Lifetime Brands Inc (LCUT) 2006 Q2 法說會逐字稿

Welcome to the Lifetime Brands second-quarter 2006 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded August 3, 2006.

I would now like to turn the call over to Ms. Harriet Fried. Please go ahead, ma'am.

Thank you, Operator. Good morning everyone and thank you for joining Lifetime Brands second-quarter 2006 conference call. With us today from management are Jeffrey Siegel, Chairman, President and Chief Executive Officer; and Robert McNally, Chief Financial Officer.

Before we begin, I will read the Safe Harbor statement under the Private Securities Litigation Reform Act of 1995. The statements that are about to be made in this conference call that are not historical facts are forward-looking statements and involve risks and uncertainties, including but not limited to product demand and market acceptance risks; the effects of economic conditions; the impact of competitive products and pricing; product developments; commercialization; technological difficulties; capacity constraints or difficulties; the results of financing efforts; the effects of the Company's accounting policies and other details contained in its filings with the SEC. The Company undertakes no obligation to update these forward-looking statements.

With that introduction, I will turn the call over to Jeff Siegel. Go ahead please, Jeff.

Thank you, Harriet. Good morning, everyone. As detailed in this morning's press release, Lifetime's results for the first six months of 2006 have been very much on plan. We've said a number of times that our recent acquisitions have changed our models to much more of a back-half story. So even with the $0.11 loss reported for this quarter, we are reaffirming our guidance of earnings between $1.50 and $1.70 a share for 2006.

I would like to begin our call today by giving you an update on Lifetime's strategy and direction, after which Bob will take you through the numbers. As those of you who have been following us know, our focus over the past several years has been on making Lifetime Brands the number one or number two designer and marketer in every US housewares category in which we compete. To accomplish that goal, we've been assembling a portfolio of premier national brands that are known for their high quality and innovative design.

Since we are in an industry that continues to be in a period of intense consolidation, another of our key strategies is to acquire businesses that complement our current offerings and to integrate them quickly. The last year alone, we acquired the Pfaltzgraff Company, Syratech Corporation and certain tabletop assets of Salton Incorporated.

In the process, we have greatly expanded the markets in which Lifetime competes as well as our brand portfolio. Our markets now include the $9.1 billion food prep market, the $4.5 billion tabletop market and the $6.5 billion home decor and picture frame market. With the acquisition of Pfaltzgraff, we also greatly enlarged our direct-to-consumer segment.

With that background in mind, I would like to reiterate that our results to date in 2006 are consistent with our plan and we are on track to have another excellent year. Looking first at our wholesale business, all of Lifetime's major product categories performed as expected. In particular, our kitchenware category did spectacularly well with sales increasing by more than 30% in the first two quarters.

Both our KitchenAid and Farberware-branded products performed exceedingly well as a result of expanded assortments and increased distribution in key retailers. I'm happy to report that our line of KitchenAid sinkware we launched late last year has been just as successful as we anticipated. And like all the other products we've developed for this great brand is making significant contribution to Lifetime's sales growth.

As I mentioned on a previous conference call, Lifetime approaches sales in a manner that is quite unique in our industry. Every one of the major retailers we do business with is covered by a team instead of an individual salesperson. Members of the team include experts in each of our businesses plus marketing specialists and business analysts to ensure that we're doing everything possible to help both the retailer and ourselves increase sales and profitability.

On a quarterly basis, these teams make presentations to our management of what we call our strategic account meetings. These meetings were held all of last week, where we focused our attention on an in-depth analysis of our 37 largest accounts. What we do is we look at how the accounts have performed to date and where they are going to be for the rest of the year. So you can better understand how we performed with those accounts through the first half of this year and where we expect to be by the end of the year, I will share the following statistics with you.

For the first six months, we had positive increases in sales in 33 of our top 37 accounts and decreases in only 4 accounts, none of which were in the top 15. What is just as important, of the 33 accounts where we had increases, all but one were double-digit increases. For the full year of 2006, we are anticipating increases in 36 out of 37 of the most important accounts for the Company based on current retail sales, rates of sales and sales trends.

Turning to our direct-to-consumer business, which we expect will equal slightly less than 20% of our annual sales this year, performance for the first six months has been just about as expected. The fixed SG&A of running that business produces losses in the first half of the year due to the lower sales generated in that time period. We've been focused on positioning ourselves for the second half of the year, which as you know, is by far the most important selling season for this segment. Since acquiring the Pfaltzgraff business in July 2005, we've closed a large number of underperforming stores in order to direct our efforts to those stores that are better positioned.

