馬斯科 (MAS) 2001 Q3 法說會逐字稿

Good morning, ladies and gentlemen, welcome to the Masco Corporation 2001 third quarter conference call. The press release and additional information issued this morning is available on Masco Corporation's website at www.Masco.com. As a reminder, today's conference is being recorded and simultaneously webcast. After a brief discussion by management, the call will be open for analyst questions. If we're unable to get to your question, call the investor relations office at 313-792-6646. The following discussion may include earnings, may include certain forward-looking statements related to Masco's future sales and potential. Actual numbers may differ because of various factors, including external factors. Additional information about the products, markets and expectations, which could affect future performance is contained in the company's annual report and 10-k report filed with the [SEC]. Now I want to turn the call over to Mr. Rich Manoogian, chairman and CEO. Go ahead, sir.

Thank you, operator. Masco announced today our results for this year's third quarter. Third quarter 2001 sales aided by acquisitions increased 19% to over $2.2 billion compared with $1.9 billion reported in the third quarter of 2000. Excluding acquisitions and divestitures, worldwide net sales from internal growth for the quarter were relatively flat. Net sales from our North American operations were up 21% for the quarter to $1.9 billion. North American sales from internal growth were up 1% for the quarter, compared to an increase of 2% in the second quarter and a decline of 2% in the first quarter. While the 1% increase is well below our historic average and long-term growth Goals of 7 to 11%, it is probably a relatively good performance compared with our peer group and reflects the benefits of marketing programs, new products, market share increases and many of our product lines in a difficult, economic environment. International sales were up 8%, excluding acquisitions and divestitures, international sales declined 5% compared with declines of 12% in both the second and first quarter. Excluding acquisitions and divestitures, international sales for the quarter were down 3% in local currencies. In the third quarter of 2001, the company recorded a $530 million pre-tax, non-cash charge for the write-down of certain long-term investments, principle securities of furnishings international. As many of you know, the furniture industry has had a very difficult year with many manufacturers reporting incoming orders down 15 to 20%. Those sales trends were further aggravated by the tragic events of September 11th. In addition, import competition has intensified and a number of major furniture retailers declared bankruptcy in recent months. As a result, we re-evaluated our $600 million investment in furnishings international and determined that a write-down was appropriate. Excluding the unusual charge, net income for the third quarter of 2001 declined 14% to $161 million, or 33 cents per share, compared with $187 million or 41 cents per share for the 2000 third quarter. Including the unusual charge, the Company reported a net loss of $183 million or 39 cents loss per share for the quarter. Third quarter per share results exclude any income from the Company's investment in furnishings international, which in 2001 previously contributed approximately 2 cents per share per quarter. Excluding the unusual charge, Masco's third quarter earnings of 33 cents per share exceeded consensus forecasts of 30 cents per share, excluding furnishings international-related income or consensus forecast of 32 cents, including furnishings international. Before goodwill amortization and before the unusual charge, earnings per share for the quarter were 37 cents compared with 44 cents in the same period of 2000. Sales and earnings in the quarter were negatively impacted

