禮恩派 (LEG) 2012 Q2 法說會逐字稿

Greetings and welcome to the Leggett & Platt second quarter 2012 earnings conference call. At this time, all participants in a listen-only mode. A question-and-answer session will follow the formal presentation. (Operator instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, David DeSonier, Senior Vice President, Strategy and Investor Relations for Leggett & Platt Inc. Thank you, Mr. DeSonier, you may begin.

Good morning and thank you for taking part in Leggett & Platt's second quarter conference call. With me this morning are the following -- Dave Haffner, our CEO and President; Karl Glassman, our Chief Operating Officer; Matt Flanigan, our CFO; and Susan McCoy, our staff VP of Investor Relations.

The agenda for the call this morning is as follows. Dave will start with a summary of the major statements we made in yesterday's press release. Karl will provide operating highlights. Dave will then address our full-year outlook, and finally the group will answer any questions you have.

This conference is being recorded for Leggett & Platt and is copyrighted material. This call may not be transcribed, recorded or broadcast without our express permission. A replay is available from the IR portion of Leggett's website.

We posted to the IR portion of the website a set of PowerPoint slides that contains summary financial information. Those slides supplement the information we discuss on this call, including non-GAAP reconciliations. I need to remind you that remarks today concerning future expectations, events, objectives, strategies, trends or results constitute forward-looking statements. Actual results or events may differ materially due to a number of risks and uncertainties, and the Company undertakes no obligation to update or revise these statements. For a summary of these risk factors and additional information, please refer to yesterday's press release and the section in our 10-K entitled forward-looking statements.

I will now turn the call over to Dave Haffner.

Thank you, Dave. Good morning and thank you all for participating in our call. We are pleased with the second-quarter earnings and margin improvement we reported yesterday. Earnings per share for the quarter were $0.45 compared to $0.37 during the second quarter of last year. Second quarter 2012 earnings include a $0.04 per share unusual tax benefit and a $0.02 per share benefit in discontinued operations from a litigation settlement associated with a previously divested business. Second quarter of last year earnings included $0.02 per share unusual tax benefit.

Second-quarter same location sales were down 2% from the prior year, primarily due to lower trade sales from our rod mill, currency rates and lower Store Fixtures sales, a portion of which was volume we chose to exit. Apart from these three factors, same location sales increased 2%. Unit volumes were flat to positive across the majority of the Company, and the strongest growth continuing -- with the strongest growth continuing to come from our Automotive and Adjustable Bed businesses.

EBIT increased and EBIT margins improved both year-over-year and sequentially to 9.2% during the quarter. Earnings are benefiting, as expected, from higher unit volumes and the cost savings associated with restructuring activities we initiated in late 2011. In addition, the Western Pneumatic Tube acquisition that we completed in January is exceeding our expectation for strong operating performance. We are very pleased with the return we are generating on this investment.

Reflecting our broad focus on returns, we ended the quarter with working capital at 12% of annualized sales. Current liabilities include $41 million associated with an interest rate swap that we entered in 2010. Excluding this item, working capital was 13.1% of annualized sales, well below our 15% target.

Cash from operations was strong during the quarter at $81 million. We expect operating cash for the full year of approximately $350 million, which should once again comfortably exceed the amount required to fund capital expenditures and dividends. Capital expenditures should be approximately $90 million this year and dividends should require about $160 million.

We continue to maintain our strong financial base and ended the second quarter with net debt at 33% of net capital, which is within our long-term target range of 30% to 40%. In May, we declared a quarterly dividend of $0.28 per share. 2012 marks the 41st consecutive annual dividend increase for the Company, a record we plan to extend. At yesterday's closing price of $22.49, the current dividend yield is 5%.

Leggett possesses the highest dividend yield among all of the S&P 500 Dividend Aristocrats that have over 30 consecutive annual dividend increases.