There were several other important developments in the second quarter that I would like to mention. First, we closed our acquisition of Syratech in late April and recently completed the process of integrating our overseas offices. Lifetime previously had two offices in China and Syratech had four. We successfully consolidated those six offices into four that are strategically located to enhance our ability to develop new sources to continually lower the labor cost of producing our products, which in turn helps offset the increases in raw materials. In total, we now have a staff of over 150 people in China, who are developing and training promising new sources capable of producing our increasing number of products.

The integration of Syratech has proceeded smoothly in other areas as well. We have not yet integrated information technology or distribution, which we expect to do in the second quarter of 2007. With our recent acquisitions, we have three warehouses within 15 minutes of each other in California. There is potential for significant savings when we are able to consolidate into one facility.

As we mentioned in this morning's press release, we were also very pleased with the success of our $75 million convertible note offering which closed in late June. The strong demand for the securities demonstrates the confidence the investment community has in Lifetime's long-term business prospects.

We used the net proceeds from the private placement to repay indebtedness outstanding under our existing credit facility. We are now in a very favorable position to continue our acquisition strategy as appropriate opportunities develop. The interest on the notes is fixed at 4.75% for the life of the notes, thereby insulating us from any unfavorable rate swings on that portion of our capitalization.

Finally, as we look at Lifetime's prospects for the remainder of 2006, I would like to emphasize that the response of retailers to our product offerings has been excellent. Although there has been much speculation in the media about a possible pullback in consumer spending, the data we received from those major retailers that share point-of-sale information with us has shown no lessening in consumer demand for our products. We've noticed no decreases in orders, and our shipments to customers continues to be very strong.

There's also been much talk about increases in the prices of raw materials and the resulting impact on gross margins. While we are obviously not immune to increases in the price of basic commodities, our product development team is experienced in redesigning products to reduce or eliminate materials whose prices have surged and where possible you use substitute components. Where price increases are unavoidable, our designers add features that provide consumers with equal or greater value for every dollar they spend.

With that overview of the quarter and recent events, I will turn the call over to Bob McNally to run through our numbers with you, Bob?

Thank you, Jeff. Net sales through the second quarter of 2006 were $84.1 million, which is 82.1% higher than 2005 second-quarter sales of $46.2 million. Net loss was approximately $1.5 million or $0.11 per diluted share for this year's second quarter compared to net income of $1.3 million or $0.12 per diluted share recorded for the second quarter of 2005.

These results reflect the net impact of continued double-digit organic sales growth and improved profitability of our food prep wholesale business plus the added sales volume for the Pfaltzgraff and Salton businesses that we acquired in the third quarter of 2005 and the Syratech business acquired in April of 2006. As we have previously disclosed, these acquisitions altered the seasonality of the Company's business by heavily weighting Lifetime's sales and operating profits through the second half of the year, resulting in negative quarter-to-quarter comparisons with the first two quarters of 2006.

In addition, our second-quarter 2006 loss per share included a loss of approximately $0.02 per diluted share from stock option exercise -- or expense; excuse me. The $37.9 million increase in net sales for the 2006 quarter included approximately $33.8 million of combined sales to the Pfaltzgraff, Salton and Syratech businesses. Excluding the sales attributable to these acquired businesses, net sales totaled $50.3 million compared to 2005's quarter sales of $46.2 million.

Breaking this down into our segments, in our wholesale segment, the Company's total sales were $68.7 million for the second quarter of 2006 and that's 61.8% higher than wholesale sales for the 2005 period. Excluding sales for Pfaltzgraff, Salton and Syratech, wholesale sales were $47.3 million or 11.3% higher in the 2006 period. This sales increase was primarily attributable to significantly higher sales of KitchenAid and Farberware-branded kitchen tools and gadgets.

Our direct-to-consumer sales including the Pfaltzgraff Outlet stores, Internet and catalog operations plus our Farberware Outlet stores were $15.3 million for the 2006 quarter compared to $3.7 million for the 2005 quarter. Sales for the Pfaltzgraff direct-to-consumer business acquired in July 2005 accounted for $12.4 million of sales in the quarter.