continued softness in the home improvement product markets in North America and Europe, Less favorable product mix as consumers tended to buy more of our lower priced products, Promotional costs, competitive pricing and weaker foreign currencies. In terms of profit margins, I am particularly pleased with the progress we have been making over the past year in our cost-reduction and profit improvement programs. At the operating and corporate levels, these efforts have begun to be reflected in margin improvement in the last two quarters. Operating profit margins before goodwill amortization and general corporate expense were 16.9% in the third quarter, compared with 15.6% in the second quarter and 13.8% in the first quarter. Total SG & A expenses decreased to 16.1% of salves from 17% in the second quarter. Our general corporate expense decreased to 1.1% of sales from 1.2% in the second quarter. Our segment sales for the quarter, compared with last year, were cabinets and related product sales were up 4% to $688 million. Plumbing product sales were $458 million and were down 1%. Installation and other services increased 84% to $417 million and were up 10% excluding acquisitions and divestitures. Decorative, architectural products were up 1% to $401 million . And other specialty product sales increased 91% to $283 million and excluding acquisitions and divestitures, other specialty product sales actually declined 7%. Our key retailer sales in total were up 8% for the quarter, compared with a year ago. That compares with an increase of 13% in the second quarter of this year and 3% in the first quarter. Key retailer sales highlights include assembled cabinet sales for the quarter, increased by over 10%! I might add that we were pleasantly surprised by the continued strength in the assembled cabinet sales since you might have assumed that these relatively higher-ticket items might have had a greater negative impact from the current economic environment. RTA cabinet and related product sales, on the other hand, declined by over 10%. Delta brand faucet sales increased over 10%, partially offset by a decline in peerless brand faucets, which are carried by a number of the weaker retailers. And architectural sales increased over 10%. Combined sales to Home Depot, Lowe's and Wal-Mart increased approximately 11% for the quarter as compared with the prior year quarter. That compares with a 17% increase in the second quarter of this year and a 7% increase in the first quarter. The Company's effective tax rate for the third quarter was 35%, the same as the first and second quarters. During the third quarter, we repurchased approximately 2 million shares of our common stock, a portion of which will be used for our employee incentive programs. In July of the third quarter, the Company issued for $750 million, zero coupon convertible senior notes due in 2031. With the public financings we've achieved this year, we've dramatically reduced the amount of bank debt we have outstanding from approximately $2 billion to $700 million. Debt, as a percent of total capitalization at the end of the third quarter, was 49% and improvement from the 51% at the end of the second quarter. Inventories and receivables, given current business conditions, were in relatively good shape and approximated last year on a per day basis. Accounts receivable at the end of the third quarter were 55 days, compared with 54 days a year ago and inventories were 93 days compared with 91 days a year ago. We also announced today that we increased our quarterly dividend to 13.5 cents per common share from the 13% per quarter previously paid. This marks the 43rd consecutive year in which dividends have been increased and reflects the Company's favorable long-term outlook. I'm sure all of you are interested in what's happened to our businesses since the September 11th tragedy. Actually, the negative impact has been less than I would have expected. We estimate that our total corporate sales are running at approximately a 3% lower increase than we had been forecasting prior to the 11th. I would remind you that we previously told the investment community that because of our relatively high contribution margins, every 1% change in our sales equals approximately 1 cent per quarter. Thus, a 3% sales shortfall would equal approximately 3 cents a quarter earnings impact. Assuming that present, negative economic conditions continue for the remainder of the fourth quarter, we believe that our fourth quarter earnings should approximate 25 cents per share. The 25 cent earnings per share for the fourth quarter reflects the absence of any income from furnishings international, historically approximately 2 cents per quarter and a present sales forecast continuing approximately 3% lower than what had been anticipated prior to September 11th, or approximately a 3 cent per share impact in the fourth quarter. I should point out that seasonally, the fourth quarter is one of the year's lower quarters for us and typically sales in the fourth quarter are 5 to 10% lower than the third quarter, and operating profits approximately 15% lower. We continue to believe that our businesses in North America bottomed in the spring of this year. In terms of current results, our October sales in North America were up 23%, although I would point out there was one more shipping day in this year's October than last year. Our international sales were up 15%. Internal sales, excluding acquisitions and divestitures, corporate-wide increased 3% with North American sales up 3% and International sales up 7%. International sales included a favorable exchange rate for the first time in many months and the 7% would have been up 1% in local currencies. As many of you know, we have been undertaking a number of cost reduction, cash flow improvement and other initiatives to reinvent Masco and improve our future performance. We are making significant progress in implementing a number of these initiatives and the near term cost of these programs are reflected in our current results. The positive benefit from these actions is beginning to show up in our results and should be even more evident next year. We believe even if present negative business and economic conditions continue into 2002, that our earnings from operations, for the full year 2002, should exceed 2001. In addition, our earnings will have the benefit of 14 cents per share from the absence of goodwill amortization, although that will be partially offset by the absence of approximately 8 cents per share of our income, historic income, from our investment in furnishings international. And just some personal comments before I open it up for questions, I'd like to take this opportunity welcome Tim Wadhams, who recently was appointed our new vice president chief financial officer of Masco. Tim served for many years as executive vice president and chief financial officer at our former Masco tech affiliate. I'm sure many of you will be meeting Tim over the course of the next few months. And a want to thank Dick [Mosteller], he's been with Masco over 40 years and has been our chief financial officer and will continue to be a chief financial advisor to the company going forward. Now, operator, I'm happy to take any questions you might have. Operator, are you with us? ) ) Yes, if you would like to ask a question on today's conference, it is star 1 on your touch tone telephone. Star 1 for any questions. We will pause for a moment to give everyone a chance to signal. My first question from Steve Kim at Salomon Smith Barney

