As we look at that and we come across leases that make sense, we will open stores. But we don't really -- really don't come forward with our plans. We just really look at those and try to decide what's the right opportunity.

Okay. And the operating expenses increased a little bit faster rate than the couple-year previous couple of quarters. Was there anything unusual in the quarter here, or is it just a function of the increased store count?

It's really the quarter function of -- we opened a number of stores. I think it was four during the quarter, and there was at love of retail heads that came in opening those stores. And obviously stores, the volume ramps slower than the revenue, and they're also -- the expense of the leases are open on those stores is incremental.

Okay, and in the past, the company has done some share buybacks, special dividends, given your increased cash position. Would you be looking to one of these two or both?

Every quarter, the board discusses what we're going to be doing with our capital structure, and when we come -- when the board has a decision on this, we'll let everybody know.

Okay. And lastly, just a couple of house keeping questions over here. What was your cash from operations during 2010, CapEx also for the year, and also any projections for 2011 CapEx?

Hang on a second, I have to look that up, I've got it right here. For the year, CapEx was about $17 million -- I'm sorry, I'm getting conflicting things. But it's $24 million? Okay. Sorry. And Anthony, what was your second question?

So, cash from operations in 2010 and also, do you have a projection for CapEx in 2011?

Operating cash was about $65 million for the full-year 2010, and then in terms of the CapEx projection for next year, we don't really give one, but we have additional investments that we're making in primarily the IT area for a number of activities, primarily in Europe. So, we'll continue to invest in the business as appropriate.

Okay. Thanks.

Thank you. Our next question comes from Dorsey Gardener from Kelso Management.

Thank you for taking my question. Over the last several years, you've been through an overhaul of the retail stores, and you had to close them down and then reconfigure them and open them up again. Is that process completed? And I guess the second question is, are they making a positive contribution?

Okay. This is Richard. We actually -- we never close the stores. When we acquired the leases, I believe is what you're referring to., when we acquired the leases in the -- at the time that we acquired the CompUSA name and everything, the stores at that point were closed by the previous owner. We took them over, we refurbished them really quick. But we didn't close them, and that was part of -- we just kept acquiring leases at that point. When we acquire a lease, usually, okay, 99.999% of the time, the store is vacant. So, it's not dissimilar to what happens when we take on a new store today.

So, most of those stores that -- well, I can't say -- I should actually say all of those stores that we acquired back then have been redone, reopened. Right now, what we're looking to do is roll out the mobility centers in the stores, and Gilbert talked about what our plans are for that. We're pretty excited about that, because it's not just cell phones that we're looking at mobility for. It's also tablets and all the other devices that go along with mobility. So, that's -- if you have not seen Retail 2.0 in our stores, I suggest that you take a ride over to one of the stores and check it out. It's pretty -- very -- really exciting.

Yes, I have been to the stores. I guess my question was are they producing the way you expected? Are they making a contribution to corporate?

Those original stores that you're talking about, that we acquired in --

Well, all the stores.

Yes, okay. The stores go through some sort of a cycle when they're relatively new. Sales are small and they're growing and then as they mature, the sales become better. Okay? This is very typical of all retailers. Those particular stores that we bought at this point are mature stores and for the most part, we're happy with them.

And as a group, are you happy with the performance ?

Yes. As we said, we had same-store -- we had positive same-store comps, so we're pretty happy.

Well, but I mean, are they as profitable as you expect? I don't know what you expect it, and that's a -- question, are they --

Well, it's -- we're still in a difficult economic environment for consumer electronics. I think you've seen that almost across the channel with everybody. So, am I pleased with our results? I think I said in my speech already that we're not happy with our bottom line performance. We think that we can do better across the board.

Okay. And the tax rate going forward, what do you anticipate the tax rate will be in 2011?

Probably going to be in the same -- mid to high 30s.

Okay. And then going forward as your -- assuming things do pick up and all things are going well and your sales take off, what happens to your working capital requirements? You did a great job of squeezing down your working capital. You opened up a new warehouse, and you increased your sales. And despite that, your working capital -- you increased your -- I guess you decreased your working capital to sales ratio. Can you push that much further, or would company require a lot more working capital going forward? Or, how does the model work from here?