Cost of sales for the three months ended June 30, 2006 was $47.8 million, and that is a 77.4% increase over cost of sales of $27 million for the comparable 2005 period. Cost of sales as a percentage of sales for the wholesale segment increased to 60.7% in the 2006 quarter compared to 59.6% for the 2005 quarter. The lower gross profit margin was primarily attributable to the impact of the Syratech business acquired in April 2006 as these products generally have lower margins than the Company's other major product categories.

In our direct-to-consumer segment, cost of sales as a percentage of sales improved to 39.8% in the 2006 quarter compared to 44.4% in the 2005 quarter due primarily to higher gross profit margins earned in the Pfaltzgraff catalog and Internet businesses that were part of the July 2005 acquisition.

Distribution expenses were approximately $11.3 million in the second quarter of 2006, and that compares to approximately $5.8 million of expense in the second quarter of 2005. In our wholesale segment, distribution expenses as a percentage of net sales improved to 13.1% in the 2006 quarter compared to 13.5% in the 2005 quarter. This improved relationship primarily reflects the continuing benefits of labor savings and efficiencies that are generated by our main distribution center in Robbinsville, New Jersey. The distribution expenses for operating the Pfaltzgraff direct-to-consumer business was approximately $2.2 million for the 2006 period.

Selling, general and administrative expenses for the three months ended June 30, 2006 were $26.5 million, and that is an increase of $15.6 million over the $10.9 million of expenses for the comparable 2005 period. In our wholesale segment, SG&A expenses were $14.7 million in the second quarter of '06, and that's $8 million higher than the 2005 quarter and as a percentage of net sales was 21.5% in the 2006 quarter compared to 15.8% in the 2005 quarter.

The $8 million of expense increase primarily reflects the personnel-related costs and establishing the internal infrastructure to support future growth of our recently-acquired businesses, Pfaltzgraff, Salton and Syratech, and to a lesser extent the higher selling costs associated with increased sales volume.

SG&A expenses in our direct-to-consumer segment were $9.8 million in the 2006 period, $7.3 million increase over the 2005 quarter and as a percentage of net sales was lower at 63.7% in the second quarter of 2006 compared to 66.4% in the 2005 period. The percentage improvement in the 2006 quarter reflects the benefit of having a larger direct-to-consumer business that includes outlet stores, catalog and Internet operations managed by one centralized organization that in large part came with the Pfaltzgraff acquisition. Our loss from operations for the quarter ended June 30, 2006 was $1.6 million compared to income from operations for the 2005 quarter of $2.4 million.

The Company measures operating income by segment, but we also exclude certain unallocated corporate expenses. Unallocated corporate expenses were $2 million in the 2006 quarter, and that does include stock option expense of approximately $330,000. That compares to $1.8 million of such expenses in the 2005 quarter.

Income from operations for our wholesale segment was $3.2 million in the second quarter of 2006 compared to $4.7 million in the 2005 quarter and as a percentage of net sales was 4.7% in the 2006 period compared to 11% in the 2005 period.

The lower operating income and lower operating profit margin were attributable to the expected operating losses generated by the Pfaltzgraff, Salton and Syratech businesses that were acquired during the past year. The operating losses for these acquired businesses reflect the seasonality aspects of the businesses and are consistent with our annual plans, which do include an overall positive contribution to operating profits for the full year.

As we have previously announced and consistent with our plans, our direct-to-consumer business segment had an operating loss of approximately $2.8 million in the second quarter of 2006 compared to a loss of $500,000 in the 2005 quarter. Sales in the direct-to-consumer business, as Jeff mentioned already, are heavily weighted to the latter part of the year, while the operating expenses are largely fixed throughout the year. And this results in operating losses being incurred in the first half of the year.

Recapping our year-to-date results, net sales for the six months ended June 30, 2006 totaled $158.5 million compared to $89.3 million for the same period in 2005 and that represents a 77.5% increase. Excluding approximately $53 million in net sales attributable to the Syratech, Pfaltzgraff and Salton businesses and the net sales for the 2005 period of the closed Farberware Outlet stores, net sales for the six months of 2006 increased 19.9% to $105.5 million. Net loss for the 2006 period was $600,000 or $0.05 per diluted share compared to net income of $2.3 million or $0.21 per diluted share for the first half of 2005.