) Thank you very much. All things considered, a good quarter, Richard. I wanted to ask a question about a comment you made about market shares improving. And maybe, particularly talk a little bit about faucets, where we heard competitors talking about, you know, actions they've taken and have been taking, particularly by the home centers, so, if you could talk about the faucets market share in particular.

Yes, Steve, we're pleased with the faucet sales this year. We have market share data for the first quarter and second quarter and in both quarters, that data shows that we improved our market share in the industry, on top of that, we have home center industry data only for July and August which also shows that we improved our market share in the home center channel, even in recent months. So, I think if we continue to do well in all channels of distribution. I think, obviously, you've heard from a number of customers who are reducing the number of SKU's they may have in product categories and we've had some of our smaller SKU's drop by some retailers, but the net effect is we have as much shelf space or more and continue to have a very strong position with our high-selling SKU products, so the net effect of that transition to fewer SKU's will be a positive for us going forward

And does it take into consideration, also, sort of the proliferation of some private label brands in the Home Depot store.

There continues to be private label brands. Home depot has an imported decorative product line, but that is a small one for them. And even with that, brands of their own, we continue to gain market share with those customers

Great! Second question relates to the installation services business. Can you talk about how much of the sales increase we saw came from installation, installation of insulation, is it still about 20 -- 80% of the sale that's coming from insulation, or has the number changed at all?

Yes, I can't give you a breakdown as to product category for internal growth, but our current rate of sales, approximately 15 to 20% would be represented by non-insulation sales. So, we're increasing our product offerings through our services businesses and continue to see some dramatic opportunities for us there in terms of other products that we can sell through the services operations

Great. Now, that didn't contribute meaningfully at all did it, to the cabinet sales, did it?

I would say cabinet sales were relatively modest in the total, but the 10% sales increase I mentioned was on the retailer side STEPHEN S. KIM Okay. Got it. Last question, can you talk about the acquisition opportunities and how the Company views acquisitions relative to other uses of cash?

We continue to be in touch with a large number of opportunities on the acquisition side. In this kind of uncertain economic environment, you always have the concern of -- have other companies lowered their sales and earnings expectation to reflect the current economic environment, and secondly, typically sellers often haven't modified expectations in terms of value to reflect the deteriorating economic outlook. So, sometimes that results in a gap between what a buyer might want to pay and what a seller might want to accept. And I would expect that in the near term, we may have modest acquisitions, but not as active as in the past year or two. That could change on short notice and we just see a lot of opportunities out there over the next 12 to 18 months in terms of acquisitions

Great. And thank you very much, Rich. ) ) Our next question is from Jason Putnam with First Boston.

Um, thanks, um, again, I want to reiterate good job in a tough quarter.

) ) Thank you.

First question relates to the charge. Can you give us more of a break down on how much of the $530 million was related to lifestyles and the other components in the charge?

Yes, of the $530 million, $460 million was related to Furnishings International. We currently have approximately $590 million worth of total investment in Furnishings International, prior to the write-down. Of that $590 million, $230 million was accumulated interest. And the balance in pick notes and common stock of the Company. So, we'll continue to have about $130 million investment, which we're very comfortable with in terms of valuation and one of the things I should mention that even though we have taken this write-down, lifestyle furnishings continues to operate profitability and I wouldn't want to imply the fact that we reduced our investment value in the company. The company is not in a good shape financially and able to take care of customers and employees and operations. This reflects what we think we will receive from that investment. The balance of the $530 million, approximately $70 million was a number of other long-term investments, most of which were related to venture investments that we had made over the years, that we received largely in 1999, we received some substantial returns from some venture investments we had made in venture funds. We sold off about half of the returns we received from the investments in '99 and we retained the remaining half. And in the present market and economic environment, the value of those declined dramatically. So, we wrote that off on the books.

Okay, second question relates to mill guard. Did you record a full quarter worth of revenue in the third quarter?