Given the cash outlay earlier in the year to acquire Western Pneumatic Tube, we did not complete any open market purchases of our stock during the second quarter. However, consistent with our stated priorities for the use of excess cash flow, we expect eventually to resume buying back our stock subject to the outlook for the economy, our level of cash generation and other potential opportunities to strategically grow the Company. We have a standing authorization from the Board to repurchase up to 10 million shares each year but have established no specific repurchase committed or timetable.

We assess our overall performance by comparing our total shareholder return to that of peer companies on a rolling three-year basis. Our target is to achieve TSR in the top one third of the S&P 500 over the long-term, which we believe will require an average TSR of 12% to 15% per year. For the three-year period that began January 1, 2010, we have so far generated TSR of 8% per year on average or slightly below the midpoint of S&P 500 companies over that same time period.

With those comments, I'll turn the call over now to Karl Glassman, who will provide some operating highlights.

Thank you, Dave, good morning. In my comments, I'll discuss a few segment highlights. You'll find segment details in yesterday's press release and in the slide presentation on our website.

Second-quarter same location sales in the Residential Furnishings segment increased 1% with unit volume growth partially offset by the impact of currency exchange rates. In our US Spring business, innerspring unit volumes increased 2% and box spring units were down 3%. Innerspring units in Europe also increased 2%, which is notable in this current economic environment.

In our Furniture Hardware business, unit volume was flat with the prior year. Again this quarter, we had significant growth in Adjustable Beds with unit shipments up 20%. EBIT and EBIT margins in the segment decreased slightly versus the second quarter last year. The earnings benefit from slightly higher unit volumes in the current quarter was more than offset by weaker mix in certain businesses.

In the Commercial Fixturing and Components segment, second quarter same location sales decreased 10% due to lower spending by key fixture and display customers and our decision to exit certain programs formerly supplied by operations we have closed or consolidated. Sales in Office Furniture components were flat during the quarter, which we believe is roughly in line with the overall market for office seating. EBIT and EBIT margins in the segment decreased versus second quarter of 2011, primarily from lower sales, higher restructuring-related costs and absence of earnings from the UK-based Point of Purchase business we divested in January. These impacts were partially offset by restructuring-related benefits and better overhead absorption associated with increased production for a major program that will shift in the third quarter.

The seasonality of our Store Fixtures business this year is expected to be consistent with the long-term historical pattern in which third quarter is the sales peak, primarily due to a major initiative by one of our large retail customers. We anticipate an improvement in segment results in the third quarter as a result of this additional volume.

In the Industrial Materials segment, second-quarter same location sales decreased 5%, primarily due to lower trade sales from our rod mill partially offset by increased unit volumes in both drawn wire and Steel Tubing. The decrease in Steel Rod sales resulted from an equipment changeover at the rod mill, which was an investment in process and quality improvement. The installation of the new equipment occurred late in the first quarter and production did not return to normal levels until early May. EBIT and EBIT margins for the segment increased in the quarter. Earnings benefits from the Western Pneumatic Tube acquisition and the plant consolidations announced in late 2011 contributed to the improvement.

As Dave mentioned earlier, the Western Pneumatic Tube acquisition, which resides in the Industrial Materials segment, is exceeding our performance expectations. We continue to expect this business to produce full-year 2012 margins greater than the Company average.

In the Specialized Products segment, second-quarter same location sales increased 5% with unit volume growth partially offset by the impact of currency exchange rates. The increase in unit volumes resulted entirely from growth in Automotive. Commercial Vehicle Products sales were roughly flat and Machinery sales were down compared to the second quarter of last year. EBIT and EBIT margins increased during the quarter, largely due to higher sales. Automotive industry forecasts anticipate continued growth in global production in 2012, but the outlook varies by geography. North America and Asia are both expected to have meaningful production growth but European industry forecasts are negative as economic concerns linger. Despite the macro issues and currency headwinds, our Automotive sales in Europe are roughly flat -- were roughly flat during the second quarter and were up slightly for the first six months of the year.

With those comments I'll turn the call back over to Dave.