If we now shift our focus to the balance sheet, at June 30, our financial condition remains very strong with approximately $152 million in stockholders' equity. Accounts receivable at June 30, 2006 was approximately $37.4 million; that's $13 million higher than at June 30, 2005. This increase is commensurate with the increase in sales we recorded for the quarter, included the added volume from the acquired businesses of Pfaltzgraff, Salton, and Syratech.

Our inventories at June 30, 2006 were approximately $137 million, and that is $69.6 million higher than a year ago. The higher inventory levels primarily reflect the $66 million of added inventory for the Pfaltzgraff and Salton and Syratech businesses.

Property, plant and equipment net at June 30, 2006 was $33.8 million compared to $21.1 million a year ago. The increase again was primarily related to property and equipment that was acquired with the Pfaltzgraff and Syratech acquisitions.

Capital spending during the first half of 2006 was approximately $3.9 million, while depreciation expense was approximately $3.1 million. In June 2006, the Company issued $75 million of 4.75% convertible senior notes due 2011. The proceeds from this issuance were used to pay down borrowings under our $100 million credit facility. In addition to providing the Company with borrowing capacity under the credit facility, the fund's strategic growth initiatives, the issuance of the convertible notes enabled us to lock in favorable long-term interest rates.

Borrowings under our $100 million secured facility at June 30, 2006 were $12.7 million, of which $7.7 million were short-term borrowings and $5 million is a long-term loan due in August 2009. This leaves us with approximately $87 million in borrowing capacity under our credit facility. Total borrowings at June 30, 2006 were therefore $87.7 million, including the $75 million of outstanding convertible senior notes. And that compares to $26.3 million of debt outstanding at June 30, 2005.

The $61.4 million increase in borrowings primarily reflect the net effect of three things -- $91 million -- $91.7 million of additional borrowings that were used to fund the acquisitions of Pfaltzgraff, Salton and Syratech, offset by the paydown of debt using the $35 million of proceeds from the Company's sale of 1.7 million shares of stock in November 2005 and additional borrowings to fund operations and working capital.

As we noted in our press release this morning, our year-to-date results are consistent with our plans for 2006. And we are reaffirming our annual sales and earnings guidance for 2006, which calls for total sales to range between $480 million and $500 million and earnings per share to total between $1.50 and $1.70.

I think now I would like to open the call to questions.

(Operator Instructions). Gary Giblen, Brean Murray, Carret.

Can you update us on wherever in terms of a time frame for that to be resolved and whether other bidders seem to be emerging?

We haven't been told of any other bidders at this point. So we're supposed to find out by the end of the day today if there are other bidders. The sale will be finalized -- I guess the auction process will be finalized on the 7th, which is Monday. That's when we will know. That is about it. So, that is all we can update you right now.

Then, are you seeing much influence on your sales from the Federated conversion of May into Macy's at this point or is it too early and incomplete in the conversion this year?

They finalized plans with us for the fall, so we know where we stand. We are very satisfied with what we have.

Then, the organic growth rate for the quarter seems to be 11.7% and that's less than the 20% plus that you were achieving before. So, was that -- is it going to look more like the 10 to 15 going forward or is 20% plus still a possible number?

Yes, we tend to look at the first and second quarter combined. And as I noted in summarizing the six months' results, our organic growth for the first six months is 19.9%. That is very consistent with our plans and consistent with our expectations for the rest of the year as well.

Yes, no, that makes a lot of sense.

We've said once -- many times in the past the Q1 and Q2, you can get swings between the two quarters. And we would rather not focus on individually the first or second-quarter comparisons.

The SG&A went up a lot, and you explained why. But are there any non-recurring elements of that that might have to do with acquisition/integration with Syratech or things like that?

Well, sure. It includes some at Syratech since it was only acquired -- Syratech got acquired late in April. So, we -- you know there are certain synergistic cost savings that haven't been put in there. But I think in large part, it reflects the Company's philosophy of having the internal infrastructure in place for the future growth of the businesses we acquire. And that tends to put SG&A ahead of the sales growth. And that is what has really impacted that SG&A spending.

Of that increase, is there as much as $1 million of expense that won't continue or less than that?

I would not want to respond to that right now. There is some; $1 million might be high. But I don't frankly have my notes in front of me about how much we expect to save going forward or how much we saved in the second quarter.

Then the last one is, what is your latest thinking on interest expense for the year? It seems to change a bit with each quarter.

The end -- I will break it down. Well, actually, it's interest expense on our credit facility as well as the interest on our notes, which in total we are expecting to be somewhere around $3.7 million, $3.8 million for the year.