Yes, we picked up a full quarter in the third quarter.

Okay, doing back of the envelope calculations, it looks like margins, you know, considerably improved in the specialty products category, going from over -- a little over 9% in the second quarter to 17.7 this quarter. And again, just from from doing back of the envelope calculations, it looks like mill guard contributed significantly to that. I believe before it was something like $400 million you stated as the sales figures for mill guard and is that seasonally, you know, higher in the third quarter? It looks like $140 million in the --.

I'm not sure you would be able to pull out the quarterly sales from the number, there are other companies and other acquisitions may have flowed into the category, but in general terms, you're correct. Milgard contributed to the group, but we had margin improvement other companies in the group, as well.

What would you guess that the margin improvement would have been excluding Milgard?

If if I gave you too much detail, some of our customers might not appreciate that, or competitors. So, but in general terms, you're correct.

Understandably so. It looks high. Also related to Milgard, do you have more specifics in terms of the valuation metrics you've paid? Looking at the goodwill line it went up significantly in the quarter and I assume, you know, you paid a hefty premium for it because of the high margins and the quality business?

I would say the acquisition of Milgard fell within the criteria that we've used for our acquisitions and in the past we've shared that with the financial community that, typically we pay somewhere in the 7 to 8 times e-bit of earnings or 6 to 7 times the EBIDTA and without getting into details because the sellers wouldn't want us to give too much detail out, Milgard wasn't that much of an exception in terms of purchase price. One thing I would add related to that, Milgard was a partial cash, partial stock acquisition and I'm particularly please that we did reduce our debt equity ratio at the end of the third quarter, even though we it took that $500 million charge in the quarter because of the fact that we issued stock in the acquisition and were able to improve our balance sheet, even with all the transactions.

Okay, and then last question just relates to the other net line it was more than we were looking for, came in at $26 million expense. That's a big swing from last year. Can you give us more color on that and kind of your expectations for that line?

Yes, it was $26 million, that was close to the number we had in the second quarter. I believe the second quarter was around $25 million. That was up substantially from a year ago and the primary reason for that, we continue to take a number of initiatives, cost-reduction programs, which involve plant closures, other actions and some of those costs continue to flow through the other income side and I would expect we might have had 10 million or more of unusual items that continue to flow through that category as part of the cost reduction programs. I would expect some of that would continue into the fourth quarter and a lot of that would largely be gone by next year and you would see an improvement in the other income category next year.

Okay, thank you, Richard. Appreciate it. ) ) Our next question will come from Bud Bugatch at Raymond James Financial.

Good morning, Richard. My congratulations on a tough quarter in a tough environment.

Thanks, bud.

Just two areas, if you talk a little bit about cabinets, I see RGA declined about 10%. I thought the home center would be stronger than the 11%, was the RTA business the factor there?

RTA sales declined about 10%, but the major portion of that decline was not in cabinets it was in other RTA products. We do a number of storage products, home office products and we did drop a major customer with some product lines, where the pricing was unattractive to us, another retailer, and that was a major percentage of the decline in sales as opposed to falloff in business itself. And I think if you look at non-cabinet RTA companies like Busch and O'Sullivan, you will find they all had a surprisingly tough quarter. You would have thought the RTA products would have done better in the economic environment, but they don't seem to have done as well and maybe reflecting more of the furniture decline than what we've seen in the cabinet business.

Okay, so that wasn't the issue in the home center area.

It was in retailers generally, but not in the home center area.

Got ya. And in architectural I would have thought perhaps because of a retreat in prices of -- of energy costs and oil, maybe that we would have had some better margin impact in architectural coatings?

We showed those sales being flat internally, in total, but it really reflected a strong quarter in architectural coatings. I meant architectural products. We were up over 10% in architectural coatings, but that was offset by a decline in builder's hardware and as you know, it was a pretty difficult quarter for lock store hardware and that type of product. In terms of margins, I think we have -- are seeing some costs improvement in terms of some of the materials we buy, whether it is resins, brass, copper, lumber, freight costs, but our experience has been that usually there is a three to six month lag before some of those cost reductions show their way through into -- end profit margins. On top of that, we continue to do promotions and other things help our customers sell product, which offsets some of the cost reductions. I hope to see benefit from some of the costs next year assuming it doesn't get passed onto our customers. And the other thing I would just mention, too, is that we do have a number of customers that are not doing as well as some of the key customers, the [palises], the Home Bases and other retailers out there struggling in the environment, and that's also reflected in our total results.