Thanks, Karl. As we announce yesterday, we increased our full-year guidance to reflect the positive effect of second quarter's unusual items and improved margins. We now expect full-year 2012 EPS of between $1.35 and $1.50 per share, up from our previous $1.25 to $1.45 per share estimate on sales of $3.65 billion to $3.8 billion.

We began the year with an appropriately cautious view of the macro environment, especially given election year uncertainties, with EPS guidance of $1.20 to $1.40 per share. We have now raised our full-year estimate following both the first and second quarters, given solid first-half performance. In each of the prior two years, after the second quarter, we were beginning to feel a contraction in our markets and in each case reduced our full-year guidance. That pattern does not seem to be repeating this year. Still, we are maintaining a degree of caution at the low end of our guidance in the event that we were to experience a minor macro pullback.

Lastly, I'd like to say, since we know that many of our employee shareholders are listening to our conference today, we want to thank them for their past and continued efforts, which have contributed to Leggett's improved execution and performance.

With those comments I'll turn the call back over to David DeSonier.

That concludes our prepared remarks. We thank you for your attention and we will be glad to answer any questions. In order to allow everyone an opportunity to participate, we request that you ask your single best question and then voluntarily yield to the next participant. If you have additional questions, please reenter the queue, and we will answer all the questions that you have. Claudia, we are ready to begin the Q&A.

(Operator instructions) David MacGregor, Longbow Research.

On the residential business, Karl, you flagged the European spring units up 2%, and so that caught my attention as well. I wonder if you could just dig in with a little more detail on that. How does that compare to the overall market? Any detail that you can provide there will be helpful.

David, we are appreciative of the fact that European spring continues to hold strong. We are dealing with somewhat of a negative mix in that it feels like that the consumer in Europe is downgrading a little bit, that we felt kind of a margin contraction from the mix from a pocketed coils to more Bonnells. But we are fortunate in that we are heavy weighted in Europe to the Scandinavians -- countries, northern Europe and the UK that have lesser exposure to the southern European countries. So things are really proceeding well. We are also benefiting from the de-verticalization of a UK manufacturer earlier this year as part of the Silent Night business. So that business is good business.

So all things said and done, while the margins have been slightly negatively impacted, things are proceeding well in Europe. And as I noted in my comments, we're experiencing the same from an automotive perspective. Europe has not been a negative issue for Leggett up to this point.

Is that sustainable through the second half?

We believe so. As we talk to our customers -- Europe is always a little bit of challenge in the third quarter with most of the continent being on holiday; it shifts a month at a time country by country. But that's a typical year-on-year comp, so we really continue to feel pretty bullish.

And Europe's automotive build forecast for 2012 is still 19 million units.

And it was actually -- the most recent forecast was just released yesterday, and the European auto production estimation was increased slightly.

Thanks very much.

John Baugh, Stifel Nicolaus.

Good morning and congrats on that working capital number. I can't remember the ratio being that low. I do remember when it was 20% plus, so kudos to that.

I wanted to focus, I guess, on bedding and furniture; let's talk US. It would appear to be in bedding, we've got high-end springs under some pressure -- maybe not -- but certainly middle-end shifting down, strength in units at lower-end. Where are hybrids? Are they helping yet? Pocketed coils is getting a lot of attention. Is that helping, or are we still looking at a negative mix issue within Leggett on innersprings? And then on residential furniture, just relating somehow the flat unit numbers year-over-year to what you think your customer is doing and any issues with foreign competition there. Thank you.

Thanks for opening the door for a conversation on US Spring. The news there is very, very positive, that we are seeing significant positive impact from the launch of the hybrid product lines. Comfort Core, which is our pocketed coil offering, is the fastest growing part of US Spring with units up 20%, significantly higher average unit selling prices, improved margins associated with that, great overhead recovery in our facilities as we continue to work hard to keep up with that demand. So there is -- while we may comment of a negative mix shift in the macro residential, US Spring is not impacted to any degree from an innerspring perspective. It is impacted from a box spring perspective.