Good quarter.

Steve Colbert, Canaccord Adams.

You discussed this a bit in your comments. But looking at the general health of the consumer and the potential impact to your business, how resilient do you feel that your business is to a slowdown, given that obviously some others out there are seeing some weakness and it doesn't look like you are seeing that yet, sell through or otherwise.

As I mentioned, there's a lot in the press about it obviously and it's certainly something that we watch very, very carefully to see if there's any slowdown. But as early as yesterday, I got from one of our biggest accounts their -- we get a weekly analysis of point-to-sale selling, and we had in that particular account a 16% increase for the week. So, it's not -- we're not seeing any of it yet. I can't say what's going to happen in the future, but it certainly doesn't look like we're having any problem with our product lines. We don't sell very expensive products as you know.

Then looking at the back half of the year, obviously the tabletop category, it's important here. Any updates on placements with Pfaltzgraff or where you see the most opportunity in tabletop going forward even?

We are definitely increasing placement of Pfaltzgraff as well as our other major brands of dinnerware and other lines. We introduced a line of the Sasaki brand that's getting terrific placement for the fall and as well as the Pfaltzgraff line. So, we are definitely getting more placement of the lines.

As you said, it's definitely a fall business. The tabletop business in general with not only the dinnerware business -- the dinnerware business, the glassware business, and the flatware business are very fall oriented. That are combined with the increased emphasis that we have on direct-to-consumer business; that's what's changed our model.

Then, I may have missed this and I apologize if I did. But can you give me your thoughts with distribution expense going forward? I know we're thinking it would trend down a bit. Yet, it was a little bit higher than I had anticipated.

Right now, as I said before and that's only one example, we have three warehouses within 15 minutes of each other in California. We are in the process of rationalizing that, and we hope to have that all finished by the second quarter of next year where we can get savings. That's not the only example. There are a number of them.

As Bob said, we continued to get leverage from our Robbinsdale facility where we made a big investment, and that continues -- we get leverage every year on that out of that facility. But the other facilities we now have to get them up to speed so that we can go forward with them the same way. We need to get our distribution expense down. We believe there's tremendous potential for savings for the Company by doing that.

That would be most likely a next year event after you kind of study the possibilities?

Yes. Yes, that's going to be a next year event, not this year.

(Operator Instructions). David Cohen, Midwood.

This is more of a general question. Given the changes to your business from a seasonality perspective, from a category perspective, product mix, you mentioned how Syratech categories tend to have a lower margin. If you look out once over -- I don't know -- the next couple years, what is your -- what are your economics -- what economics are you targeting -- gross margin, operating margin, wholesale, direct-to-consumer? Has that changed much? Has that changed enough to be noteworthy given the latest acquisition?

I don't know. Bob, you want to answer that?

No, I think we've always said the -- our operating profit margin target for wholesale business fully loaded is around 15 or 16%. That continues to be our target. Whereas the direct-to-consumer business with its aspects, we look for about a 10% operating profit margin.

This is not EBITDA but operating profit?

That's correct.

I guess what or how do you get to these levels because we're obviously not within spitting distance of these levels of profitability? How much is relying on cost cuts or are we just sort of talking about operating leverage from growth? How do we get there?

How do you think it's operating leverage from growth? There always is some cost cuts when you buy a new business, but we've got businesses that for one reason or another weren't doing really well and we put the infrastructure in to make it grow. But it's going to take a few years to grow it to where we get the 15% operating profit margin. So it's leverage.

Given your 2006 guidance, how much of that revenue contribution comes from the acquired businesses this year would you say?

I think you could possibly do the math yourself if you took our historic business and layered on the 20% growth on historic business, the rest of it would basically be the acquired acquisitions.

Gary Giblen, Brean Murray, Carret.

If you should successfully complete the acquisition of WearEver, about when would there be either filings that show their income statement or some statement by you guys about the degree of accretion that it would contribute?

Well, I think the closing date is tentatively August 18 -- I am sorry -- August 10. So directly after that, we would -- making a statement.

Okay so three months I guess then. Good. Then I was wondering has the trade response to your lowered pricing on Pfaltzgraff been fully up to expectations? And is it catching on with even more awareness? In other words, are you getting more and more of a sales lift as the months ago by?