So, you think next year the margins in the segment can widen, because, I guess the fourth quarter is seasonally slower, we won't see it in the fourth quarter?

Paint sales are the weakest in the first and fourth quarter, strongest in the second and third quarter. You won't have a good comparison there between third and fourth quarters. But one key there is, also, we've seen a margin pressure in the builder's hardware lines. That's going to be volume-driven. If it picks up next year, you will see margin improvement next year.

And are you doing more in sourcing overseas now and the Far East in any of the particular segments?

We continue to look at all our product lines and moved some operations to Mexico, started up some operations in China. We continue to buy some component parts in foreign countries, so, we are doing that, although I wouldn't say it is a major move. By and large we have world class operations in this country, our costs in this country and a number of our operations is -- is very attractive. We're highly automated, so labor is less of a factor in some of our products than it might be with other companies.

Do you know what you buy overseas or source outside?

I couldn't give you the number off hand. It would be a relatively small number.

Gotcha. Thanks, Richard. ) ) Our next question from Joseph Sroka at Merrill Lynch

Good morning, Richard.

Good morning

What are you looking at for did I investing another five to six smaller companies and expectations in timing?

We've previously said that we have a divestiture program under way that we expected would result in the divestiture of in a group of companies with about $400 million in sales and expected $300 million in proceeds from those companies. We've completed or will shortly be completing about 80% of those divestitures, 70 to 80% of them. We had originally planned to complete the balance in 2001 and I would say now that remaining 20 to 30% of that $300 million of proceeds might be pushed into 2002, due to the September 11th events. I think the tragic events of the 11th have caused certain economic uncertainty, they've caused a lot of disruption in the financial markets. So, a number of people that we've been negotiating with probably are seeing problems in financing some of the transactions and I would expect that the balance of those might be early next year rather than later this year, beyond the 70 or 80% we expect to complete this year

Okay, and a question as it relates to the home centers. It seems like and you mentioned this a little bit, that the SKU mix is getting richer. You know, more assembled cabinets, less RTA, more Delta, less Peerless. Good architectural coating sales. All else being equal, should that go upward in the margins there?

I wouldn't want to say our margins are going to increase with home centers. As you know, the home centers very aggressive when it comes purchasing, increasingly they want promotions, allowances, trade terms, other things that tend to offset the benefits we get from volume increases, so, I wouldn't want to assume we have improving margins on the [SPEAKER?:] Okay. Thank you. ) Our next question is from Eric Desart at Midwest Research. ERIC [DESART]: Good morning, can you talk a little bit about cabinets. You talked about RTA being weak and traditional cabinets being up. Can you talk more, if you expect the trends to continue and also about the progress in Thomasville.

We've seen strength in the craft made product lines. One of the positive benefits we've seen from the Thomasville introduction is the promotion and advertising Thomasville has brought more people into the store and whether they buy Thomasville, we've seen a number of them buying craft made products because of the promotions, as well. So, we're pleased with the impact it's having on all the cabinet lines. The Thomasville sales, I don't want to get too specific, the customers would prefer we don't do that, but the Thomasville business is running comparable to what we saw in the first and second quarters, a little below than we expected at this point. There were production problems and other problems in getting the product line introduced earlier in the year. Those are behind us. We look for substantial increases in sales in Thomasville next year. ERIC [DESART]: Okay, and secondly, can you give a little more color on how you're planning your revenues or thinking of revenue growth for 2002, what type of environment you're assuming?