You are right about the bifurcation of the market. I do not think that high-end innerspring has been negatively impacted. If you will go back to the Sealy conference call, they commented that Stearns is growing. We see that; we see that in our other customers with competitive offerings. High-end innerspring is doing extremely well, and we are very, very bullish and will continue to invest capital to support that growth.

The middle market of the bedding industry is under pressure. The low end, the more promotional or somewhat, say, nonbranded business has been very, very strong. That correlates to our box spring numbers. And you saw US innersprings up 2%, box brings decrease 3%. I will tell you that is no loss of market share. It is indicative of fewer box springs being sold. There are no steel box springs under the promotional bedding. As adjustable beds grow significantly, that mitigates the need for an adjustable boxspring under that adjustable mattress. And some of the specialty sleep products -- very few of the specialty sleep products sit on top of a wire-based product. So all those dynamics don't bode well for boxsprings, which is part of our residential mix explanation in that boxspring margins are higher than the rest of the segment.

So there's a lot of moving parts. As it relates to home furniture, that flat units, certainly from a sequential perspective, is an improvement over the first quarter. We have lost a little bit of market share that we have since regained, and we do think that that demand is indicative of the market.

To elaborate on another inference in your question, though, we are seeing a shift from US-based mechanism production to Chinese-based mechanism production. That is not a finished furniture mix; that is a component mix. We retain the business in Asia, so it's not a positive situation for our US factory workers, which were not fond of that situation. But we do retain the business and retain it in Asia, sometimes with lesser functionality as the furniture industry has become a little bit promotional with the significant inflation in polyurethane foam pricing. So that is also a negative shift. The units are there, but the average pricing has dropped slightly.

Just kind of a crossover on pocket coils, which continue to gain momentum in bedding -- it's also interesting and we may have mentioned to you previously that pocket coils are being considered and, indeed, utilized in upholstered furniture cushions more than they have in the past, for a couple of -- for several reasons, one important one being the cost of the polyurethane foam which is replaced with the air and the wire and the fabric of the pocket coil. And needless to say, it makes a superior seat. So that's been also a positive trend. I don't want to spin everything just totally positive, but that's something that's significant enough to mention.

Thanks for the color.

Chad Bolen, Raymond James.

Thanks for all the detail on the Residential segment. I guess, if I could maybe jump over, we were pretty pleased to see the strong contribution margin in Specialized Product. Could you maybe walk us through some of the moving parts there? And is that kind of performance something that we should expect to persist for the rest of the year?

It's certainly performance that you should expect for the rest of the year. Specialized is being helped primarily by the significant growth in Automotive units. Our people have done a really good job of reducing cost during the downturn of a few years ago and not layering that cost back on.

So our facilities are very well utilized. Chad, as you well remember, our Automotive business is a worldwide business. So the growth in production doesn't really matter to us as to in what geography it takes place. So things are good in automotive. We expect them to be good and not only through the rest of this year but into the foreseeable future years.

There was a little bit of a negative in the second quarter in Specialized in that our machinery volume was down slightly. That's indicative of lesser innerspring machinery demand on the continent of Europe. We expect some recovery there in the back half of the year. CVP, the sales were flat, the profitability was improved -- certainly not to acceptable levels, but let's call it less bad.

Okay, and if I could just tack on one other quick one, obviously in commercial the program that you discussed is going to have a pretty significant impact. I guess from a modeling perspective, could you give us a little help in terms of what your full-year guidance assumes for that segment in terms of growth and margin and maybe give us some sense of the magnitude of how that will balance between 3Q and 4Q.

When it comes to details, you know I'm smart enough to [TO] that to Susan. But that program certainly is a strong Store Fixtures program that will really fully ship in the third quarter. We're about halfway through that shipment as we speak. Things are going well, and we're extremely pleased, but from a split standpoint.