Well as far as the sales lift, no, that will take place more in the fall. But the -- there is certainly an appreciation of the correct pricing. It's lowered pricing but it's really getting -- got it where it should be. And more than that though, it's really to the increased product offerings that are under that brand that's really going to be more of a driver than anything else.

Then you also with some of the Syratech brands, like in the silver side of your changing from more or less than always on sale, high/low concept to everyday fair price, and so has that -- that getting a certain response from the trade or--?

That will happen much later in the year, so we won't know. That will be much later.

Just on Syratech, I mean now that you've had it for a little longer, I mean are there additional procurement? I mean I know they are pretty good in procurement to begin with, but are there some additional procurement opportunities that you have found them now?

No. I think their sourcing abilities were very good. We never expected to improve that frankly. But what we're doing is we are reinforcing their infrastructure so that they can develop categories. There are many categories within that business and subcategories that have not really been developed. And we are reinforcing the infrastructure, so they can develop those categories and helping them increase their product development dramatically.

What kind of license revenues might we see from the Catalina Lighting? And some investors have said, gee, that's getting a little far a field from tabletop and kitchenware. So how do you--?

We don't know how much that will be. We don't anticipate it to be very, very large. That's for sure. It certainly goes well with it frankly because if you saw the products that they are offering, they're ceramic lamps. And it certainly is appropriate for the Pfaltzgraff brand and really oriented towards the demographics of a Pfaltzgraff consumer.

So, as far as we're concerned, it is a plus for the brand. We don't anticipate at this point to have very, very large revenue from this though.

Daniel Fu, Citigroup.

This is Daniel in for Greg Badishkanian. I'm just wondering what is the tax rate. Is there any tax rate update for '06?

We're using an effective rate of 38.5%

And also, would you be able to speak on the last 12 months sales of the WearEver acquisition?

I'm sorry. Could you say that again?

The last 12 months sales for WearEver?

I don't believe we have put that information out. We will after -- if we are successful in the auction getting WearEver, then we will put the information out.

For any other acquisitions that you might make, can you speak on what segment you might be looking into, like tabletop, and also what type of multiple you guys would be willing to pay?

We're kind of hardnosed on the multiples. So I'm not going to get into that because most of the businesses that we have acquired have been troubled businesses that you can't really apply a multiple to. We just look at what the outlook would be and then what we could do with the businesses.

I can't say where they will be. They will certainly be within the home in areas that we have expertise. They might be companies that are bolt-ons or complements to divisions that we already have, and they might be extensions into niches of business that we are not in. There are 2000 companies in the housewares industry, and I don't know which ones are going to be available for us to acquire. So I can't make that comment -- can't comment on it.

[Scott Kajinski], [Schwartz Investment Company].

(technical difficulty) here. Jeff, I had a question relative to the stock price. I know you can't control the stock price and I know your focus is on producing operating earnings over the long-term which is appropriate. I applaud you for that. But in view of the price action and the stock since the convertible financing, are you still glad you did that financing?

Well, we believe we did the right thing. Okay? We really do believe we did the right thing. And we did the right thing for the Company both for the short-term and long-term as far as the Company. As I said we believe we did the right thing.

I don't know if you can attribute the actions solely -- the price action of the stock solely on that. I don't think anyone can really tell us that. But again, we believe we did the right thing for the Company. We've insulated us against possible increases or spikes in interest rates, and we positioned ourselves really to go forward and to really make this Company grow.

Rick Fetterman, Fetterman Investment.

I would like to circle back to the SG&A for just a minute. I understood the comments you made earlier. Would you -- would it be fair to say that with the significant majority of the revenues coming in the second half of the year that the SG&A as a percent of sales would get back down to the 23, 24% range?

Yes, we actually do expect that. Because as we said, the back end of the year is where the lion's share of the sales come in. And it's more accentuated in the businesses that we have acquired, which does include the direct-to-consumer business, which again has a tremendous spike-up in revenue in Q4.

David Cohen, Midwood.

My questions actually have been answered.

At this time, there are no further questions. Please proceed with your presentation or any closing remark.

Thanks again everyone for joining us this morning. I hope I've given you a sense of the confidence we have in our strategy and our performance in 2006. We like the way in which Lifetime is positioned and feel good about the Company's future. I look forward to bringing you an update on our next conference call of the activities for the third quarter. Thank you.

Ladies and gentlemen, that concludes our conference call for today. We thank you for your participation and ask that you please disconnect your line.