That's probably the difficult challenge we have in terms of making an accurate forecast at this point. I would say if you look at the consensus forecast that are out there for Masco for next year, they fall into two categories. You've got -- you've got some forecast that's are relatively high, 1.40, $1.50 for us, excluding the benefit of the absence of goodwill reduction, and have some estimates in the $1.25, $1.30 range. I would interpret those forecasts as being based on different economic assumptions. I think the higher forecast and economic assumptions we would have had prior to September 11th included the housing being relatively flat next year. GDP being up 2%-3%. Home sale centers on a comp basis being up 3 to 5%. Some now feel that the economic environment, whether has to do with September 11th or other economic factors, has been reduced for the next year and some analysts are using housing starts being down 10%, comp sales being flat, up 1 or 2% and GDP being flat, up 1%. I think if you take those latter economic assumptions, you would -- which are what we are presently useing our planning and forecasting to be conservative, you come up with we still believe will show an improvement next year and probably come up with something like the lower consensus forecast. If you believe in the higher economic assumptions, your earnings outlook would increase. ERIC [DESART]: In terms of how you're going to plan production levels, cost, capacity, it would be in the lower growth scenario?

That's correct. We plan housing will be off 10% next year and the economy net would be relatively flat next year, but clearly, that that would be a weaker first half and stronger second half. ERIC [DESART]: Great. Thank you, Richard. ) Our next question --.

I should add we always like to plan on a more negative assumption because given our facilities and capabilities we can increase production very readily if it turns out that demand is greater than we expected. ) ) Our next question from Stephen East of A.G. Edwards

morning, Richard. Quick question on the lifestyles of the dividend that was pick debt, correct?

That's correct

So you're either valuing it at nothing going forward remember they are discontinuing, What's going on there?

Whether the pick income dividend is still distributed or not, we're not reporting it. We're basically reversing all the pick income we've received. We still have the paper and will probably still receive the paper. Going forward we're putting zero value on any additional paper we receive

That's about $57 million or so?

Beginning of the year we had about $500 million of pick notes at 12% it would have been close to $60 million for the year as a total

Okay. All right. Fair enough. If you look at your key builder business, not only the key builder, but your total builder, can you talk about both of those two groups and what you were seeing in the third quarter and what so far in the fourth quarter?

Our builder sales for the year continue to be good. We've been improving market share, expanding geographically, doing more combined programs with homebuilders and other products. In terms of the immediate recent outlook, I think generally speaking everything we've seen on the builder side has remained fairly strong, although there was some concern about falloff of traffic after September 11th. I think in some markets there are some softness in some markets, I would expect that housing is off a little bit from the peak level, but generally, the key builders are staying strong, probably picking up market share from some of the small builders out there and we may be too conservative in that looking for a 10% decline next year in housing, particularly if interest rates stay as low as they've been recently or go lower

Okay, when you say remain strong, is it fair to assume that in the key builder part of your business it was up in the third quarter and is up now?

That's correct, but I also point out our products would typically go in one, two, three months after a home is started. So, if there was a falloff in starts, we wouldn't feel it immediately

Okay. And then you talked a lot, early on in your comments, about unfavorable product mix. Can you talk about what's going on and will it carry forward in fourth quarter and on into 2002?

Yes, I think it means two things. If you take our sales in general we've seen fairly stronger sales in some of our lower margin product lines, a good example of that might be even our services businesses which, oh, and cabinet business, with all things being equal, have lower operating margins than some of our other businesses, but in a negatively economic environment, going back over a year now, we've seen consumers typically buying lower-priced products, as an example, instead of buying an expensive faucet, they bought a cheap faucet. Instead of buying our high-end cabinets, they buy intermediate-priced cabinets. Our customer sales stayed strong, but they're spending more at lower price points than previously

And on the --.

And that's not unusual in negative economic environments and when the economy improves, they trade back up again

Sure, sure. Okay, on the cash flow looking forward, how much are you seeing as far as acquisition candidates right now and what are your plans for share repurchase in 2002?

We don't forecast share repurchase, we tend to be opportunistic and when we think the share price is attractive, we get more aggressive. We would be more aggressive, but with the balance sheet at 50% debt of total capital, we're anxious to see the number come down and as a result, it's been a tempering of our share buyback program. The other factor that has tempered it is we see acquisition opportunities out there and I think opportunities are going to determine what may or may not happen, but I would be surprised if we don't have another active year next year. We put a little more emphasize on putting stock into part of the purchase price on acquisitions, again, to protect the balance sheet that we have, but we think there is a lot of opportunities and we should be in a good position to take advantage of that

Okay, thanks a lot. ) ) Our next question is from Barbara Allen at Arnhold and Bleichroeder

I have three questions, the impact of raw materials and energy cost this quarter versus last year. Secondly, do you have feedback from Home Depot's supplier meeting that took place the week of October 22nd? And thirdly, can you walk us through the additions and he additions and subtraction to shareholders equities since June 30th?