Just real quick, at the midpoint of our sales guidance, the total Company will be up about 2.5%. And thinking about that across the segment, that would be approximately the magnitude of increase in Residential. Commercial likely down around 7%, but most of that is the divestiture and the volume that we chose to exit. I'll just remind you that at the end of last year, we said the combination of those two things would probably extract about $40 million of sales for the full year. Industrial up order of magnitude, maybe around 6%; but again, that's going to include the Western Pneumatic Tube acquisition, which should have annualized sales in the ballpark of about $65 million, and Specialized up somewhere in the 5%-5.5% range. That's full year, we haven't done anything to try to help you really by quarter, but you should expect, as we alluded to, the Commercial volume in the third quarter should have a nice uptick. And as you will remember, fourth quarter is typically a very low quarter for volume in that segment.

Great, well, thank you for answer and detail, Susan; thank you, Karl, and good luck, everybody on the rest of the year.

Keith Hughes, SunTrust Robinson Humphrey.

First, in Residential, Karl, if you could comment on the sales trend as the quarter progressed in the spring as well as furniture, and anything you've seen here in the first couple of weeks of July?

Keith, I tell you what, I appreciate that because that also is good news. So we are pretty optimistic. The US spring shipments were up about 1% in April, 4% in May and then 1% in June. They are up a little north of 7% in the first three shipping weeks of July, that we believe that about half of that is market as a follow-through from a very positive 4th of July selling week, and the rest of it is market share gains. We are starting to finally see some assistance from the custom border protection agency on our antidumping issues, and it appears that they are starting to help us enforce the US trade laws, which bodes well for us in the back half of the year if that continues.

As it relates to furniture, I don't have that broken out by period as much, but it strengthened pretty significantly as the second quarter progressed and continues to be reasonably strong as we speak.

And on the working capital number shown on slide six, you are down year-over-year in working capital to the tune of about $90 million versus midpoint last year. Could we see that kind of working capital extraction as we hit year end here in 2012?

Actually, the answer is yes. There's a couple changes in working capital in that the addition of Western -- while that business is a wonderful business, it's not quite as working capital-efficient as the rest of the Company historically has been because of the nature of aerospace builds. But, while I appreciate the congratulations on the working capital performance, we were a little fat in working capital as it relates to inventory at the end of the second quarter because we were building for this fixtures and displays release. So I see nothing but positive in the working capital trends.

I'd just add that, as a reminder, in both of the first two quarters of this year, even though the working capital statistics were relatively notable, we used over $20 million in each quarter. And in the fourth quarter, seasonally, we always have a significant pickup and a source of cash for working capital. And that certainly should, once again, repeat that cyclicality this year.

And finally for you, Haffner, I need a Missouri win in early September against Georgia.

I'll do what I can, Keith, but there is some trash talking that's happening around our corporate office from some Georgia graduates. But we'll do what we can, my friend.

Thank you, guys.

Robert Kelly, Sidoti & Company.

Just had a question on how scrap prices have trended throughout the year here, if you received a benefit on the margin thus far in 2012 and then expectations for the second half of the year. It looks like the market is at least rumored to recover a little bit beginning in August.

From the macro market perspective that scrap has fallen off from April to July about $100 a ton. We expect about $50 of inflation, re-inflation, now between the next couple of quarters. The margins have been improved. We will see some -- the closer we get to commodities in our steel mill, being billets impacted before rod, rod before wire, that we are starting to see a little bit of top-line deflation because of the connectivity to scrap. And we expect that to reinflate as the year progresses. But the trends are certainly positive in that business from a margin perspective.

I was just looking at our forecast for master coil and slit. We are expecting a modest decline in this third quarter that we are in, and then just another modest uptick in the fourth quarter, really not much to move the needle.

And then just one final one on Western Pneumatic; you might have touched on it already. You stated that things are going better than expected. Is that on the sales and margin front? And then the drags, the inventory valuation and some of the items that depressed that contribution in the first half of the year -- are they completely gone now?

As it relates to the performance, it's positive on both fronts. Certainly, from a demand perspective and then the associated recovery of that has expanded those margins. We still do have some inventory valuation hangover that will pass through in the third quarter.

And then it's complete?

Yes.

Okay, thanks.

Herb Hardt, Monness, Crespi, Hardt.