Well, if you look at the Company over a longer period of time, the Company has basically -- its earnings have funded its capital requirements. So, during 2010, with the ramp-up for Q4 and the opening of this large second distribution center in earlier quarters, we built up inventory as one major element of working capital, and we actually were actually had -- were into our credit line a little bit to facilitate that. We did an exceptional job. I think our technology business in particular, in North American in driving down inventory, generated a lot of cash during the fourth quarter, which is something that we see for the most part in the Company's history as the fourth quarter seasonally -- we build up for that in North America. And then we sell through that product, and a lot is consumer, so it's not sold in open account. I think that on a longer-term basis, we have also made a number of acquisitions for cash. There have been a number of special dividends over the last few years for cash. There was a stock buy-back program, and we ended December 2010 with approaching $100 million in the bank. I think the Company overall has done a very good job of generating cash and earnings. And absent some extraordinary, unforeseen event, I think that our capital resources are sufficient to fund the continued expansion of our operations.

Thank you. And I recall -- was it a year ago, you made some opportunistic buys of inventory, and so you ended the year with higher inventories. And so I take it, the lower margins this year are, two things. One is the startup that you had with the stores and the warehouse, but also there were less opportunistic buys of inventory?

I think we've seen that across the business, that one of the effects of the slowdown over the past couple of years has been manufacturers and vendors being more careful, more prudent in how they are rolling out their products, building more to order and less to spec, if you will. So that just, naturally, as it trickles down, there's fewer of those great one-off deals that we've seen historically. We hope to -- we are well positioned to piece of those when they happen. And I do want to clarify one thing on the earlier question, I think Anthony, you mentioned. My badCapEx was really about $24 million because we had some, a lot of equipment bought on capital lease, primarily in that distribution center. But we funded it, really Q2 and Q3 as construction was going and then we did the financing traction in Q4 and collected the cash. So, kind of an unusually high amount of CapEx for us.

Thank you.

Thank you. Our next question comes from Durin Ganaka from Ganaka Capital Management.

Hi, Larry and Richard. This is Graham Tanaka, Takaka Capital. Just one quick thing on accounting. What was the DD&A for the quarter and the year?

Graham, again, what?

Depreciation.

Oh, I'm sorry. Let me just make sure I get this number right. Depreciation and amortization for the full year was about 4 point -- depreciation and amortization, okay. $14.5 million.

$14.5 million, and what could that go to this coming year with the full operation of the DC?

The DC, it's going to grow a little bit with the DC, as well as the amortization of some ITS. I don't have that right now, but I would expect that to grow maybe $2 million.

Okay, not that much, okay, great.

Not a humongous amount.

Great. And then you did a number of things strategically last year. You opened four new stores, you combined the W -- Sorry?

We opened seven stores in the year, four for the quarter.

Oh, seven in the year? Okay. So, what was the short-term effect of startup costs for the stores? I'm just trying to understand what impacted on earnings relative to pure ongoing operations. What were the negative or positive effects that were temporary last year and last quarter?

We've broken out our onetime charges for the quarter related to WStore. We just have historically not broken out those kinds of startup costs for public disclosure. They're embedded in there. There are certainly startup costs for the stores. But we have a worldwide, diversified business. It's a lot of things, a lot of puts and takes in every quarter.

The distribution center assumedly had a fairly large number in terms of startup and duplication costs and that kind of thing. Just trying to get a feel for that.

Well, this is Richard. So, when you start up at DC, especially one of this size. Yes, you're bringing it up and we brought this up right after it started, right at the beginning of the fourth quarter, kind of knowing that we were going to have some redundancies or a fair amount of redundancies. Figure it's going to take us a good part of a year to bring down the overhead at the first DC, and as we bring up the overhead at the second DC, and that's what we're managing through. So, we have some -- we have redundancies in the fourth quarter that cost us; but as we go forward throughout this year, that should get eliminated.

Yes, I'm just trying to get a figure, is it in the millions?

Yes.

And that was for the quarter. So that's -- but an annualized basis is a really large number.

Yes. But as I said, we bring down the headcount in the original DC as we bring up the headcount in the new DC.