Yes, as far as material costs, I may have mentioned earlier, and Barbara, we talked about 1999, or rather 2000 being the year of Masco's perfect storm, where higher energy costs, higher raw materials, freight costs, a lot of things negatively impacted the business. Some of those we're seeing reversed. I can't say they've shown up dramatically yet in our results. There is a lag time from when the some of those things happen to when they translate into the finished product. If copper prices come down because of the inventory of brass and the fact we use a lot of scrap to regenerate our own brass, it is three to six months before lower copper prices show up in the product cost, but the trend is certainly in the right direction. I would say that very little of that impacted the third quarter, but expect you will start seeing that coming forward into next year. In terms of -- what were your other --

The second one, do you have take away from the Home Depot supplier meeting, held, I think the week of October 22nd?

Yes, wed a supplier meeting that a lot of supplies were at, but I might say if you take all of the core reviews that we've had with all of the major retailers, whether you take the last three months or the last 12 months, in aggregate, we would have held our own or showed modest improvement terms of shelf space, market share, SKU's. We've not lost ground and probably picked up ground with the key retailers. In terms of the impact on the balance sheet for the third quarter, I don't have the numbers in front of me, but the big factors, and we can get them afterwards if you would like, the big factors that affected the balance sheet in the third quarter besides operations were the acquisition of mill guard, that was a combination stock and cash acquisition as well as the write-off that we undertook related to the furnishings transaction. We will get the information for you if you like

I just -- your equity was $33.7 billion on June 30th and $4.1 billion now, even with the losses, that's up about $378 million. ) ) Right, and the bulk of the increase would have been because of the Milgard acquisition because of the stock portion of the acquisition

Okay, thank you.

Okay. ) ) Our next question from Larry Horan at Parker Hunter.

All of my questions have been answered except one, you have a sheet, reconcile is the term you use, before unusual charge and after unusual charge. The one question I have with regards to that, could you walk us through why the before column has 491 diluted shares in it and the after the unusual charge is 468?

That's a good question, Larry. We should have explain aid that. Under accounting rules, if you have positive earnings per share, you have to reflect your share account to include all dilution. If you have negative earnings per share, you can't show any dilution. So, the 468 number, since it is a negative number reflecting the charge, has no share dilution in it, and the other number includes share dilution.

Okay. Thank you very much. So, I would assume that most of the additional shares are Milgard then, too?

No, that's a different question. The share increase would be Milgard, that's right. The difference between the 468 and 491, though, includes shares like stock awards, stock guarantee programs, other things affect dilution.

Okay. And it would be -- would that inc lude shares also that are -- options that are not in the money?

Yes. ) ) Okay, thanks.

If it's under a dilution calculation.

Thanks a lot. Bye.

The biggest number there is stock awards that have already been issued, which we have repurchased in the market, but under accounting rules since they have invested yet, we show them as contingent shares. ) Our next question will come from Christopher Winham at Goldman, Sachs

Thanks.

Thank you, Chris

I want to follow on the share count though, 491 is the run rate number using going forward, right?

That's approximately right

So, the difference versus last quarter is pretty significant, do I assume that you issued 30 million shares to make the Milgard acquisition? Or ballpark?

Chris, it's not in front of me. Can I get back to you?

That's fine, and a question on the goodwill issue. We touched on it briefly earlier. Goodwill up $771 million in the quarter. Is all that also related to Milgard?

That would be primarily related to Milgard and any other acquisitions we completed in the quarter

Okay. And my last and final question, on the cabinet business, it looks like there are small acquisitions in the cabinet segment about, $35 million in sales this quarter. What was that?

I think that was in Europe when we did the acquisition of Aran earlier in the year

Okay.

Italian cabinet company

Okay, that's all I have. Thank you.

Okay. Operator, time for one more question. ) Great, Bill Reed at Merrill Lynch.

Thanks, most of my questions have been answered. Just wanted to get a sense of if the proceeds you mentioned from the asset sales will still be on balance move toward debt reduction?

That's correct.

Great, thank you very much. Good quarter.