Just a follow-up on the last comment on Western Tube -- as I remember there was a $3 million evaluation change in the first quarter and supposedly the same in the June quarter. First of all, is that still true? And how much would it be for the September quarter?

You're right about the first quarter; it was about $3 million. We had another call it $1 million in the second quarter, and there's about $1.5 million that remains that will come through third quarter.

And then the next question is on the 2 million shares you are giving employees. Is that going to be issued out of the treasury, or will it be bought back in the open market under, quote, eventual, end of quote, buyback return?

We anticipate that we'll by those back, Herb.

And from a point of clarification, those shares aren't given to the employees. A good percentage of those shares are purchased by the employees, admittedly at a slight discount. But I don't want any listener to think that that is a gift.

No, I understand. Thank you very much.

(Operator instructions) John Baugh, Stifel Nicolaus.

Thank you. CVP -- I don't know anything about that business. Tell me what's going on, all the fleet stuff, how you are positioned, any competitive dynamics, etc. Thank you.

As you know, it's a relatively small business. It is a fleet vehicle business, and basically what we're doing is outfitting delivery vans with rack and bin systems that are then sold into the telecom, the TV service, the Sears service groups. It's a difficult business to forecast in that, because the releases tend to be large and difficult to forecast, and then we are also -- that [win] is too strong. But if the OEM vehicle manufacturers then push those fleets through into our system on a difficult to predict basis -- because, remember, their primary business is an auto and truck manufacturing.

So it's a difficult business. Our shares are reasonable and it's certainly been under pressure in the last couple years. And as I said, it continues to improve.

Okay, and touching on this large customer that you are making this store display shipment to, without naming names, what is the implication as we look, say, to fourth quarter and, more importantly, beyond 2013, maybe even 2014? Are they through their bottleneck, we don't know what we're going to do, now we've decided, and this clears the path to better volume for them for some foreseeable time? Or is this kind of a one-shot deal?

John, very good question -- it is a single order that affects five different departments within this particular retailer. And as I said, about half of it has already been shipped. It will all be shipped in the third quarter. There is no forecast. There's certainly forecasted sales to that customer in the fourth quarter, but they would be normal sales. We are very optimistic because of our really, to this point, really well executed performance by our people. Our people have been working literally night and day getting these releases out. And the product has been shipped on time with high quality and they have really done a commendable job. We have been congratulated by that retailer at this point and are very optimistic that we will be in the front of the line for some of their planned releases in 2013.

And lastly, if I could sneak one more, CRI numbers were pretty weak, carpet shipments, in Q2. Can you talk about your underlayment business?

Actually, that's a good situation for us. It's been a little bit negative to the Residential margins, but our square yards of Carpet Underlay have been -- you know this, but not all the listeners do; that's a US business only -- were up about 6% in the second quarter and strengthened as the quarter went on. With the housing statistics being somewhat improved, that that's good for that business. Admittedly, the margins are below the segment and corporate average but are certainly improving. That business is no longer a drag from a P&L perspective. Again, the margins aren't where they historically have been, but our people continue to execute well in that business.

Karl, I think Residential carpet shipments were down in the low- to mid-single digits. So is there something going on with shear, or why would you be up like that?

We are extremely well positioned from a geographic standpoint. And I do believe that we are getting -- we are experiencing some share gains, particularly in the south and southeast.

Great, thank you, good luck.

Allen Zwickler, First Manhattan.

Remember me, guys?

Yes, Allen.

Anyway, I was hoping to sneak one in on Rich Calhoun, but I guess he's probably out on a boat somewhere.

Well, sorry to tell you, Allen, that Rich has passed away. And so we miss him every day.

Oh, my goodness, I'm sorry. Send my condolences.

Yes, we'll do.

Two questions -- one is, what is the size today of your fixture and display business, leaving out the truck business, just roughly? Or what's the run rate?

About $280 million.

Okay, and how does that compare, say, with two or three years ago? You've always talked about rightsizing it, and I'm just a little unclear as to how big it was at a point in time.