Graham, it's not that straightforward. We have -- the Company had one DC for in the tech business in North America for a very long time. It was extremely fully utilized with a lot of multiple shifts, a lot of overtime, a lot of temp workers. The new distribution center that came on was being constructed in Q2 and really Q3. The end of Q3 shipped its first couple of packages and others would be brought up in Q4. The transition from the one to two means you have a shifting of costs one from another.

But it -- and our expectation is that we'll have overall, as we said in the script, a lower overall effect on cost of sales from operating two DCs than one by being closer to most of our retail stores and eliminate -- reducing some of the freight between DC and store. By being -- being able to be closer to more of our web and B-to-B customers because they're nationwide, as well as kind of the shift between temp worker and permanent worker and location. So again, there's a lot of moving parts in this. We expect that really in the second half of '11, that's when we're going to really expect to not being negatively impacted by this really important growth initiative that we've undertaken.

And similarly, the integration of the French operations, what was sort of the drag there last year? And what could be the flip -- flipping that over to positive in 2011? What order of magnitude could that be?

Well, the acquisition in France and a little bit in the UK, we closed on that in September of 2009. And so the biggest part of the business was in France, and we did a lot of integration planning for six to nine months until we have the appropriate approvals, et cetera. And then really in Q3, we were able to start executing in really Q3 and Q4, executing on the integration plan, which meant there were a number of redundancies that were effect (inaudible).

And remember, this was in France. So, it's not like here where we have a shorter period of to do things. There things take a fair amount of time to negotiate with the workers' council and work through these issues. So this is -- it took longer than we would have liked, but I think it's the timeframe that we expected. So, now that we have it behind us, we're seeing the efficiencies of it.

So, the other thing I wanted to focus on is profit margins. You alluded to efforts underway to improvement profitability and the bottom line, and I'm just wondering if you can be more specific. And to help you out, your margins are considerably lower than what they had been in the past. I know you've got some short-term and long-term pressures, and what I'm interested in is when you put the efficiencies of the DC -- the new disty center, and with the benefits and synergies of France -- France's integration, what could your operating margins go to? What do you have as a target relative to the, say, 3% to 3.8% you ran in 2006 to 2008?

Well clearly, and as we said a few times on this call, we're not happy with our operating margins. We would like to get back to our historic high operating margins. We actually would like to exceed those historic margins, and we'll do whatever it takes to do it. We have certain initiatives on the core side that we want to do, we have certain initiatives on the gross margin side that we're doing. We brought on these executives to help us with both of those, and we know we have work to do, and we're not afraid to do it.

And the time frame for achieving, which would, I guess you're implying, you would like to be -- have record operating margins would be when? How many?

Well, speaking as a CEO, I would like to have them yesterday. So, it's our job to put the pressure on them and make sure they get done.

Is this something that's going to require a stronger economy, or are you going to achieve these goals in the kind of economy we have now?

It's -- I don't predict the economy. I don't know what's going to happen with the economy. We just try to keep our head down and do our job. We're not that big in the markets that we serve that we would really be concerned that much in the economy, and we have a lot of opportunity there for us.

And then specifically, the new efforts for mobility centers, tablets and other sort of mixed change this year, would that add to operating margins or detract? Would it build more of the top line or help build the bottom line?

Well, one of the things that we've been missing is having a tablet to sell, or tablets to sell. It's clearly, as netbook sales have shifted from netbooks where we sold very successfully has shifted towards tablet sales. So, we're missing that. So, having tablet to sell is going to help our top line and will help our bottom line as we'll get margins from those.

So, I guess I'll be more specific. Are you expecting that the higher sales in the mobility centers, smartphones, tablets will add to operating margins?

It's just going into the mix. All the things that we do, we expect to increase sales and profits.

So, they may not increase the percentage. I'm just wondering -- I'm trying to help you out here as to how you're going to achieve 3% or plus operating margins.

We're going to achieve it through increased sales, controlling our costs, and that's really -- that's all I can say. But I would like to thank you everybody today for joining us on our conference call, and we look forward to speaking to everybody after next quarter. Thank you.

Ladies and gentlemen, thank you for participating in today's conference. This concludes our program for today. You may all disconnect and have a wonderful day.