Approximately half of what it once was.

Okay, and the $280 million -- is that the current run rate being about what it will be this year?

Yes, that's the 2012 forecast.

Okay, are the margins higher or lower than the corporate average in that business?

They are lower. They are improving but they are lower.

Improving, okay, but you are profitable. Is that correct?

Yes.

And is that about the right size, given the capacity that you have, or do you still have excess capacity in that business?

We have really very little excess capacity. But remember that that business is extremely seasonal. It always has been and most probably always will be. So the capacity has to be at a level to allow for the surge that takes place historically in the third quarter. But the business right now, for the business that we have in hand, is right sized.

Got it, okay. And then switching over back to the bedding business, and you are talking about some of these newer products. And I just wanted to step back for a minute, think about furniture/bedding. Is there any change -- I remember in the old days, there were a lot of living room furniture that had springs in it or beds in it. Are you active in that market? I'm sorry just not to remember, but we barely ever talked about it. And if so, do these new styles or designs of beds have any bearing on that business?

They are really distinctly different in that old sofa/sleeper business we are a large participant in. I believe we were the largest producer of sofa/sleeper mechanisms in the world.

That's what I recall, yes.

The market is significantly smaller today than it once was. Growth of day beds really took the legs out, and then ultimately futons -- we're going way back in time. But yes, that business is a good business and we continue to participate in it. And we are very happy with the business. That's a little bit of a buggy-whip business, but we're good at it.

One thing I would say -- the advent of some of the alternatives sleep systems in adult bedding have spilled over a bit into sofa sleepers. Those used to be considered -- going way, way back -- considered poor quality sleeping surfaces. And things have gotten significantly better, including the application of pneumatic bladders on top of springs. And so you won't kill your mother-in-law with one of these new ones.

Oh, that's a pity. (laughter) I just forgot my last question. No, actually, I do have one more. When you, again, are talking about these new mechanisms -- I'm going back to the bedding business -- is it a zero sum game, meaning that if, for example, as you mentioned, you are doing particularly well on the high end with some of these new styles, I'm calling them because I don't have a better word? Is it that the volume just overall is flat and you may be getting some new business and losing that middle part, as you mentioned? I just want to understand the dynamics a little more. It's not clear to me.

Actually, it's not a zero-sum game in that, because of the growth of the high-end innerspring business at significantly higher average unit selling prices, that it's been positive to us. But that has been a very recent trend.

Recently, meaning in the calendar year or in the last few years?

Growing in the last few years, more significant in the last few quarters.

Okay, so what you are saying is that you are getting more pieces on a particular product than you were before? Am I hearing you right?

That's correct. Allen, that goes back to the pocketed coil Comfort Core conversation that we had a little while ago where that business is growing significantly.

Right, that's what I was trying to understand, whether it's growing at the expense of something else or is it growing because you are getting more components on a box or on an assembly? Is that what you're saying?

In terms of units, is growing at the expense of something else.

Okay, and just not to monopolize, but is the profitability and competitiveness of these new products the same, better or worse than the old style products, as you see them now?

It is better.

On all counts?

Yes.

Okay, great, thank you so much, guys, good talking to you.

David MacGregor, Longbow Research.

Just to follow up on the adjustable beds, what's the right way to think about a contribution margin on that product category?

David, it's -- certainly, at the rate of growth, the contribution margin is consistent with our formally stated range of 25% to 35%. It's certainly falls in that. That business has been wonderful for us, and it a little bit goes back to the long conversation we just had with Allen in that we are replacing a box spring that, from our steel component form, sells to the customer, say, at $15 with an adjustable bed that has an average unit selling price, say, of $600. So in that small part of the market -- it's only about 2% of all foundations are adjustable, but it's growing very, very quickly. So that's a good trend.

Great, thank you very much.

We have no further questions at this time. I'll now turn the floor back over to management for closing remarks.

Thank you for your attention, and we'll talk to you again next quarter.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time, and we thank you for your participation. Thank you, gentlemen.